-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JifFAT/nTCP3qHIpkDUzr6ktG2LT/80xyHV6u9cQ8CWlHh3Fta+gX8s68YPDVwak uTgT8DHAhe+hrTE6Trrv/A== 0000950144-01-508926.txt : 20020410 0000950144-01-508926.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950144-01-508926 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AAIPHARMA INC CENTRAL INDEX KEY: 0001013243 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 042687849 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21185 FILM NUMBER: 1784810 BUSINESS ADDRESS: STREET 1: 2320 SCIENTIFIC PARK DRIVE CITY: WILMINGTON STATE: NC ZIP: 28405 BUSINESS PHONE: 9102547000 MAIL ADDRESS: STREET 1: 2320 SCIENTIFIC PARK DRIVE CITY: WILMINGTON STATE: NC ZIP: 28405 FORMER COMPANY: FORMER CONFORMED NAME: APPLIED ANALYTICAL INDUSTRIES INC DATE OF NAME CHANGE: 19960430 10-Q 1 g72571e10-q.txt AAIPHARMA, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-21185 aaiPHARMA INC. (Exact name of Registrant as specified in its charter) DELAWARE 04-2687849 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2320 SCIENTIFIC PARK DRIVE, WILMINGTON, NC 28405 (Address of principal executive office) (Zip code) (910) 254-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of the Registrant's common stock outstanding, as of November 1, 2001, was 17,889,811 shares. aaiPHARMA INC. Table of Contents The terms "Company", "Registrant" or "aaiPharma" in this Form 10-Q include aaiPharma Inc. and its subsidiaries, except where the context may indicate otherwise. Any item which is not applicable or to which the answer is negative has been omitted. Page No. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) Consolidated Statements of Operations 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18 EXHIBIT INDEX 19 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. aaiPHARMA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net revenues $ 34,908 $ 24,083 $ 94,989 $ 77,131 -------- -------- -------- -------- Operating costs and expenses: Direct costs 17,947 12,344 48,556 37,323 Selling 3,620 2,967 9,348 8,984 General and administrative 7,879 6,507 22,004 20,010 Direct pharmaceutical start-up costs 442 -- 2,123 -- Research and development 3,028 2,774 7,253 8,112 -------- -------- -------- -------- 32,916 24,592 89,284 74,429 -------- -------- -------- -------- Income (loss) from operations 1,992 (509) 5,705 2,702 Other income (expense): Interest, net (893) (559) (1,600) (1,599) Other 87 90 (603) 344 -------- -------- -------- -------- (806) (469) (2,203) (1,255) -------- -------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting change 1,186 (978) 3,502 1,447 Provision for (benefit from) income taxes 478 (441) 964 (441) -------- -------- -------- -------- Income (loss) before cumulative effect of accounting change 708 (537) 2,538 1,888 Cumulative effect of a change in accounting principle, net of a tax benefit of $495 -- -- -- (961) -------- -------- -------- -------- Net income (loss) $ 708 $ (537) $ 2,538 $ 927 ======== ======== ======== ======== Basic earnings (loss) per share Income (loss) before cumulative effect $ 0.04 $ (0.03) $ 0.14 $ 0.11 Cumulative effect of accounting change -- -- -- (0.06) -------- -------- -------- -------- Net income (loss) $ 0.04 $ (0.03) $ 0.14 $ 0.05 ======== ======== ======== ======== Weighted average shares outstanding 17,945 17,556 17,774 17,439 ======== ======== ======== ======== Diluted earnings (loss) per share Income (loss) before cumulative effect $ 0.04 $ (0.03) $ 0.14 $ 0.11 Cumulative effect of accounting change -- -- -- (0.06) -------- -------- -------- -------- Net income (loss) $ 0.04 $ (0.03) $ 0.14 $ 0.05 ======== ======== ======== ======== Weighted average shares outstanding 18,571 17,556 18,152 17,756 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. 3 aaiPHARMA INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30, December 31, 2001 2000 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,161 $ 1,225 Accounts receivable, net 41,954 29,447 Work-in-progress 16,176 11,459 Inventories 6,300 3,605 Prepaid and other current assets 9,676 9,141 --------- --------- Total current assets 76,267 54,877 Property and equipment, net 36,711 42,161 Goodwill and other intangibles, net 62,230 11,266 Other assets 7,859 3,847 --------- --------- Total assets $ 183,067 $ 112,151 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term debt $ 13,126 $ 16,884 Accounts payable 8,473 8,850 Customer advances 12,683 11,920 Accrued wages and benefits 4,383 2,710 Other accrued liabilities 8,722 3,955 --------- --------- Total current liabilities 47,387 44,319 Long-term debt, less current portion 60,859 509 Other liabilities 1,009 1,602 Stockholders' equity: Common stock 18 18 Paid-in capital 75,730 70,361 Accumulated deficit (124) (2,662) Accumulated other comprehensive losses (1,812) (1,974) Stock subscriptions receivable -- (22) --------- --------- Total stockholders' equity 73,812 65,721 --------- --------- Total liabilities and stockholders' equity $ 183,067 $ 112,151 ========= =========
The accompanying notes are an integral part of these financial statements. 4 aaiPHARMA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, ---------------------- 2001 2000 -------- ------- Cash flows from operating activities: Net income $ 2,538 $ 927 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,600 5,424 Issuance of stock for services -- 225 Other 1,067 (74) Changes in assets and liabilities: Trade and other receivables (12,679) 4,609 Work-in-progress (4,789) 2,042 Inventories (2,699) (2,961) Prepaid and other assets (1,116) 1,807 Accounts payable (334) (1,272) Customer advances 814 (3,038) Other accrued liabilities 6,046 (2,843) -------- ------- Net cash provided by (used in) operating activities (5,552) 4,846 -------- ------- Cash flows from investing activities: Proceeds from sales of property and equipment 3,401 290 Purchases of property and equipment (3,519) (3,320) Product acquisitions (52,163) -- Other (104) 342 -------- ------- Net cash used in investing activities (52,385) (2,688) -------- ------- Cash flows from financing activities: Net payments on short-term debt (3,216) (2,585) Proceeds from long-term borrowings 60,859 -- Payments on long-term borrowings (998) (506) Issuance of common stock 2,304 344 Other (75) 1 -------- ------- Net cash provided by (used in) financing activities 58,874 (2,746) -------- ------- Net increase (decrease) in cash and cash equivalents 937 (588) Effect of exchange rate changes on cash (1) (36) Cash and cash equivalents, beginning of period 1,225 1,988 -------- ------- Cash and cash equivalents, end of period $ 2,161 $ 1,364 ======== ======= Supplemental information, cash paid for: Interest $ 890 $ 1,318 Income taxes 67 20
The accompanying notes are an integral part of these financial statements. 5 aaiPHARMA INC. Notes to Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable Securities and Exchange Commission regulations for interim financial information. These financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated financial information as of December 31, 2000 has been derived from audited financial statements; certain amounts from the three and nine months ended September 30, 2000 have been reclassified for consistent presentation with current year financial statements. It is presumed that users of this interim financial information have read or have access to the audited financial statements for the preceding fiscal year. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included in these interim financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates and changes in such estimates may affect amounts reported in future periods. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 specifically addresses revenue recognition issues related to certain upfront payments or fees. Under SAB 101, certain upfront fees and payments recognized as income in prior periods are required to be deferred and are being amortized into revenue over the terms of the relevant agreements or as the on-going services are performed. Although the Company implemented SAB 101 in the fourth quarter of 2000, the cumulative effect of a change in accounting principle has been retroactively adopted as of the beginning of the first quarter of 2000. For the year 2000, the Company recorded a charge of $1,456,000 ($961,000 after tax) for the cumulative effect of this change in accounting principle. For the three and nine months ended September 30, 2001, the Company recognized $83,000 and $417,000 of revenue related to the amortization of these deferred amounts, respectively. For the three and nine months ended September 30, 2000, the Company recognized $183,000 and $550,000 of revenue, respectively. In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under SFAS No. 142, goodwill and indefinite lived intangible assets will no longer be amortized, but must be reviewed at least annually for impairment. SFAS No. 142 also states that goodwill and intangible assets acquired after June 30, 2001 should not be amortized. The statement is effective for fiscal years beginning after December 15, 2001, and the Company is in the process of assessing the impact that SFAS No. 142 will have on its results of operations and consolidated financial position. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 provides 6 guidance and addresses significant implementation questions on the accounting for the impairment or disposal of long-lived assets. The statement is effective for fiscal years beginning after December 15, 2001. The Company is in the process of assessing the impact that SFAS No. 144 will have on its results of operations and consolidated financial position. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and fully diluted earnings per share (in thousands, except per share amounts):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- -------------------- 2001 2000 2001 2000 ------- -------- ------- ------- Numerator: Net income (1) $ 708 $ (537) $ 2,538 $ 927 ======= ======== ======= ======= Denominator: Denominator for basic earnings per share - weighted average shares 17,945 17,556 17,774 17,439 Effect of dilutive securities: Employee stock options 626 -- 378 317 ------- -------- ------- ------- Denominator for fully diluted earnings per share - weighted average shares 18,571 17,556 18,152 17,756 ======= ======== ======= ======= Basic earnings per share $ 0.04 $ (0.03) $ 0.14 $ 0.05 Diluted earnings per share $ 0.04 $ (0.03) $ 0.14 $ 0.05
(1) Numerator for both basic and diluted earnings per share. (2) Options to purchase 244,000 weighted average shares in the third quarter of 2000 were not included in diluted earnings per share since their inclusion would be anti-dilutive 7 3. COMPREHENSIVE INCOME Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The following table presents the components of the Company's comprehensive income (in thousands): Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2001 2000 2001 2000 ------- -------- ------- ------- Net income (loss) $ 708 $ (537) $ 2,538 $ 927 Currency translation adjustments 695 (775) (385) (1,103) Unrealized gain (loss) on investments (44) -- 547 -- ------- ------- ------- ------- Comprehensive income (loss) $ 1,359 $(1,312) $ 2,700 $ (176) ======= ======= ======= ======= 4. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA (IN THOUSANDS): Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2001 2000 2001 2000 -------- -------- -------- -------- NET REVENUES: Research revenues: Non-clinical $ 16,013 $ 15,869 $ 49,089 $ 47,022 Clinical 7,716 6,412 21,441 18,133 -------- -------- -------- -------- 23,729 22,281 70,530 65,155 Product sales 6,653 1,100 11,250 4,391 Product development 4,526 702 13,209 7,585 -------- -------- -------- -------- $ 34,908 $ 24,083 $ 94,989 $ 77,131 ======== ======== ======== ======== United States $ 31,726 $ 20,976 $ 85,171 $ 64,067 Non-U.S. 3,965 3,926 12,603 15,714 Less intercompany (783) (819) (2,785) (2,650) -------- -------- -------- -------- $ 34,908 $ 24,083 $ 94,989 $ 77,131 ======== ======== ======== ======== 8 INCOME FROM OPERATIONS: Research revenues: Non-clinical $ 297 $ 4,281 $ 4,618 $ 12,298 Clinical 1,641 294 2,157 669 ------- ------- -------- -------- 1,938 4,575 6,775 12,967 Product sales 1,714 (210) 1,228 (278) Product development 1,536 (2,244) 6,097 (1,460) Corporate (3,196) (2,630) (8,395) (8,527) ------- ------- -------- -------- $ 1,992 $ (509) $ 5,705 $ 2,702 ======= ======= ======== ======== United States $ 2,406 $ (567) $ 5,365 $ (2,081) Non-U.S. (414) 58 340 4,783 ------- ------- -------- -------- $ 1,992 $ (509) $ 5,705 $ 2,702 ======= ======= ======== ======== 5. TRANSACTIONS WITH RELATED PARTIES The Company has work-in-progress and receivables due from Aesgen, Inc. ("Aesgen") and Endeavor Pharmaceuticals, Inc. ("Endeavor"). Both Endeavor and Aesgen were organized by aaiPharma Inc. and its principal shareholders, and continue to be related parties. The total amount of work-in-progress and receivables at September 30, 2001 related to Aesgen was approximately $625,000 and the amount related to Endeavor was approximately $133,000. Revenues recognized from Aesgen and Endeavor totaled $11,000 and $241,000 for the three and nine months ended September 30, 2001, and were $223,000 and $715,000 for the three and nine months ended September 30, 2000. 6. DEBT The following table presents the components of current maturities of long-term and short-term debt (in thousands): September 30, December 31, 2001 2000 ------------- ------------ U.S. revolving credit facility $13,100 $ 9,403 U.S. bank debt -- 5,250 German revolving credit facility -- 1,716 Current maturities of long-term debt 26 515 ------- ------- Current maturities of long-term debt and short-term debt $13,126 $16,884 ======= ======= 9 September 30, December 31, 2001 2000 ------------- ------------ U.S. bank term loans $60,000 $ 1,024 Obligations under asset purchase agreement 859 -- Less current maturities of long-term debt -- (515) ------- ------- Total long-term debt due after one year $60,859 $ 509 ======= ======= In August 2001, the Company entered into the Second Amended and Restated Loan Agreement, which expires in September 2002. The agreement provides for borrowings of up to $85 million, consisting of a term loan of $60 million and a revolving credit facility of up to $25 million. The revolving credit amount is based upon a borrowing base consisting of portions of accounts receivable and inventories. The agreement provides for variable interest rates based on LIBOR and is secured by a security interest on substantially all assets of the Company. At the end of the credit period, any outstanding balances under this facility must be repaid. Subject to certain financial conditions, the agreement may be extended to December 31, 2006. If the agreement is extended, quarterly principal payments on the term loan will begin in March 2003. The agreement requires the payment of certain commitment fees based on the unused portion of the line of credit. At September 30, 2001, the Company qualified for the entire $25.0 million borrowing base of the revolving credit facility; actual borrowings totaled $13.1 million. Under the terms of the credit agreement, the Company is required to comply with various covenants including, but not limited to, those pertaining to maintenance of certain financial ratios, and incurring additional indebtedness. The Company was in compliance with the financial covenants at September 30, 2001. 7. CONTINGENCIES The Company currently leases a facility adjacent to the Company's laboratories from two banks. The facility was built in 1999 in Wilmington, North Carolina. The Company also leases a laboratory in Durham, North Carolina from the same two banks. The Company's operating leases for these facilities covered an initial period of three years, which expired in October 2001, with two one-year renewal periods. At the end of the initial term, the Company elected to extend the leases under the first renewal period. At the end of the first renewal period, the Company may elect to purchase the facilities at fair market value, extend the leases again or the properties may be sold. 8. ACQUISITION In the third quarter of 2001, the Company completed the acquisition of a line of critical care injectable nutritional products from AstraZeneca AB, an affiliate of AstraZeneca PLC. The Company acquired these products for payments of up to $100 million over three years. Revenues from the sales of these products are included in the Company's results of operations beginning on the acquisition date. To finance the initial payment for this acquisition, the Company used the proceeds from the term loan, as described in Note 6. Future guaranteed payments are due in September 2002 and 2003. Future contingent payments for the acquisition are potentially due in September 2003 and 2004, but are contingent upon certain obligations being completed by AstraZeneca, and have not yet been recorded as a liability on the Company's balance sheet. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company's quarterly results have been, and are expected to continue to be, subject to fluctuations. Quarterly results can fluctuate as a result of a number of factors, including without limitation, the commencement, completion or cancellation of large contracts, demand for the Company's pharmaceutical product line, ability of contract manufacturers to supply products on a timely basis, costs and results of ongoing and future litigation by and against the Company, progress of ongoing contracts, achieving expected levels of licensing and royalty revenues, the timing of start-up expenses for new facilities, timing and level of research and development expenditures and changes in the mix of services. Since a large percentage of the Company's operating costs are relatively fixed, variations in the timing and progress of large contracts or the recognition of licensing and royalty revenues (on projects for which associated expense may have been recognized in prior periods) can materially affect quarterly results. Accordingly, the Company believes that comparisons of its quarterly financial results may not be meaningful. RESULTS OF OPERATIONS: THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000 Overall net revenues for the third quarter of 2001 grew 45% to $34.9 million, compared to $24.1 million in the third quarter of 2000. Research revenues (non-clinical and clinical) were $23.7 million in the third quarter of 2001 compared to $22.3 million in the same period of 2000. Non-clinical research revenues were up 1% to $16.0 million in the third quarter of 2001, from $15.9 million in the same period of 2000. Clinical research revenues were up 20% to $7.7 million in the third quarter of 2001, from $6.4 million in the same period of 2000. Clinical research revenues were higher primarily related to revenue generated from significant new contracts entered into in the last half of 2000, including amendments to those contracts, which occurred in 2001. Product development revenues (royalties & fees) were $4.5 million in the third quarter of 2001 compared to $0.7 million in the prior year period. This positive change reflects an increase in royalties earned and milestones achieved. The Company anticipates that product development revenues will increase in future quarters as additional agreements are signed, and royalties and milestones are earned. However, there can be no assurance that the Company will be successful in executing additional product development agreements and increase its future revenue, that the products developed will be commercially successful or that product development projects will not be cancelled by innovator companies. In addition, under certain product development contracts, royalties are based on sales of customer products or other circumstances beyond our control, and royalties under these agreements may be reduced or terminated on the occurrence of events beyond our control. Pharmaceutical product sales were $6.7 million in the third quarter of 2001 compared to $1.1 million in the third quarter of 2000. This increase is attributable primarily to sales generated by the recently acquired M.V.I.(R) and Aquasol(TM) critical care injectable nutritional product lines (the "M.V.I.(R) Product line"), along with continued growth in azathioprine and other pharmaceutical products. The M.V.I.(R) product line was acquired from AstraZeneca AB in the third quarter of 2001, and is marketed by one of our business units, NeoSan Pharmaceuticals. 11 Gross margin dollars were $17.0 million in the third quarter of 2001 compared to $11.7 million in the third quarter of 2000, due principally to the higher revenue levels. Gross margin as a percentage of revenues was approximately 49% for both the third quarters of 2001 and 2000. Increases in gross margin percentage generated by the initial sales of the M.V.I.(R) product line were offset by the lower gross margin percentage from the changing mix of research revenues, with lower margin clinical revenues up significantly, and higher margin Product Life Cycle Management revenues lower due to the winding down of a significant project as it nears completion. Selling, general and administrative costs as a percentage of net revenues were approximately 33% in the third quarter of 2001, compared to 39% for the same quarter in 2000. This trend is expected to continue, as pharmaceutical product sales become a more significant component of overall revenues and require little incremental G&A expenses. Selling expenses will increase in the fourth quarter as the NeoSan Pharmaceuticals sales force is fully implemented. The third quarter of 2001 included $0.4 million of start-up costs, related to the build-out of the NeoSan Pharmaceuticals product marketing organization, which were recorded until the acquisition date of the critical care brands. There were no corresponding costs in the third quarter of 2000. Research and development expenses were approximately 9% of net revenues in the third quarter of 2001, compared with approximately 12% of revenues for the same period in 2000. The Company believes R&D expense will continue to be approximately 8-10% of revenues. The Company recorded a tax provision of $0.5 million in the third quarter of 2001. The effective tax rate of 40% resulted from a higher mix of U.S. based income in the quarter. Based on the above factors, the net income for the third quarter of 2001 was $0.7 million, or $0.04 per diluted share, compared with a net loss of $0.5 million, or ($0.03) per diluted share in the same period of 2000. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 Overall net revenues for the nine months ended September 30, 2001 grew 23% to $95.0 million, compared to $77.1 million in same period of 2000. Research revenues (non-clinical and clinical) were $70.5 million, an increase of 8% over the $65.2 million recorded in 2000. Non-clinical research revenues were up 4% to $49.1 million in the nine months ended September 30, 2001, from $47.0 million in the same period of 2000. Clinical research revenues were $21.4 million in the nine months ended September 30, 2001, an increase from the $18.1 million in the same period of 2000. Product development revenues were $13.2 million in the nine months ended September 30, 2001 compared to $7.6 million in the prior year period. Sales of pharmaceutical products were $11.3 million compared to $4.4 million in the first nine months of 2000, reflecting the M.V.I.(R) product line acquisition in the third quarter of 2001 and the continued growth of other product sales. Gross margin dollars were $46.4 million or $6.6 million higher than the nine months ended September 30, 2000, primarily resulting from the increased revenue in the current period. Gross margin as a percentage of revenues was approximately 49% for the first nine months of 2001, compared to 52% for 12 the same period of 2000. The lower overall gross margin percentage reflects the mix of revenues, with lower margin clinical revenues up significantly, and higher margin Product Life Cycle Management revenues lower, partially offset by the initial sales of higher margin M.V.I.(R) products. Selling, general and administrative costs as a percentage of net revenues decreased to approximately 33% in 2001 compared to 38% for the same period in 2000, reflecting the decreases experienced in the third quarter. The nine months ended September 30, 2001 included $2.1 million of start-up costs related to the build-out of the NeoSan Pharmaceuticals product marketing organization. There were no corresponding costs in 2000. Research and development expenses were approximately 8% of net revenues in the nine months ended September 30, 2001, compared with approximately 11% of revenues for the same period in 2000. As previously reported, the Company has taken several steps to utilize R&D spending more efficiently. Income from operations was $5.7 million for the nine months ended September 30, 2001 as compared to income from operations of $2.7 million for the same period of 2000. This increase was largely due to higher product development revenues, initial sales of the M.V.I.(R) product line, higher research revenues and lower R&D spending, partially offset by the direct pharmaceutical start-up costs. In the first quarter of 2000, the Company recorded $1.0 million in expense (net of tax) for the cumulative effect adjustment due to the change in accounting principle related to the implementation of Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 required certain revenues to be deferred and amortized into revenue in future periods. Based on the above factors, net income for the nine months ended September 30, 2001 was $2.5 million, or $0.14 per diluted share, compared to $0.9 million, or $0.05 per diluted share after the cumulative effect of a change in accounting principle (SAB 101). LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its business through operating cash flows and proceeds from borrowings. Cash used by operations in the first nine months of 2001 was $5.6 million, which included $4.6 million for working capital needs to establish the M.V.I.(R) product line, primarily for accounts receivable and inventories. Cash provided by operating activities was $4.8 million in the first nine months of 2000. Excluding the cash used for M.V.I.(R) operating activities, the change primarily resulted from an increase in accounts receivable, work-in-progress and accounts payable, which are all strongly influenced by the timing of transactions. Cash payments on borrowings during the first nine months of 2001 were approximately $4.2 million. In March 2001, the Company concluded a sale/leaseback transaction on certain manufacturing assets, which provided cash of $3.1 million. Capital expenditures were $3.5 million during the first nine months of 2001 compared to $3.3 million during the same period last year. The Company anticipates total capital expenditures for 2001 to be less than depreciation expense for the year. 13 In August 2001, the Company entered into the Second Amended and Restated Loan Agreement, which expires in September 2002. The agreement provides for borrowings of up to $85 million, consisting of a term loan of $60 million and a revolving credit facility of up to $25 million. The revolving credit amount is based upon a borrowing base consisting of portions of accounts receivable and inventories. The agreement provides for variable interest rates based on LIBOR and is secured by a security interest on substantially all assets of the Company. At the end of the credit period, any outstanding balances under this facility must be repaid. Subject to certain financial conditions, the agreement may be extended to December 31, 2006. If the agreement is extended, quarterly principal payments on the term loan will begin in March 2003. The agreement requires the payment of certain commitment fees based on the unused portion of the line of credit. At September 30, 2001, the Company qualified for the entire $25.0 million borrowing base of the revolving credit facility; actual borrowings totaled $13.1 million. Under the terms of the credit agreement, the Company is required to comply with various covenants including, but not limited to, those pertaining to maintenance of certain financial ratios, and incurring additional indebtedness. The Company was in compliance with the financial covenants at September 30, 2001. In the third quarter of 2001, the Company completed the acquisition of a line of critical care injectable nutrition products from AstraZeneca AB, an affiliate of AstraZeneca PLC. The Company acquired these products for payments of up to $100 million over three years. Revenues from the sales of these products are included in the Company's results of operations beginning on the acquisition date. To finance the initial payment for this acquisition, the Company used the proceeds from the term loan, as described above. Future guaranteed payments are due in September 2002 and 2003. Future contingent payments for the acquisition are potentially due in September 2003 and 2004, but are contingent upon certain obligations being completed by AstraZeneca, and have not yet been recorded as a liability on the Company's balance sheet. aaiPharma expects that near term growth can be accommodated utilizing the current credit facility. The Company may seek to supplement cash flow from operations with the issuance of equity securities and additional borrowings. At some point in the future there may be other opportunities that require additional external financing, and the Company may from time-to-time seek to obtain funds through the public or private issuance of equity or debt securities. While the Company remains confident that it can secure additional financing if necessary, there can be no assurances that such financing will be available or that the terms will be acceptable to the Company. In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under SFAS No. 142, goodwill and indefinite lived intangible assets will no longer be amortized, but must be reviewed at least annually for impairment. SFAS No. 142 also states that goodwill and intangible assets acquired after June 30, 2001 should not be amortized. The statement is effective for fiscal years beginning after December 15, 2001, and the Company is in the process of assessing the impact that SFAS No. 142 will have on the results of its operations and consolidated financial position. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 provides guidance and addresses significant implementation questions on the accounting for the impairment or 14 disposal of long-lived assets. The statement is effective for fiscal years beginning after December 15, 2001. The Company is in the process of assessing the impact that SFAS No. 144 will have on its results of operations and consolidated financial position. FORWARD LOOKING STATEMENTS, RISK FACTORS AND "SAFE HARBOR" LANGUAGE This quarterly report contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the statements pertaining to future product applications of the licensed technology, the publication and issuance of valuable and enforceable patents, and anticipated future revenues and commercial success of aaiPharma. These statements involve risks and uncertainties that could cause actual results to differ materially, including, without limitation, risks and uncertainties pertaining to aaiPharma's ability to successfully apply its new technologies to new products; obtain, enforce and license valid and commercially valuable patents; obtain additional profitable contracts with respect to major pharmaceutical products; and achieve commercial success of the contemplated products. These forward-looking statements include, among others: o all statements discussing liquidity; future, planned or targeted operational or financial expectations, goals or objectives; future, planned or targeted cost reductions and capital expenditures; litigation; royalties; and continued access to financing; and o all statements using the words "expect", "may", "believe", "anticipate", "estimate", "project", "intend", "will", "plan", "target", "objective", "goal", "should" and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or projections prove incorrect, actual results, performance or financial condition may vary materially from those anticipated, estimated or expected. The Company assumes no obligation to update its forward-looking statements, or other statements, contained herein. Additional factors that may cause the actual results to differ materially are discussed in Exhibit 99.1 attached hereto and incorporated herein by reference, and in the Company's recent filings with the SEC, including, but not limited to, the Company's registration statement, as amended, its Annual Report on Form 10-K filed with the SEC on April 2, 2001, its Quarterly Report on Form 10-Q filed with the SEC on August 14, 2001, including the exhibits thereof, its Form 8-K's, and its other periodic filings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company, as a result of global operating activities, is exposed to risks associated with changes in foreign exchange rates. As foreign exchange rates change, the U. S. dollar equivalent of revenues and expenses denominated in foreign currencies change and can have an adverse impact on the Company's 15 operating results. If foreign exchange rates were to increase by 10%, year to date operating results would have been lower by $28,000 due to the reduction in reported results from European operations. The Company is also exposed to fluctuations in interest rates on its variable rate debt instruments and leases tied to LIBOR. If interest rates were to increase by 1%, annual interest expense on variable rate debt and leases tied to interest rates would increase by approximately $457,000, or $114,000 per quarter. 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. There have been no material developments in the litigation described in the Company's Form 10-Q for the period ended June 30, 2001. In addition to the previously described litigation, legal action initiated by the Company after September 30, 2001 is summarized below. On October 30, 2001, the Company initiated patent infringement litigation against several companies selling, or seeking to sell, generic versions of Prozac(R), including Barr Laboratories, Inc., Dr. Reddy's Laboratories Ltd., Reddy-Cheminor Inc., and PAR Pharmaceuticals Inc., in United States District Court for the Eastern District of North Carolina, seeking a declaratory judgment that the named generic drug manufacturers are infringing on the Company's two recently issued fluoxetine hydrochloride Form A patents, an injunction to prevent any sale of products infringing on the patents, and compensatory and punitive monetary damages and attorneys fees. These patents were issued to the Company by the United States Patent and Trademark Office on October 30, 2001. The complaint was amended on November 6, 2001 to include one additional patent that was issued to the Company on November 6, 2001. The Company is vigorously prosecuting this action. The Company may be party to other lawsuits and administrative proceedings incidental to the normal course of its business which are not considered material. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. EXHIBITS: A list of the exhibits required to be filed as part of this Report on Form 10-Q is set forth in the "Exhibit Index", which immediately precedes such exhibits, and is incorporated herein by reference. REPORTS ON FORM 8-K: During the third quarter of 2001, the Company filed no Form 8-K's. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. aaiPHARMA INC. Date: November 12, 2001 By: /s/ FREDERICK D. SANCILIO ------------------- ----------------------------------------- Frederick D. Sancilio, Ph.D. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: November 12, 2001 By: /s/ WILLIAM L. GINNA, JR. ------------------- ----------------------------------------- William L. Ginna, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) 18 aaiPHARMA INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996) 3.2 Amendment to Certificate of Incorporation dated May 24, 2000 (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 3.3 Amended By-laws of the Company (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 4.1 Articles Fourth, Seventh, Eleventh and Twelfth of the form of Amended and Restated Certificate of Incorporation of the Company (included in Exhibit 3.1) 4.2 Article II of the form of Restated By-laws of the Company (included in Exhibit 3.2) 4.3 Specimen Certificate for shares of Common Stock, $.001 par value, of the Company (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-5535)) 10.1 Employment Agreement dated November 17, 1995 between the Company and Frederick D. Sancilio (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-5535)) 10.2 Applied Analytical Industries, Inc. 1995 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-5535)) 10.3 Applied Analytical Industries, Inc. 1997 Stock Option Plan, as amended on May 8, 1998, (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998) 10.4 Stockholder Agreement dated as of November 17, 1995 among the Company, GS Capital Partners II, L.P., GS Capital Partners II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 1995, L.P., Bridge Street Fund 1995, L.P., Noro-Moseley Partners III, L.P., Wakefield Group Limited Partnership, James L. Waters, Frederick D. Sancilio and the parties listed on Schedule 1 thereto (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 333-5535)) 10.5 Development Agreement dated as of April 25, 1994 between the Company and Endeavor Pharmaceuticals Inc. (formerly, GenerEst, Inc.) (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (Registration No. 333-5535)) 19 10.6 Development Agreement dated as of April 4, 1995 between the Company and Aesgen, Inc. (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1 (Registration No. 333-5535)) 10.7 Underwriting Agreement dated September 19, 1996 between the Company and Goldman Sachs & Co., Cowen & Company and Lehman Brothers, Inc., as representatives of the underwriters listed on Schedule 1 thereto (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996) 10.8 Partnership Agreement dated as of October 2, 1998 between the Company, First Security Bank, N. A. and the Various Banks and Other Lending Institutions Which are Parties Hereto from time to time, as the Holders and as the Lenders and NationsBank, N. A. (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 10.9 Security Agreement dated as of October 2, 1998 between First Security Bank, N. A., and NationsBank, N. A. (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 10.10 Amendment No. 1 to the Employment Agreement dated November 17, 1995 between the Company and Frederick D. Sancilio (incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 10.11 Amendment and Forbearance Agreement dated August 26, 1999 between the Company and the Bank of America, N.A. (incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 10.12 Pledge Agreement dated August 26, 1999 between the Company and the Bank of America, N.A. (incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 10.13 Security Agreement dated August 26, 1999 between the Company and the Bank of America, N.A. (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 10.14 Applied Analytical Industries, Inc. 1996 Stock Option Plan, as amended on March 27, 2000 (incorporated by reference to exhibit to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1999) 10.15 Second Amended and Restated Loan Agreement dated as of August 17, 2001 between the Company, AAI Applied Analytical Industries Deutschland GmbH & Co. KG, certain subsidiaries of the Company and Bank of America, N.A. 10.16 Asset Purchase Agreement by and between AstraZeneca AB and NeoSan Pharmaceuticals Inc. dated as of July 25, 2001 10.17 Applied Analytical Industries, Inc. 2000 Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001) 99.1 Risk Factors 20 EX-10.15 3 g72571ex10-15.txt SECOND AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10.15 SECOND AMENDED AND RESTATED LOAN AGREEMENT Dated as of August 17, 2001 among aaiPHARMA INC. as Borrower CERTAIN OF THE SUBSIDIARIES OF THE BORROWER FROM TIME TO TIME PARTY HERETO as Guarantors BANC OF AMERICA MEZZANINE CAPITAL LLC, as a Lender THE OTHER LENDERS FROM TIME TO TIME PARTY HERETO and BANK OF AMERICA, N.A. as Agent - ------------------------------------------------------------------------------- BANC OF AMERICA MEZZANINE CAPITAL LLC Lead Underwriter BANC OF AMERICA SECURITIES LLC Sole Lead Arranger and Sole Book Manager TABLE OF CONTENTS SECTION 1 DEFINITIONS............................................................................................1 1.1 Definitions.....................................................................................1 1.2 Computation of Time Periods....................................................................28 1.3 Accounting Terms...............................................................................28 SECTION 2 CREDIT FACILITIES.....................................................................................29 2.1 Revolving Loans................................................................................29 2.2 Swing Line Loans Subfacility...................................................................31 2.3 Term Loan......................................................................................33 2.4 Letter of Credit Subfacility...................................................................34 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES........................................................39 3.1 Default Rate...................................................................................39 3.2 Extension and Conversion.......................................................................39 3.3 Prepayments....................................................................................40 3.4 Termination and Reduction of Revolving Committed Amount........................................42 3.5 Fees...........................................................................................43 3.6 Capital Adequacy...............................................................................44 3.7 Limitation on Eurodollar Loans.................................................................44 3.8 Illegality.....................................................................................45 3.9 Requirements of Law............................................................................45 3.10 Treatment of Affected Loans....................................................................46 3.11 Taxes..........................................................................................47 3.12 Compensation...................................................................................48 3.13 Pro Rata Treatment.............................................................................49 3.14 Sharing of Payments............................................................................51 3.15 Payments, Computations, Etc....................................................................51 3.16 Evidence of Debt...............................................................................53 SECTION 4 GUARANTY..............................................................................................54 4.1 The Guaranty...................................................................................54 4.2 Obligations Unconditional......................................................................54 4.3 Reinstatement..................................................................................55 4.4 Certain Additional Waivers.....................................................................56 4.5 Remedies.......................................................................................56 4.6 Rights of Contribution.........................................................................56 4.7 Guarantee of Payment; Continuing Guarantee.....................................................57 SECTION 5 CONDITIONS............................................................................................57 5.1 Closing Conditions.............................................................................57 5.2 Conditions to all Extensions of Credit.........................................................62 SECTION 6 REPRESENTATIONS AND WARRANTIES........................................................................63 6.1 Financial Condition............................................................................63 6.2 No Material Change.............................................................................64 6.3 Organization and Good Standing.................................................................64 6.4 Power; Authorization; Enforceable Obligations..................................................64
i 6.5 No Conflicts...................................................................................64 6.6 No Default.....................................................................................65 6.7 Ownership of Properties........................................................................65 6.8 Indebtedness...................................................................................65 6.9 Litigation.....................................................................................65 6.10 Taxes..........................................................................................66 6.11 Compliance with Law............................................................................66 6.12 ERISA..........................................................................................66 6.13 Corporate Structure; Capital Stock, etc........................................................67 6.14 Governmental Regulations, Etc..................................................................68 6.15 Purpose of Loans and Letters of Credit.........................................................68 6.16 Environmental Matters..........................................................................68 6.17 Intellectual Property..........................................................................69 6.18 Solvency.......................................................................................70 6.19 Investments....................................................................................70 6.20 Business Locations.............................................................................70 6.21 Disclosure.....................................................................................70 6.22 No Burdensome Restrictions.....................................................................70 6.23 Brokers' Fees..................................................................................70 6.24 Labor Matters..................................................................................71 6.25 Nature of Business.............................................................................71 6.26 Intentionally Omitted..........................................................................71 6.27 Transactions with Affiliates...................................................................71 SECTION 7 AFFIRMATIVE COVENANTS.................................................................................71 7.1 Information Covenants..........................................................................72 7.2 Preservation of Existence and Franchises.......................................................75 7.3 Books and Records..............................................................................75 7.4 Compliance with Law............................................................................75 7.5 Payment of Taxes and Other Claims..............................................................76 7.6 Insurance......................................................................................76 7.7 Maintenance of Property........................................................................76 7.8 Use of Proceeds................................................................................77 7.9 Audits/Inspections.............................................................................77 7.10 Financial Covenants............................................................................77 7.11 Additional Guarantors..........................................................................78 7.12 Pledged Assets.................................................................................78 7.13 Post-Closing Deliveries........................................................................79 SECTION 8 NEGATIVE COVENANTS....................................................................................80 8.1 Indebtedness...................................................................................80 8.2 Liens..........................................................................................81 8.3 Nature of Business.............................................................................83 8.4 Consolidation, Merger, Dissolution, etc........................................................83 8.5 Asset Dispositions.............................................................................83 8.6 Investments....................................................................................84 8.7 Restricted Payments............................................................................86 8.8 Intentionally Omitted..........................................................................87
ii 8.9 Transactions with Affiliates...................................................................87 8.10 Fiscal Year; Organizational Documents..........................................................88 8.11 Limitation on Restricted Actions...............................................................88 8.12 Ownership of Subsidiaries......................................................................88 8.13 Sale Leasebacks................................................................................88 8.14 Capital Expenditures...........................................................................89 8.15 No Further Negative Pledges....................................................................89 8.16 Operating Lease Obligations....................................................................89 SECTION 9 EVENTS OF DEFAULT.....................................................................................89 9.1 Events of Default..............................................................................89 9.2 Acceleration; Remedies.........................................................................92 SECTION 10 AGENCY PROVISIONS....................................................................................92 10.1 Appointment and Authorization of Agent.........................................................92 10.2 Delegation of Duties...........................................................................93 10.3 Liability of Agent.............................................................................93 10.4 Reliance by Agent..............................................................................94 10.5 Notice of Default..............................................................................94 10.6 Credit Decision; Disclosure of Information by Agent............................................95 10.7 Indemnification of Agent.......................................................................95 10.8 Agent in its Individual Capacity...............................................................96 10.9 Successor Agent................................................................................96 10.10 Other Agents; Lead Managers....................................................................96 SECTION 11 MISCELLANEOUS........................................................................................97 11.1 Notices........................................................................................97 11.2 Right of Set-Off; Adjustments..................................................................98 11.3 Successors and Assigns.........................................................................99 11.4 No Waiver; Remedies Cumulative................................................................102 11.5 Expenses; Indemnification.....................................................................102 11.6 Amendments, Waivers and Consents..............................................................103 11.7 Counterparts..................................................................................105 11.8 Headings......................................................................................105 11.9 Survival......................................................................................105 11.10 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial........................105 11.11 Severability..................................................................................106 11.12 Entirety......................................................................................106 11.13 Binding Effect; Termination; Amendment and Restatement of Existing Loan Agreement.............106 11.14 Confidentiality...............................................................................107 11.15 Source of Funds...............................................................................108 11.16 Regulation D..................................................................................108 11.17 Conflict......................................................................................108 SECTION 12 MEZZANINE SECURITIES; EXTENSION OPTION..............................................................109 12.1 Refinancing with Mezzanine Securities.........................................................109 12.2 Extension Option..............................................................................109 12.3 Modifications Upon Exercise of Extension Option...............................................110
iii SCHEDULES Schedule 1.1 Excluded Property Schedule 2.1(a) Lenders Schedule 6.4 Required Consents, Authorizations, Notices and Filings Schedule 6.9 Litigation Schedule 6.12 ERISA Schedule 6.13A Description of Corporate Capital and Ownership Structure Schedule 6.13B Subsidiaries Schedule 6.16 Environmental Disclosures Schedule 6.17 Intellectual Property Schedule 6.20(a) Mortgaged Properties Schedule 6.20(b) Collateral Locations Schedule 6.20(c) Chief Executive Offices/Principal Places of Business Schedule 6.27 Affiliate Transactions Schedule 7.6 Insurance Schedule 8.1 Indebtedness Schedule 8.2 Liens Schedule 8.6 Investments Schedule 8.9 Transactions with Affiliates Schedule 8.11 Limitation on Restricted Actions EXHIBITS Exhibit 2.1(b)(i) Form of Notice of Borrowing Exhibit 2.1(e) Form of Revolving Note Exhibit 2.2(b) Form of Swing Line Loan Request Exhibit 2.2(e) Form of Swing Line Note Exhibit 2.3(f) Form of Term Note Exhibit 3.2 Form of Notice of Extension/Conversion Exhibit 7.1(d) Form of Officer's Compliance Certificate Exhibit 7.1(e) Form of Borrowing Base Certificate Exhibit 7.11 Form of Joinder Agreement Exhibit 11.3 Form of Assignment and Assumption Agreement iv SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT, dated as of August 17, 2001 (as amended, modified, restated or supplemented from time to time, the "Loan Agreement"), is by and among AAIPHARMA INC., formerly Applied Analytical Industries, Inc., a Delaware corporation (the "Borrower"), the Guarantors (as defined herein), BANC OF AMERICA MEZZANINE CAPITAL LLC ("BAMC"), the other Lenders (as defined herein) from time to time party hereto and BANK OF AMERICA, N.A. ("Bank of America"), as Agent for the Lenders (in such capacity, the "Agent"). W I T N E S S E T H WHEREAS, the Borrower, AAI Applied Analytical Industries Deutschland GmbH & Co., KG, the Guarantors, certain foreign subsidiaries of the Borrower and Bank of America entered into that certain Amended and Restated Loan Agreement, dated as of November 30, 1999 (as amended, the "Existing Loan Agreement"), as amended by that certain First Amendment to Loan Agreement dated as of May 31, 2001, as further amended by that certain Second Amendment to Loan Agreement dated as of August 31, 2000, as further amended by that certain Third Amendment to Loan Agreement dated as of November 30, 2000 and as further amended by that certain Fourth Amendment to Loan Agreement dated as of June 29, 2001, whereby Bank of America provided certain extensions of credit (the "Credit Facilities") to the Borrower and the German Borrower. WHEREAS, the Deutsche Mark Credit Facility under the Existing Loan Agreement has been repaid in full and the commitments therefor have been terminated. WHEREAS, Bank of America and the other Lenders have agreed to refinance the Credit Facilities under the Existing Loan Agreement and the other agreements entered into in connection therewith pursuant to the terms hereof. WHEREAS, the parties hereto have agreed to amend and restate the Existing Loan Agreement as set forth herein in order to provide bridge financing to the Borrowers, which bridge financing may be extended to a permanent financing pursuant to Section 12 hereof if certain conditions set forth therein are satisfied. NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS 1.1 DEFINITIONS. As used in this Loan Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "Acquired Product" means the intangible assets, assumed contracts and specified inventory of AstraZeneca AB and/or its subsidiaries associated with the products sold under the registered or unregistered trademarks MVI-12, MVI-Pediatric, Aquasol A, Aquasol E and any "reformulated" MVI-12 for use in conducting business in the United States acquired by NeoSan pursuant to the Purchase Agreement. "Acquisition", by any Person, means the acquisition by such Person of all of the Capital Stock or all or substantially all of the Property of another Person, whether or not involving a merger or consolidation with such other Person. "Adjusted Base Rate" means the Base Rate plus the Applicable Percentage. "Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable Percentage. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding ten percent (10%) or more of the Voting Stock in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agency Services Address" means Bank of America, N.A., 101 N. Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255, or such other address as may be identified by written notice from the Agent to the Borrower. "Agent" shall have the meaning assigned to such term in the heading hereof, together with any permitted successors or assigns. "Agent-Related Persons" means the Agent (including any successor administrative agent), together with its Affiliates (including, in the case of Bank of America in its capacity as the Agent, Banc of America Securities LLC), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Applicable Lending Office" means, for each Lender, the office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice as the office by which its Eurodollar Loans are made and maintained. "Applicable Percentage" means, subject to Section 12.3, for purposes of calculating the applicable interest rate for any day for any Loan, the applicable rate of the Unused Fee for any day for purposes of Section 3.5(a) or the applicable rate of the Standby Letter of Credit Fee and the Trade Letter of Credit Fee for any day for purposes of Section 3.5(c), the appropriate applicable percentage corresponding to the relevant period set forth below: 2
APPLICABLE PERCENTAGES ------------------------------------------------------- FOR FOR FOR FOR LETTER EURODOLLAR BASE RATE UNUSED OF CREDIT PERIOD LOANS LOANS FEE FEES - ------------------------------------------------------------------------------------------------------------------------------ From the Closing Date to the date that is six 4.75% 3.75% 0.375% 2.25% months from the Closing Date - ---------------------------------------------------------------------------------------------------------------------------- From the date that is six months from the Closing 6.00% 5.00% 0.375% 2.25% Date to the date that is nine months from the Closing Date - ---------------------------------------------------------------------------------------------------------------------------- On and after the date that is nine months from the 6.50% 5.50% 0.375% 2.25% Closing Date - ----------------------------------------------------------------------------------------------------------------------------
Any adjustment in the Applicable Percentages shall be applicable to all existing Loans as well as any new Loans made. "Application Period" means, in respect of any Asset Disposition, the period of 180 days (or such earlier date as provided for reinvestment of the proceeds thereof under the documents evidencing or governing any Subordinated Indebtedness) following the consummation of such Asset Disposition. "Approved Fund" means any Person (other than a natural Person) 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 that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. "Arranger" means Banc of America Securities LLC, in its capacity as sole lead arranger and sole book manager. "Asset Disposition" means any disposition (including pursuant to a Sale and Leaseback Transaction) of any or all of the Property (including without limitation the Capital Stock of a Subsidiary) of any Consolidated Party whether by sale, lease, licensing, transfer or otherwise, but other than pursuant to any casualty or condemnation event; provided, however, that an Equity Issuance shall not constitute an Asset Disposition. "Asset Disposition Prepayment Event" means, with respect to any Asset Disposition other than an Excluded Asset Disposition, the failure of the Credit Parties to apply (or cause to be applied) the Net Cash Proceeds of such Asset Disposition to Eligible Reinvestments during the Application Period for such Asset Disposition. "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit 11.3. "BAMC" means Banc of America Mezzanine Capital LLC and its successors. 3 "BAMC Fee Letter" means that certain letter agreement, dated as of July 12, 2001, among BAMC, the Arranger and the Borrower, as amended, modified, restated or supplemented from time to time. "Bank of America" means Bank of America, N.A. and its successors. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Bankruptcy Event" means, with respect to any Person, the occurrence of any of the following: (i) the entry of a decree or order for relief by a court or governmental agency in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the appointment by a court or governmental agency of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or the ordering of the winding up or liquidation of its affairs by a court or governmental agency; or (ii) the commencement against such Person of an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or of any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed for a period of sixty (60) consecutive days, or the repossession or seizure by a creditor of such Person of a substantial part of its Property; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or the taking possession by a receiver, liquidator, assignee, secured creditor, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "Base Rate" means, for any day, a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the Prime Rate in effect on such day. "Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Base Rate. "Borrower" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. "Borrowing Base" means, as of any day, the sum of (a) 80% of Eligible Receivables, plus (b) 60% of Eligible Inventory, plus (c) 50% of Eligible Work-In-Progress, plus (d) from the Closing Date through March 31, 2002, $5,000,000, in each case as set forth in the most recent Borrowing Base Certificate delivered to the Agent and the Lenders in accordance with the terms of Section 7.1(e). "Borrowing Base Certificate" shall have the meaning assigned to such term in Section 7.1(e). 4 "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close, except that, when used in connection with a Eurodollar Loan, such day shall also be a day on which dealings between banks are carried on in Dollar deposits in London, England. "Businesses" means, at any time, a collective reference to the businesses operated by the Consolidated Parties at such time. "Capital Lease" means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, membership interests and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person (other than cash performance bonuses and similar compensation arrangements not constituting equity). "Cash Equivalents" means, as at any date, (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) Dollar denominated time deposits and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (iii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by any Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $500,000,000 and at least 95% of the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (d). 5 "Change of Control" means any of the following events: (a) the sale, lease, transfer or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole to any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act), (b) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act) other than Frederick D. Sancilio or his Related Parties, 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, 35% or more of the outstanding Voting Stock of the Borrower, (c) Continuing Directors shall fail to constitute a majority of the members of the board of directors of the Borrower or (d) the occurrence of a "Change of Control" (or any comparable term) under, and as defined in, the documents evidencing or governing any Subordinated Indebtedness. 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. "Closing Date" means the date hereof. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "Collateral" means a collective reference to all real and personal Property (other than Excluded Property) with respect to which Liens in favor of the Agent are purported to be granted pursuant to and in accordance with the terms of the Collateral Documents. "Collateral Documents" means a collective reference to the Pledge Agreement, the Security Agreement and the Mortgage Instruments. "Commitment" means (i) with respect to each Lender, the Revolving Commitment of such Lender and the Term Loan Commitment of such Lender, (ii) with respect to the Swing Line Lender, the Swing Line Committed Amount and (iii) with respect to the Issuing Lender, LOC Commitments. "Consolidated Capital Expenditures" means, as of any date for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, all capital expenditures, as determined in accordance with GAAP; provided, however, that Consolidated Capital Expenditures shall not include Eligible Reinvestments made with proceeds of any Involuntary Disposition or Permitted Asset Disposition. "Consolidated Cash Taxes" means, as of any date for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, the aggregate of all taxes, as determined in accordance with GAAP, to the extent the same are paid in cash during such period. 6 "Consolidated EBITDA" means, as of any date, for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, the sum of (a) Consolidated Net Income, plus (b) an amount which, in the determination of Consolidated Net Income, has been deducted for (i) Consolidated Interest Expense, (ii) income taxes, (iii) depreciation and amortization expense, (iv) any other non-cash expenses, (v) scheduled rental payments under the TROL and (vi) non-recurring cash charges and costs not to exceed $5,000,000 arising in connection with the Transaction, all as determined in accordance with GAAP minus (c) non-cash gains included in Consolidated Net Income minus (d) Excess Royalties. "Consolidated Interest Expense" means, as of any date for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, interest expense paid in cash (including the amortization of debt discount and premium, the interest component under Capital Leases and all unused fees and similar ongoing fees), as determined in accordance with GAAP. "Consolidated Net Income" means, as of any date for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, net income (excluding extraordinary items) after interest expense, income taxes and depreciation and amortization, all as determined in accordance with GAAP. "Consolidated Net Worth" means, as of any date with respect to the Consolidated Parties on a consolidated basis, shareholders' equity or net worth, as determined in accordance with GAAP. "Consolidated Parties" means a collective reference to the Borrower and its Subsidiaries, and "Consolidated Party" means any one of them. "Consolidated Rental Expense" means, as of any date for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, rental expense under Operating Leases, as determined in accordance with GAAP. "Consolidated Scheduled Funded Debt Payments" means, as of any date for the applicable period ending on such date with respect to the Consolidated Parties on a consolidated basis, the sum of all scheduled payments of principal on Funded Indebtedness (including the implied principal component of payments due on Capital Leases and Synthetic Leases, but excluding voluntary prepayments or mandatory prepayments required pursuant to Section 3.3), as determined in accordance with GAAP. "Continue", "Continuation" and "Continued" shall refer to the continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Continuing Director" means, as of any date of determination, any member of the board of directors of the Borrower who (x) was a member of the board of directors of the Borrower as of the Closing Date or (y) was nominated for election or elected to such board of directors with the approval of a majority of the Continuing Directors who were members of such board at the time of such nomination or election. 7 "Contractual Obligation" means, with respect to a Person, any provision of (i) any security issued by such Person, including provisions contained in the articles or certificate of incorporation or bylaws or other organizational or governing documents of such Person, or (ii) any agreement, franchise, license, lease, permit, undertaking, contract, indenture, mortgage, deed of trust or other instrument or understanding to which such Person is a party or by which it or any of its assets or property is bound. "Convert", "Conversion" and "Converted" shall refer to a conversion pursuant to Section 3.2 or Sections 3.7 through 3.12, inclusive, of a Base Rate Loan into a Eurodollar Loan. "Credit Facilities" shall have the meaning assigned to such term in the recitals hereto. "Credit Parties" means a collective reference to the Borrower and the Guarantors, and "Credit Party" means any one of them. "Credit Party Obligations" means, without duplication, (i) all of the obligations of the Credit Parties to the Lenders (including the Issuing Lender) and the Agent, whenever arising, under this Loan Agreement, the Notes, the Collateral Documents or any of the other Loan Documents (including, but not limited to, any interest accruing after the occurrence of a Bankruptcy Event with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code) and (ii) all liabilities and obligations, whenever arising, owing from any Credit Party to any Lender, or any Affiliate of a Lender, arising under any Hedging Agreement. "Debt Issuance" means the issuance by any Consolidated Party of any Indebtedness of the type referred to in clause (a) or (b) of the definition thereof set forth in this Section 1.1. "Debt Issuance Prepayment Event" means the receipt by any Consolidated Party of proceeds from any Debt Issuance other than an Excluded Debt Issuance. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" means, at any time, any Lender that, as determined by the Agent, (a) has failed to make a Loan or purchase a Participation Interest required pursuant to the term of this Loan Agreement within one Business Day of when due, (b) other than as set forth in (a) above, has failed to pay to the Agent or any Lender an amount owed by such Lender pursuant to the terms of this Loan Agreement within one Business Day of when due, unless such amount is subject to a good faith dispute or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or with respect to which (or with respect to any of the assets of which) a receiver, trustee or similar official has been appointed. "Dollars" and "$" means dollars in lawful currency of the United States. 8 "Domestic Subsidiary" means any direct or indirect Subsidiary of the Borrower which is incorporated or organized under the laws of any State of the United States or the District of Columbia. "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 the Agent and, unless a Default or Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed), provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Eligible Inventory" means, as of any date of determination and without duplication, the lower of the aggregate book value (based on a FIFO or a moving average cost valuation, consistently applied) or fair market value of all raw materials and finished goods inventory, in all cases, owned by the Borrower or any of its Subsidiaries less appropriate reserves determined in accordance with GAAP but excluding in any event (i) inventory which is (A) not subject to a perfected, first priority Lien in favor of the Agent to secure the Credit Party Obligations or (B) subject to any other Lien that is not a Permitted Lien, (ii) inventory which is not in good condition or fails to meet standards for sale or use imposed by governmental agencies, departments or divisions having regulatory authority over such goods, (iii) inventory which is not useable or salable at prices approximating their cost in the ordinary course of the business, (iv) inventory located outside of the United States, (v) inventory located at a location not owned by the Borrower or any of its Subsidiaries with respect to which the Agent shall not have received a landlord's, warehousemen's, bailee's or appropriate waiver satisfactory to the Agent, (vi) inventory which is leased or on consignment, (vii) inventory not at a location of the Borrower or a Subsidiary of the Borrower which has been disclosed to the Agent pursuant to this Loan Agreement and (viii) inventory which fails to meet such other specifications and requirements as may from time to time be established by the Agent in its reasonable discretion. "Eligible Receivables" means, as of any date of determination and without duplication, the aggregate book value of all accounts receivable, receivables, and obligations for payment created or arising from the sale of inventory or the rendering of services in the ordinary course of business (collectively, the "Receivables"), owned by or owing to the Borrower or any of its Subsidiaries, net of allowances and reserves for doubtful or uncollectible accounts and sales adjustments consistent with such Person's internal policies and in any event in accordance with GAAP, but excluding in any event (i) any Receivable which is (a) not subject to a perfected, first priority Lien (other than Permitted Liens) in favor of the Agent to secure the Credit Party Obligations or (b) subject to any other Lien that is not a Permitted Lien, (ii) Receivables which are more than 120 days past due or 150 days past invoice date (net of reserves for bad debts in connection with any such Receivables), (iii) 50% of the book value of any Receivable not otherwise excluded by clause (ii) above but owing from an account debtor which is the account debtor on any existing Receivable then excluded by such clause (ii), unless the exclusion by such clause (ii) is a result of a legitimate dispute by the account debtor and the applicable Receivable is no more than 150 days past due, (iv) Receivables evidenced 9 by notes, chattel paper or other instruments, unless such notes, chattel paper or instruments have been delivered to and are in the possession of the Agent, (v) Receivables owing by an account debtor which is not solvent or is subject to any bankruptcy or insolvency proceeding of any kind, (vi) Receivables which are contingent or subject to offset, deduction, counterclaim, dispute or other defense to payment, in each case to the extent of such offset, deduction, counterclaim, dispute or other defense, (vii) Receivables for which any direct or indirect Subsidiary or any Affiliate is the account debtor, (viii) Receivables representing a sale to the government of the United States or any agency or instrumentality thereof unless the Federal Assignment of Claims Act has been complied with to the satisfaction of the Agent with respect to the granting of a security interest in such Receivable, with or other similar applicable law and (ix) Receivables which fail to meet such other specifications and requirements as may from time to time be established by the Agent in its reasonable discretion. "Eligible Reinvestment" means (i) any acquisition (whether or not constituting a capital expenditure, but not constituting an Acquisition) of assets or any business (or any substantial part thereof) used or useful in the same or a similar line of business as the Borrower and its Subsidiaries were engaged in on the Closing Date (or any reasonable extensions or expansions thereof) and (ii) any Permitted Acquisition. "Eligible Work-In-Progress" means, as of any date of determination and without duplication, the aggregate book value of Work-In-Progress less appropriate reserves determined in accordance with GAAP but excluding in any event (i) Work-In-Progress which is (A) not subject to a perfected, first priority Lien in favor of the Agent to secure the Credit Party Obligations or (B) subject to any other Lien that is not a Permitted Lien, and (ii) Work-In-Progress which fails to meet such other specifications and requirements as may from time to time be established by the Agent in its reasonable discretion. "Environmental Laws" means any and all lawful and applicable Federal, state, local and foreign statutes, laws (including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Toxic Substances Control Act, the Water Pollution Control Act, the Clean Air Act and the Hazardous Materials Transportation Act), regulations, ordinances, rules, judgments, orders, decrees, permits, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "Equity Issuance" means any issuance by any Consolidated Party to any Person of (a) shares of its Capital Stock, (b) any shares of its Capital Stock pursuant to the exercise of options or warrants, (c) any shares of its Capital Stock pursuant to the conversion of any debt securities to equity or (d) any options or warrants relating to its Capital Stock. The term "Equity Issuance" shall not be deemed to include any Asset Disposition. 10 "Equity Issuance Prepayment Event" means the receipt by any Consolidated Party of proceeds from any Equity Issuance other than an Excluded Equity Issuance. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means an entity which is under common control with any Consolidated Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes any Consolidated Party and which is treated as a single employer under Sections 414(b) or (c) of the Code. "ERISA Event" means (i) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by any Consolidated Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (vi) the complete or partial withdrawal of any Consolidated Party or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (viii) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA. "Eurodollar Loan" means any Loan that bears interest at a rate based upon the Eurodollar Rate. "Eurodollar Rate" means for any Interest Period with respect to any Eurodollar Loan, a rate per annum determined by the Agent to be equal to the quotient obtained by dividing (a) the Interbank Offered Rate by (b) 1 minus the Eurodollar Reserve Percentage. "Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" shall have the meaning assigned to such term in Section 9.1. "Excess Proceeds" shall have the meaning assigned to such term in Section 7.6(b). 11 "Excess Royalties" means royalties and licensing fees in excess of $3,000,000 in the aggregate in any fiscal quarter, earned by the Consolidated Parties in connection with contracts related to U.S. Patents for omeprazole and fluoxetine hydrochloride Form A. "Excluded Asset Disposition" means, with respect to any Consolidated Party, any Asset Disposition consisting of (i) the sale, lease, license, transfer or other disposition of Property in the ordinary course of such Consolidated Party's business (including without limitation, the sale, lease, license or transfer of patents in the ordinary course of such Consolidated Party's business), (ii) the sale, lease, license, transfer or other disposition of machinery and equipment no longer used or useful in the conduct of such Consolidated Party's business, (iii) any sale, lease, license, transfer or other disposition of Property by such Consolidated Party to any Credit Party, provided that the Credit Parties shall cause to be executed and delivered such documents, instruments and certificates as the Agent may request so as to cause the Credit Parties to be in compliance with the terms of Section 7.12 after giving effect to such transaction, (iv) any Involuntary Disposition by such Consolidated Party, (v) any Asset Disposition by such Consolidated Party constituting a Permitted Investment and (vi) if such Consolidated Party is not a Credit Party, any sale, lease, license, transfer or other disposition of Property by such Consolidated Party to any Consolidated Party that is not a Credit Party. "Excluded Debt Issuance" means any Debt Issuance permitted by Section 8.1 other than the Debt Issuance permitted by Section 8.1(f). "Excluded Equity Issuance" means (i) any Equity Issuance by any Consolidated Party to any Credit Party, (ii) any Equity Issuance by the Borrower to the seller of a business acquired in a Permitted Acquisition or (iii) any Equity Issuance by the Borrower the proceeds of which are used to finance a Permitted Acquisition. "Excluded Property" means, with respect to any Consolidated Party, including any Person that becomes a Consolidated Party after the Closing Date as contemplated by Section 7.11, (i) any real or personal Property of such Consolidated Party (whether owned or leased) which is located outside of the United States, (ii) any owned real Property of such Consolidated Party located within the United States which has a net book value of less than $1,000,000, provided that the aggregate net book value of all real Property of all of the Consolidated Parties excluded pursuant to this clause (ii) shall not exceed $3,000,000, (iii) the leased real Property described on Schedule 1.1 and any other leased real Property of such Credit Party located within the United States which, at the written request of the Borrower, the Agent has agreed in writing in its reasonable discretion is not material, (iv) any leased personal Property of such Consolidated Party, (v) any personal Property of such Consolidated Party (including, without limitation, motor vehicles) in respect of which perfection of a Lien is not either (A) governed by the Uniform Commercial Code or (B) effected by appropriate evidence of the Lien being filed in either the United States Copyright Office or the United States Patent and Trademark Office, (vi) any Property of such Consolidated Party which, subject to the terms of Section 8.11 and Section 8.15, is subject to a Lien of the type described in Section 8.2(g) pursuant to documents which prohibit such Consolidated Party from granting any other Liens in such Property, (vii) the Kansas Property; provided that if the Kansas Property is 12 not sold on or before October 31, 2001 (or such later date as the Agent and the Borrower may reasonably agree to) the Kansas Property shall no longer be an Excluded Property, and (viii) Intellectual Property in jurisdictions other than the United States. "Executive Officer" of any Person means any of the chief executive officer, chief operating officer, president, executive vice president, chief financial officer, controller or treasurer of such Person. "Extension of Credit" means, as to any Lender, the making of a Loan by such Lender (or a participation therein by a Lender) or the issuance of, or participation in, a Letter of Credit by such Lender. "Extension Option" means the Borrower's option, inter alia, to extend the Maturity Date and reset the Applicable Percentage, as more fully set out in Section 12.2. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards to the nearest 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 on the Business Day next succeeding such day; provided 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 as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Bank of America on such day on such transactions as determined by the Agent. "Fees" means all fees payable pursuant to Section 3.5. "FIRREA" means the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, as amended, including, without limitation, 12 CFR part 34.41 to 34.47. "Fixed Charge Coverage Ratio" means, as of the end of any fiscal quarter of the Consolidated Parties for the four fiscal quarter period (except as set forth below) ending on such date with respect to the Consolidated Parties on a consolidated basis, the ratio of (a) the sum of (i) Consolidated EBITDA for such period minus (ii) Consolidated Capital Expenditures for such period minus (iii) Consolidated Cash Taxes for such period to (b) the sum of (i) Consolidated Interest Expense for such period plus (ii) Consolidated Scheduled Funded Debt Payments for such period (excluding the principal payment due at maturity under the TROL) plus (iii) scheduled rental payments in connection with the TROL for such period; provided, however, that (i) as of December 31, 2001, such ratio shall be calculated only for the one fiscal quarter period ending as of such date, (ii) as of March 31, 2002, such ratio shall be calculated only for the two fiscal quarter period ending as of such date and (iii) as of June 30, 2002, such ratio shall be calculated only for the three fiscal quarter period ending as of such date. 13 "Foreign Subsidiary" means any direct or indirect Subsidiary of the Borrower which is not a Domestic Subsidiary. "Fully Satisfied" means, with respect to the Credit Party Obligations as of any date, that, as of such date, (a) all principal of and interest accrued to such date which constitute Credit Party Obligations shall have been irrevocably paid in full in cash, (b) all fees, expenses and other amounts then due and payable which constitute Credit Party Obligations shall have been irrevocably paid in cash, (c) all outstanding Letters of Credit shall have been (i) terminated, (ii) fully irrevocably cash collateralized or (iii) secured by one or more letters of credit on terms and conditions, and with one or more financial institutions, reasonably satisfactory to the Issuing Lender and (d) the Commitments shall have been expired or terminated in full. "Funded Indebtedness" means, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than (i) trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof and (ii) such deferred purchase price obligations owing with respect to the purchase of the Acquired Product) which would appear as liabilities on a balance sheet of such Person, (e) the implied principal component of all obligations of such Person under Capital Leases, (f) the maximum amount of all performance and standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed); provided, however, there shall be excluded from this amount the reimbursement obligations with respect to undrawn standby letters of credit in an aggregate amount up to (but not exceeding) $1,000,000, (g) all preferred Capital Stock issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration (other than as a result of a Change of Control or an Asset Disposition that does not in fact result in a redemption of such preferred Capital Stock) at any time prior to the Maturity Date pursuant to the Borrower's 1995 option plan (as set forth in documents filed with the Securities Exchange Commission) as currently in place, (h) the principal portion of all obligations of such Person under Synthetic Leases, (i) all obligations of such Person to repurchase any securities issued by such Person at any time prior to the Maturity Date which repurchase obligations are related to the issuance thereof, including, without limitation, obligations commonly known as residual equity appreciation potential shares, (j) the aggregate amount of uncollected accounts receivable of such Person subject at such time to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP), (k) all Funded Indebtedness of others secured by (or for which the holder of such Funded Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (l) all 14 Guaranty Obligations of such Person with respect to Funded Indebtedness of another Person and (m) the Funded Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer to the extent such Indebtedness is recourse to such Person. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3 (except, in respect of Synthetic Leases, as otherwise treated herein). "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantors" means each of the Persons identified is a "Guarantor" or the signature pages hereto and each Person which may hereafter execute a Joinder Agreement pursuant to Section 7.11, together with their successors and permitted assigns, and "Guarantor" means any one of them. "Guaranty Obligations" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any Property constituting security therefor, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof; provided, however, that with respect to the Borrower and its Subsidiaries, the term Guaranty Obligations shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the amount required to be recorded under Regulation S-X of the Securities Act. "Hedging Agreements" means any interest rate protection agreement or foreign currency exchange agreement. "Indebtedness" means, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence 15 thereof) which would appear as liabilities on a balance sheet of such Person in accordance with GAAP, (e) all payment or purchase obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) the implied principal component of all obligations of such Person under Capital Leases that are required to be recorded in accordance with GAAP, (g) net termination obligations of such Person under Hedging Agreements (calculated on any date as if the Hedging Agreement was terminated on such date), (h) the maximum amount of all performance and standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (i) all preferred Capital Stock issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration (other than as a result of a Change of Control or an Asset Disposition that does not in fact result in a redemption of such preferred Capital Stock) at any time prior to the Maturity Date, (j) the principal portion of all obligations of such Person under Synthetic Leases, (k) all obligations of such Person to repurchase any securities issued by such Person at any time prior to the Maturity Date which repurchase obligations are related to the issuance thereof, including, without limitation, obligations commonly known as residual equity appreciation potential shares, (l) the aggregate amount of uncollected accounts receivable of such Person subject at such time to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP), (m) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (n) all Guaranty Obligations of such Person with respect to Indebtedness of another Person and (o) the Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer to the extent such Indebtedness is recourse to such Person. "Indemnified Liabilities" shall have the meaning assigned to such term in Section 11.5(b). "Indemnitees" shall have the meaning assigned to such term in Section 11.5(b). "Interbank Offered Rate" means for any Interest Period with respect to any Eurodollar Loan: (a) the rate per annum (rounded upward to the next 1/100th of 1%) equal to the rate determined by the Agent to be the offered rate that appears on the Dow Jones Telerate Screen Page 3750 (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period, or (b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum (rounded upward to the next 1/100th of 1%) equal to the rate determined by the Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 A.M. (London time) two 16 Business Days prior to the first day of such Interest Period, or (c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by the Agent as the rate of interest (rounded upward to the next 1/100th of 1%) at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America's London Branch to major banks in the offshore Dollar market at their request at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period. "Interest Coverage Ratio" means, as of the end of any fiscal quarter of the Consolidated Parties for the four fiscal quarter period (except as set forth below) ending on such date with respect to the Consolidated Parties on a consolidated basis, the ratio of (a) Consolidated EBITDA for such period to (b)the sum of (i) Consolidated Interest Expense plus (ii) scheduled rental payments in connection with the TROL for such period; provided, however, that (i) as of December 31, 2001, such ratio shall be calculated only for the one fiscal quarter period ending as of such date, (ii) as of March 31, 2002, such ratio shall be calculated only for the two fiscal quarter period ending as of such date and (iii) as of June 30, 2002, such ratio shall be calculated only for the three fiscal quarter period ending as of such date. "Interest Payment Date" means (a) as to Base Rate Loans and Swing Line Loans, the last Business Day of each March, June, September and December, the date of repayment of principal of such Loan and the Maturity Date, and (b) as to Eurodollar Loans, the last day of each applicable Interest Period, the date of repayment of principal of such Loan and the Maturity Date, and in addition where the applicable Interest Period for a Eurodollar Loan is greater than three months, then also the date three months from the beginning of the Interest Period and each three months thereafter. "Interest Period" means, as to Eurodollar Loans, a period of one, two, three or six months' duration, as a Borrower may elect, commencing, in each case, on the date of the borrowing (including continuations and conversions thereof); provided, however, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (b) no Interest Period shall extend beyond the Maturity Date and (c) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month. "Investment" in any Person means (a) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other Property in the ordinary course of business and other than any acquisition of assets constituting a Consolidated Capital Expenditure), Capital Stock, bonds, notes, debentures, partnership, joint ventures or other ownership interests or other securities of such other Person, (b) any deposit with, or advance, loan or other extension of credit to, such Person (other than deposits made in connection with the purchase of equipment inventory and supplies in the ordinary course of business) or (c) any 17 other capital contribution to or investment in such Person, including, without limitation, any Guaranty Obligations (including any support for a letter of credit issued on behalf of such Person) incurred for the benefit of such Person and any Asset Disposition to such Person for consideration less than the fair market value of the Property disposed in such transaction, but excluding any Restricted Payment to such Person. Investments which are capital contributions or purchases of Capital Stock which have a right to participate in the profits of the issuer thereof shall be valued at the amount actually contributed or paid to purchase such Capital Stock as of the date of such contribution or payment. Investments which are loans, advances, extensions of credit or Guaranty Obligations shall be valued at the principal amount of such loan, advance or extension of credit outstanding as of the date of determination or, as applicable, the principal amount of the loan or advance outstanding as of the date of determination actually guaranteed by such Guaranty Obligation. "Involuntary Disposition" means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any Property of any Consolidated Party. "Involuntary Disposition Prepayment Event" means, with respect to any Involuntary Disposition, the failure of the Credit Parties to apply (or cause to be applied) an amount equal to the Excess Proceeds of such Involuntary Disposition, if any, to make Eligible Reinvestments (including but not limited to the repair or replacement of the Property affected by such Involuntary Disposition) within the period of 180 days following the date of receipt of such Excess Proceeds, subject to the terms and conditions of Section 7.6(b) and provided that such 180 day period may be extended for not more than an additional 180 days if (1) the applicable Credit Party is diligently pursuing such Eligible Reinvestment in good faith, but can not complete within the initial 180 days and (2) the Borrower is not otherwise in Default. "Issuing Lender" means Bank of America. "Joinder Agreement" means a Joinder Agreement substantially in the form of Exhibit 7.11 hereto, executed and delivered by a new Guarantor in accordance with the provisions of Section 7.11. "Kansas Property" means that such real property owned by the Borrower and located at 12700 Johnson Drive, Shawnee, Kansas. "Lender" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Person which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns. "Letter of Credit" means any letter of credit issued by the Issuing Lender for the account of the Borrower in accordance with the terms of Section 2.2. "Leverage Ratio" means, as of the end of any fiscal quarter of the Consolidated Parties for the four fiscal quarter period (except as set forth below) ending on such date with respect to the Consolidated Parties on a consolidated basis, the ratio of (a) Funded Indebtedness of the Consolidated Parties on a consolidated basis on the last day of such 18 period to (b) Consolidated EBITDA for such period; provided, however, that (i) as of December 31, 2001, Consolidated EBITDA shall be determined based upon (x) Consolidated EBITDA for the one fiscal quarter period ending as of such date multiplied by (y) 4, (ii) as of March 31, 2002, Consolidated EBITDA shall be determined based upon (x) Consolidated EBITDA for the two fiscal quarter period ending as of such date multiplied by (y) 2 and (iii) as of June 30, 2002, Consolidated EBITDA shall be determined based upon (x) Consolidated EBITDA for the three fiscal quarter period ending as of such date multiplied by (y) 4/3. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loan" or "Loans" means the Revolving Loans, the Term Loans and/or the Swing Line Loans (or a portion of any Revolving Loan, Term Loan or Swing Line Loan bearing interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate and referred to as a Base Rate Loan or a Eurodollar Loan), individually or collectively, as appropriate. "Loan Documents" means a collective reference to this Loan Agreement, the Notes, each Joinder Agreement, the BAMC Fee Letter and the Collateral Documents (in each case as the same may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time), and "Loan Document" means any one of them. "LOC Commitment" means the commitment of the Issuing Lender to issue Letters of Credit in an aggregate face amount at any time outstanding (together with the amounts of any unreimbursed drawings thereon) of up to the LOC Committed Amount. "LOC Committed Amount" shall have the meaning assigned to such term in Section 2.4 "LOC Documents" means, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or at risk or (ii) any collateral security for such obligations. "LOC Obligations" means, at any time, without duplication, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Lender but not theretofore reimbursed by the Borrower. 19 "Material Adverse Effect" means a material adverse effect on (i) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Consolidated Parties taken as a whole, (ii) the ability of any Credit Party to perform any material obligation under the Loan Documents to which it is a party or (iii) the material rights and remedies of the Agent and the Lenders under the Loan Documents. "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maturity Date" means, subject to Section 12.3, September 30, 2002. "Mezzanine Securities" means senior subordinated notes and/or redeemable preferred stock issued by the Borrower, in each case which may include warrants for common stock, pursuant to definitive documentation reasonably acceptable to the Agent. "Moody's" means Moody's Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities. "Mortgage Instruments" shall have the meaning assigned such term in Section 5.1(e). "Mortgage Policies" shall have the meaning assigned such term in Section 5.1(e). "Mortgaged Properties" shall have the meaning assigned such term in Section 5.1(e). "Multiemployer Plan" means a Plan which is a "multiemployer plan" as defined in Sections 3(37) or 4001(a)(3) of ERISA. "Multiple Employer Plan" means a Plan (other than a Multiemployer Plan) which any Consolidated Party or any ERISA Affiliate and at least one employer other than the Consolidated Parties or any ERISA Affiliate are contributing sponsors. "NeoSan" means NeoSan Pharmaceuticals, Inc., a Delaware corporation, together with any permitted successors and assigns. "Net Cash Proceeds" means the aggregate cash or Cash Equivalents proceeds received by any Consolidated Party in respect of any Asset Disposition, Equity Issuance, Debt Issuance or Involuntary Disposition, net of (a) direct costs (including, without limitation, legal, accounting and investment banking fees, underwriting discounts and commissions and sales commissions) (b) income or transfer taxes paid or payable as a result thereof and (c) in the case of any Asset Disposition, (i) the amount necessary to retire any Indebtedness secured by a Permitted Lien required to be paid in connection with such Asset Disposition on the related Property and (ii) reasonable reserves approved by the Agent for indemnification obligations; it being understood that "Net Cash Proceeds" shall include, 20 without limitation, any cash or Cash Equivalents received upon the sale or other disposition of any non-cash consideration received by any such Consolidated Party in any Asset Disposition, Equity Issuance, Debt Issuance or Involuntary Disposition. "Note" or "Notes" means the Revolving Notes, the Term Notes and/or the Swing Line Note, individually or collectively, as appropriate. "Notice of Borrowing" means a written notice of borrowing in substantially the form of Exhibit 2.1(b)(i), as required by Section 2.1(b)(i) or Section 2.3(b). "Notice of Extension/Conversion" means the written notice of extension or conversion in substantially the form of Exhibit 3.2, as required by Section 3.2. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor. "Other Taxes" shall have the meaning assigned to such term in Section 3.11(b). "Participant" shall have the meaning assigned to such term in Section 11.3(d). "Participation Interest" means a purchase by a Lender of a participation in Letters of Credit or LOC Obligations as provided in Section 2.4, Swing Line Loans as provided in Section 2.2 or in any other Loans as provided in Section 3.14. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "Permitted Acquisition" means the Transaction and any other Acquisition by the Borrower or any Subsidiary of the Borrower permitted pursuant to the terms of Section 8.6(j) "Permitted Asset Disposition" means (i) any Asset Disposition permitted by Section 8.5 and (ii) any Excluded Asset Disposition. "Permitted Investments" means, at any time, Investments by the Consolidated Parties permitted to exist at such time pursuant to the terms of Section 8.6. "Permitted Liens" means, at any time, Liens in respect of Property of the Consolidated Parties permitted to exist at such time pursuant to the terms of Section 8.2. "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which any Consolidated Party or any 21 ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "Pledge Agreement" means the amended and restated pledge agreement dated as of the Closing Date to be executed in favor of the Agent by each of the Credit Parties, as amended, modified, restated or supplemented from time to time. "Prime Rate" means, for any day, the per annum rate of interest rate in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." Such rate is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Principal Amortization Payment" means a principal payment on the Term Loans as set forth in Section 2.3(d). "Principal Amortization Payment Date" means the date a Principal Amortization Payment is due. "Pro Forma Basis" means, for purposes of calculating (utilizing the principles set forth in the second paragraph of Section 1.3) compliance with each of the financial covenants set forth in Section 7.10(a)-(e) in respect of a proposed transaction, that such transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction with respect to which the Agent has received the Required Financial Information. As used herein, "transaction" shall mean (i) any incurrence or assumption of Indebtedness as referred to in Section 8.1(f), (ii) any Asset Disposition as referred to in Section 8.5 or (iii) any Acquisition as referred to in Section 8.6(j). In connection with any calculation of the financial covenants set forth in Section 7.10(a)-(e) upon giving effect to a transaction on a Pro Forma Basis: (A) for purposes of any such calculation in respect of any incurrence or assumption of Indebtedness as referred to in Section 8.1(f), any Indebtedness which is retired in connection with such incurrence or assumption shall be excluded and deemed to have been retired as of the first day of the applicable period; (B) for purposes of any such calculation in respect of any Asset Disposition as referred to in Section 8.5, (1) income statement items (whether positive or negative) attributable to the Property disposed of shall be excluded and (2) any Indebtedness which is retired in connection with such transaction shall be excluded and deemed to have been retired as of the first day of the applicable period; and (C) for purposes of any such calculation in respect of any Acquisition as referred to in Section 8.6(j): 22 (a) in the case of an Acquisition by a Consolidated Party other than NeoSan, (1) any Indebtedness incurred by any Consolidated Party in connection with such transaction (x) shall be deemed to have been incurred as of the first day of the applicable period and (y) if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination, (2) income statement items (whether positive or negative) attributable to the Person or Property acquired shall be included beginning as of the first day of the applicable period and (3) pro forma adjustments may be included to the extent that such adjustments would be permitted under GAAP and give effect to events that are (x) directly attributable to such transaction, (y) expected to have a continuing impact on the Consolidated Parties and (z) factually supportable; and (b) in the case of an Acquisition by NeoSan, (1) any Indebtedness incurred by any Consolidated Party in connection with such transaction (x) shall be deemed to have been incurred as of the first day of the applicable period and (y) if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination, and (2) income statement items (whether positive or negative) attributable to the Person, Property or product acquired shall be included to the extent of (x) historical revenues, (y) historical SG&A items and (z) contracted manufacturing costs. "Pro Forma Compliance Certificate" means a certificate of an Executive Officer of the Borrower delivered to the Agent in connection with (i) any incurrence, assumption or retirement of Indebtedness as referred to in Section 8.1(f), (ii) any Asset Disposition as referred to in Section 8.5 or (iii) any Acquisition as referred to in Section 8.6(j), as applicable, and containing reasonably detailed calculations, upon giving effect to the applicable transaction on a Pro Forma Basis, of the Leverage Ratio, the Interest Coverage Ratio, the Fixed Charge Coverage Ratio, Consolidated EBITDA and Consolidated Net Worth as of the most recent fiscal quarter end preceding the date of the applicable transaction with respect to which the Agent shall have received the Required Financial Information. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchase Agreement" means that certain Asset Purchase Agreement by and between AstraZeneca AB and NeoSan Pharmaceuticals Inc., dated as of July 26, 2001, as it may be amended on or prior to the Closing Date. 23 "Real Properties" means, at any time, a collective reference to each of the facilities and real properties owned, leased or operated by the Consolidated Parties at such time. "Register" shall have the meaning assigned to such term in Section 11.3(c). "Regulation D, T, U, or X" means Regulation D, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Related Party" or "Related Parties" means spouses, lineal ancestors or descendants, natural or adopted, and spouses of lineal ancestors or descendants, or trusts for the sole benefit of any of such Persons. "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation. "Required Financial Information" means, with respect to the applicable date, (i) the financial statements of the Consolidated Parties required to be delivered pursuant to Section 7.1(a) or (b) for the fiscal period or quarter ending as of such date, and (ii) the certificate of an Executive Officer of the Borrower required by Section 7.1(d) to be delivered with the financial statements described in clause (i) above. "Required Lenders" means, at any time, Lenders (other than Defaulting Lenders) holding in the aggregate at least a majority of (i) the unfunded Commitments (and Participation Interests therein) and the outstanding Loans (and Participation Interests therein) or (ii) if all of the Commitments have been terminated, the outstanding Loans and Participation Interests; provided, however, if there are only two Lenders (counting, for these purposes, affiliated Lenders as a single Lender), Required Lenders shall mean both such Lenders and, provided, further, if there are only three Lenders (counting, for these purposes, affiliated Lenders as a single Lender), Required Lenders shall mean Lenders holding in the aggregate at least 66-2/3% of (i) the unfunded Commitments (and Participation Interests therein) and the outstanding Loans (and Participation Interests therein) or (ii) if all of the Commitments have been terminated, the outstanding Loans and Participation Interests. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or to which any of its material property is subject. "Restricted Payment" means (i) any dividend or other payment or distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding (including without limitation any payment in connection with any dissolution, merger, consolidation or disposition involving any Consolidated Party), or to the holders, in their capacity as such, of any shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding (other than dividends or distributions payable in Capital Stock of the applicable Person and dividends or distributions payable (directly or indirectly through Subsidiaries) to any Credit Party), (ii) any redemption, 24 retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding and (iv) any payment of the deferred purchase price of Property acquired pursuant to the Purchase Agreement. "Revolving Commitment" means, with respect to each Lender, the commitment of such Lender in an aggregate principal amount at any time outstanding of up to such Lender's Revolving Commitment Percentage (if any) of the Revolving Committed Amount (i) to make Revolving Loans in accordance with the provisions of Section 2.1(a) and (ii) to purchase Participation Interests in Letters of Credit in accordance with the provisions of Section 2.4(c). "Revolving Commitment Percentage" means, for any Lender, the percentage identified as its Revolving Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "Revolving Committed Amount" shall have the meaning assigned to such term in Section 2.1(a). "Revolving Loans" shall have the meaning assigned to such term in Section 2.1(a). "Revolving Note" shall have the meaning assigned to such term in Section 2.1(e). "S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Companies, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Sale and Leaseback Transaction" means any arrangement pursuant to which any Consolidated Party, directly or indirectly, becomes liable as lessee, guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (a) which such Consolidated Party has sold or transferred (or is to sell or transfer) to a Person which is not a Consolidated Party or (b) which such Consolidated Party intends to use for substantially the same purpose as any other Property which has been sold or transferred (or is to be sold or transferred) by such Consolidated Party to another Person which is not a Consolidated Party in connection with such lease. "Securities Act" means the Securities Act of 1933, as amended, and all regulations issued pursuant thereto. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, and all regulations issued pursuant thereto. "Security Agreement" means the amended and restated security agreement dated as of the Closing Date to be executed in favor of the Agent by each of the Credit Parties, as amended, modified, restated or supplemented from time to time. 25 "Senior Indebtedness" means all Funded Indebtedness other than Subordinated Indebtedness. "Senior Leverage Ratio" means, as of the end of any fiscal quarter of the Consolidated Parties for the four quarter period (except as set forth below) ending on such date with respect to the Consolidated Parties on a consolidated basis, the ratio of (a) Senior Indebtedness of the Consolidated Parties on a consolidated basis on the last day of such period to (b) Consolidated EBITDA for such period; provided, however, that (i) as of December 31, 2001, Consolidated EBITDA shall be determined based upon (x) Consolidated EBITDA for the one fiscal quarter period ending as of such date multiplied by (y) 4, (ii) as of March 31, 2002, Consolidated EBITDA shall be determined based upon (x) Consolidated EBITDA for the two fiscal quarter period ending as of such date multiplied by (y) 2 and (iii) as of June 30, 2002, Consolidated EBITDA shall be determined based upon (x) Consolidated EBITDA for the three fiscal quarter period ending as of such date multiplied by (y) 4/3. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan. "Solvent" or "Solvency" means, with respect to any Person as of a particular date, that on such date (i) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (ii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature in their ordinary course, (iii) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's Property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (iv) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (v) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit Fee" shall have the meaning assigned to such term in Section 3.5(b)(i). "Subordinated Indebtedness" means any Indebtedness evidenced by the Mezzanine Securities and any other Indebtedness of the Borrower which by its terms is subordinated to the Credit Party Obligations in a manner and to an extent acceptable to the Agent and the Required Lenders. "Subsidiary" means, as to any Person at any time, (a) any corporation more than 50% of whose Capital Stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether 26 or not at such time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at such time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity of which such Person directly or indirectly through Subsidiaries owns at such time more than 50% of the Capital Stock. "Swing Line Committed Amount" means FIVE MILLION DOLLARS ($5,000,000.00). "Swing Line Lender" means Bank of America. "Swing Line Loans" means the loans made by the Swing Line Lender pursuant to Section 2.2. "Swing Line Loan Note" means the promissory note of the Borrower in favor of the Swing Line Lender evidencing the Swing Line Loans provided pursuant to Section 2.2, as such promissory note may be amended, modified, supplemented, extended, renewed or replaced from time to time in and as evidenced by the form of Exhibit 2.2(e). "Swing Line Loan Request" means a request by the Borrower for a Swing Line Loan in substantially the form of Exhibit 2.2(b). "Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an Operating Lease under GAAP. "Taxes" shall have the meaning assigned to such term in Section 3.11(a). "Term Loan" shall have the meaning assigned to such term in Section 2.3(a). "Term Loan Commitment" means, with respect to each Lender, the commitment of such Lender to make its portion of the Term Loan in a principal amount equal to such Lender's Term Loan Percentage (if any) of the Term Loan Committed Amount. "Term Loan Committed Amount" shall have the meaning assigned to such term in Section 2.3(a). "Term Loan Percentage" means, for any Lender, the percentage identified as its Term Loan Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "Term Note" shall have the meaning assigned to such term in Section 2.3(f). "Transaction" means the Borrower's acquisition of the Acquired Product from AstraZeneca AB and/or its subsidiaries pursuant to the Transaction Documents. 27 "Transaction Documents" shall have the meaning assigned to such term in Section 5.1(j). "TROL" means that certain tax retention operating lease, dated as of October 2, 1998 among the Borrower, First Security Bank, N.A., as Owner Trustee under the AAI Realty Trust 1998-1, the lenders and holders from time to time party thereto, and NationsBank, N.A. (now known as Bank of America, N.A.) as Agent, as amended, modified, restated or supplemented from time to time. "Unused Fee" shall have the meaning assigned to such term in Section 3.5(a). "Unused Fee Calculation Period" shall have the meaning assigned to such term in Section 3.5(a). "Unused Revolving Committed Amount" means, for any period, the amount by which (a) the then applicable Revolving Committed Amount exceeds (b) the daily averages sum for such period of (i) the outstanding aggregate principal amount of all Revolving Loans plus (ii) the outstanding aggregate principal amount of all LOC Obligations. "Voting Stock" means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Work-In-Progress" means the accrued revenues that have been recognized on a percentage-of-completion basis in connection with fee-for-service contracts, such revenues being reflected on the balance sheet of the Consolidated Parties as part of the category titled "Work-in-progress". "Wholly Owned Subsidiary" means any Person 100% of whose Voting Stock is at the time owned by the Borrower directly or indirectly through other Persons 100% of whose Voting Stock is at the time owned, directly or indirectly, by the Borrower. 1.2 COMPUTATION OF TIME PERIODS. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis; provided, however, that calculations of the implied principal component of all obligations under any Synthetic Lease or the implied interest component of any rent paid under any Synthetic Lease shall be made by the Borrower in accordance with accepted financial practice and consistent with the terms of such Synthetic Lease. All calculations made for the purposes of determining compliance with this Loan Agreement shall (except as otherwise expressly provided 28 herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 (or, in connection with, or prior to, the delivery of the first financial statements pursuant to Section 7.1, consistent with the financial statements as at June 30, 2001); provided, however, if (a) the Credit Parties shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Agent or the Required Lenders shall so object in writing within 60 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Credit Parties to the Lenders as to which no such objection shall have been made. Notwithstanding the above, the parties hereto acknowledge and agree that, for purposes of all calculations made under the financial covenants set forth in Section 7.10 (including without limitation for purposes of the definition of "Pro Forma Basis" set forth in Section 1.1 unless otherwise provided in such definition), (i) after consummation of any Asset Disposition (A) income statement items (whether positive or negative) and capital expenditures attributable to the Property disposed of shall be excluded to the extent relating to any period occurring prior to the date of such transaction and (B) Indebtedness which is retired shall be excluded and deemed to have been retired as of the first day of the applicable period and (ii) after consummation of any Acquisition (A) income statement items (whether positive or negative) and capital expenditures attributable to the Person or Property acquired shall, to the extent not otherwise included in such income statement items for the Consolidated Parties in accordance with GAAP or in accordance with any defined terms set forth in Section 1.1, be included to the extent relating to any period applicable in such calculations, (B) to the extent not retired in connection with such Acquisition, Indebtedness of the Person or Property acquired shall be deemed to have been incurred as of the first day of the applicable period and (C) pro forma adjustments may be included to the extent that such adjustments would be permitted under GAAP and give effect to items that are (x) directly attributable to such transaction, (y) expected to have a continuing impact on the Consolidated Parties and (z) factually supportable. SECTION 2 CREDIT FACILITIES 2.1 REVOLVING LOANS. (a) Revolving Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make available to the Borrower such Lender's Revolving Commitment Percentage of revolving credit loans requested by the Borrower in Dollars ("Revolving Loans") from time to time from the Closing Date until the Maturity Date, or such earlier date as the Revolving Commitments shall have been terminated as provided herein; provided, however, that the sum of the aggregate outstanding principal amount of Revolving Loans plus the aggregate amount of Swing Line Loans outstanding plus the outstanding LOC Obligations shall not exceed the lesser of (i) TWENTY FIVE MILLION DOLLARS ($25,000,000.00) (as such aggregate maximum amount may be reduced from time to time as provided in Section 3.4, the "Revolving Committed Amount") and (ii) the Borrowing Base; 29 provided, further, with regard to each Lender individually, such Lender's outstanding Revolving Loans plus its Participation Interests in Letters of Credit or LOC Obligations plus its Participation Interests in Swing Line Loans shall not exceed such Lender's Revolving Commitment Percentage of the Revolving Committed Amount. Revolving Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request; provided, however, that no more than 6 Eurodollar Loans which are Revolving Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period). Revolving Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof. (b) Revolving Loan Borrowings. (i) Notice of Borrowing. The Borrower shall request a Revolving Loan borrowing by written notice (or telephonic notice promptly confirmed in writing) to the Agent not later than 11:00 A.M. (Charlotte, North Carolina time) on the date of the requested borrowing in the case of Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of Eurodollar Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, and (D) whether the borrowing shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a Eurodollar Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Revolving Loan requested, then such notice shall be deemed to be a request for a Base Rate Loan hereunder. The Agent shall give notice to each affected Lender promptly upon receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and each such Lender's share of any borrowing to be made pursuant thereto. (ii) Minimum Amounts. Except for Revolving Loans made for the purpose of reimbursing the Issuing Lender in respect of a drawing under a Letter of Credit pursuant to Section 2.4(e) or Swing Line Loans pursuant to Section 2.2(d), each Eurodollar Loan or Base Rate Loan that is a Revolving Loan shall be in a minimum aggregate principal amount of $500,000 and integral multiples of $100,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). (iii) Advances. Except for Revolving Loans made for the purpose of reimbursing the Issuing Lender in respect of a drawing under a Letter of Credit pursuant to Section 2.4(e) or Swing Line Loans pursuant to Section 2.2(d), each Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing available to the Agent for the account of the Borrower as specified in 30 Section 3.15(a), or in such other manner as the Agent may specify in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Agent. Such borrowing will then be made available to the Borrower by the Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received by the Agent. (c) Repayment. The Borrower hereby promises to pay the principal amount of all outstanding Revolving Loans in full on the Maturity Date, unless accelerated sooner pursuant to Section 9.2. (d) Interest. Subject to the provisions of Section 3.1, (i) Base Rate Loans. During such periods as Revolving Loans shall be comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Adjusted Base Rate. (ii) Eurodollar Loans. During such periods as Revolving Loans shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Adjusted Eurodollar Rate. The Borrower hereby promises to pay interest on Revolving Loans in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). (e) Revolving Notes. The Borrower hereby agrees that, upon the request to the Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note evidencing the Revolving Loans of such Lender, substantially in the form of Exhibit 2.1(e), with appropriate insertions as to date and principal amount (a "Revolving Note"). 2.2 SWING LINE LOANS SUBFACILITY. (a) Swing Line Loans. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, the Swing Line Lender hereby agrees, to make loans (each a "Swing Line Loan" and collectively, the "Swing Line Loans") to the Borrower, in Dollars, at any time and from time to time, during the period from and including the Effective Date to but not including the Maturity Date (or such earlier date if the Commitments have been terminated as provided herein); provided that (i) the aggregate principal amount of the Swing Line Loans outstanding at any one time shall not exceed the Swing Line Committed Amount and (ii) the aggregate amount of outstanding Swing Line Loans plus the aggregate amount of outstanding Revolving Loans plus LOC Obligations shall not exceed the lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base. Subject to the terms of this Loan Agreement, the Borrower may borrow, repay and reborrow Swing Line Loans. (b) Borrowing Procedures. By no later than 1:00 p.m. on the date of the requested borrowing of Swing Line Loans, the Borrower shall provide telephone notice to 31 the Swing Line Lender, followed promptly by a written Swing Line Loan Request in the form of Exhibit 2.2(b) (which maybe submitted by telecopy) setting forth (i) the amount of the requested Swing Line Loan and (ii) the date of the requested Swing Line Loan and complying in all respects with Section 5.2. The Swing Line Lender shall initiate the transfer of funds representing the Swing Line Loan advance to the Borrower by 3:00 p.m. on the Business Day of the requested borrowing. (c) Minimum Amounts. Each Swing Line Loan shall be in a minimum amount of the lesser of $100,000 (and in integral multiples of $25,000 in excess thereof) or the remaining amount available under the Swing Line Committed Amount. (d) Repayment and Participations of Swing Line Loans. The Swing Line Loans shall bear interest at a rate mutually agreeable to the Swing Line Lender and the Borrower at the time of the borrowing of such Swing Line Loan, but in no event shall such rate exceed the Adjusted Base Rate. The Borrower agrees to repay all Swing Line Loans immediately upon the existence of a Default or Event of Default or otherwise within three Business Days of demand therefor by the Swing Line Lender. If the Borrower does not immediately notify the Swing Line Lender that the Borrower intends to otherwise repay such Swing Line Loan, the Borrower shall be deemed to have requested a Revolving Loan advance comprised solely of Base Rate Loans in the amount of such Swing Line Loans; provided, however, that any such demand shall be deemed to have been given one Business Day prior to the Maturity Date and on the date of the occurrence of any Event of Default described in Section 9.1 and upon acceleration of the indebtedness hereunder and the exercise of remedies in accordance with the provisions of Section 9.2. Each Lender hereby irrevocably agrees to make its pro rata share of each such Revolving Loan in the amount, in the manner and on the date specified in the preceding sentence notwithstanding (i) the amount of such borrowing may not comply with the minimum amount for advances of Revolving Loans otherwise required hereunder, (ii) whether any conditions specified in Section 5.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure of any such request or deemed request for a Revolving Loan to be made by the time otherwise required hereunder, (v) whether the date of such borrowing is a date on which Revolving Loans are otherwise permitted to be made hereunder or (vi) any termination of the Commitments relating thereto immediately prior to or contemporaneously with such borrowing. In the event that any Revolving Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower or any other Credit Party), then each Lender hereby agrees that it shall forthwith purchase (as of the date such borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swing Line Lender such Participation Interests in the outstanding Swing Line Loans as shall be necessary to cause each such Lender to share in such Swing Line Loans ratably based upon its Revolving Commitment Percentage of the Revolving Committed Amount (determined before giving effect to any termination of the Commitments pursuant to Section 3.4), provided that (A) all interest payable on the Swing Line Loans shall be for the account of the Swing Line Lender until the date as of which the respective Participation Interest is purchased and (B) at the time any purchase of Participation Interests pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Swing Line Lender, interest on the principal amount of Participation Interests purchased for each day from the date of demand 32 thereof, at a rate equal to, if paid within two Business Days of such date, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate plus two percent (2%) per annum. (e) Swing Line Loan Note. The Swing Line Loans made by the Swing Line Lender shall be evidenced by a duly executed promissory note of the Borrower to the Swing Line Lender in substantially the form of Exhibit 2.2(e). 2.3 TERM LOAN. (a) Term Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein each Lender severally agrees to make available to the Borrower on the Closing Date such Lender's Term Loan Percentage of a term loan in Dollars (the "Term Loan"; each component thereof may be referred to herein as a "Term Loan") in the aggregate principal amount of SIXTY MILLION DOLLARS ($60,000,000.00) (the "Term Loan Committed Amount"). The Term Loan may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request; provided, however, that no more than 6 Eurodollar Loans which are Term Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period). Amounts repaid on the Term Loan may not be reborrowed. (b) Borrowing Procedures. The Borrower shall submit an appropriate Notice of Borrowing to the Agent not later than 11:00 A.M. (Charlotte, North Carolina time) or such later time as the Agent and the Borrower shall agree on the Closing Date, with respect to the portion of the Term Loan initially consisting of a Base Rate Loan, or on the third Business Day prior to the Closing Date, with respect to the portion of the Term Loan initially consisting of one or more Eurodollar Loans. Such Notice of Borrowing shall be irrevocable and shall specify (i) that the funding of a Term Loan is requested and (ii) whether the funding of the Term Loan shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to deliver such Notice of Borrowing to the Agent by 11:00 A.M. (Charlotte, North Carolina time) on the third Business Day prior to the Closing Date, then the full amount of the Term Loan shall be disbursed on the Closing Date as a Base Rate Loan. Each Lender shall make its Term Loan Percentage of the Term Loan available to the Agent for the account of the Borrower at the office of the Agent specified in Schedule 2.1(a), or at such other office as the Agent may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the Closing Date in Dollars and in funds immediately available to the Agent. (c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is part of the Term Loan shall be in an aggregate principal amount that is not less than $1,000,000 and integral multiples of $100,000 (or the then remaining principal balance of the Term Loan, if less). 33 (d) Repayment of Term Loan. The Borrower hereby promises to pay the outstanding principal amount of the Term Loan in full on the Maturity Date. (e) Interest. Subject to the provisions of Section 3.1, the Term Loan shall bear interest at a per annum rate equal to: (i) Base Rate Loans. During such periods as the Term Loan shall be comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Adjusted Base Rate. (ii) Eurodollar Loans. During such periods as the Term Loan shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Adjusted Eurodollar Rate. The Borrower hereby promises to pay interest on the Term Loan in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). (f) Term Notes. The Borrower hereby agrees that, upon the request to the Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note evidencing the Term Loans of such Lender, substantially in the form of Exhibit 2.3(f), with appropriate insertions as to date and principal amount (a "Term Note"). 2.4 LETTER OF CREDIT SUBFACILITY. (a) Issuance. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, the Issuing Lender agrees to issue, and each Lender severally agrees to participate in the issuance by the Issuing Lender of, standby and trade Letters of Credit in Dollars from time to time from the Closing Date until the date thirty (30) days prior to the Maturity Date as the Borrower may request, in a form acceptable to the Issuing Lender; provided, however, that (i) the LOC Obligations outstanding shall not at any time exceed TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) (the "LOC Committed Amount") and (ii) the sum of the aggregate outstanding principal amount of Revolving Loans plus LOC Obligations plus Swing Line Loans outstanding shall not at any time exceed the lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base. No Letter of Credit shall (x) have an original expiry date more than one year from the date of issuance (provided that any such Letter of Credit may contain customary "evergreen" provisions pursuant to which the expiry date is automatically extended by a specific time period unless the Issuing Lender gives notice to the beneficiary of such Letter of Credit at least a specified time period prior to the expiry date then in effect) or (y) as originally issued or as extended, have an expiry date extending beyond the date thirty (30) days prior to the Maturity Date. Each Letter of Credit shall comply with the related LOC Documents. The issuance and expiry dates of each Letter of Credit shall be a Business Day. (b) Notice and Reports. The request for the issuance of a Letter of Credit shall be submitted by the Borrower to the Issuing Lender at least three (3) Business Days prior to the requested date of issuance. The Issuing Lender will, at least quarterly and more 34 frequently upon request, disseminate to each of the Lenders a detailed report specifying the Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have occurred since the date of the prior report, and including therein, among other things, the beneficiary, the face amount and the expiry date, as well as any payment or expirations which may have occurred. (c) Participation. Each Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a Participation Interest from the Issuing Lender in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its pro rata share of the obligations under such Letter of Credit (based on the respective Revolving Commitment Percentages of the Lenders) and shall absolutely, unconditionally and irrevocably assume and be obligated to pay to the Issuing Lender and discharge when due, its pro rata share of the obligations arising under such Letter of Credit. Without limiting the scope and nature of each Lender's Participation Interest in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any such Letter of Credit, each such Lender shall pay to the Issuing Lender its pro rata share of such unreimbursed drawing in same day funds on the day of notification by the Issuing Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) below. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the Borrower to reimburse the Issuing Lender under any Letter of Credit, together with interest as hereinafter provided. (d) Reimbursement. In the event of any drawing under any Letter of Credit, the Issuing Lender will promptly notify the Borrower. Unless the Borrower shall immediately notify the Issuing Lender that the Borrower intends to otherwise reimburse the Issuing Lender for such drawing, the Borrower shall be deemed to have requested that the Lenders make a Revolving Loan in the amount of the drawing as provided in subsection (e) below on the related Letter of Credit, the proceeds of which will be used to satisfy the related reimbursement obligations. The Borrower promises to reimburse the Issuing Lender on the day of drawing under any Letter of Credit (either with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day funds. If the Borrower shall fail to reimburse the Issuing Lender as provided hereinabove, the Borrower promises to pay the Issuing Lender interest on the unreimbursed amount of such drawing on demand at a per annum rate equal to the Adjusted Base Rate plus 2%. The Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of setoff, counterclaim or defense to payment the Borrower may claim or have against the Issuing Lender, the Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower or any other Credit Party to receive consideration or the legality, validity, regularity or unenforceability of the Letter of Credit. The Issuing Lender will promptly notify the other Lenders of the amount of any unreimbursed drawing and each Lender shall promptly pay to the Agent for the account of the Issuing Lender in Dollars and in immediately available funds, the amount of such Lender's pro rata share of such unreimbursed drawing. Such payment shall be made on the day such notice is received by such Lender from the Issuing Lender if such notice is received at or before 2:00 P.M. 35 (Charlotte, North Carolina time), and otherwise such payment shall be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business Day next succeeding the day such notice is received. If such Lender does not pay such amount to the Issuing Lender in full upon such request, such Lender shall, on demand, pay to the Agent for the account of the Issuing Lender interest on the unpaid amount during the period from the date of such drawing until such Lender pays such amount to the Issuing Lender in full at a rate per annum equal to, if paid within two (2) Business Days of the date that such Lender is required to make payments of such amount pursuant to the preceding sentence, the Federal Funds Rate and thereafter at a rate equal to the Base Rate. Each Lender's obligation to make such payment to the Issuing Lender, and the right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to the termination of this Loan Agreement or the Commitments hereunder, the existence of a Default or Event of Default or the acceleration of the obligations of the Borrower hereunder and shall be made without any offset, abatement, withholding or reduction whatsoever. Simultaneously with the making of each such payment by a Lender to the Issuing Lender, such Lender shall, automatically and without any further action on the part of the Issuing Lender or such Lender, acquire a Participation Interest in an amount equal to such payment (excluding the portion of such payment constituting interest owing to the Issuing Lender) in the related unreimbursed drawing portion of the LOC Obligation and in the interest thereon and in the related LOC Documents, and shall have a claim against the Borrower with respect thereto. (e) Repayment with Revolving Loans. On any day on which the Borrower shall have requested, or been deemed to have requested, a Revolving Loan advance to reimburse a drawing under a Letter of Credit, the Agent shall give notice to the Lenders that a Revolving Loan has been requested or deemed requested by the Borrower to be made in connection with a drawing under a Letter of Credit, in which case a Revolving Loan advance comprised of Base Rate Loans (or Eurodollar Loans to the extent the Borrower has complied with the procedures of Section 2.1(b)(i) with respect thereto) shall be immediately made to the Borrower by all Lenders (notwithstanding any termination of the Commitments pursuant to Section 9.2) pro rata based on the respective Revolving Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2) and the proceeds thereof shall be paid directly to the Issuing Lender for application to the respective LOC Obligations. Each such Lender hereby irrevocably agrees to make its pro rata share of each such Revolving Loan immediately upon any such request or deemed request in the amount, in the manner and on the date specified in the preceding sentence notwithstanding (i) the amount of such borrowing may not comply with the minimum amount for advances of Revolving Loans otherwise required hereunder, (ii) whether any conditions specified in Section 5.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure for any such request or deemed request for Revolving Loan to be made by the time otherwise required hereunder, (v) whether the date of such borrowing is a date on which Revolving Loans are otherwise permitted to be made hereunder or (vi) any termination of the Commitments relating thereto immediately prior to or contemporaneously with such borrowing. In the event that any Revolving Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower or any other Credit Party), then each such Lender hereby agrees that it shall forthwith purchase (as of the date such borrowing would 36 otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Issuing Lender such Participation Interests in the outstanding LOC Obligations as shall be necessary to cause each such Lender to share in such LOC Obligations ratably (based upon the respective Revolving Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2)), provided that at the time any purchase of Participation Interests pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Issuing Lender, to the extent not paid to the Issuing Lender by the Borrower in accordance with the terms of subsection (d) above, interest on the principal amount of Participation Interests purchased for each day from and including the day upon which such borrowing would otherwise have occurred to but excluding the date of payment for such Participation Interests, at the rate equal to, if paid within two (2) Business Days of the date of the Revolving Loan advance, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate. (f) Designation of Consolidated Parties as Account Parties. Notwithstanding anything to the contrary set forth in this Loan Agreement, including without limitation Section 2.4(a), a Letter of Credit issued hereunder may contain a statement to the effect that such Letter of Credit is issued for the account of any Subsidiary of the Borrower, provided that notwithstanding such statement, the Borrower shall be the actual account party for all purposes of this Loan Agreement for such Letter of Credit and such statement shall not affect the Borrower's reimbursement obligations hereunder with respect to such Letter of Credit. (g) Renewal, Extension. The renewal or extension of any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder. (h) Uniform Customs and Practices. The Issuing Lender may have the Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits (the "UCP") or the International Standby Practices 1998 (the "ISP98"), in either case as published as of the date of issue by the International Chamber of Commerce, in which case the UCP or the ISP98, as applicable, may be incorporated therein and deemed in all respects to be a part thereof. (i) Indemnification; Nature of Issuing Lender's Duties. (i) In addition to its other obligations under this Section 2.4, the Borrower hereby agrees to pay, and protect, indemnify and save each Lender harmless from and against, any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that such Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of such Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions, herein called "Government Acts"). 37 (ii) As between the Borrower and the Lenders (including the Issuing Lender), the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No Lender (including the Issuing Lender) shall be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (D) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (E) for any consequences arising from causes beyond the control of such Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Lender's rights or powers hereunder. (iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Lender (including the Issuing Lender), under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such Lender under any resulting liability to the Borrower or any other Credit Party. It is the intention of the parties that this Loan Agreement shall be construed and applied to protect and indemnify each Lender (including the Issuing Lender) against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower (on behalf of itself and each of the other Credit Parties), including, without limitation, any and all Government Acts. No Lender (including the Issuing Lender) shall, in any way, be liable for any failure by such Lender or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of such Lender. (iv) Nothing in this subsection (i) is intended to limit the reimbursement obligations of the Borrower contained in subsection (d) above. The obligations of the Borrower under this subsection (i) shall survive the termination of this Loan Agreement. No act or omission of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Lenders (including the Issuing Lender) to enforce any right, power or benefit under this Loan Agreement. (v) Notwithstanding anything to the contrary contained in this subsection (i), the Borrower shall have no obligation to indemnify any Lender (including the Issuing Lender) in respect of any liability incurred by such Lender (A) arising solely out of the gross negligence or willful misconduct of such Lender, as determined by a court of competent jurisdiction, or (B) caused by such Lender's failure to pay under any Letter of Credit after presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, as determined by a 38 court of competent jurisdiction, unless such payment is prohibited by any law, regulation, court order or decree. (j) Responsibility of Issuing Lender. It is expressly understood and agreed that the obligations of the Issuing Lender hereunder to the Lenders are only those expressly set forth in this Loan Agreement and that the Issuing Lender shall be entitled to assume that the conditions precedent set forth in Section 5.2 have been satisfied unless it shall have acquired actual knowledge that any such condition precedent has not been satisfied; provided, however, that nothing set forth in this Section 2.4 shall be deemed to prejudice the right of any Lender to recover from the Issuing Lender any amounts made available by such Lender to the Issuing Lender pursuant to this Section 2.4 in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit constituted gross negligence or willful misconduct on the part of the Issuing Lender. (k) Conflict with LOC Documents. In the event of any conflict between this Loan Agreement and any LOC Document (including any letter of credit application), this Loan Agreement shall control. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES 3.1 DEFAULT RATE. Upon the occurrence, and during the continuance, of an Event of Default, (i) the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Loan Documents shall at the discretion of the Required Lenders (or automatically if the Event of Default is pursuant to Section 9.1(f)) bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then the Adjusted Base Rate plus 2%) and (ii) the Standby Letter of Credit Fee and the Trade Letter of Credit Fee shall accrue at a per annum rate 2% greater than the rate which would otherwise be applicable. 3.2 EXTENSION AND CONVERSION. The Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans or extended as Eurodollar Loans for new Interest Periods only on the last day of the Interest Period applicable thereto, (ii) Loans extended as, or converted into, Eurodollar Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall be in such minimum amounts as provided in, with respect to Revolving Loans, Section 2.1(b)(ii) with respect to Swing Line Loans, Section 2.2(c) or with respect to the Term Loan, Section 2.3(c) (iii) no more than 6 Eurodollar Loans which are Revolving Loans and 6 Eurodollar Loans which are Term Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in 39 accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period) and (iv) any request for extension or conversion of a Eurodollar Loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephonic notice promptly confirmed in writing) to the office of the Agent specified in Schedule 2.1(a), or at such other office as the Agent may designate in writing, prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business Day prior to, in the case of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto. In the event the Borrower fails to request extension or conversion of any Eurodollar Loan in accordance with this Section 3.2, or any such conversion or extension is not permitted or required by this Section 3.2, then such Eurodollar Loan shall be automatically converted into a Base Rate Loan at the end of the Interest Period applicable thereto. The Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 PREPAYMENTS. (a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time; provided, however, that each partial prepayment of Loans shall be in a minimum principal amount of $1,000,000 and integral multiples of $100,000 in excess thereof and subject to the foregoing terms, amounts prepaid under this Section 3.3(a) shall be applied as the Borrower may elect; provided that if the Borrower shall fail to specify with respect to any voluntary prepayment, such voluntary prepayment shall be applied first pro rata to Revolving Loans and Swing Line Loans then to the Term Loan, in each case first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. All prepayments under this Section 3.3(a) shall be subject to Section 3.12, but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment. (b) Mandatory Prepayments. (i) (A) Revolving Committed Amount. If at any time, the sum of the aggregate outstanding principal amount of Revolving Loans plus the aggregate outstanding principal amount of Swing Line Loans plus LOC Obligations shall exceed the lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base, the Borrower, within two (2) Business Days, shall prepay the Revolving Loans and (after all Revolving Loans have been repaid) cash collateralize the LOC Obligations, in an amount sufficient to eliminate such excess. (B) LOC Committed Amount. If at any time, the sum of the aggregate principal amount of LOC Obligations shall exceed the LOC Committed Amount, the Borrower immediately shall cash collateralize the LOC Obligations in an amount sufficient to eliminate such excess. 40 (ii) (A) Asset Dispositions. Immediately upon the occurrence of any Asset Disposition Prepayment Event, the Borrower shall prepay the Loans in an aggregate amount equal to 100% of the Net Cash Proceeds of the related Asset Disposition not applied (or caused to be applied) by the Credit Parties during the related Application Period to make Eligible Reinvestments as contemplated by the terms of Section 8.5(f) (such prepayment to be applied as set forth in clause (vi) below). (B) Involuntary Dispositions. Immediately upon the occurrence of an Involuntary Disposition Prepayment Event, the Borrower shall prepay the Loans in an aggregate amount equal to 100% of the Excess Proceeds (such prepayment to be applied as set forth in clause (vi) below). (iii) Debt Issuances. Promptly, but in any event within two (2) Business Days, upon the occurrence of a Debt Issuance Prepayment Event, the Borrower shall prepay the Term Loans in an aggregate amount equal to 100% of the Net Cash Proceeds of the related Debt Issuance (such prepayment to be applied as set forth in clause (vi) below). (iv) Equity Issuances. Promptly, but in any event within two (2) Business Days, upon the occurrence of an Equity Issuance Prepayment Event, the Borrower shall prepay the Term Loans in an aggregate amount equal to 100% of the Net Cash Proceeds of the related Equity Issuance (such prepayment to be applied as set forth in clause (vi) below). (v) Excess Royalties. At any time that the aggregate amount of the outstanding Term Loans is greater that $35,000,000, the Borrower shall prepay the Term Loans in an aggregate amount equal to 50% of the Excess Royalties for such fiscal quarter most recently ended (such prepayments to be made within 30 days of the receipt of such royalty payments (provided that the Borrower may accumulate and pay in one payment such amounts received during the first 75 days after the end of each fiscal quarter related to the prior quarter) and such payments to be applied as set forth in clause (vi) below). (vi) Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 3.3(b) shall be applied as follows: (A) with respect to all amounts prepaid pursuant to Section 3.3(b)(i)(A), pro rata to Revolving Loans and Swing Line Loans and (after all Revolving Loans and Swing Line Loans have been repaid) to a cash collateral account in respect of LOC Obligations (B) with respect to all amounts prepaid pursuant to Section 3.3(b)(i)(B), to a cash collateral account in respect of LOC Obligations, (C) with respect to all amounts prepaid pursuant to Section 3.3(b)(ii), first to the Term Loan, and, after the Term Loan is paid in full, to the Revolving Loans and Swing Line Loans (with, if an Event of Default has occurred, a corresponding reduction in the Revolving Committed Amount) and (D) with respect to all amounts prepaid pursuant to Section 3.3(b)(iii), (iv) or (v), to the Term Loan. Within the parameters of the applications set forth above, prepayments shall be applied first to Base Rate Loans and then to Eurodollar Loans 41 in direct order of Interest Period maturities. All prepayments under this Section 3.3(b) shall be subject to Section 3.12, but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment. (vii) Prepayment Account. If the Borrower is required to make a mandatory prepayment of Eurodollar Loans under this Section 3.3(b), the Borrower shall have the right, in lieu of making such prepayment in full, to deposit an amount equal to such mandatory prepayment with the Agent in a cash collateral account maintained (pursuant to documentation reasonably satisfactory to the Agent) by and in the sole dominion and control of the Agent. Any amounts so deposited shall be held by the Agent as collateral for the prepayment of such Eurodollar Loans and shall be applied to the prepayment of the applicable Eurodollar Loans at the end of the current Interest Periods applicable thereto. At the request of the Borrower, amounts so deposited shall be invested by the Agent in Cash Equivalents maturing prior to the date or dates on which it is anticipated that such amounts will be applied to prepay such Eurodollar Loans; any interest earned on such Cash Equivalents will be for the account of the Borrower and the Borrower will deposit with the Agent the amount of any loss on any such Cash Equivalents to the extent necessary in order that the amount of the prepayment to be made with the deposited amounts shall not be reduced. 3.4 TERMINATION AND REDUCTION OF REVOLVING COMMITTED AMOUNT. (a) Voluntary Reductions. The Borrower may from time to time permanently reduce or terminate the Revolving Committed Amount in whole or in part (in minimum aggregate amounts of $1,000,000 or in integral multiples of $1,000,000 in excess thereof (or, if less, the full remaining amount of the then applicable Revolving Committed Amount)) upon five Business Days' prior written notice to the Agent; provided, however, no such termination or reduction shall be made which would cause the sum of the aggregate outstanding principal amount of Revolving Loans plus the aggregate amount of outstanding Swing Line Loans plus LOC Obligations to exceed the lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base, unless, concurrently with such termination or reduction, the Revolving Loans are repaid to the extent necessary to eliminate such excess. The Agent shall promptly notify each affected Lender of receipt by the Agent of any notice from the Borrower pursuant to this Section 3.4(a). (b) Term Loan Commitments. The Term Loan Commitment of each Lender, if any, shall automatically terminate at such time as such Lender shall have made available to the Borrower such Lender's share of the Term Loan. (c) Mandatory Reductions. The Revolving Committed Amount automatically shall be permanently reduced from time to time in accordance with the terms of Section 3.3(b)(v). (d) Maturity Date. Unless terminated sooner pursuant to Section 3.4(a) or Section 9.2, the Revolving Commitments of the Lenders and the LOC Commitment of the 42 Issuing Lender shall automatically terminate on the Maturity Date (as such Maturity Date may be extended pursuant to the terms of Section 12.2). (e) General. The Borrower shall pay to the Agent for the account of the Lenders in accordance with the terms of Section 3.5(a), on the date of each termination or reduction of the Revolving Committed Amount, the Unused Fee accrued through the date of such termination or reduction on the amount of the Revolving Committed Amount so terminated or reduced. 3.5 FEES. (a) Unused Fee. In consideration of the Revolving Commitments of the Lenders hereunder, the Borrower promises to pay to the Agent for the account of each Lender a fee (the "Unused Fee") on the Unused Revolving Committed Amount computed at a per annum rate for each day during the applicable Unused Fee Calculation Period (hereinafter defined) at a rate equal to the Applicable Percentage in effect from time to time. The Unused Fee shall commence to accrue on July 12, 2001 and shall be due and payable in arrears on the Closing Date and, thereafter, on the last Business Day of each March, June, September and December (and on any date that the Revolving Committed Amount is reduced and on the Maturity Date) for the immediately preceding quarter (or portion thereof) (each such quarter or portion thereof for which the Unused Fee is payable hereunder being herein referred to as an "Unused Fee Calculation Period"), beginning with the first of such dates to occur after the Closing Date. Notwithstanding the foregoing, the Unused Fee due and payable on the Closing Date shall be, with respect to the period from July 12, 2001 to the Closing Date, net of the equivalent fee the Borrower is paying under the Existing Loan Agreement. (b) Agent's Fees. The Borrower promises to pay to the Agent, for its own account and for the account of Banc of America Securities LLC, as applicable, the fees referred to in the BAMC Fee Letter. (c) Letter of Credit Fees. (i) Standby Letter of Credit Issuance Fee. In consideration of the issuance of standby Letters of Credit hereunder, the Borrower promises to pay to the Agent for the account of each Lender a fee (the "Standby Letter of Credit Fee") on such Lender's Revolving Commitment Percentage of the average daily maximum amount available to be drawn under each such standby Letter of Credit computed at a per annum rate for each day from the date of issuance to the date of expiration equal to the Applicable Percentage. The Standby Letter of Credit Fee will be payable quarterly in arrears on the last Business Day of each March, June, September and December for the immediately preceding quarter (or a portion thereof). (ii) Trade Letter of Credit Drawing Fee. In consideration of the issuance of trade Letters of Credit hereunder, the Borrower promises to pay to the Agent for the account of each Lender a fee (the "Trade Letter of Credit Fee") on such Lender's Revolving Commitment Percentage of the average daily maximum amount available to be drawn under each such trade Letter of Credit computed at 43 a per annum rate for each day from the date of issuance to the date of expiration equal to the Applicable Percentage. The Trade Letter of Credit Fee will be payable quarterly in arrears on the last Business Day of each March, June, September and December for the immediately preceding quarter (or a portion thereof). (iii) Issuing Lender Fees. In addition to the Standby Letter of Credit Fee payable pursuant to clause (i) above and the Trade Letter of Credit Fee payable pursuant to clause (ii) above, the Borrower promises to pay to the Agent for the account of the Issuing Lender without sharing by the other Lenders (i) a letter of credit fronting fee of 0.125% on the average daily maximum amount available to be drawn under each Letter of Credit computed at a per annum rate for each day from the date of issuance to the date of expiration (which fronting fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December for the immediately preceding quarter (or a portion thereof)) and (ii) the customary charges from time to time of the Issuing Lender with respect to the issuance, amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit. 3.6 CAPITAL ADEQUACY. If any Lender has reasonably determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then, within thirty (30) days of notice from such Lender to the Borrower (such notice to include reasonable detail as to such change), the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction; provided that the Borrower shall not be obligated to reimburse any Lender for such increase or reduction for any period ninety (90) days prior to such Lender providing notice if such Lender was aware of the circumstances that existed which would cause such increase or reduction during such ninety (90) day prior-period. Each determination by any such Lender of amounts owing under this Section shall if made in good faith, absent manifest error, be conclusive and binding on the parties hereto. 3.7 LIMITATION ON EURODOLLAR LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) the Agent determines (which determination if made in good faith shall be conclusive absent manifest error) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or 44 (b) the Required Lenders determine (which determination if made in good faith shall be conclusive absent manifest error) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base Rate Loans in accordance with the terms of this Loan Agreement. 3.8 ILLEGALITY. Notwithstanding any other provision of this Loan Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be applicable). 3.9 REQUIREMENTS OF LAW. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Loans, its Notes, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Loan Agreement or its Notes in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Eurodollar Reserve Percentage utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or the London interbank market any other condition affecting this Loan Agreement or its Notes or any of such extensions of credit or liabilities or commitments; 45 and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Loan Agreement or its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to such Lender within thirty (30) days of notice from such Lender to the Borrower (such notice to include reasonable detail as to such change) such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 3.9, the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.10 shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 3.9 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 3.9 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive, if made in good faith, in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. (b) The Borrower shall not be required to compensate a Lender pursuant to this Section 3.9 for any increased costs or reductions incurred more than 90 days prior to the date that such Lender notifies the Borrower of the change of law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided that, if the change of law giving rise to such increased costs or reductions is retroactive, then such 90-day period referred to above shall be extended to include the period of retroactive effect thereof. 3.10 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make any Eurodollar Loan or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 3.7, 3.8 or 3.9 hereof, such Lender's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for such Eurodollar Loans (or, in the case of a Conversion, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 3.7, 3.8 or 3.9 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. 46 If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.7, 3.8 or 3.9 hereof that gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to principal amounts, interest rate basis, and Interest Periods) in accordance with their respective Commitments. 3.11 TAXES. (a) Any and all payments by any Credit Party to or for the account of any Lender or the Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, (i) by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof or (ii) by reason of any present or former connection between the Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision thereof, other than such a connection arising solely from the Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced this Loan Agreement or the Notes (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If any Credit Party shall be required by law to deduct any Taxes from or in respect of any sum payable under this Loan Agreement or any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.11) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Credit Party shall make such deductions, (iii) such Credit Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) such Credit Party shall furnish to the Agent, at its address referred to in Section 11.1, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Loan Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Loan Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.11) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. This indemnification shall be made 47 within thirty (30) days from the date the Agent or such Lender, or the case may be, makes written demand therefor. (d) Each Lender that is not a United States person under Section 7701(a)(30) of the Code, on or prior to the date of its execution and delivery of this Loan Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form W-8 BEN or W-8 ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces to zero the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Loan Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and/or (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from tax on payments pursuant to this Loan Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 3.11(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If any Credit Party is required to pay additional amounts to or for the account of any Lender pursuant to this Section 3.11, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Without prejudice to the survival of any other agreement of the Credit Parties hereunder, the agreements and obligations of the Credit Parties contained in this Section 3.11 shall survive the repayment of the Loans, the LOC Obligations and other obligations under the Loan Documents and the termination of the Commitments hereunder. 3.12 COMPENSATION. Upon demand of any Lender (with a copy to the Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: 48 (a) any Continuation, Conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, Continue or Convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or (c) any assignment of a Eurodollar Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 3.17; including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.12, each Lender shall be deemed to have funded each Eurodollar Loan made by it at the Interbank Offered Rate for such Loan by a matching deposit or other borrowing in the applicable offshore Dollar interbank market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded. The covenants of the Borrower set forth in this Section 3.12 shall survive the repayment of the Loans, the LOC Obligations and other obligations under the Loan Documents and the termination of the Commitments hereunder. 3.13 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) Loans. Each Loan (other than Swing Line Loans), each payment or (subject to the terms of Section 3.3) prepayment of principal of any Loan (other than Swing Line Loans) or reimbursement obligations arising from drawings under Letters of Credit, each payment of interest on the Loans (other than Swing Line Loans) or reimbursement obligations arising from drawings under Letters of Credit, each payment of Unused Fees, each payment of the Standby Letter of Credit Fee, each payment of the Trade Letter of Credit Fee, each reduction of the Revolving Committed Amount and each conversion or extension of any Loan (other than Swing Line Loans), shall be allocated pro rata among the Lenders in accordance with the respective principal amounts of their outstanding Loans of the applicable type and Participation Interests in Loans of the applicable type and Letters of Credit. (b) Swing Line Loans. The Swing Line Lender shall receive, for its own account, all payments or prepayments of principal and interest with respect to the Swing Line Loans; provided, however, upon the funding of the Participants' participation interests with respect to a Swing Line Loan pursuant to Section 2.2(d), such Participants shall be entitled to receive their pro rata share of any payment or prepayment of principal and interest with respect to such Swing Line Loan. 49 (c) Advances. (i) No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make its ratable share of a borrowing hereunder; provided, however, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. (ii) Unless the Borrower or any Lender has notified the Agent prior to the date any payment is required to be made by it to the Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Agent in immediately available funds, then: (A) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Lender to the date such amount is repaid to the Agent in immediately available funds, at the Federal Funds Rate from time to time in effect; and (B) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Agent to the Borrower to the date such amount is recovered by the Agent (the "Compensation Period") at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender does not pay such amount forthwith upon the Agent's demand therefor, the Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights that the Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder. A notice of the Agent to any Lender with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error. 50 3.14 SHARING OF PAYMENTS. The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Loan, LOC Obligations or any other obligation owing to such Lender under this Loan Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Loan Agreement, such Lender shall promptly purchase from the other Lenders a Participation Interest in such Loans, LOC Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Loan Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a Participation Interest theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a Participation Interest may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such Participation Interest as fully as if such Lender were a holder of such Loan, LOC Obligations or other obligation in the amount of such Participation Interest. Except as otherwise expressly provided in this Loan Agreement, if any Lender shall fail to remit to the Agent or any other Lender an amount payable by such Lender to the Agent or such other Lender pursuant to this Loan Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.14 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 under this Section 3.14 to share in the benefits of any recovery on such secured claim. 3.15 PAYMENTS, COMPUTATIONS, ETC. (a) Generally. Except as otherwise specifically provided herein, all payments hereunder shall be made to the Agent in Dollars in immediately available funds, without condition or deduction for any counterclaim, defense, recoupment or setoff of any kind, at the Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower or any other Credit Party maintained with the Agent (with notice to the Borrower or such other Credit Party). The Borrower shall, at the time it makes any payment under this Loan Agreement, specify to the Agent the Loans, LOC Obligations, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Agent shall distribute such 51 payment to the Lenders in such manner as the Agent may determine to be appropriate in respect of obligations owing by the Borrower hereunder, subject to the terms of Section 3.13(a)). The Agent will distribute such payments to such Lenders, if any such payment is received prior to 2:00 P.M. (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Base Rate Loans and Swing Line Loans which shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. (b) Allocation of Payments After Acceleration. Notwithstanding any other provisions of this Loan Agreement to the contrary, after acceleration of the Credit Party Obligations pursuant to Section 9.2, all amounts collected or received by the Agent or any Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Loan Documents or in respect of the Collateral shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Agent in connection with enforcing the rights of the Lenders under the Loan Documents and any protective advances made by the Agent with respect to the Collateral under or pursuant to the terms of the Collateral Documents; SECOND, to payment of any fees owed to the Agent or the Swing Line Lender; THIRD, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest; FOURTH, to the payment of the outstanding principal amount of the Credit Party Obligations (including the cash collateralization of the outstanding LOC Obligations); FIFTH, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Loan Documents or otherwise with respect to the Credit Party Obligations owing to such Lender; 52 SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Loan Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category, (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans and LOC Obligations held by such Lender bears to the aggregate then outstanding Loans and LOC Obligations) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above and (iii) to the extent that any amounts available for distribution pursuant to clause "FIFTH" above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Agent in a cash collateral account and applied (A) first, to reimburse the Issuing Lender from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses "FIFTH" and "SIXTH" above in the manner provided in this Section 3.15(b). 3.16 EVIDENCE OF DEBT. (a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Loan Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary. (b) The Agent shall maintain the Register pursuant to Section 11.3(c), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder from or for the account of any Credit Party and each Lender's share thereof. The Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary. (c) The entries made in the accounts, Register and subaccounts maintained pursuant to clause (b) of this Section 3.16 (and, if consistent with the entries of the Agent, clause (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Credit Parties therein recorded; provided, however, that the failure of any Lender or the Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Credit Parties to repay the Credit Party Obligations owing to such Lender. 3.17 MANDATORY ASSIGNMENT. In the event any Lender delivers to the Borrower any notice in accordance with Section 3.6, 3.8, 3.9, or 3.11, then, provided that no Default or Event of Default has occurred and is continuing at such time, the Borrower may, at its own expense (such expense to include any transfer fee 53 payable to the Agent under Section 11.3(b)), and in its sole discretion require such Lender to transfer and assign in whole or in part, without recourse (in accordance with and subject to the terms and conditions of Section 11.3(b)), all or part of its interests, rights and obligations under this Loan Agreement to any assignee which shall assume such assigned obligations, provided that (i) such assignee shall be (a) any Lender or any Affiliate or Subsidiary of a Lender, or (b) any other commercial bank, financial institution or "accredited investor" (as defined in Regulation D of the Securities and Exchange Commission) reasonably acceptable to the Agent, (ii) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority and (iii) the Borrower or such assignee shall have paid to the assigning Lender in immediately available funds the principal of and interest accrued to the date of such payment on the Loans made by it hereunder and all other amounts owed to it hereunder (including, without limitation, any amounts owing pursuant to Section 3.6, 3.8, 3.9, or 3.11). SECTION 4 GUARANTY 4.1 THE GUARANTY. Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the Agent as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Credit Party Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Credit Party Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Credit Party Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents or Hedging Agreements, the obligations of each Guarantor under this Loan Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any applicable state law. 4.2 OBLIGATIONS UNCONDITIONAL. The obligations of the Guarantors under Section 4.1 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents or Hedging Agreements, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Credit Party Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all 54 circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor for amounts paid under this Section 4 until such time as the Credit Party Obligations have been Fully Satisfied. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: (a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Credit Party Obligations shall be extended, or such performance or compliance shall be waived; (b) any of the acts mentioned in any of the provisions of any of the Loan Documents, any Hedging Agreement between any Consolidated Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Loan Documents or such Hedging Agreements shall be done or omitted; (c) the maturity of any of the Credit Party Obligations shall be accelerated, or any of the Credit Party Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents, any Hedging Agreement between any Consolidated Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Loan Documents or such Hedging Agreements shall be waived or any other guarantee of any of the Credit Party Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with; (d) any Lien granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Credit Party Obligations shall fail to attach or be perfected; or (e) any of the Credit Party Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents, any Hedging Agreement between any Consolidated Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Loan Documents or such Hedging Agreements, or against any other Person under any other guarantee of, or security for, any of the Credit Party Obligations. 4.3 REINSTATEMENT. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Credit Party Obligations is rescinded or must be otherwise restored by any holder of any of the Credit Party Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) 55 incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.4 CERTAIN ADDITIONAL WAIVERS. Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Credit Party Obligations, except through the exercise of rights of subrogation pursuant to Section 4.2 and through the exercise of rights of contribution pursuant to Section 4.6. 4.5 REMEDIES. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, the Credit Party Obligations may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Credit Party Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Credit Party Obligations being deemed to have become automatically due and payable), the Credit Party Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.1. The Guarantors acknowledge and agree that their obligations hereunder are secured in accordance with the terms of the Collateral Documents and that the Lenders may exercise their remedies thereunder in accordance with the terms thereof. 4.6 RIGHTS OF CONTRIBUTION. The Guarantors hereby agree as among themselves that, if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor's Contribution Share (as defined below) of such Excess Payment. The payment obligations of any Guarantor under this Section 4.6 shall be subordinate and subject in right of payment to the Credit Party Obligations until such time as the Credit Party Obligations have been Fully Satisfied, and none of the Guarantors shall exercise any right or remedy under this Section 4.6 against any other Guarantor until such Credit Party Obligations have been Fully Satisfied. For purposes of this Section 4.6, (a) "Excess Payment" shall mean the amount paid by any Guarantor in excess of its Pro Rata Share of any Credit Party Obligations; (b) "Pro Rata Share" shall mean, for any Guarantor in respect of any payment of Credit Party Obligations, the ratio (expressed as a percentage) as of the date of such payment of Credit Party Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Credit Parties exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Credit Parties hereunder) of the Credit Parties; provided, however, that, for purposes of calculating the Pro Rata Shares of the Guarantors in respect of any payment of Credit Party Obligations, any Guarantor that became a Guarantor subsequent to the date of any such 56 payment shall be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such payment; and (c) "Contribution Share" shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Credit Parties other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Credit Parties) of the Credit Parties other than the maker of such Excess Payment; provided, however, that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment. This Section 4.6 shall not be deemed to affect any right of subrogation, indemnity, reimbursement or contribution that any Guarantor may have under applicable law against the Borrower in respect of any payment of Credit Party Obligations. Notwithstanding the foregoing, all rights of contribution against any Guarantor shall terminate from and after such time, if ever, that such Guarantor shall be relieved of its obligations pursuant to Section 8.5. 4.7 GUARANTEE OF PAYMENT; CONTINUING GUARANTEE. The guarantee in this Section 4 is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Credit Party Obligations whenever arising. SECTION 5 CONDITIONS 5.1 CLOSING CONDITIONS. The obligation of the Lenders to enter into this Loan Agreement and to make the initial Loans or the Issuing Lender to issue the initial Letters of Credit, whichever shall occur first, shall be subject to satisfaction of the following conditions: (a) Executed Loan Documents. Receipt by the Agent of duly executed copies of: (i) this Loan Agreement, (ii) the Notes, (iii) the Collateral Documents, (iv) the BAMC Fee Letter and (v) all other Loan Documents. (b) Corporate Documents. Receipt by the Agent of the following: (i) Charter Documents. Copies of the articles or certificates of incorporation or other charter documents of each Credit Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state 57 or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date. (ii) Bylaws. A copy of the bylaws of each Credit Party certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date. (iii) Resolutions. Copies of resolutions of the Board of Directors of each Credit Party approving and adopting the Loan Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of such Credit Party to be true and correct and in force and effect as of the Closing Date. (iv) Good Standing. Copies of certificates of good standing, existence or its equivalent with respect to each Credit Party certified as of a recent date by the appropriate Governmental Authorities of the state or other jurisdiction of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing could have a Material Adverse Effect. (v) Incumbency. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary to be true and correct as of the Closing Date. (c) Opinions of Counsel. The Agent shall have received, in each case dated as of the Closing Date and in form and substance reasonably satisfactory to the Agent: (i) a legal opinion of Robinson Bradshaw & Hinson, outside counsel for the Credit Parties; (ii) a legal opinion of in-house counsel for the Credit Parties with respect to various corporate and organizational matters for each Credit Party; and (iii) a legal opinion of special local North Carolina counsel for the Credit Parties for the North Carolina Mortgaged Property . (d) Personal Property Collateral. The Agent shall have received: (i) searches of Uniform Commercial Code filings in the jurisdiction of the chief executive office of each Credit Party and each jurisdiction where any Collateral is located or where a filing would need to be made in order to perfect the Agent's security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens; (ii) duly executed UCC financing statements (or amendments, if appropriate) for each appropriate jurisdiction as is necessary, in the Agent's sole discretion, to perfect the Agent's security interest in the Collateral; 58 (iii) searches of ownership of, and Liens on, intellectual property of each Credit Party in the appropriate governmental offices; (iv) all certificates evidencing any certificated Capital Stock pledged to the Agent pursuant to the Pledge Agreement, together with duly executed in blank, undated stock powers attached thereto (unless, with respect to the pledged Capital Stock of any Foreign Subsidiary, such stock powers are deemed unnecessary by the Agent in its reasonable discretion under the law of the jurisdiction of incorporation of such Person); (v) duly executed notices of grant of security interest in the form required by the Security Agreement as are necessary, in the Agent's sole discretion, to perfect the Agent's security interest in the Collateral; (vi) all instruments and chattel paper in the possession of any of the Credit Parties, together with allonges or assignments as may be necessary or appropriate to perfect the Agent's security interest in the Collateral; and (vii) duly executed consents as are necessary, in the Agent's reasonable discretion, to perfect the Agent's security interest in the Collateral. (e) Real Property Collateral. The Agent shall have received, in form and substance reasonably satisfactory to the Agent: (i) fully executed and notarized mortgages, deeds of trust or deeds to secure debt (each, as the same may be amended, modified, restated or supplemented from time to time, a "Mortgage Instrument" and collectively the "Mortgage Instruments") encumbering the fee interest and/or leasehold interest of any Credit Party in each of the Real Properties (other than Excluded Properties) designated in Schedule 6.20(a) (each a "Mortgaged Property" and collectively the "Mortgaged Properties"); (ii) an update of the ALTA mortgagee title insurance policies issued by Commonwealth Land Title Company of North Carolina (the "Mortgage Policies"), in amounts not less than the respective amounts designated in Schedule 6.20(a) with respect to the North Carolina Mortgaged Property (other than leasehold sites), assuring the Agent that each of the Mortgage Instruments creates a valid and enforceable first priority mortgage lien on the applicable Mortgaged Property, free and clear of all defects and encumbrances except Permitted Liens, which Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to the Agent and shall include such endorsements as are reasonably requested by the Agent; (iii) for all real properties other than leasehold properties, evidence as to (A) whether any Mortgaged Property is in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards (a "Flood Hazard Property") and (B) if any Mortgaged Property is a Flood Hazard Property, (1) whether the community in which such Mortgaged Property is 59 located is participating in the National Flood Insurance Program, (2) the applicable Credit Party's written acknowledgment of receipt of written notification from the Agent (a) as to the fact that such Mortgaged Property is a Flood Hazard Property and (b) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program and (3) copies of insurance policies or certificates of insurance of the Consolidated Parties evidencing flood insurance satisfactory to the Agent and naming the Agent as sole loss payee on behalf of the Lenders; (f) Opening Borrowing Base Report. Receipt by the Agent of a Borrowing Base Certificate as of the Closing Date in a form reasonably acceptable to the Agent. (g) Availability. After giving effect to the Transaction, including the initial Loans made hereunder on the Closing Date, the Revolving Committed Amount and the amount of availability existing under the Borrowing Base shall exceed the sum of the aggregate outstanding principal amount of Revolving Loans by at least $8,000,000. (h) Evidence of Insurance. Receipt by the Agent of copies of insurance policies or certificates of insurance of the Consolidated Parties evidencing liability and casualty insurance meeting the requirements set forth in the Loan Documents, including, but not limited to, naming the Agent as additional insured (in the case of liability insurance) or loss payee (in the case of hazard insurance) on behalf of the Lenders. (i) Consents. Receipt by the Agent of evidence that all governmental, shareholder and material third party consents (including Hart-Scott-Rodino clearance) and approvals necessary or desirable in connection with the Transaction and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Transaction or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the judgment of the Agent could have such effect. (j) Consummation of Transaction. The Agent's satisfactory review of the Purchase Agreement (including all schedules and exhibits thereto and, if applicable, any contemplated seller financing and/or third-party service or supply agreement) (collectively, the "Transaction Documents") regarding the acquisition of substantially all of the Acquired Product which shall provide for an aggregate purchase price not in excess of $100.0 million, with an amount not to exceed $52.5 million payable at the closing of the acquisition of the Acquired Product and the balance payable in installments on the first, second and third anniversaries of such closing. The Transaction shall have been consummated in accordance with the terms of the Transaction Documents and in material compliance with applicable law and regulatory approvals, all material conditions precedent to the obligations of the buyer under the Purchase Agreement shall have been satisfied and the Agent shall be satisfied that after giving effect to the Transaction, including the application on the Closing Date of the proceeds of the related financings and equity contributions, the Consolidated Parties shall have no Indebtedness except for Indebtedness permitted under Section 8.1. The Transaction Documents shall not have been altered, amended or otherwise changed or supplemented in any material respect or any material condition therein waived, without the prior written consent of the Agent. 60 (k) Officer's Certificates. The Agent shall have received a certificate or certificates executed by an Executive Officer of the Borrower as of the Closing Date, in form and substance satisfactory to the Agent, stating that (A) each Credit Party is in compliance with all existing material financial obligations, (B) all material governmental, shareholder and third party consents and approvals, if any, with respect to the Loan Documents and the transactions contemplated thereby have been obtained, (C) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect any Credit Party or any transaction contemplated by the Loan Documents, if such action, suit, investigation or proceeding would reasonably be expected to have a Material Adverse Effect, (D) the transactions contemplated by the Purchase Agreement have been consummated contemporaneously with funding of the Facilities hereunder in accordance with the terms thereof and (E) immediately after giving effect to the Transaction, (1) no Default or Event of Default exists and (2) all representations and warranties contained herein and in the other Loan Documents are true and correct in all material respects. (l) Solvency. The Agent shall have received (i) a certificate executed by an Executive Officer of the Borrower as of the Closing Date, in form and substance satisfactory to the Agent, regarding the Solvency of each of the Credit Parties on a consolidated basis and (ii) an opinion from an independent auditor or appraiser acceptable to the Agent as to the Solvency of the Credit Parties on a consolidated basis after giving effect to the Transaction. (m) Fees and Expenses. Payment by the Credit Parties to the Lenders and the Agent of all fees and expenses relating to the Credit Facilities which are due and payable on the Closing Date, including, without limitation, payment to the Agent of the fees set forth in the BAMC Fee Letter. (n) Additional Financial Information. The Agent shall have received and, in each case been satisfied with, (i) a closing balance sheet giving effect to the Transaction and the transactions contemplated hereby and reflecting estimated purchase price accounting adjustments, all meeting the requirements of Regulation S-X under the Securities Act of 1933, as amended, applicable to a Registration Statement under such act on Form S-1 and (ii) interim monthly financial statements and monthly working capital detail for the trailing twelve months and interim quarterly financial statements and quarterly working capital detail for the first projected year (including, in the case of projections, pro forma financial information giving effect to the Transaction and the transactions contemplated hereby). (o) Litigation, Etc. There shall not exist (a) any order, decree, judgment, ruling or injunction which restrains the consummation of the Transaction in the manner contemplated by the Transaction Documents, and (b) any pending or threatened action, suit, investigation or proceeding, which, if adversely determined, could materially and adversely affect the Borrower or its subsidiaries, any transaction contemplated hereby or the ability of the Borrower and its subsidiaries or any other Guarantor to perform its obligations under the documentation for the Credit Facilities or the ability of the Lenders to exercise their rights thereunder. 61 (p) No Material Adverse Change. There shall not have occurred a material adverse change since December 31, 2000 in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower or the Acquired Product, in the case of the Borrower together with its subsidiaries taken as a whole, or in the facts and information regarding such entities and assets as represented to date. (q) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership and contingent liabilities of the Consolidated Parties. 5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT. The obligations of each Lender to make, convert or extend any Loan and of the Issuing Lender to issue or extent any Letter of Credit (including the initial Loans and the initial Letter of Credit) are subject to satisfaction of the following conditions in addition to satisfaction on the Closing Date of the conditions set forth in Section 5.1: (a) The Borrower shall have delivered (i) in the case of any Revolving Loan, or any portion of the Term Loan, an appropriate Notice of Borrowing or Notice of Extension/Conversion, (ii) in the case of any Swing Line Loan, an appropriate Swing Line Loan Request and (iii) in the case of any Letter of Credit, the Issuing Lender shall have received an appropriate request for issuance in accordance with the provisions of Section 2.4(b). (b) The representations and warranties set forth in Section 6 shall, subject to the limitations set forth therein, be true and correct in all material respects as of such date (except for those which expressly relate to an earlier date); (c) No Default or Event of Default shall exist and be continuing either immediately prior to or immediately after giving effect thereto; and (d) Immediately after giving effect to the making of such Loan, in the case of a request for a Revolving Loan, (and the application of the proceeds thereof) or to the issuance of such Letter of Credit, as the case may be, (i) the sum of the aggregate outstanding principal amount of Revolving Loans plus the aggregate outstanding principal amount of Swing Line Loans plus the LOC Obligations shall not exceed the lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base and (ii) the LOC Obligations shall not exceed the LOC Committed Amount. The delivery of each Notice of Borrowing and each request for a Letter of Credit pursuant to Section 2.4(b) shall constitute a representation and warranty by the Credit Parties of the correctness of the matters specified in subsections (b), (c) and (d) above. 62 SECTION 6 REPRESENTATIONS AND WARRANTIES The Credit Parties hereby represent to the Agent and each Lender that: 6.1 FINANCIAL CONDITION. (a) The audited consolidated and unaudited consolidating balance sheets and income statements of the Consolidated Parties for the fiscal years ended December 31, 1999 and December 31, 2000 (including the notes thereto) (i) have been audited (with respect to such consolidated statements) by Ernst & Young LLP, (ii) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (iii) present fairly in all material respects (on the basis disclosed in the footnotes to such financial statements) the consolidated and consolidating financial condition, results of operations and cash flows (consolidated only) of the Consolidated Parties as of such date and for such periods. The unaudited interim balance sheets of the Consolidated Parties as at the end of, and the related unaudited interim statements of earnings and of cash flows for the 6-month period ended June 30, 2001 and each fiscal month and quarterly period ended after June 30, 2001 and prior to the Closing Date (i) have been prepared in accordance with GAAP (except for the omission of footnotes and subject to year end audit adjustment) consistently applied throughout the periods covered thereby and (ii) present fairly the consolidated and consolidating financial condition, results of operations and cash flows (consolidated only) of the Consolidated Parties as of such date and for such periods. During the period from June 30, 2001 to and including the Closing Date, there has been no sale, transfer or other disposition by any Consolidated Party of any material part of the business or property of the Consolidated Parties, taken as a whole, and no purchase or other acquisition (other than the Transaction and the acquisition of substantially all of the assets of the Pharmaceutical Education and Development Foundation of the Medical University of South Carolina) by any of them of any business or property (including any Capital Stock of any other Person) material in relation to the consolidated financial condition of the Consolidated Parties, taken as a whole, in each case, which is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lenders on or prior to the Closing Date. As of the Closing Date, the Borrower and its Subsidiaries have no material liabilities (contingent or otherwise) that are not reflected in the foregoing financial statements or in the notes thereto. (b) The pro forma consolidated balance sheet of the Consolidated Parties as of the Closing Date giving effect to the Acquisition in accordance with the terms of the Purchase Agreement and reflecting estimated purchase accounting adjustments is based upon reasonable assumptions made known to the Lenders and upon information not known to be incorrect or misleading in any material respect. (c) The financial statements delivered pursuant to Section 7.1(a) and (b) have been prepared in accordance with GAAP (except as may otherwise be permitted under Section 7.1(a) and (b)) and present fairly in all material respects (in the case of such statements delivered pursuant to Section 7.1(a), on the basis disclosed in the footnotes to 63 such financial statements) the consolidated and consolidating financial condition, results of operations and cash flows of the Consolidated Parties as of such date and for such periods. 6.2 NO MATERIAL CHANGE. Since December 31, 2000, there has been no development or event relating to or affecting a Consolidated Party which has had or would reasonably be expected to have a Material Adverse Effect. 6.3 ORGANIZATION AND GOOD STANDING. Each of the Consolidated Parties (a) is duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the corporate or other necessary power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged and (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing would not have or would not reasonably be expected to have a Material Adverse Effect. 6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party, and in the case of the Borrower, to obtain extensions of credit hereunder, and has taken all necessary corporate or other necessary action to authorize the borrowings and other extensions of credit on the terms and conditions of this Loan Agreement and to authorize the execution, delivery and performance of the Loan Documents to which it is a party. No consent or authorization of, filing with, notice to or other similar act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of any Credit Party in connection with the borrowings or other extensions of credit hereunder, with the execution, delivery, performance, validity or enforceability of the Loan Documents to which such Credit Party is a party or with the consummation of the Transaction, except for (i) consents, authorizations, notices and filings described in Schedule 6.4, all of which have been obtained or made or have the status described in such Schedule 6.4 and (ii) filings and other actions to perfect the Liens created by the Collateral Documents. This Loan Agreement has been, and each other Loan Document to which any Credit Party is a party will be, duly executed and delivered on behalf of the Credit Parties. This Loan Agreement constitutes, and each other Loan Document to which any Credit Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) or by principles of good faith and fair dealing. 6.5 NO CONFLICTS. Neither the execution and delivery of the Loan Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and 64 provisions thereof by such Credit Party will (a) violate or conflict with any provision of its articles or certificate of incorporation or bylaws or other organizational or governing documents of such Person, (b) violate, contravene or materially conflict with any Requirement of Law or any other law, regulation (including, without limitation, Regulation U or Regulation X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any material indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, except in the case of clauses (b) and (c) where such violations or conflicts would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, or (d) result in or require the creation of any Lien (other than those contemplated in or created in connection with the Loan Documents) upon or with respect to its properties. 6.6 NO DEFAULT. No Consolidated Party is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default could have a Material Adverse Effect. No Default or Event of Default exists except as previously disclosed in writing to the Lenders. 6.7 OWNERSHIP OF PROPERTIES. Except as set forth in Schedule 6.7, each Consolidated Party (i) holds interests as lessee under valid leases in full force and effect with respect to all material leased real and personal property used in connection with its business, (ii) possesses or has rights to use licenses, patents, copyrights, trademarks, service marks, trade names and other assets sufficient to enable it to continue to conduct its business substantially as heretofore conducted and without any material conflict with the rights of others, and (iii) has good title to all of its other properties and assets reflected in the most recent financial statements referred to in Section 6.1(a) (except as sold or otherwise disposed of since the date thereof in the ordinary course of business and except those properties which would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect), in each case under (i), (ii) and (iii) above free and clear of all Liens other than Permitted Liens. 6.8 INDEBTEDNESS. Except as otherwise permitted under Section 8.1, the Consolidated Parties have no material Indebtedness. 6.9 LITIGATION. Except as disclosed in Schedule 6.9, there does not exist (i) any order, decree, judgment, ruling or injunction which restrains the consummation of the acquisition of the Acquired Product in the manner contemplated by the Purchase Agreement or (ii) any pending or threatened action, suit or legal, equitable, arbitration or administrative proceeding against any Consolidated Party which would be reasonably expected to have a Material Adverse Effect. 65 6.10 TAXES. Each Consolidated Party has filed, or caused to be filed, all tax returns (Federal, state, local and foreign) required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which are not yet delinquent or (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP. No Credit Party is aware as of the Closing Date of any proposed tax assessments against it or any other Consolidated Party. 6.11 COMPLIANCE WITH LAW. Each Consolidated Party is in compliance with all Requirements of Law and all other laws, rules, regulations, orders and decrees (including without limitation Environmental Laws) applicable to it, or to its properties, unless such failure to comply could not reasonably be expected to have a Material Adverse Effect. 6.12 ERISA. Except as disclosed and described in Schedule 6.12 attached hereto: (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the knowledge of the Executive Officers of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any applicable Plan; (iii) each Plan has been maintained, operated, and funded in material compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable Federal or state laws; and (iv) no Lien in favor of the PBGC or a Plan has arisen, and, to the knowledge of the Executive Officers of the Credit Parties, no event or condition has occurred or exists as a result of which, such a Lien is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, in accordance with Financial Accounting Standards Board Statement 87, utilizing the actuarial assumptions used in such Plan's most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan. (c) Neither any Consolidated Party nor any ERISA Affiliate has incurred, or, to the knowledge of the Executive Officers of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither any Consolidated Party nor any ERISA 66 Affiliate would become subject to any withdrawal liability under ERISA if any Consolidated Party or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. Neither any Consolidated Party nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the knowledge of the Executive Officers of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) To the knowledge of the Executive Officers of the Credit Parties, no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject any Consolidated Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Consolidated Party or any ERISA Affiliate has agreed or is required to indemnify any Person against any such liability. (e) Neither any Consolidated Party nor any ERISA Affiliates has any material liability with respect to "expected post-retirement benefit obligations" within the meaning of the Financial Accounting Standards Board Statement 106. Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in material compliance with such sections. (f) Neither the execution and delivery of this Loan Agreement nor the consummation of the financing transactions contemplated thereunder will involve any transaction which is subject to the prohibitions of Sections 404, 406 or 407 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code. The representation by the Credit Parties in the preceding sentence is made in reliance upon and subject to the accuracy of the Lenders' representation in Section 11.15 with respect to their source of funds and is subject, in the event that the source of the funds used by the Lenders in connection with this transaction is an insurance company's general asset account, to the application of Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg. 35,925 (1995), compliance with the regulations issued under Section 401(c)(1)(A) of ERISA, or the issuance of any other prohibited transaction exemption or similar relief, to the effect that assets in an insurance company's general asset account do not constitute assets of an "employee benefit plan" within the meaning of Section 3(3) of ERISA or a "plan" within the meaning of Section 4975(e)(1) of the Code. 6.13 CORPORATE STRUCTURE; CAPITAL STOCK, ETC. The corporate ownership structure of the Consolidated Parties as of the Closing Date after giving effect to the Transaction is as described in Schedule 6.13A. Set forth on Schedule 6.13B is a complete and accurate list as of the Closing Date with respect to the Borrower and each of its direct and indirect Subsidiaries of (i) jurisdiction of incorporation, (ii) number of shares of each class of Capital Stock outstanding, (iii) number and percentage of outstanding shares of each class owned (directly or indirectly) by the Consolidated Parties and (iv) number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with 67 respect thereto as of the Closing Date. The outstanding Capital Stock of all such Persons is validly issued, fully paid and non-assessable and is owned by the Consolidated Parties, directly or indirectly, in the manner set forth on Schedule 6.13B, free and clear of all Liens (other than those arising under or contemplated in connection with the Loan Documents). Other than as set forth in Schedule 6.13B, neither the Borrower nor any of its Subsidiaries has outstanding any securities convertible into or exchangeable for its Capital Stock nor does any such Person have outstanding any rights to subscribe for or to purchase or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to its Capital Stock. 6.14 GOVERNMENTAL REGULATIONS, ETC. (a) None of the transactions contemplated by this Loan Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act, the Securities Exchange Act or any of Regulations U and X. If requested by any Lender or the Agent, the Borrower will furnish to the Agent and each Lender a statement, in conformity with the requirements of FR Form U-1 referred to in Regulation U, that no part of the Letters of Credit or proceeds of the Loans will be used, directly or indirectly, for the purpose of "buying" or "carrying" any "margin stock" within the meaning of Regulations U and X, or for the purpose of purchasing or carrying or trading in any securities. (b) None of the Consolidated Parties is (i) an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding company" as defined in, or otherwise subject to regulation under, the Public Utility Holding Company Act of 1935, as amended or (iii) subject to regulation under any other Federal or state statute or regulation which limits its ability to incur Indebtedness. 6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT. The proceeds of the Loans hereunder shall be used solely by the Borrower to effect the Transaction, to pay fees and expenses related to the Transaction and transactions contemplated by the Loan Documents, to refinance the outstanding principal amount of existing indebtedness of the Borrower and to provide for working capital and general corporate purposes of the Borrower and its Subsidiaries. The Letters of Credit shall be used only for or in connection with appeal bonds, reimbursement obligations arising in connection with surety and reclamation bonds, reinsurance, domestic or international trade transactions and obligations not otherwise aforementioned relating to transactions entered into by the applicable account party in the ordinary course of business. 6.16 ENVIRONMENTAL MATTERS. Except as could not reasonably be expected to have a Material Adverse Effect or as disclosed and described in Schedule 6.16 attached hereto: (a) Each of the Real Properties and all operations at the Real Properties are in compliance with all applicable Environmental Laws, there is no violation of any Environmental Law with respect to the Real Properties or the Businesses, and there are no 68 conditions relating to the Real Properties or the Businesses that could give rise to liability under any applicable Environmental Laws. (b) None of the Real Properties contains, or to the Credit Parties' knowledge has previously contained, any Materials of Environmental Concern at, on or under the Real Properties in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws. (c) No Consolidated Party has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Real Properties or the Businesses, nor does any Executive Officer of any Credit Party have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the knowledge of the Credit Parties, Materials of Environmental Concern have not been transported or disposed of from the Real Properties, or generated, treated, stored or disposed of at, on or under any of the Real Properties or any other location, in each case by or on behalf of any Consolidated Party in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of the Executive Officers of the Credit Parties, threatened, under any Environmental Law to which any Consolidated Party is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Consolidated Parties, the Real Properties or the Businesses. (f) To the knowledge of the Credit Parties, there has been no release, or threat of release, of Materials of Environmental Concern at or from the Real Properties, or arising from or related to the operations (including, without limitation, disposal) of any Consolidated Party in connection with the Real Properties or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 6.17 INTELLECTUAL PROPERTY. Each Consolidated Party owns, or has the legal right to use, all trademarks, service marks, trade names, trade dress, patents, copyrights, technology, know-how and processes (the "Intellectual Property") necessary for each of them to conduct its business as currently conducted except for those the failure to own or have such legal right to use could not have a Material Adverse Effect. Set forth on Schedule 6.17 is a list of all Intellectual Property registered or pending registration with the United States Copyright Office or the United States Patent and Trademark Office and owned by each Consolidated Party or that any Consolidated Party has the right to use. Except as provided on Schedule 6.17, no claim has been asserted and is pending by any Person challenging or questioning the use of the Intellectual Property or the validity or effectiveness of the Intellectual Property, nor does any Credit Party know of any such claim, and, to the knowledge of the Executive Officers of 69 the Credit Parties, the use of the Intellectual Property by any Consolidated Party or the granting of a right or a license in respect of the Intellectual Property from any Consolidated Party does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. As of the Closing Date, none of the Intellectual Property (other than Intellectual Property in jurisdictions other than the United States) of the Consolidated Parties is subject to any licensing agreement or similar arrangement except as set forth on Schedule 6.17. 6.18 SOLVENCY. The Credit Parties are Solvent on a consolidated basis. 6.19 INVESTMENTS. All Investments of each Consolidated Party are Permitted Investments. 6.20 BUSINESS LOCATIONS. Set forth on Schedule 6.20(a) is a list of all Real Properties located in the United States as of the Closing Date. Set forth on Schedule 6.20(b) is a list of all locations where any tangible personal property of a Consolidated Party is located as of the Closing Date. Set forth on Schedule 6.20(c) is the chief executive office, jurisdiction of incorporation or formation and principal place of business of each Consolidated Party as of the Closing Date. 6.21 DISCLOSURE. Neither this Loan Agreement, nor any other Loan Document or Transaction Document, nor any financial statements delivered to the Lenders nor any other document, certificate or statement furnished to the Lenders by or on behalf of any Consolidated Party in connection with the transactions contemplated hereby taken as a whole contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein not materially misleading. 6.22 NO BURDENSOME RESTRICTIONS. No Consolidated Party is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could have a Material Adverse Effect. 6.23 BROKERS' FEES. No Consolidated Party has any obligation to any Person in respect of any finder's, broker's, investment banking or other similar fee in connection with any of the transactions contemplated under the Loan Documents other than to the Agent, Lenders and their Affiliates in connection therewith. 70 6.24 LABOR MATTERS. Except as set forth on Schedule 6.24, there are no collective bargaining agreements or Multiemployer Plans covering the employees of a Consolidated Party as of the Closing Date and none of the Consolidated Parties has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years. 6.25 NATURE OF BUSINESS. As of the Closing Date, the Consolidated Parties are engaged in the business of specialty pharmaceutical services with comprehensive drug development capabilities with focus in fee-for-service pharmaceutical services, drug product sales, pharmaceutical product development, and product life cycle management and ancillary businesses. 6.26 INTENTIONALLY OMITTED. 6.27 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 6.27 or disclosed in filings with the Securities and Exchange Commission, there are no material Contractual Obligations of the Borrower or any of its Subsidiaries to any of the officers, directors, managers, shareholders, members, employees, Affiliates or their respective Affiliates, or Related Parties, of the Borrower or any of its Subsidiaries other than (i) for payment of salary for services rendered, (ii) reimbursement for reasonable expenses incurred on behalf of the Borrower or its Subsidiaries, (iii) for standard employee benefits made generally available to all employees of the Borrower (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Borrower, (iv) pursuant to any of the Loan Documents and (v) between or among Consolidated Parties. None of the officers, directors, managers, shareholders, members, employees, Affiliates, or their respective Affiliates or Related Parties, of the Borrower or any of its Subsidiaries has incurred Indebtedness to the Borrower or has any direct or indirect ownership interest in any Person with which the Borrower is affiliated or, to the Borrower's best knowledge, with which the Borrower or any of its Subsidiaries has a business relationship except that such Person may own stock in publicly traded companies. Other than as set forth on Schedule 6.27 or disclosed in filings with the Securities and Exchange Commission, no officer, director, manager, shareholder, member, employee, Affiliate (other than Consolidated Parties), or any of their respective Affiliates or Related Parties, of the Borrower or any of its Subsidiaries, is, directly or indirectly, interested in any material Contractual Obligation with the Borrower. Except as may be expressly disclosed in notes to the financial statements delivered pursuant to Section 7.1 hereof, the Borrower is not a guarantor or indemnitor of any Indebtedness of any other Person. SECTION 7 AFFIRMATIVE COVENANTS Each Credit Party hereby covenants and agrees that until such time as this Loan Agreement has been terminated in accordance with the terms of Section 11.13: 71 7.1 INFORMATION COVENANTS. The Credit Parties will furnish, or cause to be furnished, to the Agent and each of the Lenders: (a) Annual Financial Statements. As soon as available, and in any event within 90 days after the close of each fiscal year of the Consolidated Parties, either (i) a copy of a report on Form 10-K, or any successor form, and any amendments thereto, filed by the Borrower with the Securities and Exchange Commission with respect to the immediately preceding fiscal year or (ii) a consolidated and consolidating balance sheet and income statement of the Consolidated Parties as of the end of such fiscal year, together with related consolidated statements of stockholders' equity and cash flows for such fiscal year, in each case setting forth in comparative form consolidated figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and audited (except as to consolidating statements) by independent certified public accountants of recognized national standing reasonably acceptable to the Agent and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified as to the status of the Consolidated Parties as a going concern or any other material qualifications or exceptions. (b) Quarterly Financial Statements. As soon as available, and in any event within 45 days after the close of each of the first three fiscal quarters of each fiscal year of the Consolidated Parties (and, in addition, within 45 days after the close of the fiscal quarter ending December 31, 2001), either (i) a copy of a report on Form 10-Q, or any successor form, and any amendments thereto, filed by the Borrower with the Securities and Exchange Commission with respect to the immediately preceding fiscal quarter or (ii) an unaudited consolidated and consolidating balance sheet and income statement of the Consolidated Parties as of the end of such fiscal quarter, together with related consolidated statements of stockholders' equity and cash flows for such fiscal quarter, in each case setting forth in comparative form consolidated and consolidating figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Agent, and accompanied by a certificate of an Executive Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Consolidated Parties and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments and to the absence of footnotes required by GAAP. (c) Monthly Financial Statements. As soon as available, and in any event within 30 days after the end of each of the first two months of each fiscal quarter, a consolidated balance sheet and income statement of the Consolidated Parties as of the end of such month, together with related consolidated statements of stockholders' equity and cash flows for such month, in each case setting forth in comparative form consolidated figures for the corresponding month of the preceding fiscal year, all such financial information described above to be in reasonable form and detail (and to include, in the case of the consolidated statements of stockholders' equity and cash flows, revenue and volume data for any products acquired and/or marketed by NeoSan) and reasonably acceptable to the Agent, and 72 accompanied by a certificate of an Executive Officer of the Borrower to the effect that such monthly financial statements fairly present in all material respects the financial condition of the Consolidated Parties and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments. (d) Officer's Certificate. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of an Executive Officer of the Borrower substantially in the form of Exhibit 7.1(d), (i) demonstrating compliance with the financial covenants contained in Section 7.10 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Credit Parties propose to take with respect thereto. (e) Borrowing Base Certificates. Within 30 days after the end of each calendar quarter, a certificate as of the end of the immediately preceding month, substantially in the form of Exhibit 7.1(e) and certified by an Executive Officer of the Borrower to be true and correct as of the date thereof (a "Borrowing Base Certificate"). (f) Annual Business Plan and Budgets. As soon as available and in any event prior to the end of the first month of each fiscal year of the Borrower, beginning with the fiscal year ending December 31 2002, an annual business plan and budget of the Consolidated Parties containing, among other things, pro forma financial statements for such fiscal year (including a breakdown by fiscal quarter). Such plan and budget shall be revised after the second fiscal quarter of such fiscal year and such revised plan and budget shall be delivered to the Agent as soon as available and in any event no later than sixty (60) days after the end of such second fiscal quarter. (g) INTENTIONALLY OMITTED. (h) Accountant's Certificate. Within the period for delivery of the annual financial statements provided in Section 7.1(a), a certificate of the accountants conducting the annual audit stating that they have reviewed this Loan Agreement as it relates to accounting and other financial matters and stating further whether, in the course of their audit, they have become aware of any Default or Event of Default and, if any such Default or Event of Default exists, specifying the nature and extent thereof, provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of their audit examination. (i) Auditor's Reports. Promptly upon receipt thereof, a copy of any other report or "management letter" submitted by independent accountants to any Consolidated Party in connection with any annual, interim or special audit of the books of such Person. (j) Reports. Promptly upon transmission or receipt thereof, (i) copies of any filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports as any Consolidated Party shall send to its shareholders or to a holder of any Indebtedness owed by any Consolidated Party in its capacity as such a 73 holder and (ii) upon the request of the Agent, all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any successor agencies or authorities concerning environmental, health or safety matters. (k) Notices. Upon any Executive Officer of a Credit Party obtaining knowledge thereof, the Credit Parties will give written notice to the Agent immediately of (i) the occurrence of an event or condition consisting of a Default or Event of Default, specifying the nature and existence thereof and what action the Credit Parties propose to take with respect thereto, and (ii) the occurrence of any of the following with respect to any Consolidated Party (A) the pendency or commencement of any litigation, arbitral or governmental proceeding against such Person which if adversely determined would be reasonably likely to have a Material Adverse Effect or (B) the institution of any proceedings against such Person with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation, or alleged violation of any Federal, state or local law, rule or regulation, including but not limited to, Environmental Laws, the violation of which would be reasonably likely to have a Material Adverse Effect. (l) ERISA. Upon any Executive Officer of a Credit Party obtaining knowledge thereof, the Credit Parties will give written notice to the Agent promptly (and in any event within five Business Days) of: (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or would be reasonably likely to lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Credit Parties or any ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which any Consolidated Party or any ERISA Affiliate is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (iv) any change in the funding status of any Plan that could have a Material Adverse Effect, together with a description of any such event or condition or a copy of any such notice and a statement by an Executive Officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the Credit Parties shall furnish the Agent and the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). (m) Environmental. Upon the reasonable written request of the Agent, the Credit Parties will furnish or cause to be furnished to the Agent, at the Credit Parties' expense, a report of an environmental assessment of reasonable scope, form and depth, (including, where appropriate, invasive soil or groundwater sampling) by a consultant reasonably acceptable to the Agent as to the nature and extent of the presence of any Materials of Environmental Concern on any Real Properties (as defined in Section 6.16) and as to the 74 compliance by any Consolidated Party with Environmental Laws at such Real Properties. If the Credit Parties fail to deliver such an environmental report within seventy-five (75) days after receipt of such written request then the Agent may arrange for same, and the Consolidated Parties hereby grant to the Agent and their representatives access to the Real Properties (to the extent such Consolidated Party has rights thereto) pursuant to a reasonable access agreement, to reasonably undertake such an assessment (including, where appropriate, invasive soil or groundwater sampling). The reasonable cost of any assessment arranged for by the Agent pursuant to this provision will be payable by the Credit Parties on demand and added to the obligations secured by the Collateral Documents. (n) Additional Patents and Trademarks. At the time of delivery of the financial statements and reports provided for in Section 7.1(a), a report signed by an Executive Officer of the Borrower setting forth (i) a list of registration numbers for all patents, trademarks, service marks, trade names and copyrights awarded to any Credit Party since the last day of the immediately preceding fiscal year and (ii) a list of all patent applications, trademark applications, service mark applications, trade name applications and copyright applications submitted by any Credit Party since the last day of the immediately preceding fiscal year and the status of each such application, all in such form as shall be reasonably satisfactory to the Agent. (o) Other Information. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of any Consolidated Party as the Agent or the Required Lenders may reasonably request. 7.2 PRESERVATION OF EXISTENCE AND FRANCHISES. Except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary not prohibited by Section 8.4 or Section 8.5, each Credit Party will, and will cause each of its Subsidiaries to, do all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority except to the extent the failure to do so would not be reasonably likely to have a Material Adverse Effect. 7.3 BOOKS AND RECORDS. Each Credit Party will, and will cause each of its Subsidiaries to, keep complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves). 7.4 COMPLIANCE WITH LAW. Each Credit Party will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its Property if noncompliance with any such law, rule, regulation, order or restriction would reasonably be expected to have a Material Adverse Effect. 75 7.5 PAYMENT OF TAXES AND OTHER CLAIMS. Each Credit Party will, and will cause each of its Subsidiaries to, pay and discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent and (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties; provided, however, that no Consolidated Party shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) could give rise to an immediate right to foreclose on a Lien securing such amounts or (ii) would reasonably be expected to have a Material Adverse Effect. 7.6 INSURANCE. (a) Each Credit Party will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice. The Agent shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Agent, that it will give the Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled. The present insurance coverage of the Consolidated Parties is outlined as to carrier, policy number, expiration date, type and amount on Schedule 7.6. (b) In the event that the Consolidated Parties receive Net Cash Proceeds in excess of $500,000 in aggregate amount during any fiscal year of the Consolidated Parties ("Excess Proceeds") on account of Involuntary Dispositions, the Credit Parties shall, within the period of 180 days following the date of receipt of such Excess Proceeds, apply (or cause to be applied) an amount equal to such Excess Proceeds to (i) make Eligible Reinvestments (including but not limited to the repair or replacement of the related Property) or (ii) prepay the Loans (and cash collateralize LOC Obligations) in accordance with the terms of Section 3.3(b)(ii)(B); provided, however, that such 180 day period may be extended for not more than an additional 180 days if (i) the applicable Credit Party is diligently pursuing such Eligible Reinvestment in good faith, but can not complete within the initial 180 days and (ii) the Borrower is not otherwise in Default. All insurance proceeds shall be subject to the security interest of the Agent (for the ratable benefit of the Lenders) under the Collateral Documents. Pending final application of any Excess Proceeds, the Credit Parties may apply such Excess Proceeds to temporarily reduce the Revolving Loans or to make Permitted Investments. 7.7 MAINTENANCE OF PROPERTY. Each Credit Party will, and will cause each of its Subsidiaries to, to the extent consistent with ordinary prudent business practices, maintain and preserve its properties and equipment 76 material to the conduct of its business in good repair, working order and condition, normal wear and tear and Involuntary Dispositions excepted, and will make, or cause to be made, in such properties and equipment from time to time all repairs, renewals, replacements, extensions, additions, betterments and improvements thereto as may be needed or proper, to the extent and in the manner customary for companies in similar businesses; provided, however, a Credit Party may discontinue the operation or maintenance of a property or piece of equipment if the discontinuance (i) is desirable to the conduct of such Credit Party's business and (ii) does not materially adversely affect the business of the Credit Parties on a consolidated basis. 7.8 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans and will use the Letters of Credit solely for the purposes set forth in Section 6.15. 7.9 AUDITS/INSPECTIONS. Upon reasonable notice and during normal business hours, each Credit Party will, and will cause each of its Subsidiaries to, permit representatives appointed by the Agent, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect its property, including its books and records, its accounts receivable and inventory, its facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Agent or its representatives to investigate and verify the accuracy of information provided to the Lenders and to discuss all such matters with the officers, employees and representatives of such Person. The Credit Parties agree that the Agent, and its representatives, may, after the occurrence and during the continuation of an Event of Default, conduct an audit of the Collateral, at the expense of the Credit Parties. 7.10 FINANCIAL COVENANTS. (a) Leverage Ratio. The Leverage Ratio, as of the last day of each fiscal quarter of the Consolidated Parties commencing with the fiscal quarter ending on December 31, 2001, shall be less than or equal to 4.0 to 1.0. (b) Consolidated Net Worth. At all times after September 30, 2001, the Consolidated Net Worth of the Borrower shall be greater than or equal to 85% of Consolidated Net Worth as of September 30, 2001, increased on a cumulative basis as of the end of each fiscal quarter of the Consolidated Parties, commencing with the fiscal quarter ending on December 31, 2001, by an amount equal to (i) 50% of Consolidated Net Income (to the extent positive) for such fiscal quarter plus (y) 100% of the Net Cash Proceeds of any Equity Issuances consummated during such fiscal quarter. (c) Interest Coverage Ratio. The Interest Coverage Ratio, as of the last day of each fiscal quarter of the Consolidated Parties commencing with the fiscal quarter ending on December 31, 2001, shall be greater than or equal to 3.0 to 1.0. (d) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio, as of the last day of each fiscal quarter of the Consolidated Parties commencing with the fiscal quarter ending on December 31, 2001, shall be greater than or equal to 1.5 to 1.0. 77 (e) Minimum Consolidated EBITDA. The sum of (i) Consolidated EBITDA minus (ii) scheduled rental payments under the TROL for the period from July 1, 2001 through the end of the fiscal quarter indicated below shall be equal to or greater than the amounts set forth below:
Minimum Consolidated Quarter Ending EBITDA -------------- -------------------- September 30, 2001 $ 2,000,000 December 31, 2001 $ 7,500,000 March 31, 2002 $14,000,000 June 30, 2002 $20,000,000 September 30, 2002 $26,000,000
7.11 ADDITIONAL GUARANTORS. As soon as practicable and in any event within 30 days after any Person becomes a direct or indirect domestic Subsidiary of any Credit Party, the Credit Parties shall (i) provide the Agent with written notice thereof and shall cause such Person to execute a Joinder Agreement in substantially the same form as Exhibit 7.11, (ii) deliver such other documentation as the Agent may reasonably request in connection with the foregoing, including, without limitation, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the Joinder Agreement) and other items of the types required to be delivered pursuant to Section 5.1(b), all in form, content and scope reasonably satisfactory to the Agent and (iii) otherwise comply with Section 7.12 in respect of such Person. 7.12 PLEDGED ASSETS. Subject to the provisions of Section 7.13 , each Credit Party will (i) cause all of its owned and leased real and personal Property other than Excluded Property to be subject at all times to first priority, perfected and, in the case of real Property (whether leased or owned), title insured Liens in favor of the Agent to secure the Credit Party Obligations pursuant to the terms and conditions of the Collateral Documents or, with respect to any such Property acquired subsequent to the Closing Date, such other additional security documents as the Agent shall reasonably request, subject in any case to Permitted Liens and (ii) deliver such other documentation as the Agent may reasonably request in connection with the foregoing, including, without limitation, appropriate UCC-1 financing statements, real estate title insurance policies, surveys, environmental reports, landlord's waivers, certified resolutions and other organizational and authorizing documents of such Person, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of the Agent's liens thereunder) and other items of the types required to be delivered pursuant to Section 5.1(d) and (e), all in form, content and scope reasonably satisfactory to the Agent. Without limiting the generality of the above, the 78 Credit Parties will cause (A) 100% of the issued and outstanding Capital Stock of each Domestic Subsidiary and (B) 65% (or such greater percentage that, due to a change in an applicable Requirement of Law after the date hereof, (1) would not reasonably be expected to cause the undistributed earnings of such Foreign Subsidiary as determined for United States federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent and (2) would not reasonably be expected to cause any material adverse tax consequences) of the issued and outstanding Capital Stock entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and outstanding Capital Stock not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) in each Foreign Subsidiary owned directly by the Borrower or a Domestic Subsidiary to be subject at all times to a first priority, perfected Lien in favor of the Agent pursuant to the terms and conditions of the Collateral Documents or such other security documents as the Agent shall reasonably request; provided, however, this requirement shall not apply to any Foreign Subsidiary if such Foreign Subsidiary (i) is currently being liquidated, and such liquidation is completed on or prior to December 31, 2001 or (ii) has assets less than $250,000. 7.13 POST-CLOSING DELIVERIES. (a) On or before October 31, 2001, the Credit Parties agree to provide the Agent with (i) a pledge (pursuant to an appropriate pledge agreement(s) satisfactory in form and substance to the Agent) of 65% (or such greater percentage that, due to a change in an applicable Requirement of Law after the date hereof, (A) could not reasonably be expected to cause the undistributed earnings of Applied Analytical Industries Deutschland GmbH (the "German Subsidiary") as determined for United Stated federal income tax purposes to be treated as a deemed dividend of the German Subsidiary's United States parent or (B) could not reasonably be expected to cause any material adverse tax consequences) of the Capital Stock of the German Subsidiary, (ii) a legal opinion of foreign counsel of the German Subsidiary in a form satisfactory to the Agent, which shall cover the enforceability and perfection of the Agent's security interest in each such pledged shares of the German Subsidiary and (iii) certificates evidencing any such certificated Capital Stock, together with duly executed in blank, undated stock powers attached thereto (unless, such stock powers are deemed unnecessary by the Agent in its reasonable discretion under the law of the jurisdiction of such German Subsidiary). (b) On or before October 31, 2001, the Credit Parties agree to provide the Agent with, in the case of each real property leasehold interest of any Credit Party constituting Mortgaged Property, (a) such estoppel letters, consents and waivers from the landlords on such real property as may be required by the Agent, which estoppel letters shall be in the form and substance reasonably satisfactory to the Agent and (b) evidence that the applicable lease, a memorandum of lease with respect thereto, or other evidence of such lease in form and substance reasonably satisfactory to the Agent, has been or will be recorded in all places to the extent necessary or desirable, in the reasonable judgment of the Agent, so as to enable the Mortgage Instrument encumbering such leasehold interest to effectively create a valid and enforceable first priority lien (subject to Permitted Liens) on such leasehold interest in favor of the Agent (or such other Person as may be required or desired under local law) for the benefit of Lenders; (c) On or before September 15, 2001, the Credit Parties agree to provide the Agent with contracts with Integrated Commercialization Solutions, Inc. and Ventiv in form and substance reasonably satisfactory to the Agent. On or before January 31, 2002, the Credit Parties 79 agree to provide Agent with an executed supply agreement in customary form with Novation LLC. (d) On or before October 31, 2001, the Credit Parties agree to provide the Agent with evidence reasonably satisfactory to the Agent of the assignment, registration of assignment and registration of name change with the United States Patent and Trademark Office of certain patents and trademarks that constitute Collateral as the Agent may require. (e) If the litigation set forth as Item 3 on Schedule 6.9, is not settled, and dismissed of record with prejudice on or before October 31, 2001 (or such later date as the Agent and the Borrower may reasonably agree to), the Credit Parties agree to provide the Agent on or before November 15, 2001 with duly executed notices of grant of security interest in the form required by the Security Agreement as are necessary, in the Agent's sole discretion, to perfect the Agent's security interest in the following patents: Patent Nos. 6,187,345 and 6,228, 401. SECTION 8 NEGATIVE COVENANTS Each Credit Party hereby covenants and agrees that until such time as this Loan Agreement has been terminated in accordance with the terms of Section 11.13: 8.1 INDEBTEDNESS. The Credit Parties will not permit any Consolidated Party to contract, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness arising under this Loan Agreement and the other Loan Documents; (b) Indebtedness of the Borrower and its Subsidiaries set forth in Schedule 8.1 (and renewals, refinancings and extensions thereof on terms and conditions no less favorable to such Person than such existing Indebtedness); provided that the existing Synthetic Lease may be refinanced on market terms by (i) a new Synthetic Lease covering the same Property or (ii) new on-balance sheet financing so long as the collateral for such financing includes only the Property subject to the existing Synthetic Lease. (c) purchase money Indebtedness (including obligations in respect of Capital Leases or Synthetic Leases) hereafter incurred by the Borrower or any of its Subsidiaries to finance the purchase of fixed assets provided that (i) the total of all such Indebtedness for all such Persons taken together shall not exceed an aggregate principal amount of $5,000,000 at any one time outstanding; (ii) such Indebtedness when incurred shall not exceed the purchase price of the asset(s) financed; and (iii) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing; 80 (d) obligations of the Borrower in respect of Hedging Agreements entered into in order to manage existing or anticipated interest rate or exchange rate risks and not for speculative purposes; (e) intercompany Indebtedness and Guarantees permitted under Section 8.6; (f) Indebtedness evidenced by Mezzanine Securities, provided that (i) the Net Cash Proceeds of such Indebtedness are applied in accordance with Section 3.3(b) and (ii) the terms of the Mezzanine Securities are no less favorable to the Borrower than those set forth on Schedule 12.1; (g) Guaranty Obligations of Indebtedness and Operating Leases permitted hereunder; (h) any deferred purchase price of a Permitted Acquisition to the extent such amount is (i) owed in connection with the Transaction, (ii) owed in connection with the acquisition of substantially all of the assets of the Pharmaceutical Education and Development Foundation of the Medical University of South Carolina, or (iii) otherwise permitted to be incurred pursuant to Section 8.6(j)(viii); (i) endorsements in the ordinary course of business of negotiable instruments for deposit or collection; and (j) other Indebtedness hereafter incurred by the Borrower or any of its Subsidiaries not to exceed an aggregate principal amount of $2,000,000 at any one time outstanding; provided that any Indebtedness incurred in excess of $1,000,000 pursuant to this subclause (j) shall be permitted only if (A) the loan documentation with respect to such Indebtedness shall not contain covenants or default provisions relating to any Consolidated Party that are more restrictive than the covenants and default provisions contained in the Loan Documents, (B) the Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving effect on a Pro Forma Basis to the incurrence of such Indebtedness and to the concurrent retirement of any other Indebtedness of any Consolidated Party, the Credit Parties would be in compliance with the financial covenants set forth in Section 7.10(a)-(e). 8.2 LIENS. The Credit Parties will not permit any Consolidated Party to contract, create, incur, assume or permit to exist any Lien with respect to any of its Property, whether now owned or hereafter acquired, except for: (a) Liens in favor of the Agent to secure the Credit Party Obligations; (b) Liens (other than Liens created or imposed under ERISA) for taxes, assessments or governmental charges or levies not more than 30 days past due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); 81 (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, provided that such Liens secure only amounts not more than 30 days past due and are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (d) Liens (other than Liens created or imposed under ERISA) incurred or deposits made by any Consolidated Party in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (e) Liens in connection with attachments or judgments (including judgment or appeal bonds) provided that the judgments secured shall, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within 60 days after the expiration of any such stay; (f) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes; (g) Liens on Property of any Person securing purchase money Indebtedness (including Capital Leases and Synthetic Leases) of such Person permitted under Section 8.1(c), provided that any such Lien attaches to such Property concurrently with or within 90 days after the acquisition thereof; (h) leases or subleases granted to others not interfering in any material respect with the business of any Consolidated Party; (i) any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Loan Agreement; (j) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 8.6; (k) normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions; (l) Liens of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection; 82 (m) Liens of sellers of goods to the Borrower and any of its Subsidiaries arising under Article 2 of the Uniform Commercial Code or similar provisions of applicable law in the ordinary course of business, covering only the goods sold and securing only the unpaid purchase price for such goods and related expenses; and (n) Liens existing as of the Closing Date and set forth on Schedule 8.2; provided that (i) no such Lien shall at any time be extended to or cover any Property other than the Property subject thereto on the Closing Date and (ii) the principal amount of the Indebtedness secured by such Liens shall not be extended, renewed, refunded or refinanced other than in accordance with Section 8.1(b). 8.3 NATURE OF BUSINESS. The Credit Parties will not permit any Consolidated Party to materially alter the character or conduct of the business conducted by such Person as of the Closing Date. 8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC. Except in connection with a Permitted Asset Disposition, the Credit Parties will not permit any Consolidated Party to enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that, notwithstanding the foregoing provisions of this Section 8.4 but subject to the terms of Sections 7.11 and 7.12, (a) the Borrower may merge or consolidate with any of its Subsidiaries provided that the Borrower shall be the continuing or surviving corporation, (b) any Credit Party other than the Borrower may merge or consolidate with any other Credit Party other than the Borrower, (c) any Consolidated Party which is not a Credit Party may be merged or consolidated with or into any Credit Party provided that such Credit Party shall be the continuing or surviving corporation, (d) any Consolidated Party which is not a Credit Party may be merged or consolidated with or into any other Consolidated Party which is not a Credit Party, (e) any Subsidiary of the Borrower may merge with any Person that is not a Credit Party in connection with an Asset Disposition permitted under Section 8.5, (f) the Borrower or any Subsidiary of the Borrower may merge with any Person other than a Consolidated Party in connection with a Permitted Acquisition provided that, if such transaction involves the Borrower, the Borrower shall be the continuing or surviving corporation and (g) any Wholly Owned Subsidiary of the Borrower may dissolve, liquidate or wind up its affairs at any time provided that such dissolution, liquidation or winding up, as applicable, would not be reasonably likely to have a Material Adverse Effect. 8.5 ASSET DISPOSITIONS. The Credit Parties will not permit any Consolidated Party to make any Asset Disposition other than an Excluded Asset Disposition unless (a) the consideration paid in connection therewith shall be cash or Cash Equivalents, such payment to be contemporaneous with consummation of transaction, and shall be in an amount not less than the fair market value of the Property disposed of, (b) if such transaction is a Sale and Leaseback Transaction, such transaction is not prohibited by the terms of Section 8.13, (c) such transaction does not involve the sale or other disposition of a minority equity interest in any Consolidated Party, (d) such transaction does not involve a sale or other disposition of receivables other than receivables owned by or attributable to other Property concurrently being disposed of in a transaction otherwise permitted under this Section 8.5, (e) the 83 aggregate net book value of all of the assets sold or otherwise disposed of by the Consolidated Parties in all such transactions after the Closing Date shall not exceed (i) for the period from the Closing Date through December 31, 2001, $400,000 plus the proceeds received from the sale of the Kansas Property, and (ii) for each calendar year thereafter, $1,000,000, (f) the Credit Parties shall, within the Application Period, apply (or cause to be applied) an amount equal to the Net Cash Proceeds of such Asset Disposition to (i) make Eligible Reinvestments or (ii) prepay the Loans (and cash collateralize LOC Obligations) in accordance with the terms of Section 3.3(b)(ii)(A). Pending final application of the Net Cash Proceeds of any Asset Disposition, the Consolidated Parties may apply such Net Cash Proceeds to temporarily reduce the Revolving Loans or to make Investments in Cash Equivalents. Upon a sale of assets or the sale of Capital Stock of a Consolidated Party permitted by this Section 8.5, the Agent shall (to the extent applicable) deliver to the Credit Parties, upon the Credit Parties' request and at the Credit Parties' expense, such documentation as is reasonably necessary to evidence the release of the Agent's security interest, if any, in such assets or Capital Stock, including, without limitation, amendments or terminations of UCC financing statements, if any, the return of stock certificates, if any, and the release of such Consolidated Party from all of its obligations, if any, under the Loan Documents. 8.6 INVESTMENTS. The Credit Parties will not permit any Consolidated Party to make any Investments, except for: (a) Investments consisting of cash and Cash Equivalents; (b) Investments consisting of accounts receivable created, acquired or made by any Consolidated Party in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (c) Investments consisting of Capital Stock, obligations, securities or other property received by any Consolidated Party in settlement of accounts receivable or other indebtedness (created in the ordinary course of business) from bankrupt obligors; (d) Investments existing as of the Closing Date and set forth in Schedule 8.6; (e) Investments consisting of advances or loans to directors, officers, employees, agents, customers or suppliers that do not exceed $500,000 in the aggregate at any one time outstanding; (f) Investments in the Borrower or any Credit Party; (g) Investments in Foreign Subsidiaries in an aggregate principal amount (excluding Investments of such type set forth in Schedule 8.6) not to exceed $5,000,000 at any time outstanding; (h) Investments consisting of equity securities listed on the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers 84 Automated Quotations system, provided that the purchase price paid for all such equity securities held at any time shall not exceed $250,000; (i) any Eligible Reinvestment of the proceeds of any Involuntary Disposition as contemplated by Section 7.6(b) or of any Asset Disposition as contemplated by Section 8.5(g); or (j) Investments consisting of an Acquisition by the Borrower or any Subsidiary of the Borrower, provided that: (i) the Property acquired (or the Property of the Person acquired) in such Acquisition is used or useful in the same or a similar line of business as the Borrower and its Subsidiaries were engaged in on the Closing Date (or any reasonable extensions or expansions thereof); (ii) the Agent shall have received all items in respect of the Capital Stock or Property acquired in such Acquisition required to be delivered by the terms of Section 7.11 and/or Section 7.12; (iii) in the case of an Acquisition of the Capital Stock of another Person, the board of directors (or other comparable governing body) of such other Person shall have duly approved such Acquisition; (iv) the Borrower shall have delivered to the Agent (A) a Pro Forma Compliance Certificate demonstrating that, upon giving effect to such Acquisition on a Pro Forma Basis, the Credit Parties would be in compliance with the financial covenants set forth in Section 7.10(a)-(e) and (B) a certificate of an Executive Officer of the Borrower, which: (x) in the case of an Acquisition by a Consolidated Party other than NeoSan, (1) demonstrates that, upon giving effect to such Acquisition, at least 90% of Consolidated EBITDA for the most recently ended fiscal year period for each of the Consolidated Parties and the acquired Person or Property (in the aggregate) preceding the date of such Acquisition with respect to which the Agent shall have received the Required Financial Information has been audited in accordance with GAAP, in the case of the Borrower, as required by Section 7.1(a) and, in the case of the acquired Person or Property, by an independent certified public accountants of recognized national standing reasonably acceptable to the Agent (whose opinion shall not be limited as to the scope or qualified as to going concern status or any other material qualifications or exceptions) and (2) to the extent that audited financial information for the acquired Person or Property is required under the terms of the foregoing clause (1), certifies that the quarterly financial statements with respect to the Person or Property acquired for each fiscal quarter period ending after the date of the last audit and immediately prior to the date of such Acquisition have been prepared in accordance with GAAP (subject to audit adjustments and the absence of 85 footnotes) and reviewed by independent certified public accountants of recognized national standing reasonably acceptable to the Agent; and (y) in the case of an Acquisition by NeoSan, certifies that the financial information and/or projections for the acquired Person or Property used in preparing the Pro Forma Compliance Certificate have been prepared in good faith based upon assumptions believed to be reasonable; (v) the representations and warranties made by the Credit Parties in any Loan Document shall be true and correct in all material respects at and as if made as of the date of such Acquisition (after giving effect thereto) except to the extent such representations and warranties expressly relate to an earlier date; (vi) if such transaction involves the purchase of an interest in a partnership between the Borrower (or a Subsidiary of the Borrower) as a general partner and entities unaffiliated with the Borrower or such Subsidiary as the other partners, such transaction shall be effected by having such equity interest acquired by a corporate holding company directly or indirectly wholly-owned by the Borrower newly formed for the sole purpose of effecting such transaction; (vii) after giving effect to such Acquisition, there shall be at least $2,500,000 of availability existing under the Revolving Committed Amount and the Borrowing Base; and (viii) the aggregate consideration (including cash and non-cash consideration and any assumption of Indebtedness, but excluding consideration consisting of any Capital Stock of the Borrower issued to the seller of the Capital Stock or Property acquired in such Acquisition and consideration consisting of the proceeds of any Equity Issuance by the Borrower consummated subsequent to the Closing Date and the proceeds of any Asset Disposition, Excluded Asset Disposition or Involuntary Disposition consummated subsequent to the Closing Date) paid by the Consolidated Parties for Acquisitions occurring after the Closing Date shall not exceed $5,000,000 per annum, excluding earnout payments not required to be recorded in accordance with GAAP, so long as the maximum aggregate amount that could be required to be paid with respect to all outstanding earnout obligations (other than earnouts with respect to the Transaction and the earnouts related to the acquisition of substantially all of the assets of the Pharmaceutical Education and Development Foundation of the Medical University of South Carolina) shall not exceed $5,000,000 per annum. (k) Other Investments not to exceed, in the aggregate, $2,000,000 per annum. 8.7 RESTRICTED PAYMENTS. The Credit Parties will not permit any Consolidated Party to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (a) to make dividends or other distributions payable to any Credit Party (directly or indirectly through Subsidiaries) and (b) as permitted by Section 8.6 or Section 8.9, provided, that notwithstanding the foregoing, (i) the 86 Borrower may make purchases of shares pursuant to the 1995 Stock Option Plan for an aggregate purchase price not to exceed $100,000, (ii) the Borrower may make the $1,000,000 payment due on or about the first anniversary of the Closing Date pursuant to the Purchase Agreement if no Event of Default exists after giving effect to such payment and (iii) the Borrower may make the subsequent payments required pursuant to the Purchase Agreement subject to certain restrictions to be negotiated by the Agent and the Borrower in good faith after the Extension Option has been exercised. 8.8 OTHER INDEBTEDNESS. The Credit Parties will not permit any Consolidated Party to: (a) after the issuance thereof, amend or modify any of the terms of any Subordinated Indebtedness of such Consolidated Party if such amendment or modification would (i) add or change any terms in a manner adverse to such Consolidated Party or to the Lenders, (ii) shorten the final maturity or average life to maturity thereof, (iii) require any payment thereon to be made sooner than originally scheduled, (iv) increase the interest rate or fees applicable thereto or (v) change any subordination provision thereof in a manner adverse to the Lenders; (b) make interest payments in respect of any Subordinated Indebtedness in violation of the applicable subordination provisions; (c) make (or give any notice with respect thereto) any voluntary or optional payment or prepayment in respect of any Subordinated Indebtedness; or (d) make (or give any notice with respect thereto) any redemption, acquisition for value or defeasance (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any Subordinated Indebtedness; or (e) designate any Indebtedness of such Consolidated Party, other than Indebtedness arising under the Loan Documents, as "Designated Senior Debt" (or any like term) under any indenture or other documentation for any Subordinated Indebtedness. 8.9 TRANSACTIONS WITH AFFILIATES. Except as disclosed on Schedule 8.9 or disclosed in documents filed with the Securities and Exchange Commission, the Credit Parties will not permit any Consolidated Party to enter into or permit to exist any transaction or series of transactions with any officer, director, shareholder, Subsidiary or Affiliate of such Person other than (a) advances of working capital to any Credit Party, (b) transfers of cash and assets to any Credit Party, (c) intercompany transactions expressly permitted by this Loan Agreement, (d) normal compensation and reimbursement of expenses of officers and directors and (e) except as otherwise specifically limited in this Loan Agreement, other transactions which are entered into in the ordinary course of such Person's business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms-length transaction with a Person other than an officer, director, shareholder, Subsidiary or Affiliate. 87 8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS. The Credit Parties will not permit any Consolidated Party to change its fiscal year or amend, modify or change its articles of incorporation (or corporate charter or other similar organizational document) or bylaws (or other similar document). 8.11 LIMITATION ON RESTRICTED ACTIONS. The Credit Parties will not permit any Consolidated Party to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other obligation owed to any Credit Party, (c) make loans or advances to any Credit Party, (d) sell, lease or transfer any of its Property to any Credit Party, or (e) act as a Credit Party and pledge its assets (other than Excluded Property) pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (a)-(d) above) for such encumbrances or restrictions existing under or by reason of (i) this Loan Agreement and the other Loan Documents, (ii) applicable law, (iii) any document or instrument governing Indebtedness incurred pursuant to Section 8.1(c), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (iv) any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien, (v) customary restrictions and conditions contained in any agreement relating to the sale of any Property permitted under Section 8.5 pending the consummation of such sale, or (vi) items set forth on Schedule 8.11. 8.12 OWNERSHIP OF SUBSIDIARIES. Notwithstanding any other provisions of this Loan Agreement to the contrary, the Credit Parties will not permit any Consolidated Party to (i) permit any Person (other than the Borrower or any Wholly Owned Subsidiary of the Borrower) to own any Capital Stock of any Subsidiary of the Borrower, except (A) to qualify directors where required by applicable law or to satisfy other requirements of applicable law with respect to the ownership of Capital Stock of Foreign Subsidiaries, (B) as a result of or in connection with a dissolution, merger, consolidation or disposition of a Subsidiary not prohibited by Section 8.4 or Section 8.5 or (C) the minority interests in the Chinese Subsidiaries as set forth on Schedule 6.13B, (ii) permit any Subsidiary of the Borrower to issue or have outstanding any shares of preferred Capital Stock or (iii) permit, create, incur, assume or suffer to exist any Lien on any Capital Stock of any Subsidiary of the Borrower, except for Permitted Liens. 8.13 SALE LEASEBACKS. The Credit Parties will not permit any Consolidated Party to enter into any Sale and Leaseback Transaction (other than in connection with, and to the extent necessary for, the refinancing of Synthetic Leases existing as of the Closing Date and set forth on Schedule 8.1) involving property costs in excess of $1,000,000 per annum. 88 8.14 CAPITAL EXPENDITURES. The Credit Parties will not permit Consolidated Capital Expenditures for any fiscal year to exceed $10,000,000 per annum, plus the unused amount available for Consolidated Capital Expenditures under this Section 8.14 for the immediately preceding fiscal year (excluding any carry forward available from any prior fiscal year). 8.15 NO FURTHER NEGATIVE PLEDGES. The Credit Parties will not permit any Consolidated Party to enter into, assume or become subject to any agreement prohibiting or otherwise restricting the existence of any Lien upon any of its Property in favor of the Agent (for the benefit of the Lenders) for the purpose of securing the Credit Party Obligations, whether now owned or hereafter acquired, or requiring the grant of any security for any obligation if such Property is given as security for the Credit Party Obligations, except (a) in connection with any document or instrument governing Indebtedness incurred pursuant to Section 8.1(c), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (b) in connection with any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien and (c) pursuant to customary restrictions and conditions contained in any agreement relating to the sale of any Property permitted under Section 8.5, pending the consummation of such sale. 8.16 OPERATING LEASE OBLIGATIONS. The Credit Parties will not permit any Consolidated Party to enter into, assume or permit to exist any obligations for the payment of rental under Operating Leases which in the aggregate for all such Persons would exceed $9,000,000 in any fiscal year. SECTION 9 EVENTS OF DEFAULT 9.1 EVENTS OF DEFAULT. An Event of Default shall exist upon the occurrence and during the continuance of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall (i) default in the payment when due of any principal of any of the Loans or any reimbursement obligations arising from drawings under Letters of Credit, or (ii) default, and such default shall continue for three (3) or more Business Days, in the payment when due of any interest on the Loans or any reimbursement obligations arising from drawings under Letters of Credit or of any 89 Fees or other amounts owing hereunder, under any of the other Loan Documents or in connection herewith or therewith; or (b) Representations. Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Loan Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or (c) Covenants. Any Credit Party shall: (i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.2, 7.8, 7.10, 7.11 or 7.12 or Section 8; (ii) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.1(a), (b), (c) or (d) and such default shall continue unremedied for a period of at least 5 days after the earlier of an Executive Officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (iii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1) contained in this Loan Agreement or any other Loan Document and such default shall continue unremedied for a period of at least 30 days after the earlier of an Executive Officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (d) Other Loan Documents. Except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary not prohibited by Section 8.4 or Section 8.5, any Loan Document shall fail to be in full force and effect or to give the Agent and/or the Lenders the Liens, rights, powers and privileges purported to be created thereby, or any Credit Party shall so state in writing; or (e) Guaranties. Except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary not prohibited by Section 8.4 or Section 8.5, the guaranty given by any Guarantor hereunder (including any Person after the Closing Date in accordance with Section 7.11) or any provision thereof shall cease to be in full force and effect, or any Guarantor (including any Person after the Closing Date in accordance with Section 7.11) hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty; or (f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any Consolidated Party; or (g) Defaults under Other Agreements. 90 (i) Any Consolidated Party shall default in the performance or observance (beyond the applicable grace period with respect thereto, if any) or any material obligation or condition of any contract or lease material to the Consolidated Parties taken as a whole if such default could reasonably be expected to have a Material Adverse Effect; or (ii) With respect to any Indebtedness (other than Indebtedness outstanding under this Loan Agreement) in excess of $2,000,000 in the aggregate for the Consolidated Parties taken as a whole, (A) either (1) a default in any payment shall occur and continue (beyond the applicable grace period with respect thereto, if any) with respect to any such Indebtedness, or (2) a default in the observance or performance relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Indebtedness to become due prior to its stated maturity; or (B) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (h) Judgments. One or more judgments or decrees shall be entered against one or more of the Consolidated Parties involving a liability of $2,000,000 or more in the aggregate (to the extent not paid or fully covered by insurance provided by a carrier who has acknowledged coverage and has the ability to perform) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or (i) ERISA. Any of the following events or conditions, if such event or condition could involve possible taxes, penalties, and other liabilities in an aggregate amount in excess of $2,000,000: (i) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of any Consolidated Party or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in (A) the termination of such Plan for purposes of Title IV of ERISA, or (B) any Consolidated Party or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency (within the meaning of Section 4245 of ERISA) of such Plan; or (iv) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject any Consolidated Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Consolidated Party or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or 91 (j) Ownership. There shall occur a Change of Control. 9.2 ACCELERATION; REMEDIES. Upon the occurrence and during the continuance of an Event of Default, the Agent may or, upon the request and direction of the Required Lenders, shall, by written notice to the Credit Parties take any of the following actions: (a) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (b) Acceleration. Declare the unpaid Credit Party Obligations to be due, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Credit Parties. (c) Cash Collateral. Direct the Borrower to pay (and the Borrower hereby promises to pay, upon receipt of such notice) to the Agent additional cash, to be held by the Agent, for the benefit of the Lenders, in a cash collateral account as additional security for the LOC Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the maximum aggregate amount which may be drawn under all Letters of Credits then outstanding. (d) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Loan Documents including, without limitation, all rights and remedies existing under the Collateral Documents, all rights and remedies against a Guarantor and all rights of set-off. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur with respect to the Borrower, then, without the giving of any notice or other action by the Agent or the Lenders, (i) the Commitments automatically shall terminate, (ii) all of the outstanding Credit Party Obligations automatically shall immediately become due and payable, and (iii) the Borrower automatically shall be obligated (and hereby promises) to pay to the Agent additional cash, to be held by the Agent, for the benefit of the Lenders, in a cash collateral account as additional security for the LOC Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the maximum aggregate amount which may be drawn under all Letters of Credits then outstanding. SECTION 10 AGENCY PROVISIONS 10.1 APPOINTMENT AND AUTHORIZATION OF AGENT. (a) Each Lender hereby irrevocably (subject to Section 10.9) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Loan Agreement and each other Loan Document and to exercise such powers and 92 perform such duties as are expressly delegated to it by the terms of this Loan Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Loan Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "Agent" herein and in the other Loan Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) The Issuing Lender shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time (and except for so long) as the Agent may agree at the request of the Required Lenders to act for the Issuing Lender with respect thereto; provided, however, that the Issuing Lender shall have all of the benefits and immunities (i) provided to the Agent in this Section 10 with respect to any acts taken or omissions suffered by the Issuing Lender in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent" as used in this Section 10 included the Issuing Lender with respect to such acts or omissions, and (ii) as additionally provided herein with respect to the Issuing Lender. 10.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this Loan Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct. 10.3 LIABILITY OF AGENT. No Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Loan Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Credit Party or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Loan Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Loan Agreement or any other Loan Document, or for any failure of any Credit Party or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance 93 or performance of any of the agreements contained in, or conditions of, this Loan Agreement or any other Loan Document, or to inspect the properties, books or records of any Credit Party or any Affiliate thereof. 10.4 RELIANCE BY AGENT. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Credit Party), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Loan Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders or all the Lenders, if required hereunder, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and participants. Where this Loan Agreement expressly permits or prohibits an action unless the Required Lenders otherwise determine, the Agent shall, and in all other instances, the Agent may, but shall not be required to, initiate any solicitation for the consent or a vote of the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 5.1, each Lender that has signed this Loan Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender. 10.5 NOTICE OF DEFAULT. The 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 the Agent for the account of the Lenders, unless the Agent shall have received written notice from a Lender or the Borrower referring to this Loan Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Lenders of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be directed by the Required Lenders in accordance with Section 9.2; provided, however, that unless and until the Agent has received any such direction, the 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 interest of the Lenders. 94 10.6 CREDIT DECISION; DISCLOSURE OF INFORMATION BY AGENT. Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Credit Party or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Credit Parties and their respective Subsidiaries, and all applicable Requirements of Law relating to the transactions contemplated hereby, and made its own decision to enter into this Loan Agreement and to extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Loan Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and the other Credit Parties. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent herein, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Credit Parties or any of their respective Affiliates which may come into the possession of any Agent-Related Person. 10.7 INDEMNIFICATION OF AGENT. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of any Credit Party and without limiting the obligation of any Credit Party to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees) that may be incurred by or asserted or awarded against any Agent-Related Person, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person's gross negligence or willful misconduct; provided, however, that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including reasonable attorneys fees and the allocated costs of internal counsel) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Loan Agreement, any other Loan Document, or 95 any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive termination of the Commitments, the payment of all Credit Party Obligations hereunder and the resignation or replacement of the Agent. 10.8 AGENT IN ITS INDIVIDUAL CAPACITY. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each of the Credit Parties and their respective Affiliates as though Bank of America were not the Agent or the Issuing Lender hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding any Credit Party or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Credit Party or such Affiliate) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Loan Agreement as any other Lender and may exercise such rights and powers as though it were not the Agent or the Issuing Lender, and the terms "Lender" and "Lenders" include Bank of America in its individual capacity. 10.9 SUCCESSOR AGENT. The Agent may resign as Agent upon 30 days' notice to the Lenders. If the Agent resigns under this Loan Agreement, the Required Lenders shall appoint from among the Lenders a successor administrative agent for the Lenders which successor administrative agent shall be consented to by the Borrower at all times other than during the existence of an Event of Default (which consent of the Borrower shall not be unreasonably withheld or delayed). If no successor administrative agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and the Borrower, a successor administrative agent from among the Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor administrative agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 10 and Sections 11.4 and 11.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Loan Agreement. If no successor administrative agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 10.10 OTHER AGENTS; LEAD MANAGERS. None of the Lenders identified on the facing page or signature pages of this Loan Agreement as a "Syndication Agent", "Documentation Agent", "Co-Agent", "Lead Underwriter" or "Sole Lead Arranger and Sole Book Manager" shall have any right, power, obligation, 96 liability, responsibility or duty under this Loan Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders so identified in deciding to enter into this Loan Agreement or in taking or not taking action hereunder. SECTION 11 MISCELLANEOUS 11.1 NOTICES. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below, (c) the Business Day following the day on which the same has been delivered prepaid (or pursuant to an invoice arrangement) to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Credit Parties and the Agent, set forth below, and, in the case of the Lenders, set forth on Schedule 2.1(a), or at such other address as such party may specify by written notice to the other parties hereto: if to any Credit Party: aaiPharma, Inc. 2320 Scientific Park Drive Wilmington, NC 28405 Attn: William L. Ginna, Jr. Telephone: 910-254-7013 Telecopy: 910-815-2387 with a copy of notices under Section 11.3(b) to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street, Suite 1900 Charlotte, North Carolina 28248 Attn: Steve Lynch Telephone: 704-377-2536 Telecopy: 704-373-3955 97 if to the Agent: Bank of America, N.A. 101 N. Tryon, 15th Floor Loc. Code: NC1-001-15-04 Charlotte, North Carolina 28255 Attn: Libby Garver Telephone: (704) 386-8451 Telecopy: (704) 409-0004 with copies to: Banc of America Mezzanine Capital LLC Bank of America Corporate Center 100 N. Tryon Street NC1-007-07-04 Charlotte, NC 28255 Attn: Charles E. Wilson, Jr. Telephone: (704) 388-1661 Telecopy: (704) 388-9880 and Banc of America Mezzanine Capital LLC Bank of America Corporate Center 100 N. Tryon Street NC1-007-13-06 Charlotte, NC 28255 Attn: Paul Trapani Telephone: (704) 386-2692 Telecopy: (704) 386-9911 and Bank of America, N.A. Bank of America Corporate Center 100 N. Tryon Street NC1-007-17-11 Charlotte, NC 28255 Attn: Craig Murlless Telephone: (704) 387-1296 Telecopy: (704) 388-6002 11.2 RIGHT OF SET-OFF; ADJUSTMENTS. Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time 98 or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its Affiliates) to or for the credit or the account of any Credit Party against any and all of the obligations of such Person now or hereafter existing under this Loan Agreement, under the Notes, under any other Loan Document or otherwise, irrespective of whether such Lender shall have made any demand hereunder or thereunder and although such obligations may be unmatured. Each Lender agrees promptly to notify any affected Credit Party after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 11.2 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. 11.3 SUCCESSORS AND ASSIGNS. (a) The provisions of this Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that none of the Credit Parties may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Credit Party without such consent shall be null and void). Nothing in this Loan Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Indemnified Parties) any legal or equitable right, remedy or claim under or by reason of this Loan Agreement. (b) Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Loan Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), its Participation Interests) at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or principal outstanding balance of the Term Loan of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption Agreement with respect to such assignment is delivered to the Agent, shall not be less than $5,000,000 in the case of any assignment of a Revolving Commitment, or $1,000,000, in the case of any assignment of a Term Loan, unless each of the Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed), (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Loan Agreement with respect to the Loans or the Commitments assigned, except that this clause (ii) shall not (x) apply to rights in respect of outstanding Swing Line Loans or (y) prohibit any Lender from assigning all or a portion of its rights and obligations among separate tranches on a non-pro rata basis, and (iii) the parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption Agreement, together with a processing and recordation fee of $3,500. Subject to acceptance and recording thereof by the Agent pursuant to subsection (c), from and after the effective date specified in each Assignment and 99 Assumption Agreement, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Loan Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Loan Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender's rights and obligations under this Loan Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.11, 3.12 and 11.5). Upon request, the Borrower (at its expense) shall execute and deliver new or replacement Notes to the assigning Lender and the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Loan Agreement that does not comply with this subsection shall be treated for purposes of this Loan Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. (c) The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at is address referred to in Section 11.1 a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Credit Parties, the Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Loan Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Credit Parties and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Any Lender may, without the consent of, or notice to, the Credit Parties or the Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and/or obligations under this Loan Agreement (including all or a portion of its Commitments and/or the Loans (including such Lender's Participation Interests) owing to it); provided that (i) such Lender's obligations under this Loan Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Credit Parties, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Loan Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Loan Agreement and to approve any amendment, modification or waiver of any provision of this Loan Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification that would (i) postpone any date upon which any payment of money is scheduled to be paid to such Participant, (ii) reduce the principal, interest, fees or other amounts payable to such Participant, (iii) except as the result of or in connection with a dissolution, merger or disposition of a Consolidated Party not prohibited by Section 8.4 or 8.5, release all or substantially all of the Guarantors from their obligations under the Loan Documents or (iv) except as the result of or in connection with an Asset Disposition not prohibited by Section 8.5, release all or substantially all of the Collateral. 100 Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.6, 3.9, 3.11 and 3.12 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.2 as though it were a Lender, provided such Participant agrees to be subject to Section 3.14 as though it were a Lender. (e) A Participant shall not be entitled to receive any greater payment under Section 3.6, 3.7 or 3.11 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that is not a United States person under Section 7701(a)(30) of the Code shall not be entitled to the benefits of Section 3.11 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.11(d) as though it were a Lender. (f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Loan Agreement (including under its Notes, if any) 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 a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (g) If the consent of the Borrower to an assignment or to an Eligible Assignee is required hereunder (including a consent to an assignment which does not meet the minimum assignment threshold specified in clause (i) of the proviso to the first sentence of Section 11.3(b)), the Borrower shall be deemed to have given its consent five Business Days after the date notice thereof has been delivered by the assigning Lender (through the Agent) unless such consent is expressly refused by the Borrower prior to such fifth Business Day. (h) Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, (i) upon five Business Days' notice to the Borrower, terminate its Swing Line Commitment and (ii) upon 30 days' notice to the Borrower and the Lenders, resign as Issuing Lender. In the event of any such termination of its Swing Line Commitment or resignation as Issuing Lender, the Borrower shall be entitled to appoint from among the Lenders a successor Swing Line Lender or Issuing Lender hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the termination of Bank of America's Swing Line Commitment or the resignation of Bank of America as Issuing Lender, as the case may be. If Bank of America terminates its Swing Line Commitment, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such termination, including the right to require the Lenders to make Revolving Loans or fund their Participation Interests in outstanding Swing Line Loans pursuant to Section 2.2(d). Bank of America shall retain all the rights and obligations of the Issuing Lender hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as Issuing Lender and all LOC 101 Obligations with respect thereto (including the right to require thc Lenders to make Revolving Loans or fund their Participation Interests pursuant to Section 2.4). 11.4 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between the Agent or any Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Credit Parties to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 EXPENSES; INDEMNIFICATION. (a) The Credit Parties jointly and severally agree to pay on demand all costs and expenses of the Agent in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Loan Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Credit Parties further jointly and severally agree to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses), in connection with any work-out or restructuring relating to the Credit Facilities or any enforcement (whether through negotiations, legal proceedings, or otherwise) of any of the Loan Documents. (b) Whether or not the transactions contemplated hereby are consummated, the Borrower agrees to indemnify, save and hold harmless each Agent-Related Person, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents and attorneys-in-fact (collectively the "Indemnitees") from and against: (a) any and all claims, demands, actions or causes of action that are asserted against any Indemnitee by any Person (other than the Agent or any Lender) relating directly or indirectly to a claim, demand, action or cause of action that such Person asserts or may assert against any Credit Party, any Affiliate of any Credit Party or any of their respective officers or directors; (b) any and all claims, demands, actions or causes of action that may at any time (including at any time following repayment of the Credit Party Obligations and the resignation or removal of the Agent or the replacement of any Lender) be asserted or imposed against any Indemnitee, arising out of or relating to, the Loan Documents, any predecessor Loan Documents, the Commitments, the use or contemplated use of the proceeds of any Extension of Credit, or the relationship of any Credit Party, the Agent and the Lenders under this Loan Agreement or any other Loan Document; (c) any administrative or investigative proceeding by any Governmental Authority arising out of or related to a claim, demand, action or cause of action described in subsection (a) or (b) 102 above; and (d) any and all liabilities (including liabilities under indemnities), losses, costs or expenses (including reasonable fees and costs of counsel) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action, cause of action or proceeding, or as a result of the preparation of any defense in connection with any foregoing claim, demand, action, cause of action or proceeding, in all cases, whether or not arising out of the negligence of an Indemnitee, and whether or not an Indemnitee is a party to such claim, demand, action, cause of action or proceeding (all the foregoing, collectively, the "Indemnified Liabilities"); provided that no Indemnitee shall be entitled to indemnification for any claim caused by its own gross negligence or willful misconduct or for any loss asserted against it by another Indemnitee. The agreements in this Section shall survive the termination of the Commitments and repayment of all the other Credit Party Obligations. (c) Without prejudice to the survival of any other agreement of the Credit Parties hereunder, the agreements and obligations of the Credit Parties contained in this Section 11.5 shall survive the repayment of the Credit Party Obligations and the termination of the Commitments hereunder. 11.6 AMENDMENTS, WAIVERS AND CONSENTS. Neither this Loan Agreement nor any other Loan Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, each of the Credit Parties party thereto and the Required Lenders, provided, however, that: (a) without the consent of each Lender affected thereby, neither this Loan Agreement nor any other Loan Document may be amended, changed, waived, discharged or terminated so as to (i) extend any Commitment or the final maturity of any Loan or of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit, or extend or waive any Principal Amortization Payment of any Loan, or any portion thereof, (ii) reduce the rate or extend the time of payment of interest on any Loan or of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit (other than as a result of waiving the applicability of any post-default increase in interest rates) or of any Fees, (iii) reduce or waive the principal amount of any Loan or of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit, (iv) increase the Commitment of a Lender over the amount thereof in effect (it being understood and agreed that a waiver of any condition precedent set forth in Section 5.2 or of any Default or Event of Default or mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender), 103 (v) except as the result of or in connection with an Asset Disposition not prohibited by Section 8.5, release all or substantially all of the Collateral, (vi) except as the result of or in connection with a dissolution, merger or disposition of a Consolidated Party not prohibited by Section 8.4 or Section 8.5, release the Borrower or substantially all of the other Credit Parties from its or their obligations under the Loan Documents, (vii) amend, modify or waive any provision of Section 3.13, (viii) amend, modify or waive any provision of this Section 11.6, (ix) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders, or (x) consent to the assignment or transfer by the Borrower or all or substantially all of the other Credit Parties of any of its or their rights and obligations under (or in respect of) the Loan Documents except as permitted thereby; (b) without the consent of Lenders (other than Defaulting Lenders) holding in the aggregate at least a majority of the outstanding Term Loans (and Participation Interests therein), (i) Section 3.15 may not be amended, changed, waived, discharged or terminated so as to alter the manner of application of any payment in respect of the Credit Party Obligations or proceeds of Collateral and (ii) Section 3.3(b)(vi) may not be amended, changed, waived, discharged or terminated so as to alter the manner of application of proceeds of any mandatory prepayment required by Section 3.3(b)(ii), (iii), (iv) or (v) hereof; (c) without the consent of the Agent, no provision of Section 10 may be amended, changed, waived, discharged or terminated; and (d) without the consent of the Swing Line Lender, no provision of Section 2.2 may be amended, changed, waived, discharged or terminated; and (e) without the consent of the Issuing Lender, no provision of Section 2.4 may be amended, changed, marked, discharged or terminated. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders shall determine whether or not to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and such determination shall be binding on all of the Lenders. 104 11.7 COUNTERPARTS. This Loan Agreement may be executed in any number of counterparts, each of which when so executed shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Loan Agreement to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Loan Agreement shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. 11.8 HEADINGS. The headings of the sections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Loan Agreement. 11.9 SURVIVAL. All indemnities set forth herein, including, without limitation, in Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and delivery of this Loan Agreement, the making of the Loans the issuance of the Letters of Credit, the repayment of the Loans, LOC Obligations and other obligations under the Loan Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive until this Loan Agreement shall be terminated in accordance with the terms of Section 11.13(b). 11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS LOAN AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY PROVIDED THEREIN, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Loan Agreement or any other Loan Document may be brought in the courts of the State of New York in New York County, or of the United States for the Southern District of New York, and, by execution and delivery of this Loan Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Loan Agreement or any other Loan 105 Document brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) EACH PARTY TO THIS LOAN AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS LOAN AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 11.11 SEVERABILITY. If any provision of any of the Loan Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.12 ENTIRETY. This Loan Agreement together with the other Loan Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Loan Documents or the transactions contemplated herein and therein. 11.13 BINDING EFFECT; TERMINATION; AMENDMENT AND RESTATEMENT OF EXISTING LOAN AGREEMENT. (a) This Loan Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by each Credit Party and the Agent, and the Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Loan Agreement shall be binding upon and inure to the benefit of each Credit Party, the Agent and each Lender and their respective successors and assigns. The Credit Parties and the Lenders (including the Issuing Lender) each hereby agrees that, at such time as this Loan Agreement shall have become effective pursuant to the terms of the immediately preceding sentence, (i) the Existing Loan Agreement automatically shall be deemed amended and restated in its entirety by this Loan Agreement, and all obligations and commitments outstanding under the Existing Loan Agreement shall be governed by the terms of this Loan Agreement (as such obligations or commitments may be modified or amended hereunder) and (ii) all of the 106 promissory notes executed by the Borrowers in connection with the Existing Loan Agreement automatically shall be substituted and replaced by the amended and restated promissory notes executed in connection with this Loan Agreement, and the Lenders agree to promptly return such prior notes to the Borrower. (b) The term of this Loan Agreement shall be until the Credit Party Obligations are Fully Satisfied. (c) Each of the Credit Parties hereby acknowledges and agrees that it has no claims, counterclaims, offsets, or defenses to the Loan Documents and the performance of its obligations thereunder, or if such Credit Party has any such claims, counterclaims, offsets, or defenses to the Loan Documents or any transaction related to the Loan Documents, the same are hereby waived, relinquished and released in consideration of the Lenders' execution and delivery of this Loan Agreement. 11.14 CONFIDENTIALITY. Each of the Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent requested by any regulatory authority; (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; (d) to any other party to this Loan Agreement; (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Loan Agreement or the enforcement of rights hereunder; (f) subject to an agreement containing provisions substantially the same as those of this Section 11.14, to (i) any Eligible Assignee of or Participant in, or any prospective Eligible Assignee of or Participant in, any of its rights or obligations under this Loan Agreement or (ii) any direct or indirect contractual counterparty or prospective counterparty (or such contractual counterparty's or prospective counterparty's professional advisor) to any credit derivative transaction relating to Credit Party Obligations; (g) with the consent of the Borrower; (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 11.14 or (ii) becomes available to the Agent or any Lender on a nonconfidential basis from a source other than the Consolidated Parties; or (i) to the National Association of Insurance Commissioners or any other similar organization or any nationally recognized rating agency that requires access to information about a Lender's or its Affiliates' investment portfolio in connection with ratings issued with respect to such Lender or its Affiliates. For the purposes of this Section, "Information" means all information received from the Credit Parties relating to the Consolidated Parties or their business, other than any such information that is available to the Agent or any Lender on a nonconfidential basis prior to disclosure by the Consolidated Parties; provided that, in the case of information received from the Consolidated Parties after the date hereof, such information is clearly identified in writing at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 11.14 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 107 11.15 SOURCE OF FUNDS. Each of the Lenders hereby represents and warrants to the Borrower that at least one of the following statements is an accurate representation as to the source of funds to be used by such Lender in connection with the financing hereunder: (a) no part of such funds constitutes assets allocated to any separate account maintained by such Lender in which any employee benefit plan (or its related trust) has any interest; (b) to the extent that any part of such funds constitutes assets allocated to any separate account maintained by such Lender, such Lender has disclosed to the Borrower the name of each employee benefit plan whose assets in such account exceed 10% of the total assets of such account as of the date of such purchase (and, for purposes of this clause (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (c) to the extent that any part of such funds constitutes assets of an insurance company's general account, such insurance company has complied with all of the requirements of the regulations issued under Section 401(c)(1)(A) of ERISA; or (d) such funds constitute assets of one or more specific benefit plans which such Lender has identified in writing to the Borrower. As used in this Section 11.15, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 11.16 REGULATION D. Each of the Lenders hereby represents and warrants to the Borrower that it is a commercial lender, other financial institution or other "accredited" investor (as defined in SEC Regulation D) which makes or acquires or loans on the ordinary course of business and that it will make or acquire Loans for its own account in the ordinary course of business. 11.17 CONFLICT. To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Loan Document, on the other hand, this Loan Agreement shall control. 108 SECTION 12 MEZZANINE SECURITIES; EXTENSION OPTION 12.1 REFINANCING WITH MEZZANINE SECURITIES. On or after the date that is six months from the Closing Date, the Agent may, by notice to the Borrower, cause the Borrower to issue, and the Borrower hereby agrees promptly upon such notice to take all such actions as are necessary to issue, Mezzanine Securities which are on market terms at the time of such issue and are otherwise acceptable to the Borrower and Banc of America Mezzanine Capital LLC, the Net Cash Proceeds of which shall (i) be sufficient to reduce the Senior Leverage Ratio to less than or equal to 2.50 to 1.0 (specifically including any unfunded commitments under this Loan Agreement in the calculation of clause (a) of such ratio but excluding the principal balance outstanding under the TROL) and (ii) be applied in accordance with Section 3.3(b); provided, however, that, notwithstanding the foregoing, in the event the Borrower achieves a minimum Consolidated EBITDA of at least $8,500,000 for the six month period beginning July 1, 2001 and ending December 31, 2001, the earliest date the Agent may specify for the issuance of such Mezzanine Securities shall be the date that is nine months from the Closing Date. The final maturity date of the Mezzanine Securities shall not be earlier than the later of (x) the date that is six months after the Maturity Date (as such date may be extended pursuant to the Extension Option) and (y) the fifth anniversary of the issuance of such Mezzanine Securities. The calculation of the amount necessary to achieve the Senior Leverage Ratio set forth in (i) shall be accompanied by a certificate substantially in the form of Exhibit 7.1(d). Notwithstanding any notice being delivered in connection with the issuance of Mezzanine Securities as set forth above, the Borrower shall have the right to prepay the Credit Party Obligations pursuant to the terms hereof. 12.2 EXTENSION OPTION. If, on or after the date that is six months from the Closing Date and prior to September 30, 2002, (i) the Senior Leverage Ratio is less than or equal to 2.50 to 1.0 (specifically including any unfunded commitments under this Loan Agreement in the calculation of clause (a) of such ratio but excluding the principal balance outstanding under the TROL) as a result of the issuance of Mezzanine Securities as provided in Section 12.1 or otherwise as evidenced by the officer's certificate most recently delivered pursuant to Section 7.1(d), (ii) the Leverage Ratio is less than or equal to 3.50 to 1.0 (specifically including any unfunded commitments under this Loan Agreement in the calculation of clause (a) of such ratio but excluding the principal balance outstanding under the TROL) as evidenced by the officer's certificate most recently delivered pursuant to Section 7.1(d), (iii) each of the conditions precedent set forth in Section 5.2 is then satisfied (or waived by all of the Lenders, as applicable), and (iv) the Borrower and the Lenders have agreed on or prior to September 30, 2002 on the new financial covenants, pricing levels and other items described in Section 12.3 below to be negotiated in connection with the Extension Option, then the Borrowers may exercise the Extension Option, by notice to the Agent and the Lenders, to (i) extend the Maturity Date to December 31, 2006, with the Term Loans being subject to scheduled amortization as set forth in Section 12.3, and (ii) otherwise modify the terms of this Loan Agreement as set forth in Section 12.3. In connection with the exercise of the 109 Extension Option, the Borrower shall deliver a certificate substantially in the form of Exhibit 7.1(d) demonstrating compliance with the provisions of this Section 12.2. 12.3 MODIFICATIONS UPON EXERCISE OF EXTENSION OPTION. Upon the Borrowers' exercise of the Extension Option, the following definitions and sections are modified (or added, if applicable) as indicated below: (a) The definitions for "Applicable Percentage" "Excess Cash Flow" and "Maturity Date" in Section 1.1 are modified in their entirety or added, as applicable, or as follows: "Applicable Percentage" means, for purposes of calculating the applicable interest rate for any day for any Loan or the applicable rate of the Unused Fee for any day for purposes of Section 3.5(a), the appropriate applicable percentage set forth below:
APPLICABLE PERCENTAGES --------------------------------------------------------- FOR FOR FOR FOR LETTER OF EURODOLLAR BASE RATE UNUSED FEE CREDIT FEES PERIOD LOANS LOANS ------ ---------- --------- ---------- ------------- On and after the date the Extension 2.75% 1.75% 0.375% 2.25% Option is exercised
Any adjustment in the Applicable Percentages shall be applicable to all existing Loans as well as any new Loans made. The preceding definition of "Applicable Percentage" shall be modified by a performance-based pricing grid to be negotiated in good faith based upon the most current financial projections prior to the time the Extension Option is exercised. "Excess Cash Flow" means, with respect to any fiscal year period of the Consolidated Parties on a consolidated basis, an amount equal to, in each case without duplication, (a) Consolidated EBITDA minus (b) Consolidated Capital Expenditures minus (c) Consolidated Interest Expense minus (d) Federal, state and other taxes actually paid by the Consolidated Parties on a consolidated basis minus (e) Consolidated Scheduled Funded Debt Payments minus (f) voluntary prepayments of Term Loans outstanding under this Loan Agreement minus (g) earnout payments related to acquisitions that are paid in cash and that are not deducted in calculating Consolidated EBITDA minus (h) the cash portion of the purchase price of any Permitted Acquisition that is not financed by the applicable purchaser. "Maturity Date" means December 31, 2006. (b) Section 2.3(d) is modified in its entirety to read as follows: (d) Repayment of Term Loan. The Borrower hereby promises to pay the outstanding principal amount of the Term Loan in equal consecutive quarterly 110 installments as follows (as such installments may hereafter be adjusted as a result of prepayments made pursuant to Section 3.3), in each case unless accelerated sooner pursuant to Section 9.2: TERM PRINCIPAL LOAN PRINCIPAL AMORTIZATION PAYMENT DATES AMORTIZATION PAYMENT --------------------------------------------- ---------------------- On or before December 31, 2002 0% --------------------------------------------- ---------------------- Three quarter period ending September 30, 15% 2003 --------------------------------------------- ---------------------- Four quarter period ending September 30, 20% 2004 --------------------------------------------- ---------------------- Four quarter period ending September 30, 25% 2005 --------------------------------------------- ---------------------- Four quarter period ending September 30, 30% 2006 --------------------------------------------- ---------------------- Quarter period ending December 31, 2006 10% (c) Sections 3.3(b)(v) is hereby deleted in its entirety and replaced with a new subclause (v) to read as follows: (v) Excess Cash Flow. Within 90 days after the end of each fiscal year (commencing with the fiscal year ending December 31, 2002), the Borrowers shall prepay the Term Loans in an amount equal to the sum of (A) 75% (if the Senior Leverage Ratio as of the end of such fiscal year is equal to or greater than 2.0 to 1.0) or 50% (if the Senior Leverage Ratio as of the end of such fiscal year is less than 2.0 to 1.0) of Excess Cash Flow for such prior fiscal year minus (B) the amount of any voluntary prepayments made during such fiscal year of the Term Loan or (to the extent accompanied by a reduction in the Revolving Committed Amount) the Revolving Loans (such prepayment to be applied as set forth in clause (vi) below). (d) Sections 3.3(b)(vi) is modified in its entirety to read as follows: (vi) Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 3.3(b) shall be applied as follows: (A) with respect to all amounts prepaid pursuant to Section 3.3(b)(i)(A), pro rata to Revolving Loans and Swing Line Loans and (after all Revolving Loans and Swing Line Loans have been repaid) to cash collateral account in respect of LOC Obligations, (B) with respect to all amounts prepaid pursuant to Section 3.3(b)(i)(B) to a cash collateral account in respect of LOC Obligations, (C) with respect to all amounts prepaid pursuant to Section 3.3(b)(ii), first to the Term Loan (to the remaining Principal Amortization 111 Payments in inverse order of maturities thereof), and after the Term Loan is paid in full to the Revolving Loans and Swing Line Loans (with, if an Event of Default has occurred, a corresponding reduction in the Revolving Committed Amount) and (D) with respect to all amounts prepaid pursuant to Section 3.3(b)(iii), (iv) or (v), to the Term Loan (to the remaining Principal Amortization Payments in inverse order of maturities thereof). Within the parameters of the applications set forth above, prepayments shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. All prepayments under this Section 3.3(b) shall be subject to Section 3.12, but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment. (e) Section 7.1(g) is modified in its entirety to read as follows: (g) Compliance With Certain Provisions of the Loan Agreement. Within 90 days after the end of each fiscal year of the Credit Parties, a certificate containing information regarding (i) the calculation of Excess Cash Flow and (ii) the amount of all Asset Dispositions (other than Excluded Asset Dispositions), Debt Issuances (other than Excluded Debt Issuances) and Equity Issuances (other than Excluded Equity Issuances) that were made during the prior fiscal year. (f) A new Section 7.14 is added after Section 7.13 to read as follows: 7.14 INTEREST RATE PROTECTION. The Credit Parties shall cause the Borrower to maintain protection against fluctuations in interest rates pursuant to one or more Hedging Agreements reasonably satisfactory to the Agent and providing coverage in a notional amount equal to at least 50% of the Term Loan. (g) The new financial covenant levels for purposes of Section 7.10 shall be negotiated in good faith based on the most current financial projections prior to the time the Extension Option is exercised. [SIGNATURE PAGE TO FOLLOW] 112 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Loan Agreement to be duly executed and delivered as of the date first above written. BORROWER: aaiPHARMA INC. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- SUBSIDIARY GUARANTORS: APPLIED ANALYTICAL INDUSTRIES LEARNING CENTER, INC. AAI TECHNOLOGIES, INC. AAI INTERNATIONAL, INC. AAI PROPERTIES, INC. KANSAS CITY ANALYTICAL SERVICES, INC. MEDICAL & TECHNICAL RESEARCH ASSOCIATES, INC. AAI JAPAN, INC. NEOSAN PHARMACEUTICALS, INC. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- AGENT: BANK OF AMERICA, N.A. individually in its capacity as a Lender and in its capacity as Agent By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ LENDERS: BANC OF AMERICA MEZZANINE CAPITAL LLC By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ ------------------------------------------ By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ EX-10.16 4 g72571ex10-16.txt ASSET PURCHASE AGREEMENT Exhibit 10.16 - -------------------------------------------------------------------------------- ASSET PURCHASE AGREEMENT by and between ASTRAZENECA AB and NEOSAN PHARMACEUTICALS INC. dated as of July 25, 2001 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I. DEFINITIONS...............................................................................1 Section 1.01 Defined Terms.............................................................................1 Section 1.02 Construction of Certain Terms and Phrases.................................................9 ARTICLE II. PURCHASE AND SALE OF ASSETS...............................................................9 Section 2.01 Purchase and Sale of Assets...............................................................9 Section 2.02 Assignability and Consents...............................................................10 ARTICLE III. ASSUMPTION OF LIABILITIES................................................................10 Section 3.01 Assumption of Assumed Liabilities........................................................10 ARTICLE IV. PURCHASE PRICE AND PAYMENT...............................................................11 Section 4.01 Purchase Price...........................................................................11 Section 4.02 Allocation of Purchase Price.............................................................12 Section 4.03 Payment of Sales, Use and Other Taxes....................................................12 ARTICLE V. CLOSING..................................................................................12 Section 5.01 Time and Place...........................................................................12 Section 5.02 Deliveries at Closing....................................................................12 REPRESENTATIONS AND WARRANTIES OF SELLER.........................................................................14 Section 6.01 Organization.............................................................................14 Section 6.02 Authority of Seller......................................................................14 Section 6.03 Consents and Approvals...................................................................15 Section 6.04 Non-Contravention........................................................................15 Section 6.05 Assumed Contracts........................................................................16 Section 6.06 Intellectual Property Rights.............................................................17 Section 6.07 Litigation...............................................................................17 Section 6.08 Compliance with Law......................................................................17 Section 6.09 Inventory................................................................................18 Section 6.10 Regulatory Matters.......................................................................18 Section 6.11 Marketing Materials......................................................................18 Section 6.12 Brokers..................................................................................19 Section 6.13 No Non-Competition Agreements or Preferential Obligations................................19 Section 6.14 No Other Representations and Warranties..................................................19 ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF BUYER..................................................19 Section 7.01 Corporate Organization...................................................................19 Section 7.02 Authority of Buyer.......................................................................20 Section 7.03 Consents and Approvals...................................................................20 Section 7.04 Non-Contravention........................................................................20 Section 7.05 Litigation...............................................................................21 Section 7.06 Brokers..................................................................................21 Section 7.07 Financial Capability.....................................................................21
ARTICLE VIII. COVENANTS OF THE PARTIES.................................................................21 Section 8.01 Maintenance of Business Prior to Closing.................................................21 Section 8.02 Reasonable Best Efforts..................................................................21 Section 8.03 Cooperation..............................................................................22 Section 8.04 Access...................................................................................22 Section 8.05 Public Announcements.....................................................................23 Section 8.06 Bulk Sales...............................................................................23 Section 8.07 Interim Product Supply...................................................................23 Section 8.08 Non-Solicitation.........................................................................23 Section 8.09 Corporate Names..........................................................................24 Section 8.10 Assistance in Collecting Certain Amounts.................................................24 Section 8.11 Handling of Inventory....................................................................24 Section 8.12 Differentiation of Products..............................................................25 Section 8.13 Regulatory Matters.......................................................................25 Section 8.14 Product Returns..........................................................................26 Section 8.15 Further Assurances.......................................................................26 Section 8.16 Technical Transfer for Commercial Manufacture of Products................................27 Section 8.17 Transitional Distribution by Seller......................................................27 Section 8.18 Regulatory Transition by Seller..........................................................27 Section 8.19 Reformulation of MVI-12 Product..........................................................28 Section 8.20 Irrevocable Letter of Credit.............................................................31 ARTICLE IX. CONDITIONS TO THE OBLIGATIONS OF SELLER..................................................32 Section 9.01 Representations, Warranties and Covenants................................................32 Section 9.02 No Actions or Proceedings................................................................32 Section 9.03 Consents.................................................................................32 Section 9.04 Other Closing Deliveries.................................................................32 ARTICLE X. CONDITIONS TO THE OBLIGATIONS OF BUYER...................................................33 Section 10.01 Representations, Warranties and Covenants................................................33 Section 10.02 No Actions or Proceedings................................................................33 Section 10.03 Consents.................................................................................33 Section 10.04 Other Closing Deliveries.................................................................33 Section 10.05 Receipt of Funds.........................................................................33 ARTICLE XI. INDEMNIFICATION..........................................................................34 Section 11.01 Survival of Representations, Warranties, Etc.............................................34 Section 11.02 Indemnification..........................................................................34 Section 11.03 Limitations..............................................................................37 Section 11.04 Remedies Exclusive.......................................................................37 ARTICLE XII. TERMINATION AND ABANDONMENT..............................................................38 Section 12.01 Methods of Termination...................................................................38 Section 12.02 Procedure upon Termination...............................................................39 ARTICLE XIII. MISCELLANEOUS............................................................................39 Section 13.01 Confidentiality..........................................................................39
-ii- Section 13.02 Notices..................................................................................40 Section 13.03 Entire Agreement.........................................................................41 Section 13.04 Waiver...................................................................................41 Section 13.05 Amendment................................................................................42 Section 13.06 Third Party Beneficiaries................................................................42 Section 13.07 Assignment; Binding Effect...............................................................42 Section 13.08 Headings.................................................................................42 Section 13.09 Severability.............................................................................42 Section 13.10 Governing Law............................................................................42 Section 13.11 Consent to Jurisdiction and Forum Selection..............................................43 Section 13.12 Expenses.................................................................................43 Section 13.13 Counterparts.............................................................................43 Section 13.14 Schedules, Exhibits and Other Agreements.................................................43 Section 13.15 Seller and its Affiliates................................................................44
-iii- EXHIBITS A - Interim Supply Agreement B - Commitment Letter C - HSR Filing Joint Public Statement D - Closing Public Statement E - Letter of Credit F - Reimbursement Policy SELLER DISCLOSURE SCHEDULE 1.01(nn) Trademarks and Servicemarks 4.02 Purchase Price Allocation 6.03(a) Seller Governmental Consents 6.03(b) Required Seller Third Party Consents 6.03(c) Other Seller Third Party Consents 6.05(a) Product Contracts 6.05(b) Multi-Product Contracts 6.05(c) Excluded Contracts 6.06(a) Registered Intellectual Property 6.08 Compliance 6.10 Regulatory Approvals BUYER DISCLOSURE SCHEDULE 7.03 Consents and Approvals -iv- ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "Agreement") is made and entered into as of July 25, 2001, by and between NeoSan Pharmaceuticals Inc., a Delaware corporation ("Buyer") and AstraZeneca AB, a corporation organized under the laws of Sweden, on behalf of itself and its relevant Affiliates (as defined below) ("Seller"). RECITALS WHEREAS, Seller and certain of its Affiliates (as defined below) are engaged in the business of manufacturing (or having manufactured), marketing, selling and distributing the Products (as defined below) in the United States (as defined below) (the "Business"). WHEREAS, subject to the terms and conditions of this Agreement, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, substantially all of the assets, tangible and intangible, associated with the Business and the Products. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties agree as follows: ARTICLE I. DEFINITIONS SECTION 1.01 DEFINED TERMS. As used in this Agreement, the following defined terms have the meanings described below: (a) "Accounts Receivable" means all trade accounts and notes receivable and other miscellaneous receivables of the Business, including those that are not evidenced by instruments or invoices, existing as of the Closing. (b) "Action or Proceeding" means any action, suit, proceeding, arbitration, Order, inquiry, hearing, assessment with respect to fines or penalties, or litigation (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental or Regulatory Authority. (c) "Adverse Effect" means an effect or condition that individually or in the aggregate is materially adverse to (i) the Purchased Assets taken as a whole; (ii) the business, results of operations, or financial condition of the Business taken as F-1 a whole; (iii) the MVI-12 Product taken individually; and (iv) the Pediatric Product taken individually. (d) "Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Control" and, with correlative meanings, the terms "controlled by" and "under common control with" means the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract, resolution, regulation or otherwise. (e) "Agreement" has the meaning set forth in the Preamble hereto. (f) "Approval Date" means the date on which the waiting period (and any extension thereof) under the Hart-Scott-Rodino Act applicable to the transactions contemplated hereby expires or is terminated. (g) "Aquasol A Product" means the vitamin A pharmaceutical product marketed and sold under the trademark "Aquasol A". (h) "Aquasol E Product" means the vitamin E nutritional product marketed and sold under the trademark "Aquasol E". (i) "Assets and Properties" and "Assets or Properties" of any Person means all assets and properties of any kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including cash, cash equivalents, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and intellectual property. (j) "Assumed Contract" means (i) any Contract to which Seller or any of its Affiliates is a party that relates exclusively to the manufacture, marketing, sale or distribution of any of the Products, as well as any payments required to be made thereunder accruing after the Closing, including those Contracts identified in Section 6.05(a) of the Seller Disclosure Schedule; and (ii) Seller's rights and obligations under the Multi-Product Contracts, but only to the extent that such rights and obligations relate solely to the supply of the Products. (k) "Assumed Liabilities" means (i) all accounts payable incurred by Seller or an Affiliate of Seller in the Ordinary Course of Business with respect to the Business prior to the Closing to the extent related to goods, services or other benefits to be provided to the Business subsequent to the Closing; (ii) all Liabilities and obligations that Buyer has expressly assumed or agreed to assume under this Agreement or the Interim Supply Agreement; (iii) all Liabilities and F-2 obligations under or pursuant to the Assumed Contracts to be performed following the Closing, including any obligations of Seller and its Affiliates to deliver Products following the Closing under purchase orders of, or commitments to, Persons entered into in the Ordinary Course of Business prior to the Closing (it being understood that if such obligations were paid for by the Person ordering such Products prior to the Closing, the Seller or the relevant Affiliate will deliver to Buyer such payment following satisfaction of the delivery obligations); (iv) Government Rebates that become payable 45 days following the Closing or thereafter; (v) Other Rebates that are submitted after 45 days following the Closing; (vi) all Liabilities and obligations relating to recalls or product liability claims or threatened claims or injuries caused by Products delivered after the Closing; (vii) Seller's obligations under the Federal Supply Schedule and Section 340B of the Public Health Services Act to supply the Products at the respective prices therein; and (viii) all other Liabilities and obligations that arise out of or are related to the Purchased Assets (including the Regulatory Approvals), the Business or the Products, attributable to occurrences and circumstances arising after the Closing. (l) "Base Purchase Price" has the meaning set forth in Section 4.01. (m) "BOA" has the meaning set forth in Section 8.20. (n) "Books and Records" means all files, documents, instruments, papers, books and records (scientific or financial) of Seller or an Affiliate of Seller to the extent relating to the Purchased Assets, Products or Business (other than Marketing Materials), including any pricing lists, customer lists (to the extent owned by Seller or its Affiliates), vendor lists, financial data, regulatory information or files (including adverse event reports and annual regulatory reports), litigation, adverse claims or demands, investigation information or files, trademark registration certificates, trademark renewal certificates, and other documentation relating to the Intellectual Property, the Products or the Regulatory Approvals, but excluding any such items (i) to the extent that any applicable Law prohibits their transfer, (ii) to the extent that any transfer thereof would cause Seller or any of its Affiliates to violate confidentiality provisions thereunder, (iii) received from third-parties in connection with their acquisition of the Purchased Assets, the Products or Business, or (iv) specifically prepared by Seller for the negotiation of this Agreement. (o) "Business" has the meaning set forth in the recitals to this Agreement. (p) "Business Day" means a day other than Saturday, Sunday or any day on which banks located in New York are authorized or obligated to close. (q) "Buyer" has the meaning set forth in the preamble to this Agreement. F-3 (r) "Buyer Disclosure Schedule" has the meaning set forth in the preamble of Article VII to this Agreement. (s) "Buyer Governmental Consents" has the meaning set forth in Section 7.03. (t) "Closing" has the meaning set forth in Section 5.01. (u) "Closing Date" means the date that the Closing actually occurs as provided in Section 5.01. (v) "Commitment Letter" has the meaning set forth in Section 10.5. (w) "Contract" means any and all legally binding commitments, contracts, purchase orders, leases, or other agreements, whether written or oral. (x) "Corporate Names" has the meaning set forth in Section 8.09(a). (y) "Damages" has the meaning set forth in Section 11.02(a). (z) "Draw Date" has the meaning set forth in Section 8.20. (aa) "Encumbrance" means any mortgage, pledge, assessment, security interest, deed of trust, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale or title retention agreement or other agreement to give any of the foregoing in the future. (bb) "Excluded Assets" means all Assets and Properties of Seller and its Affiliates except the Purchased Assets. (cc) "Excluded Liabilities" means all Liabilities of Seller and its Affiliates except the Assumed Liabilities. The term "Excluded Liabilities" includes, by example, all Liabilities of Seller and its Affiliates for Government Rebates or Other Rebates (other than those included in Assumed Liabilities) for Products sold prior to Closing and becoming payable by Buyer or Seller within 45 days after the Closing Date. The term "Excluded Liabilities" includes all Liabilities of Seller and its Affiliates for recalls and product liability for Products sold by Seller before the Closing Date. The Parties agree that in the event that a Liability arises relating to a recall or product liability claim in respect of a Product and the Party that sold such Product cannot be determined, such Liability shall be shared between each of Seller and Buyer in the same proportion that the total amount of that type of Product sold by each Party during the time period in which the Product that caused such Liability was alleged to have been sold bears to the aggregate amount of that type of Product sold by both Parties during such period. (dd) "Expiration Date" means the date one year after the Closing Date. F-4 (ee) "FDA" means the United States Food and Drug Administration. (ff) "First Installment" has the meaning set forth in Section 4.01(a)(ii). (gg) "First Return Period" has the meaning set forth in Section 8.14. (hh) "Governmental or Regulatory Authority" means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States or other country, or any supra-national organization, state, county, city or other political subdivision. (ii) "Government Rebates" means all state and federal Medicaid/Medicare rebates related to the Products. (jj) "Indemnification Claim Notice" has the meaning set forth in Section 11.02(c). (kk) "Indemnified Party" has the meaning set forth in Section 11.02(c). (ll) "Indemnitee" and "Indemnitees" have the respective meanings set forth in Section 11.02(c). (mm) "Injectable Multivitamin Pharmaceutical Field" has the meaning set forth in Section 8.19. (nn) "Intellectual Property" means any and all of the following intellectual property rights owned by or licensed to Seller and its Affiliates, to the extent used in connection with or pertaining to the Purchased Assets, the Products or the Business: (i) Know-How; (ii) any material which could be copyrighted; (iii) internet domain names in the United States; and (iv) the trademarks and service marks listed in Schedule 1.01(nn). (oo) "Interim Supply Agreement" has the meaning set forth in Section 8.07. (pp) "Inventory" means all inventory of finished Products owned as of the Closing by Seller or any Affiliate thereof, whether held at a location or facility of Seller or any Affiliate (or of any other Person on behalf of Seller or any Affiliate) or in transit to or from Seller or any Affiliate (or any such other Person). (qq) "Know-How" means all information and materials owned by or licensed to Seller and its Affiliates, to the extent used in connection with or pertaining to the Purchased Assets, the Products or the Business, including any Product specifications, technical knowledge, expertise, skill, practice, procedures, formulae, trade secrets, inventions, confidential information, analytical methodology, processes, methods, preclinical, clinical, stability and other data and F-5 results, market studies and all other experience and know-how, in each case in tangible form, whether or not patentable. (rr) "Knowledge" with respect to any Party, means the actual knowledge of the senior executive officers (or persons performing similar functions) of such Person, after reasonable inquiry. (ss) "Law" means any federal, state or local law, statute or ordinance, or any rule, regulation, or published guidelines promulgated by any Governmental or Regulatory Authority. (tt) "Letter of Credit" has the meaning set forth in Section 8.20. (uu) "Liability" means any liability (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and due or to become due), including any liability for Taxes (whether arising under Treasury Regulation ss.1.1502-6 or otherwise). (vv) "Marketing Materials" means (i) to the extent Seller is able to share such materials with Buyer without violation of any third-party confidentiality agreement, all market research, marketing plans, media plans, advertising, marketing-related clinical study results, form letters and medical queries, sales training materials, customer lists and information with respect to sales of Products (including doctors, GPOs and pharmacists), promotional and marketing books and records owned by Seller and its Affiliates and used exclusively in connection with the marketing and promotion of the Products; and (ii) those items of advertising and promotional materials and literature owned by Seller and its Affiliates as of the Closing and used exclusively in connection with the advertising and promotion of the Products that Seller, in its sole discretion, determines to transfer to Buyer (the "Promotional Materials"), provided that "Marketing Materials" shall exclude the labeling of the Products, which shall be deemed part of the Regulatory Approvals. (ww) "Multi-Product Contracts" has the meaning set forth in Section 6.05. (xx) "MVI-12 Product" means the vitamin-related pharmaceutical product marketed and sold under the trademark "MVI-12" (including MVI-12 single-dose vials, MVI-12 multi-dose vials, and MVI-12 unit-dose vials). (yy) "Order" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final). (zz) "Ordinary Course of Business" means such action that is consistent with the past practices of the Business. F-6 (aaa) "Other Rebates" means all credits, chargeback rebates, utilization based rebates, reimbursements, refunds, discounts, allowances, returns and similar payments to wholesalers and other distributors, buying groups, insurers and other institutions related to Products. (bbb) "Other Seller Third Party Consents" has the meaning set forth in Section 6.03(c). (ccc) "Party" means each of Buyer and Seller. (ddd) "Pediatric Product" means the vitamin-related pharmaceutical product marketed and sold under the unregistered trademark "MVI-Pediatric". (eee) "Permitted Encumbrance" means (i) any Encumbrance for Taxes not yet due or delinquent or for those Taxes being contested in good faith by appropriate proceedings for which adequate reserves have been established and (ii) any minor imperfection of title or similar Encumbrance that individually or in the aggregate would not have an Adverse Effect. (fff) "Person" means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority. (ggg) "Proceeds" has the meaning set forth in Section 8.19. (hhh) "Product" or "Products" means each or all of the following products: (i) the MVI-12 Product; (ii) the Pediatric Product; (iii) the Aquasol A Product; and (iv) the Aquasol E Product. (iii) "Product Contracts" has the meaning set forth in Section 6.05(a). (jjj) "Promotional Materials" has the meaning set forth in Section 1.01(vv). (kkk) "Purchase Price" has the meaning set forth in Section 4.01. (lll) "Purchased Assets" means, subject to Section 2.02: (i) the Intellectual Property; (ii) the Assumed Contracts; (iii) the Marketing Materials; (iv) the Books and Records; (v) the Regulatory Approvals; (vi) all website addresses and URLs incorporating or referencing any of the Products' names or trademarks; (vii) all rights, title and interest in and to the Products; and (viii) the Inventory. The Purchased Assets do not include any fixed assets. (mmm) "Reformulation Intellectual Property" has the meaning set forth in Section 8.19. F-7 (nnn) "Reformulation Intellectual Property License" has the meaning set forth in Section 8.19. (ooo) "Reformulation Intellectual Property Litigation" has the meaning set forth in Section 8.19. (ppp) "Reformulation SNDA" has the meaning set forth in Section 4.01. (qqq) "Registered Intellectual Property" means all of the following Intellectual Property registered or filed in the United States: (i) the trademarks listed on Schedule 6.06(a) and (ii) internet domain names registered with registrars accredited by the Internet Corporation for Assigned Names and Numbers. (rrr) "Regulatory Approvals" means, with respect to each Product, the New Drug Application for such Product identified in Section 6.10 of the Seller Disclosure Schedule, all supplements thereto and the official regulatory files and data in Seller's possession or control as of the Closing relating thereto. (sss) "Remaining Purchase Price" has the meaning set forth in Section 4.01(a)(v). (ttt) "Second Contingent Installment" has the meaning set forth in Section 4.01(a)(iv). (uuu) "Second Installment" has the meaning set forth in Section 4.01(a)(iii). (vvv) "Second Return Period" has the meaning set forth in Section 8.14. (www) "Seller" has the meaning set forth in the Preamble to this Agreement. (xxx) "Seller Disclosure Schedule" has the meaning set forth in the preamble to Article VI of this Agreement. (yyy) "Seller Governmental Consents" has the meaning set forth in Section 6.03(a). (zzz) "Seller's Reformulation Efforts" has the meaning set forth in Section 8.19. (aaaa) "Seller Third Party Consents" has the meaning set forth in Section 6.03(b). (bbbb) "Tax" means all of the following tax in connection with the operations of the Business or the transactions contemplated hereby: (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment imposed by an governmental, F-8 regulatory or administrative entity or agency responsible for the imposition of any such tax in the United States; (ii) any Liability for the payment of any amounts of the type described in (i) above as a result of being a member of any affiliated, consolidated, combined, unitary or other group for any Taxable period; and (iii) any Liability for the payment of any amounts of the type described in (i) or (ii) above as a result of any express or implied obligation to indemnify any other person. (cccc) "Third Party Claim" has the meaning set forth in Section 11.02(d). (dddd) "United States" means the United States of America, its territories and possessions, including Washington, D.C. and Puerto Rico. SECTION 1.02 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context of this Agreement otherwise requires: (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; (d) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement; (e) the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or"; and (f) the term "including" or "includes" means "including without limitation" or "includes without limitation." Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. ARTICLE II. PURCHASE AND SALE OF ASSETS SECTION 2.01 PURCHASE AND SALE OF ASSETS. (a) Subject to the terms and conditions of this Agreement, at the Closing, Seller shall, or shall cause its relevant Affiliates to, sell, transfer, convey, assign and deliver to Buyer, free and clear from all Encumbrances other than Permitted Encumbrances, and Buyer shall purchase, acquire and accept from Seller and such Affiliates of Seller, all of Seller's and each such Affiliate's right, title and interest, as of the Closing, in and to the Purchased Assets. (b) Buyer acknowledges and agrees that the rights related to the Products and the Business conveyed by Seller and its Affiliates hereunder are restricted solely to the United States and nothing herein shall authorize Buyer to manufacture, market, sell, distribute or otherwise exploit the Products outside of the United States. (c) Notwithstanding anything contained in this Agreement to the contrary, (i) from and after the Closing Seller and its Affiliates shall retain all of their right, title and interest in and to the Excluded Assets; and (ii) Seller may retain an archival copy of all Assumed Contracts, Books and Records, Marketing Materials F-9 and other documents or materials conveyed hereunder (but Seller and its Affiliates shall not use any such archival copy for any other purposes than as an archive). SECTION 2.02 ASSIGNABILITY AND CONSENTS. Notwithstanding anything to the contrary contained in this Agreement, if the sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery to Buyer of any asset that would be a Purchased Asset is (a) prohibited by any applicable Law or (b) would require any authorizations, approvals, consents or waivers from a third Person or Governmental or Regulatory Authority and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, then in either case the Closing shall proceed without the sale, assignment, transfer, conveyance or delivery of such asset and this Agreement shall not constitute a sale, assignment, transfer, conveyance or delivery of such asset; provided that nothing in this Section 2.02 shall be deemed to waive the rights of Buyer not to consummate the transactions contemplated by this Agreement if the conditions to its obligations set forth in Article X have not been satisfied. Subject to Section 8.02, in the event that the Closing proceeds without the sale, assignment, transfer, conveyance or delivery of any such asset, then following the Closing, the parties shall use their reasonable best efforts, and cooperate with each other, to obtain promptly such authorizations, approvals, consents or waivers; provided, however, that Seller shall not be required to pay any consideration to obtain any such authorization, approval, consent or waiver. Subject to Section 8.02, pending such authorization, approval, consent or waiver, the parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements designed to provide to Buyer the benefits of use of such asset and to Seller the benefits, including any indemnities, that, in each case, it would have obtained had the asset been conveyed to Buyer at the Closing. To the extent that Buyer is provided the benefits pursuant to this Section 2.02 of any Assumed Contract, Buyer shall (x) perform for the benefit of the other parties thereto the obligations of Seller or any Affiliate of Seller thereunder, including any payments to be made thereunder; and (y) shall satisfy any related Liabilities with respect to such Assumed Contract that, but for the lack of an authorization, approval, consent or waiver to assign such obligations or Liabilities to Buyer, would be Assumed Liabilities. If authorization, approval, consent or waiver for the sale, assignment, transfer, conveyance or delivery of any such asset not sold, assigned, transferred, conveyed or delivered at the Closing is obtained, Seller shall assign, transfer, convey and deliver such asset to Buyer at no additional cost to Buyer. ARTICLE III. ASSUMPTION OF LIABILITIES SECTION 3.01 ASSUMPTION OF ASSUMED LIABILITIES. Subject to the terms and conditions of this Agreement, as of the Closing Date, Buyer agrees to assume, satisfy, perform, pay and discharge the Assumed Liabilities. F-10 ARTICLE IV. PURCHASE PRICE AND PAYMENT SECTION 4.01 PURCHASE PRICE. As consideration for the Purchased Assets, Buyer shall: (a) deliver or cause to be delivered to Seller: (i) at the Closing, the sum of $52.5 million (the "Base Purchase Price") in immediately available funds by wire transfer into an account designated by Seller two Business Days before the Closing; (ii) subject to Section 8.14, on the first anniversary of the Closing Date, an additional payment of $1.0 million (the "First Installment") in immediately available funds by wire transfer into an account designated by Seller two Business Days before such amount is due; (iii) subject to Section 8.14, on the second anniversary of the Closing Date, an additional payment of $1.0 million (the "Second Installment") in immediately available funds by wire transfer into an account designated by Seller two Business Days before such amount is due; (iv) subject to the last paragraph of this Section 4.01, on the second anniversary of the Closing Date, an additional payment of $2.0 million (the "Second Contingent Installment") in immediately available funds by wire transfer into an account designated by Seller two Business Days before such amount is due; (v) subject to the last paragraph of this Section 4.01, on the third anniversary of the Closing Date, an additional $43.5 million (the "Remaining Purchase Price") in immediately available funds by wire transfer into an account designated by Seller two Business Days before such amount is due; (the Base Purchase Price, First Installment, Second Installment, Second Contingent Installment and Remaining Purchase Price are collectively referred to herein as the "Purchase Price"); and (b) assume the Assumed Liabilities at the Closing. The Remaining Purchase Price shall be paid to Seller only in the event that the FDA has approved a supplemental New Drug Application relating to the reformulation of the MVI-12 F-11 Product pursuant to the Federal Register Notice published by the FDA on April 20, 2000 [Docket No. 79N-0113] (the "Reformulation SNDA") and that such reformulation of the MVI-12 Product has a minimum shelf life of twelve months. In the event that FDA approval of the Reformulation SNDA has not been granted by December 31, 2002, the Remaining Purchase Price shall be reduced by $1 million for each full month thereafter that such condition remains unsatisfied. If the FDA approval of the Reformulation SNDA has not been granted by December 31, 2003, then the Remaining Purchase Price will equal zero. The Second Contingent Installment shall be payable by Buyer to Seller only in the event that the FDA has approved the Reformulation SNDA by December 31, 2002. SECTION 4.02 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among the Purchased Assets as set forth on Schedule 4.02 hereto. Buyer and Seller agree (a) to report the sale and purchase of the Purchased Assets for Tax purposes in accordance with the allocations set forth on Schedule 4.02 hereto and (b) not to take any position inconsistent with such allocations on any of their respective tax returns. SECTION 4.03 PAYMENT OF SALES, USE AND OTHER TAXES. Buyer shall be solely responsible for all sales, use, transfer, value added and other related Taxes, if any, arising out of the sale by Seller and its Affiliates of the Purchased Assets to Buyer pursuant to this Agreement. ARTICLE V. CLOSING SECTION 5.01 TIME AND PLACE. Unless this Agreement is earlier terminated pursuant to Article XII, the closing of the transactions contemplated by this Agreement, including the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities (the "Closing"), shall take place on the first Business Day on which the conditions set forth in Articles IX and X are satisfied or waived, which Business Day shall be at least three Business Days after the Approval Date, at the offices of Covington & Burling, 1201 Pennsylvania Avenue, N.W., Washington, D.C. 20004, unless another time or place shall be agreed to by the parties. SECTION 5.02 DELIVERIES AT CLOSING. (a) Closing Deliveries by Seller. At the Closing, Seller shall deliver or cause to be delivered to Buyer: (i) physical possession of all tangible personal property included in the Purchased Assets, including (A) the Inventory (which shall be delivered at the respective locations thereof at the time of the Closing); (B) the Regulatory Approvals; (C) the Marketing Materials; and (D) the Books and Records, and appropriate F-12 documents of transfer related thereto in form and substance reasonably acceptable to Seller and Buyer; (ii) an original Intellectual Property assignment of the Intellectual Property in form and substance reasonably acceptable to Seller and Buyer; (iii) assignment and assumption agreements, in form and substance reasonably acceptable to Seller and Buyer, assigning to Buyer all rights of Seller and its Affiliates in and to the Assumed Contracts; (iv) copies of all Seller Governmental Consents and Required Seller Third Party Consents and all Other Seller Third Party Consents obtained as of Closing; (v) a duly executed counterpart of the Interim Supply Agreement; (vi) a certificate dated the Closing Date and executed by a duly authorized officer of Seller stating that all representations and warranties of Seller contained in this Agreement are true and correct in all material respects on and as of the Closing Date as though given on and as of such date and Seller has performed all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date, except where the failure of any representations and warranties to be true and correct, individually or in the aggregate, will not have an Adverse Effect; and (vii) the certificates and other documents to be delivered pursuant to Article X hereof. (b) Closing Deliveries by Buyer. At the Closing, Buyer will deliver or cause to be delivered to Seller: (i) the Base Purchase Price; (ii) such instruments of assumption and other instruments or documents, in form and substance reasonable acceptable to Seller and Buyer, as may be necessary to effect Buyer's assumption of the Assumed Liabilities; (iii) copies of all Buyer Governmental Consents; (iv) a duly executed counterpart of the Interim Supply Agreement; F-13 (v) a certificate dated the Closing Date and executed by a duly authorized officer of Buyer stating that all representations and warranties of Buyer contained in this Agreement are true and correct in all material respects on and as of the Closing Date as though given on and as of such date and Buyer has performed all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date; and (vi) the certificates and other documents to be delivered pursuant to Article IX hereof. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as of the date hereof, subject to such exceptions as are specifically disclosed in the disclosure schedule (referencing the appropriate Sections hereof) supplied by Seller to Buyer and dated as of the date hereof (the "Seller Disclosure Schedule"), which Seller Disclosure Schedule shall be deemed to be representations and warranties of Seller as if made herein, as follows: SECTION 6.01 ORGANIZATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of Sweden and has all requisite power and authority to own its assets and carry on the Business as currently conducted by it. Each Affiliate of Seller transferring any Purchased Assets is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority to own its assets and carry on the Business as currently conducted by it. Each of Seller and its Affiliates transferring Purchased Assets is duly authorized to conduct its business and is in good standing in each jurisdiction where such qualification is required, except for any jurisdiction where failure to so qualify could not reasonably be expected to have an Adverse Effect or materially impair or delay Seller's ability to perform its obligations hereunder. SECTION 6.02 AUTHORITY OF SELLER. Seller has all necessary power and authority and has taken all actions necessary to enter into this Agreement and to carry out the transactions contemplated hereby. Seller has taken all action required by Law, its Deed of Formation, Articles of Association or otherwise to be taken by it to authorize the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Seller and, when executed and delivered by Buyer, will constitute a legal, valid and binding obligation of Seller enforceable against it in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. F-14 SECTION 6.03 CONSENTS AND APPROVALS. (a) Section 6.03(a) of the Seller Disclosure Schedule sets forth a complete and accurate list of all consents, waivers, approvals, Orders or authorizations of, or registrations, declarations or filings with, any Governmental or Regulatory Authority that are required by or with respect to Seller or its Affiliates in connection with the execution and delivery of this Agreement by Seller or the performance of its obligations hereunder, except for such consents, waivers, approvals, Orders or authorizations the failure to obtain which, and such registrations, declarations or filings the failure to make which, would not have an Adverse Effect or materially impair or delay Seller's ability to perform its obligations hereunder (the "Seller Governmental Consents"). (b) Section 6.03(b) of the Seller Disclosure Schedule sets forth a complete and accurate list of all consents, waivers, approvals, or authorizations of, or notices to, any third party (other than a Governmental or Regulatory Authority) that are required by or with respect to Seller or its Affiliates in connection with the execution and delivery of this Agreement by Seller or the performance of its obligations hereunder, except for such consents, waivers, approvals, or authorizations the failure to obtain which, and such notices the failure to give which, would not have an Adverse Effect or materially impair or delay Seller's ability to perform its obligations hereunder (the "Required Seller Third Party Consents"). (c) Section 6.03(c) of the Seller Disclosure Schedule sets forth a complete and accurate list of other consents, waivers, approvals, or authorizations of, or notices to, any third party (other than a Governmental or Regulatory Authority) that are required by or with respect to Seller or its Affiliates in connection with the execution and delivery of this Agreement by Seller or the performance of its obligations hereunder, which Buyer acknowledges and agrees are not material to conduct of the Business (the "Other Seller Third Party Consents"). SECTION 6.04 NON-CONTRAVENTION. The execution and delivery by Seller of this Agreement does not, and the performance by it or its relevant Affiliates of its or their obligations under this Agreement and the consummation of the transactions contemplated hereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Deed of Formation, Articles of Association or other organizational documents of Seller or its relevant Affiliates; (b) assuming the receipt of all consents, waivers, approvals, Orders or authorizations of Governmental and Regulatory Authorities required to be obtained by Seller and the making of all registrations, declarations or filings with Governmental and Regulatory Authorities required to be made by Seller, conflict F-15 with or result in a violation or breach of any term or provision of any Law applicable to Seller, the Business, the Products or the Purchased Assets; or (c) assuming the receipt of all consents, waivers, approvals, or authorizations of any third party (other than a Governmental or Regulatory Authority) required to be obtained by Seller and the giving of all notices to any third party (other than a Governmental or Regulatory Authority) required to be given by Seller, conflict with or result in a breach or default (or an event which, with notice or lapse of time or both, would constitute a breach or default) under any Assumed Contract, other than such conflicts, breaches or defaults as would not have an Adverse Effect. SECTION 6.05 ASSUMED CONTRACTS. (a) Section 6.05(a) of the Seller Disclosure Schedule sets forth a complete and correct list of each Contract to which Seller or any of its Affiliates is a party with a value in excess of $75,000 and that relates exclusively to (i) the manufacture, marketing, sale or distribution of any of the Products; (ii) the acquisition, sale, licensing in or out, or assignment of Intellectual Property; (iii) the purchase or disposition of assets, or the provision of services, to or from the Business; or (iv) sales of Products to any Governmental or Regulatory Authority (collectively, the "Product Contracts"). Seller has made available to Buyer complete and correct copies of all Contracts identified in Section 6.05(a) of the Seller Disclosure Schedule. (b) Section 6.05(b) of the Seller Disclosure Schedule sets forth a complete and correct list of each Contract to which Seller or any of its Affiliates is a party and pursuant to which Seller or its Affiliates sells one or more Products, together with other pharmaceutical products of Seller and its Affiliates, to a third party (the "Multi-Product Contracts"). Seller has made available to Buyer copies of all Multi-Product Contracts; provided that such copies have been redacted to prevent disclosure of information not related to the Products. (c) Except for the Contracts set forth in Section 6.05(c) of the Seller Disclosure Schedule, the Product Contracts and the Multi-Product Contracts are the only Contracts material to Seller's conduct of the Business in the ordinary course of business prior to the Closing. Each of the Product Contracts and the Multi-Product Contracts is in effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, of Seller or an Affiliate of Seller; and Seller has performed all of its required material obligations under, and is not in material violation or breach of or default under, any such Contract. To the Knowledge of Seller, the other parties to the Product Contracts and the Multi-Product Contracts are not in material violation or breach of or default under any such Contract. F-16 SECTION 6.06 INTELLECTUAL PROPERTY RIGHTS. (a) Section 6.06(a) of the Seller Disclosure Schedule sets forth a complete and correct list of all Registered Intellectual Property. Except as set forth in Section 6.06(a) of the Seller Disclosure Schedule, Seller or its Affiliates own all right, title and interest in and to, or have a license, sublicense or other permission to use, all of the Registered Intellectual Property, free and clear of all Encumbrances except Permitted Encumbrances. All necessary registration, maintenance and renewal fees due in connection with such Registered Intellectual Property have been paid and all necessary documents and certificates in connection with such Registered Intellectual Property have been filed with the relevant copyright, trademark or other Governmental or Regulatory Authorities for the purposes of maintaining such Registered Intellectual Property. (b) To the Knowledge of Seller, Seller or its Affiliates own all right, title and interest in and to, or have a license, sublicense or other permission to use, all of the Intellectual Property, free and clear of all Encumbrances except Permitted Encumbrances. (c) Neither Seller nor any of its Affiliates has received any written notice from any Person, or has Knowledge, that the operation of the Business as currently conducted, or any of the Products, infringes or misappropriates the intellectual property rights of any third party. (d) All trademarks included in the Registered Intellectual Property are the subject of current registrations, and have been continuously used for the uses specified in their trademark registrations. There are no third-party rights in Seller's current registrations relating to the Products. Seller and its Affiliates have no Knowledge of any prior use, infringement, piracy or counterfeiting of such trademarks, any superior rights by any third party in such trademarks, or any adverse claims pertaining to such trademarks. SECTION 6.07 LITIGATION. There are no Actions or Proceedings pending or, to the Knowledge of Seller, threatened or reasonably anticipated against, relating to, affecting or arising in connection with (a) the Purchased Assets or the Business; (b) this Agreement; (c) the transactions contemplated by this Agreement; or (d) the Products. Seller is not subject to any Order that could reasonably be expected to materially impair or delay the ability of Seller to perform its obligations hereunder. SECTION 6.08 COMPLIANCE WITH LAW. Except as described in Section 6.08 of the Seller Disclosure Schedule, since January 1, 1999, Seller and its Affiliates have operated the Business substantially in compliance with all applicable Laws, except where failure to so comply could not reasonably be expected to result in an Adverse Effect and neither Seller nor any of its Affiliates has received any written F-17 notice alleging any violation of such Laws except for violations which could not reasonably be expected to result in an Adverse Effect. Notwithstanding the foregoing, Buyer acknowledges Seller's disclosure of information concerning the MVI analytical testing methods used for the Products, and Seller makes no representations or warranties with respect to such analytical testing methods. SECTION 6.09 INVENTORY. (a) All of the finished Products included in Inventory (i) are saleable in the Ordinary Course of Business, except for normal and customary amounts of below-standard quality Products; and (ii) were produced or manufactured in accordance with the specifications for such Products as set forth in the applicable Regulatory Approval and substantially in compliance with applicable Law. Seller or its Affiliates at Closing will have, and Buyer will receive at Closing, good and marketable title to the Inventory free and clear of any Encumbrances other than Permitted Encumbrances. (b) (i) All finished Pediatric Products included in Inventory will have at least one month of shelf-life remaining as of the Closing; (ii) all finished MVI-12 Product in the unit-dose vial form included in Inventory will have at least two months of shelf-life remaining as of the Closing; (iii) all finished MVI-12 Product in dosage forms other than the unit-dose vial included in Inventory will have at least three months of shelf-life remaining as of the Closing; (iv) all finished Aquasol A Products included in Inventory will have at least three months of shelf-life remaining as of the Closing; and (v) all finished Aquasol E Products included in Inventory will have at least 24 months of shelf-life remaining as of the Closing. SECTION 6.10 REGULATORY MATTERS. All of the Regulatory Approvals are current and in full force and effect, have been duly and validly issued, contain no material error or omission, and are owned exclusively by Seller or its Affiliates. Except for the Aquasol E Product, all Products are covered by a Regulatory Approval. There is no Action or Proceeding by any Governmental or Regulatory Authority pending or, to the Knowledge of Seller, threatened seeking the recall of any Products or the revocation or suspension of any Regulatory Approval. Seller has made available to Buyer complete and correct copies of all Regulatory Approvals. There have been no past recalls involving the Products, except for two Class II recalls in 1999 of the Pediatric Product for three lots failing stability testing due to vitamin assays degradation. Notwithstanding the foregoing, Buyer acknowledges Seller's disclosure of information concerning the MVI analytical testing methods used for the Products, and Seller makes no representations or warranties with respect to such analytical testing methods. SECTION 6.11 MARKETING MATERIALS. Seller or its Affiliates at Closing will have good and marketable title to the Marketing Materials free and clear of any Encumbrances other than Permitted Encumbrances. F-18 SECTION 6.12 BROKERS. Seller has not retained any broker in connection with the transactions contemplated hereunder. Buyer has no, and will have no, obligation to pay any brokers, finders, investment bankers, financial advisors or similar fees in connection with this Agreement or the transactions contemplated hereby by reason of any action taken by or on behalf of Seller. SECTION 6.13 NO NON-COMPETITION AGREEMENTS OR PREFERENTIAL OBLIGATIONS. The Purchased Assets are not subject to any non-competition agreements with, or other agreements granting preferential rights to purchase or license the Purchased Assets to, third parties. SECTION 6.14 NO OTHER REPRESENTATIONS AND WARRANTIES. EXCEPT FOR THE REPRESENTATIONS OR WARRANTIES EXPRESSLY SET FORTH IN ARTICLE VI OF THIS AGREEMENT, SELLER DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING ANY INFORMATION FURNISHED BY SELLER WITH REGARD TO THE PRODUCTS, THE PURCHASED ASSETS AND THE BUSINESS, INCLUDING THE FUTURE PROFITABILITY OF THE PURCHASED ASSETS, THE PRODUCTS OR THE BUSINESS, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS ARTICLE VI, BUYER AGREES THAT SELLER SHALL NOT HAVE ANY LIABILITY TO BUYER RESULTING FROM THE DISTRIBUTION OF OR FAILURE TO DISTRIBUTE ANY INFORMATION TO BUYER, OR BUYER'S USE OF ANY INFORMATION, DOCUMENTS OR MATERIALS MADE AVAILABLE TO BUYER IN ANY FORM. ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as of the date hereof, subject to such exceptions as are specifically disclosed in the disclosure schedule (referencing the appropriate Sections hereof) supplied by Buyer to Seller and dated as of the date hereof (the "Buyer Disclosure Schedule"), which Buyer Disclosure Schedule shall be deemed to be representations and warranties of Buyer as if made herein, as follows: SECTION 7.01 CORPORATE ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own its assets and carry on its business as currently conducted by it. Buyer is duly authorized to conduct its business and is in good standing in each jurisdiction where such qualification is required, except for any jurisdiction where failure to so qualify could not reasonably be expected, individually or in the F-19 aggregate, to have a material adverse effect on Buyer or materially impair or delay Buyer's ability to perform its obligations hereunder. SECTION 7.02 AUTHORITY OF BUYER. Buyer has all necessary power and authority and has taken all actions necessary to enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors of Buyer has taken all action required by Law, its Certificate of Incorporation, Bylaws or otherwise to be taken by it to authorize the execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and, when executed and delivered by Seller, will constitute a legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally; and (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. SECTION 7.03 CONSENTS AND APPROVALS. Section 7.03 of the Buyer Disclosure Schedule sets forth a complete and accurate list of all consents, waivers, approvals, Orders or authorizations of, or registrations, declarations or filings with, any Governmental or Regulatory Authority that is required by Buyer in connection with the execution and delivery of this Agreement by Buyer or the performance of its obligations hereunder (the "Buyer Governmental Consents"). SECTION 7.04 NON-CONTRAVENTION. The execution and delivery by Buyer of this Agreement does not, and the performance by it of its obligations under this Agreement and the consummation of the transactions contemplated hereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Certificate of Incorporation, Bylaws or other organizational documents of Buyer; (b) assuming the receipt of all consents, waivers, approvals, Orders or authorizations of Governmental and Regulatory Authorities required to be obtained by Buyer and the making of all registrations, declarations or filings with Governmental and Regulatory Authorities required to be made by Buyer, conflict with or result in a violation or breach of any term or provision of any Law applicable to Buyer; or (c) conflict with or result in a breach or default (or an event which, with notice or lapse of time or both, would constitute a breach or default) under, or result in the termination or cancellation of, or accelerate the performance required by, or result in the creation or imposition of any security interest, lien or any other Encumbrance upon any Contract to which Buyer is a party or by which Buyer or any of its assets is bound. F-20 SECTION 7.05 LITIGATION. There are no Actions or Proceedings pending, or to the Knowledge of Buyer threatened or anticipated, against, relating to, affecting or arising in connection with (a) this Agreement or (b) the transactions contemplated by this Agreement. Buyer is not subject to any Order that could reasonably be expected to materially impair or delay the ability of Buyer to perform its obligations hereunder. SECTION 7.06 BROKERS. Buyer has not retained any broker in connection with the transactions contemplated hereunder. Seller has no, and will have no, obligation to pay any brokers, finders, investment bankers, financial advisors or similar fees in connection with this Agreement or the transactions contemplated hereby by reason of any action taken by or on behalf of Buyer. SECTION 7.07 FINANCIAL CAPABILITY. Buyer has obtained the Commitment Letter in order to secure the funds to effect the Closing. ARTICLE VIII. COVENANTS OF THE PARTIES SECTION 8.01 MAINTENANCE OF BUSINESS PRIOR TO CLOSING. From the date of this Agreement to the Closing Date, Seller shall conduct the Business in the Ordinary Course of Business and not enter into or amend any Contracts (a) giving any third parties any rights, title or interests in the Business, the Products (other than sales in the Ordinary Course of Business), the Regulatory Approvals or the Purchased Assets, or (b) creating any Encumbrances on the foregoing other than Permitted Encumbrances. Seller agrees that after the date hereof, without Buyer's prior written consent, which will not be unreasonably withheld, it will not take any action with respect to any Multi-Product Contract that would (x) extend the term of such Multi-Product Contract with respect to any Product, (y) create or agree to any additional obligations with respect to any Product, or (z) otherwise adversely affect Buyer (other than to terminate any such Multi-Product Contract). SECTION 8.02 REASONABLE BEST EFFORTS. (a) Subject to Section 8.02(b) below, each of the Parties shall use its reasonable best efforts to take, or cause to be taken, all action, or to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement and to cause the conditions to the obligations of the other party hereto to consummate the transactions contemplated hereby to be satisfied, including obtaining all consents and approvals of all Persons and Governmental or Regulatory Authorities and removing any injunctions or other impairments or delays that are necessary, proper or advisable to the consummation of the transactions contemplated by this Agreement. The Parties will file the notification and report forms required to be F-21 filed under the Hart Scott Rodino Act within five Business Days after the execution of this Agreement. (b) From the date hereof until the date 60 days after Closing, Seller shall use its reasonable best efforts to obtain all Other Seller Third Party Consents. From and after the date that is 60 days after Closing, Seller shall have no obligation whatsoever with respect to any Other Seller Third Party Consent and Seller shall have no Liability to Buyer for any failure to obtain any Other Seller Third Party Consent or to transfer to Buyer any Contract (or portion thereof) the transfer of which would require which Seller to obtain an Other Seller Third Party Consent. SECTION 8.03 COOPERATION. Each Party shall cooperate fully with the other in preparing and filing all notices, applications, submissions, reports and other instruments and documents that are necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement, including Seller's cooperation in the efforts of Buyer to obtain any consents and approvals of any Governmental or Regulatory Authority required for Buyer to be able to own the Purchased Assets. SECTION 8.04 ACCESS. (a) From the date hereof until the Closing, Seller shall, and shall cause its relevant Affiliates to, permit Buyer and its representatives to have access, during regular business hours and upon reasonable advance notice, to the assets of the Business that will be Purchased Assets, subject to reasonable rules and regulations of Seller and any applicable Laws. Seller shall instruct its employees, counsel and financial advisors to cooperate with Buyer in its investigation of the Business; it being understood that Buyer shall reimburse Seller promptly for reasonable and necessary out of pocket expenses incurred by Seller or any Affiliate of Seller in complying with any such request by or on behalf of Buyer (other than the fees and costs of Seller's attorneys). (b) Upon the request of Seller, Buyer shall at all times following the Closing, to the extent permitted by Law, grant to Seller and its representatives the right, during normal business hours, to inspect and copy the Books and Records and other documents obtained from Seller in Buyer's possession, to the extent pertaining to the operation of the Business prior to the Closing Date for Tax purposes and in connection with Actions or Proceedings (except as otherwise stated in Section 8.04(c) below). (c) Buyer agrees to keep and maintain all Books and Records and other documents obtained from Seller in existence on the Closing Date for a period of seven years and make personnel of Buyer or its Affiliates available to Seller or its representatives to the extent such access is reasonably related to any Excluded Assets or otherwise necessary for Seller to comply with the terms of this Agreement or comply with any applicable Law; it being understood that Seller F-22 shall reimburse Buyer promptly for its reasonable and necessary out of pocket expenses incurred in complying with any such request by or on behalf of Seller (other than the fees and costs of Buyer's attorneys) and that Buyer and its personnel are not obligated to provide access to any of Buyer's legally privileged information or documents hereunder. SECTION 8.05 PUBLIC ANNOUNCEMENTS. Each of Seller and Buyer agree that, prior and subsequent to the Closing, it and its representatives shall keep the facts surrounding the negotiation of this Agreement and the transactions contemplated hereby, disclosures made herein and hereunder, and the results of investigations and audits conducted hereunder, confidential and shall not disclose such information to any other Person through a press release or otherwise (except as necessary to carry out the terms of this Agreement or to the extent such information becomes public information or generally available to the public through no fault of such party or its Affiliates) without the prior written consent of the other party, unless such party has been advised by (a) counsel that disclosure is required to be made under applicable Law or the requirements of a national securities exchange or another similar regulatory body or (b) such party's independent accountants that disclosure is required in such party's public financial statements or the notes thereto. Notwithstanding the foregoing, Buyer and Seller agree to issue the joint public statement announcing the Agreement in the form attached hereto as Exhibit C three days after the execution of this Agreement. Seller also agrees Buyer may issue the public statement attached hereto as Exhibit D three days after Closing announcing Buyer's acquisition of the Products and consummation of the transaction. SECTION 8.06 BULK SALES. Buyer and Seller waive compliance with all bulk sales Laws applicable to the transactions contemplated by this Agreement. SECTION 8.07 INTERIM PRODUCT SUPPLY. At the Closing, Buyer and Seller shall enter into an interim supply agreement substantially in the form of Exhibit A hereto (the "Interim Supply Agreement"). SECTION 8.08 NON-SOLICITATION. Each Party agrees that, without the prior written consent of the other Party, for a period commencing on the date hereof and expiring on the second anniversary of the Closing Date, the soliciting Party will not directly or indirectly (a) induce, encourage or solicit any officer or employee of the other Party or any of its Affiliates to leave such employment to accept any other position or employment with the soliciting Party, or (b) assist any Affiliate or representative of such soliciting Party in hiring such employee; provided that the running of newspaper advertisements, Internet postings and other means of general distribution shall not be a violation of the foregoing. F-23 SECTION 8.09 CORPORATE NAMES. (a) Except as set forth in this Section 8.09, following the Closing, Buyer shall not have any rights by virtue of this Agreement or any of the transactions or agreements contemplated hereby to any names, trademarks, trade names, trade dress or logos relating to Seller or any of the Affiliates of Seller or any of their products other than those included in the Intellectual Property (the "Corporate Names"). (b) Buyer may use in connection with its operation of the Business (i) for up to 12 months following the Closing (or such shorter period as any Governmental or Regulatory Authority shall designate), items of Inventory that bear any of the Corporate Names, it being understood that Buyer will use its reasonable best efforts to use or sell such items of Inventory prior to selling any other product under the trademark or trade name of the Products; and (ii) for up to 12 months following the Closing (or such shorter period as any Governmental or Regulatory Authority shall designate), Promotional Materials that were transferred to Buyer as Purchased Assets that bear any of the Corporate Names; provided that Buyer may use such Promotional Materials only if Buyer completely removes all Corporate Names from, or completely covers all Corporate Names on, such materials. Buyer acknowledges and agrees that Seller shall have no Liability arising out of or in connection with Buyer's or its Affiliate's use of the Marketing Materials. SECTION 8.10 ASSISTANCE IN COLLECTING CERTAIN AMOUNTS. From and after the Closing Date, Buyer shall assist, cooperate with and consult with Seller and its Affiliates, at Seller's request, in connection with the collection of Accounts Receivable relating to products or goods shipped or sold by Seller or its Affiliates before the Closing Date, and Buyer shall remit promptly to Seller or the relevant Affiliate any payments or other sums received by Buyer that relate to any sales, shipments or other matters occurring before the Closing Date or that otherwise are properly for the account of Seller or its Affiliates. Seller will pay Buyer for its out-of-pocket expenses incurred for Buyer's efforts hereunder. Seller shall, and shall cause its Affiliates to, remit promptly to Buyer any payments or other sums received by Seller or any Affiliates after the Closing Date that relate to any sales or shipments made by Buyer after the Closing Date and Seller shall, and shall cause its Affiliates to, use reasonable efforts to transmit to Buyer all written inquiries or orders, and to refer to Buyer all oral inquiries or orders, relating to the Business (to the extent relating to operations thereof following the Closing) that are received by Seller or any Affiliate following the Closing Date; provided that Buyer promptly shall reimburse Seller for all reasonable out of pocket expenses incurred by Seller or its Affiliates in complying with Seller's obligations under this Section 8.10. SECTION 8.11 HANDLING OF INVENTORY. F-24 From and after the Closing, Buyer shall hold, store, and ship any Inventory in accordance with (a) all applicable Laws; (b) current Good Manufacturing Practices; (c) the applicable Regulatory Approval; and (d) applicable analytical methods and procedures, material specifications, master batch records, and stability protocols. SECTION 8.12 DIFFERENTIATION OF PRODUCTS. From and after the Closing, and as promptly as commercially practicable, Buyer shall institute appropriate procedures to ensure that products and goods of the Business, the Products and the Purchased Assets manufactured, finished or sold by, or on behalf of, Buyer can be distinguished from products and goods of the Business manufactured, finished or sold by, or on behalf of, Seller and its Affiliates. SECTION 8.13 REGULATORY MATTERS. (a) From and after the transfer by Seller to Buyer of each Regulatory Approval pursuant to the terms hereof, but consistent with Sections 8.18 and 8.19 hereof, Buyer, at its cost, shall be solely responsible and liable for (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental or Regulatory Authority required by Law in respect of such Regulatory Approval, including preparing and filing all reports (including adverse drug experience reports) with the appropriate Governmental or Regulatory Authority; (ii) taking all actions and conducting all communication with third parties in respect of Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including responding to all complaints in respect thereof, including complaints related to tampering or contamination; and (iii) investigating all complaints and adverse drug experiences in respect of Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval). (b) From and after the transfer by Seller to Buyer of each Regulatory Approval pursuant to the terms hereof, Seller promptly shall notify Buyer if Seller receives a complaint or a report of an adverse drug experience in respect of a Product sold pursuant to such Regulatory Approval. In addition, Seller shall cooperate with Buyer's reasonable requests and use commercially reasonable efforts to assist Buyer in connection with the investigation of and response to any complaint or adverse drug experience related to a Product sold by Seller or its Affiliates. (c) From and after the transfer by Seller to Buyer of each Regulatory Approval pursuant to the terms hereof, Buyer, at its cost, shall be solely responsible and liable for conducting all voluntary and involuntary recalls of units of Products sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including recalls required by any Governmental or Regulatory Authority and recalls of units of Products sold by Seller or its Affiliates deemed necessary by Seller in its reasonable discretion. Seller promptly shall notify Buyer in the event that a recall of product sold by Seller or F-25 its Affiliates is necessary. Seller shall indemnify and reimburse Buyer for all costs and Damages of such recalls with respect to Products sold prior to the Closing. SECTION 8.14 PRODUCT RETURNS. Buyer shall accept any returns of Products following the Closing. Seller shall reimburse Buyer, against reasonable documentation therefor, for all reasonable costs and Damages of such returns with respect to Products received before the 45 days following the Closing. Subject to the following sentence, Buyer, at its cost, shall be solely responsible and liable for all returns of Products received after 45 days following the Closing (whether sold before or after transfer of such Regulatory Approval). Notwithstanding the foregoing, Seller shall reimburse Buyer for the amount by which the reasonable costs of all Product returned during (a) the period commencing 45 days following the Closing and ending on the first anniversary of the Closing (the "First Return Period") exceed $2.63 million and (b) the period commencing on the first anniversary of the Closing and ending on the second anniversary of the Closing (the "Second Return Period") exceed $3 million; provided, however, Seller's obligation under this sentence to reimburse Buyer for such Product returns shall be limited to $1 million in the aggregate for the First Return Period and $1 million in the aggregate for the Second Return Period and shall be payable to Buyer, with respect to the First Return Period, solely by reducing the First Installment by the applicable amount and, with respect to the Second Return Period, solely by reducing the Second Installment by the applicable amount. For purposes of the preceding sentence, the calculation of Buyer's reasonable costs of Products returned shall equal the lower of (x) Buyer's actual costs of Products returned, or (y) reimbursement costs in accordance with Seller's current reimbursement policy, which is attached hereto as Exhibit F. Buyer shall not initiate or encourage any action to accelerate the return of Products during the 45 days following the Closing. Promptly after the transfer of each such Regulatory Approval, Seller shall provide written notice to all Persons to which Products were sold by Seller or its Affiliates during the 12 months prior to such transfer stating that Seller and its Affiliates no longer accept returns of Products and directing such Persons to contact Buyer in connection with returns, complaints and all other inquiries regarding Products sold pursuant to such Regulatory Approval. SECTION 8.15 FURTHER ASSURANCES. (a) On and after the Closing, Seller shall from time to time, at the request of Buyer, execute and deliver, or cause to be executed and delivered, such other instruments of conveyance and transfer and take such other actions as Buyer may reasonably request, in order to more effectively consummate the transactions contemplated hereby and to vest in Buyer good and marketable title to the Purchased Assets (including assistance in the collection or reduction to possession of any of the Purchased Assets). F-26 (b) On and after the Closing, Buyer shall from time to time, at the request of Seller, take such actions as Seller may reasonably request, in order to more effectively consummate the transactions contemplated hereby, including Buyer's assumption of the Assumed Liabilities. SECTION 8.16 TECHNICAL TRANSFER FOR COMMERCIAL MANUFACTURE OF PRODUCTS. Seller shall provide reasonable assistance to Buyer in connection with the transfer to Buyer or its designee of the manufacturing technology with respect to the Products, to the extent known to Seller, including manufacturing technology, analytical methods, and any other information in the possession of Seller or its Affiliates that is reasonably required by Buyer or its designee for the successful completion of such technology transfer; provided, however, that the amount of time Seller is required to spend on such transfer of manufacturing technology shall not exceed 35 working days of Seller's designated personnel. If Buyer desires more assistance to transfer such technology after the 35 working days, then Buyer will reimburse Seller for its personnel's time at $200 per hour per professional or technical employee. Except as set forth in the previous sentence, all costs and expenses for such technical transfer will be the responsibility of the party incurring such costs and expenses; provided, however, that any travel expenses incurred by Seller's personnel in connection with such transfer of manufacturing technology will be paid promptly by Buyer. SECTION 8.17 TRANSITIONAL DISTRIBUTION BY SELLER. During a transitional period of up to 35 days following the Closing (or such lesser period as Buyer completes arrangements for transfer of such distribution activities), Seller shall maintain distribution of the Products in a manner and intensity of effort consistent with the distribution activities of Seller and its Affiliates during the calendar year 2000, and in accordance with all legal requirements. Buyer shall pay Seller, within ten days after Seller ceases to provide such services, for these distribution services in an amount equal to Seller's actual direct distribution costs (as reasonably determined by Seller) for Products distributed following the Closing. SECTION 8.18 REGULATORY TRANSITION BY SELLER. During a transitional period of up to 50 days following the Closing (or such sooner period as Buyer completes arrangements for transfer of such regulatory activities), Seller shall assist Buyer in the maintenance of the Regulatory Approvals of the Products and carry out the other regulatory compliance activities required to be carried out under the Regulatory Approvals (to the extent that such activities have not then been taken over by Buyer) in a manner and intensity of effort consistent with the regulatory procedures of Seller and its Affiliates during the calendar year 2000, and in accordance with all legal requirements. At Buyer's reasonable request, additional transitional regulatory assistance to carry out any untransferred regulatory F-27 compliance activities after such initial 50-day period, then for a maximum of an additional 40 days, Seller shall continue to carry them out and Buyer shall reimburse Seller for its personnel's time at $200 per hour per professional or technical employee. Except as set forth in the previous sentence, all costs and expenses for such regulatory transition services will be the responsibility of the party incurring such costs and expenses; provided, however, that any travel expenses incurred by Seller's personnel in connection with providing such services will be paid promptly by Buyer. Buyer shall make all filings with, and take all other actions required by, applicable Governmental or Regulatory Authorities that are necessary to permit Seller to perform its obligations under this Section 8.18. SECTION 8.19 REFORMULATION OF MVI-12 PRODUCT. (a) Seller shall use its commercially reasonable efforts to reformulate the MVI-12 Product in a commercially salable drug product pursuant to the Federal Register Notice published by the FDA on April 20, 2000 [Docket No. 79N-0113] and obtain FDA approval of the Reformulation SNDA on behalf of Buyer ("Seller's Reformulation Efforts"); provided that Seller has the absolute right at any time to abandon its Reformulation Efforts after September 30, 2002 by providing written notice to Buyer, whereupon Buyer shall then have no obligation to pay the Remaining Purchase Price to Seller. (b) Upon the earlier of FDA's approval of the Reformulation SNDA or Seller's notice to Buyer that it is abandoning its efforts to obtain such approval, Seller shall deliver to Buyer all books and records relating to the reformulation of the MVI-12 Product and Seller shall grant to Buyer an irrevocable, exclusive, worldwide, royalty-free, fully paid up, perpetual license, with right to sublicense or assign, to use, import or practice, solely in connection with the development, manufacture, having manufactured, use, marketing and selling injectable multivitamin pharmaceutical products ("Injectable Multivitamin Pharmaceutical Field"), any patent or patentable invention created or used, or Know-How developed, obtained or used, by Seller in the course of performing the reformulation services described in the previous sentence ("Reformulation Intellectual Property"). A license under this Section 8.19 is a "Reformulation Intellectual Property License." (i) Seller's Reformulation Intellectual Property License is limited to the Injectable Multivitamin Pharmaceutical Field and in no circumstance extends beyond that Field. Seller retains all right to make, use, sell and offer for sale Reformulation Intellectual Property outside of the Injectable Multivitamin Pharmaceutical Field, including the right to exclude Buyer from making, using, selling and offering for sale outside the Injectable Multivitamin Pharmaceutical Field. F-28 (ii) Seller's obligation to grant Buyer a Reformulation Intellectual Property License is limited to the extent of its own rights to Reformulation Intellectual Property, and in no way creates an obligation in Seller to seek or obtain permission or rights from any third party for granting Buyer a Reformulation Intellectual Property License. From the date hereof, Seller shall use its commercially reasonable efforts to not take any action that would limit its own rights to Reformulation Intellectual Property, or limit Seller's ability to grant a Reformulation Intellectual Property License to Buyer. (iii) There is no requirement that Reformulation Intellectual Property result from Seller's Reformulation Efforts, and Buyer expressly recognizes that no Reformulation Intellectual Property may result from Seller's Reformulation Efforts. Seller has no obligation to seek or obtain intellectual property protection for Know-How created, used or obtained by Seller in the course of Seller's Reformulation Efforts (although Seller will keep all such Know-How, to the extent relating to the Injectable Multivitamin Pharmaceutical Field, confidential), and Seller retains the sole right and discretion to determine whether and how to seek, apply for, pursue, obtain, maintain or defend intellectual property protection for any such Know-How and for Reformulation Intellectual Property. Notwithstanding the foregoing, if Seller (1) identifies potentially patentable subject matter relating to the Injectable Multivitamin Pharmaceutical Field and (2) determines not to seek patent protection for such subject matter, then Seller shall so notify Buyer within 60 days of such identification. Buyer shall then have the right and discretion to seek patent protection for such subject matter at Buyer's sole cost and expense, and Buyer shall own any subsequently issuing patents. Seller shall have no responsibility whatsoever for the patent prosecution or the maintenance or protection of any subsequently issuing patent rights. (iv) Indemnification by Buyer to Seller for Buyer's use or practice of Reformulation Intellectual Property is governed by Section 11.02. (v) Seller makes no representations or warranties with respect to Reformulation Intellectual Property, including that any Reformulation Intellectual Property is valid or enforceable, or that Buyer's use or practice any Reformulation Intellectual Property will not infringe the intellectual property rights or any other rights of any third party, or that Seller owns all right, title and interest in F-29 and to, or has a license, sublicense or other permission to use, Reformulation Intellectual Property. (vi) Seller has the sole and exclusive right and discretion to determine whether and how to enforce Reformulation Intellectual Property, and whether to commence, maintain or terminate, whether by settlement or otherwise, any litigation, action or proceeding regarding Reformulation Intellectual Property ("Reformulation Intellectual Property Litigation"); provided, however, that in no event shall Seller settle Reformulation Intellectual Property Litigation on terms which eliminate Buyer's exclusivity under the Reformulation Intellectual Property License. Seller shall give Buyer no less than 20 days notice prior to settling any Reformulation Intellectual Property Litigation commenced pursuant to this subparagraph (vi) and the opportunity to reasonably object to the terms of such settlement. Seller also has the sole and exclusive right and discretion to control and direct any Reformulation Intellectual Property Litigation, including any challenge to the validity, enforceability or infringement of Reformulation Intellectual Property; provided, however, that Seller shall keep Buyer informed of, and consult with Buyer regarding, Reformulation Intellectual Property Litigation to the extent related to the Injectable Multivitamin Pharmaceutical Field. For Reformulation Intellectual Property Litigation exclusively directed to activity in the Injectable Multivitamin Pharmaceutical Field, Buyer shall assume all costs and retain all proceeds (whether from any damage or reasonable royalty award or the like) ("Proceeds"). For Reformulation Intellectual Property Litigation exclusively directed to activity outside of the Injectable Multivitamin Pharmaceutical Field, Seller shall assume all costs and be able to retain all Proceeds. For Reformulation Intellectual Property Litigation directed to activity both in and outside the Injectable Multivitamin Pharmaceutical Field, all costs and all Proceeds shall be allocated between Seller and Buyer on an equitable pro-rata basis. Buyer shall reasonably cooperate in any Reformulation Intellectual Property Litigation, including the obligation to join any such actions as a party, and Seller shall reimburse Buyer for all reasonable out-of-pocket expenses for such cooperation. (vii) Notwithstanding the foregoing, if Seller (1) identifies activity in the Injectable Multivitamin Pharmaceutical Field which infringes Reformulation Intellectual Property, and (2) determines not to enforce the Reformulation Intellectual Property against such activity, Seller shall so notify Buyer within 60 days of such identification, Buyer shall then have the right and discretion to determine whether to bring an infringement action at its sole cost F-30 and expense and be able to retain all Proceeds. Buyer shall give Seller no less than 20 days notice prior to settling any Reformulation Intellectual Property Litigation commenced pursuant to this subparagraph (vii) and the opportunity to reasonably object to the terms of such settlement. Seller shall have no obligation whatsoever to fund or participate in any such Reformulation Intellectual Property Litigation. Seller shall reasonably cooperate in any Reformulation Intellectual Property Litigation commenced by Buyer pursuant to this subparagraph (vii) and Buyer shall reimburse Seller for all reasonable out-of-pocket expenses for such cooperation. Buyer shall have no right under any circumstances to commence Reformulation Intellectual Property Litigation for conduct outside of the Injectable Multivitamin Pharmaceutical Field. (c) During Seller's Reformulation Efforts, Seller shall permit Buyer to have representatives involved, on an observer-basis only in such Reformulation Efforts, including in any meetings or discussions with the FDA or third parties pertaining to the reformulation of the MVI-12 Product, on a full, open and cooperative basis, and to provide Buyer with copies of all correspondence, e-mails or other communications with FDA, Seller's contractors or other third parties with respect to the reformulation of the MVI-12 Product, and to provide Buyer's personnel with full access to the files and documents to the extent pertaining to such reformulation activities. (d) Any and all costs and expenses associated with Seller's Reformulation Efforts shall be borne by the Seller. (e) Buyer shall make all filings with, and take all other actions required by, applicable Governmental or Regulatory Authorities that are necessary to permit Seller to perform its obligations under this Section 8.19. SECTION 8.20 IRREVOCABLE LETTER OF CREDIT. Buyer has caused Bank of America, N.A. ("BOA") to issue an irrevocable standby letter of credit to Seller, a copy of which is attached as Exhibit E hereto (the "Letter of Credit") in the amount to $2,625,000. In the event that (a) five Business Days have elapsed since the conditions set forth in Section 10.03 of the Agreement have been satisfied (or waived by Buyer) (such fifth Business Day, the "Draw Date"); (b) all representations and warranties of Seller contained in this Agreement are true and correct in all material respects on and as of the Draw Date as though given on and as of such date, except where the failure of any representations and warranties to be true and correct, individually or in the aggregate, would not have an Adverse Effect; (c) Seller shall have performed, on or prior to the Draw Date, all agreements and covenants required by this Agreement to be performed by it prior to or on the F-31 Closing Date other than obligations required to be performed at Closing; (d) no Actions or Proceedings that question the validity or legality of the transactions contemplated hereby shall have been instituted or threatened and not settled or otherwise terminated; (e) Seller is ready, willing and able to perform its obligations under the Agreement at Closing; (f) Buyer has not paid the Base Purchase Price pursuant to Section 4.1(a)(i) of this Agreement; and (g) this Agreement has not been terminated in accordance with its terms; then Seller shall be permitted to draw the full amount of the Letter of Credit. In the event that the Closing subsequently occurs pursuant to the terms hereof, the amount drawn under the Letter of Credit shall be credited against the Base Purchase Price. Upon termination of this Agreement in accordance with its terms prior to Seller's drawing of the full amount of the Letter of Credit, Seller agrees to provide prompt written notice of such termination to BOA. ARTICLE IX. CONDITIONS TO THE OBLIGATIONS OF SELLER The obligation of Seller to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Seller), at or before the Closing, of each of the following conditions: SECTION 9.01 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though given on and as of such date and Buyer shall have performed all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date. SECTION 9.02 NO ACTIONS OR PROCEEDINGS. No Actions or Proceedings that question the validity or legality of the transactions contemplated hereby shall have been instituted or threatened and not settled or otherwise terminated. SECTION 9.03 CONSENTS. All Seller Governmental Consents, Required Seller Third Party Consents and Buyer Governmental Consents shall have been obtained or made, as the case may be, and the waiting period (and any extension thereof) under the Hart-Scott-Rodino Act applicable to the transactions contemplated hereby shall have expired or been terminated. SECTION 9.04 OTHER CLOSING DELIVERIES. Buyer shall have delivered to Seller such other certificates and documents customary in transactions similar to those contemplated hereby that are reasonably requested by Seller. F-32 ARTICLE X. CONDITIONS TO THE OBLIGATIONS OF BUYER The obligation of Buyer to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Buyer), at or before the Closing, of each of the following conditions: SECTION 10.01 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though given on and as of such date, and Seller shall have performed all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date, except where the failure of any representations and warranties to be true and correct, individually or in the aggregate, will not have an Adverse Effect. SECTION 10.02 NO ACTIONS OR PROCEEDINGS. No Actions or Proceedings that question the validity or legality of the transactions contemplated hereby shall have been instituted or threatened and not settled or otherwise terminated. SECTION 10.03 CONSENTS. All Seller Governmental Consents, Required Seller Third Party Consents and Buyer Governmental Consents shall have been obtained or made, as the case may be, and the waiting period (and any extension thereof) under the Hart-Scott-Rodino-Act applicable to the transactions contemplated hereby shall have expired or been terminated. SECTION 10.04 OTHER CLOSING DELIVERIES. Seller shall have delivered to Buyer such other certificates and documents customary in transactions similar to those contemplated hereby that are reasonably requested by Buyer. SECTION 10.05 RECEIPT OF FUNDS. Buyer shall have received an amount equal to the Base Purchase Price pursuant to the commitment letter from Banc of America Mezzanine Capital LLC and Banc of America Securities LLC dated July 12, 2001, attached hereto as Exhibit B (the "Commitment Letter"); provided that this condition shall be deemed satisfied if Buyer shall not have received such funds as a result of or in connection with Buyer's breach of any provision of the Commitment Letter or failure to take any action required under the Commitment Letter in order to obtain such funds. F-33 ARTICLE XI. INDEMNIFICATION SECTION 11.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. The representations and warranties of Seller or Buyer contained in this Agreement shall survive the Closing and remain in full force and effect until the Expiration Date. All representations and warranties contained in this Agreement and all claims with respect thereto shall terminate on the Expiration Date; provided that if notice of any claim for indemnification pursuant to Section 11.02(a)(ii) or 11.02(b)(ii) shall have been given prior to the Expiration Date and such notice describes with reasonable specificity or description the circumstances with respect to which such indemnification claim relates, such indemnification claim shall survive until such time as such claim is finally resolved. SECTION 11.02 INDEMNIFICATION. (a) By Seller. Subject to Section 11.03, from and after the Closing, Seller shall indemnify, reimburse, defend and hold harmless Buyer, its Affiliates, and their respective officers, directors, employees, agents, successors and assigns from and against any and all costs, losses, Liabilities, damages, lawsuits, deficiencies, claims and expenses (including reasonable fees and disbursements of attorneys) (collectively, the "Damages"), incurred in connection with, arising out of, resulting from or incident to (i) any breach of any covenant or agreement of Seller herein; (ii) the inaccuracy or breach of any representation or warranty made by Seller in this Agreement; (iii) the Excluded Liabilities; (iv) Government Rebates or Other Rebates arising out of Seller's fraudulent or criminal conduct; (v) Government Rebates or Other Rebates that are payable or submitted, respectively, outside of the ordinary course of business within six months following the Closing; and (vi) the conduct of the Business prior to the Closing. (b) By Buyer. Subject to Section 11.03, from and after the Closing, Buyer shall indemnify, defend and hold harmless Seller, its Affiliates and their respective officers, directors, employees, agents, successors and assigns from and against any and all Damages incurred in connection with, arising out of, resulting from or incident to (i) any breach of any covenant or agreement of Buyer herein; (ii) the inaccuracy or breach of any representation or warranty made by Buyer in this Agreement; (iii) the failure of Buyer to assume, pay, perform and discharge any Assumed Liabilities; (iv) the use by Buyer or its Affiliates of the Marketing Materials; (v) the use or practice by Buyer of Reformulation Intellectual Property pursuant to Section 8.19; and (vi) the conduct of the Business after Closing. (c) Procedures. The indemnified Party shall give the indemnifying Party written notice (an "Indemnification Claim Notice") within 30 days (or such other additional reasonable period that the Indemnified Party can establish is reasonably necessary to permit it to determine whether to make a request for indemnification) of any Damages or discovery of fact upon which such indemnified Party intends to base a request for indemnification under Section F-34 11.02(a) or Section 11.02(b), but in no event shall the indemnifying Party be liable for any Damages that result from failure to provide such notice within such period. Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Damages (to the extent that the nature and amount of such Damages are known at such time). The indemnified Party shall furnish promptly to the indemnifying Party copies of all papers and official documents received in respect of any Damages. All indemnification claims in respect of a Party, its Affiliates or their respective directors, officers, employees and agents (collectively, the "Indemnitees" and each an "Indemnitee") shall be made solely by such Party to this Agreement (the "Indemnified Party"). (d) Third Party Claims. The obligations of an indemnifying Party under this Section 11.02 with respect to Damages arising from claims of any third party that are subject to indemnification as provided for in Section 11.02(a) or Section 11.02(b) (a "Third Party Claim") shall be governed by and be contingent upon the following additional terms and conditions: (i) At its option, the indemnifying Party may assume the defense of any Third Party Claim by giving written notice to the Indemnified Party at any time after the indemnifying Party's receipt of an Indemnification Claim Notice with respect to such Third Party Claim. The assumption of the defense of a Third Party Claim by the indemnifying Party shall be construed as an acknowledgment that the indemnifying Party is liable to indemnify any Indemnitee for Damages in respect of such Third Party Claim. Upon assuming the defense of a Third Party Claim, the indemnifying Party may appoint as lead counsel in the defense of the Third Party Claim any legal counsel selected by the indemnifying Party. In the event the indemnifying Party assumes the defense of a Third Party Claim, the Indemnified Party shall immediately deliver to the indemnifying Party all original notices and documents (including court papers) received by any Indemnitee in connection with the Third Party Claim. Should the indemnifying Party assume the defense of a Third Party Claim, the indemnifying Party shall not be liable to the Indemnified Party or any other Indemnitee for any legal expenses subsequently incurred by such Indemnified Party or other Indemnitee in connection with the analysis, defense or settlement of the Third Party Claim. In the event that it is later determined that the negligence or willful misconduct of the Indemnified Party caused, or was a contributing cause to, the Third Party Claim or the Damages relating thereto, the Indemnified Party shall reimburse the indemnifying Party for the legal costs and all costs and expenses (including attorneys' fees and costs of suit) and any Damages, or its equitable proportion, as the case may be, incurred by the indemnifying Party in its defense of the Third Party Claim with respect to such Indemnitee. F-35 (ii) Without limiting Section 11.02(d)(i), any Indemnitee shall be entitled to participate in, but not control, the defense of such Third Party Claim and to employ counsel of its choice for such purpose; provided, however, that such employment shall be at the Indemnitee's own expense unless (A) the employment thereof has been specifically authorized by the indemnifying Party in writing, or (B) the indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 11.02(d)(i) (in which case the Indemnified Party shall control the defense). (iii) With respect to any Damages relating solely to the payment of money damages in connection with a Third Party Claim and that will not result in the Indemnitee's becoming subject to injunctive or other relief or otherwise adversely affect the business of the Indemnitee in any manner, and as to which the indemnifying Party shall have acknowledged in writing the obligation to indemnify the Indemnitee hereunder, the indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Damages, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate. With respect to all other Damages in connection with Third Party Claims, where the indemnifying Party has assumed the defense of the Third Party Claim in accordance with Section 11.02(d)(i), the indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement or otherwise voluntarily dispose of such Damages; provided that it obtains the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). The indemnifying Party shall not be liable for any settlement or other voluntary disposition of Damages by an Indemnitee that is reached without the written consent of the indemnifying Party. Regardless of whether the indemnifying Party chooses to defend or prosecute any Third Party Claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the prior written consent of the indemnifying Party. (iv) Regardless of whether the indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall, and shall cause each other Indemnitee to, cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to the F-36 indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Third Party Claim, and making Indemnitees and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder, and the indemnifying Party shall reimburse the Indemnified Party for all its reasonable out-of-pocket expenses in connection therewith. To the extent the records of the Indemnitee referenced in this Section 11.02(d)(iv) are privileged by an attorney-client relationship, the parties shall cooperate in a manner as to preserve such privilege but to afford the indemnifying Party with all information relevant to such Third Party Claim. SECTION 11.03 LIMITATIONS (a) In no event shall Seller be liable for any Damages pursuant to Section 11.02(a)(ii) unless and until the aggregate amount of all such Damages exceeds $1,000,000, in which case Seller shall be liable for all such Damages in excess of $1,000,000. (b) Notwithstanding Section 11.02(a), Seller will not be required to indemnify Buyer for Damages pursuant to Section 11.02(a)(v) that exceed a maximum aggregate liability of $5,000,000. (c) The amount of any Damages under Section 11.02(a) or Section 11.02(b), as the case may be, shall be reduced by (i) the net amount of any actual Tax benefits received by the Indemnified Party within three years from the Closing Date that result from the Liability that gave rise to such indemnity, after upward adjustment for any additional Taxes owed as a result of receipt of such indemnification, and (ii) the net amount of any insurance proceeds paid to the Indemnified Party relating to such claim, after upward adjustment for any insurance proceeds repayment obligations owed as a result of receipt of such indemnification. (d) THE INDEMNIFICATION OBLIGATIONS OF THE PARTIES HERETO SHALL NOT EXTEND TO SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, INCLUDING BUSINESS INTERRUPTION OR LOST PROFITS, OR PUNITIVE DAMAGES; PROVIDED, HOWEVER, THIS EXCLUSION IS NOT INTENDED TO, NOR SHALL, EXCLUDE ACTUAL OR COMPENSATORY DAMAGES OF THE AFFECTED PARTY. SECTION 11.04 REMEDIES EXCLUSIVE. From and after the Closing, the remedies set forth in this Article XI shall be exclusive and in lieu of any other remedies that may be available to the Indemnitees pursuant to F-37 any statutory or common law with respect to any Losses of any kind or nature incurred directly or indirectly resulting from or arising out of any breach of this Agreement (including alleged breaches or inaccuracies of any representation, warranty or covenant or for any alleged misrepresentation but excluding any claims for actual fraud) or the transactions contemplated hereby; provided, however, that Buyer or Seller may seek appropriate equitable relief in a court of proper jurisdiction. Nothing herein is intended to, nor shall be construed to, affect, have an interpretative effect on, modify or terminate any other contract between either party hereto or its affiliates or any rights or obligations under any such contracts. ARTICLE XII. TERMINATION AND ABANDONMENT SECTION 12.01 METHODS OF TERMINATION. The transactions contemplated herein may be terminated and/or abandoned at any time prior to the Closing: (a) by mutual written agreement of Seller and Buyer; or (b) by either Seller or Buyer if the Closing shall not have occurred by September 30, 2001; provided that the terminating party is not in material breach of its obligations hereunder; (c) by either Seller or Buyer if the other party becomes insolvent or seeks protection under any bankruptcy, receivership, trust deed, creditors arrangement, composition or comparable proceeding, or if any such proceeding is instituted against the other party which proceeding remains undismissed for a period of 30 days; (d) by either Seller or Buyer if there shall be in effect any Law that prohibits the Closing or if the Closing would violate any non-appealable Order; (e) by either Seller or Buyer if the other party has breached any material obligation hereunder that remains uncured for a period of 30 days after written notice and demand for cure thereof by the non-breaching party, unless such breach is not capable of cure in which event the non-breaching party may terminate immediately; or (f) by Seller if (i) five Business Days have elapsed since the conditions set forth in Section 10.03 of the Agreement have been satisfied (or waived by Buyer); (ii) all representations and warranties of Seller contained in this Agreement are true and correct in all material respects on and as of the Draw Date as though given on and as of such date, except where the failure of any representations and warranties to be true and correct, individually or in the aggregate, would not have an Adverse Effect; (iii) Seller shall have performed, on or prior to the Draw Date, all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date other than obligations required to be performed at F-38 Closing; (iv) no Actions or Proceedings that question the validity or legality of the transactions contemplated hereby shall have been instituted or threatened and not settled or otherwise terminated; (v) Seller is ready, willing and able to perform its obligations under the Agreement at Closing; and (vi) Buyer has not paid the Base Purchase Price pursuant to Section 4.1(a)(i) of this Agreement. SECTION 12.02 PROCEDURE UPON TERMINATION. In the event of termination and abandonment under Section 12.01 hereof, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated and abandoned, without further action by the parties hereto. If the transactions contemplated by this Agreement are terminated and/or abandoned as provided herein: (a) Each party, if requested in writing, will redeliver or destroy all documents, work papers and other material of the other party and its Affiliates relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; (b) All confidential information received by any party hereto with respect to the business of any other party or its Affiliates shall be treated in accordance with that certain Confidentiality Agreement, dated as of February 20, 2001, by and between Buyer and Seller; and (c) No party hereto and none of their respective directors, officers, stockholders, Affiliates or controlling Persons shall have any further liability or obligation to any other party to this Agreement except as stated in subparagraphs (a) and (b) of this Section, except that (i) nothing in this Section 12.02 shall prejudice any rights, claims, or causes of action that may have accrued hereunder or with respect hereto prior to the date of such termination and (ii) the provisions of Article XIII shall survive any termination of this Agreement. ARTICLE XIII. MISCELLANEOUS SECTION 13.01 CONFIDENTIALITY. (a) After the Closing, Seller shall not, without the prior written consent of Buyer, disclose to any Person confidential information relating to or concerning the Purchased Assets, Products or the Business, except to Seller's employees or representatives who need to know such information for purposes of Taxes, accounting, pending litigation and other matters necessary in respect of the Seller's ownership, prior to the Closing Date, of the Purchased Assets, Products or the Business, unless Seller has used its best efforts to (i) consult with Buyer and obtain Buyer's consent in a timely manner, but has not been able to do so, and (ii) Seller has been advised by counsel that disclosure is required to be made F-39 under applicable Law or the requirements of a national securities exchange or another similar regulatory body. In the event that Seller is requested or required by documents subpoena, civil investigative demand, interrogatories, requests for information, or other similar process to disclose any information supplied to Seller in the course of its ownership of the Purchased Assets, Seller shall provide Buyer with prompt notice of such request or demands or other similar process so that the Buyer may seek an appropriate protective order or, if such request, demand or other similar process is mandatory, waive Seller's compliance with the provisions of this Section 13.01(a) as appropriate. (b) The term confidential information as used in this Section 13.01 does not include information which (i) becomes generally available to the public other than as a result of disclosure by Seller, (ii) was available on a non-confidential basis prior to its disclosure by Seller, or (iii) becomes available to Seller on a non-confidential basis from a source other than the Buyer, provided that such source is not bound by a confidentiality agreement with Buyer. SECTION 13.02 NOTICES. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or mailed (postage prepaid by certified or registered mail, return receipt requested) or by nationally recognized overnight courier that maintains records of delivery to the parties at the following addresses or facsimile numbers: If to Buyer to: NeoSan Pharmaceuticals Inc. 2320 Scientific Park Drive Wilmington, NC 28405 Attn: Dr. Philip Tabbiner, President Telephone: (910) 254-7000 Facsimile: (910) 815-2387 With copies to: aaiPharma Inc. 2320 Scientific Park Drive Wilmington, NC 28405 Attn.: General Counsel Telephone: (910) 254-7000 Facsimile: (910) 815-2387 F-40 If to Seller to: AstraZeneca Pharmaceuticals LP 1800 Concord Pike P.O. Box 15437 Wilmington, DE 19850-5437 Attn: General Counsel Telephone: (302) 886-3244 Facsimile: (302) 886-1578 With copies to: Covington & Burling 1201 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Facsimile No: 202-662-6291 Attention: John A. Hurvitz, Esq. All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section, be deemed given upon receipt, (b) if delivered by facsimile to the facsimile number as provided in this Section, be deemed given upon receipt by the sender of the answer back confirmation and (c) if delivered by mail in the manner described above or by overnight courier to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto in accordance with the terms of this Section. SECTION 13.03 ENTIRE AGREEMENT. This Agreement (and all Exhibits and Schedules attached hereto and all other documents delivered in connection herewith) supersedes all prior discussions and agreements among the parties with respect to the subject matter hereof and contains the sole and entire agreement among the parties hereto with respect to the subject matter hereof. SECTION 13.04 WAIVER. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. F-41 SECTION 13.05 AMENDMENT. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by each party hereto. SECTION 13.06 THIRD PARTY BENEFICIARIES. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person. SECTION 13.07 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto, other than to an Affiliate or successor entity of such party with a guarantee of performance by the assigning party, and any attempt to do so, other than as permitted above, will be void. This Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and permitted assigns. SECTION 13.08 HEADINGS. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. SECTION 13.09 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never compromised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar to terms to such illegal, invalid or unenforceable provision as may be possible and reasonably acceptable to the parties herein. SECTION 13.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES. F-42 SECTION 13.11 CONSENT TO JURISDICTION AND FORUM SELECTION. THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE INITIATED AND TRIED EXCLUSIVELY IN THE LOCAL AND FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE. THE AFOREMENTIONED CHOICE OF VENUE IS INTENDED BY THE PARTIES TO BE MANDATORY AND NOT PERMISSIVE IN NATURE, THEREBY PRECLUDING THE POSSIBILITY OF LITIGATION BETWEEN THE PARTIES WITH RESPECT TO OR ARISING OUT OF THIS AGREEMENT IN ANY JURISDICTION OTHER THAN THAT SPECIFIED IN THIS SECTION. EACH PARTY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR SIMILAR DOCTRINE OR TO OBJECT TO VENUE WITH RESPECT TO ANY PROCEEDING BROUGHT IN ACCORDANCE WITH THIS SECTION, AND STIPULATES THAT THE LOCAL AND FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE SHALL HAVE PERSONAL JURISDICTION AND VENUE OVER EACH OF THEM FOR PURPOSES OF LITIGATING ANY DISPUTE, CONTROVERSY OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH PARTY HEREBY AUTHORIZES AND AGREES TO ACCEPT SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST IT AS CONTEMPLATED BY THIS SECTION BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID TO ITS ADDRESS FOR THE GIVING OF NOTICES AS SET FORTH IN THIS AGREEMENT, OR IN THE MANNER SET FORTH IN SECTION 13.02 OF THIS AGREEMENT FOR THE GIVING OF NOTICE. ANY FINAL JUDGMENT RECEIVED AGAINST A PARTY IN ANY ACTION OR PROCEEDING SHALL BE CONCLUSIVE AS TO THE SUBJECT OF SUCH FINAL JUDGMENT AND MAY BE ENFORCED IN OTHER JURISDICTIONS IN ANY MANNER PROVIDED BY LAW. SECTION 13.12 EXPENSES. Except as otherwise provided in this Agreement, each party hereto shall pay its own expenses and costs incidental to the preparation of this Agreement and to the consummation of the transactions contemplated hereby. SECTION 13.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument. SECTION 13.14 SCHEDULES, EXHIBITS AND OTHER AGREEMENTS. The Exhibits, Schedules, other agreements, certificates and notices specifically referred to herein, and delivered pursuant hereto, are an integral part of this Agreement. Any F-43 disclosure that is made in any of the Schedules or certificates delivered pursuant to this Agreement shall be deemed responsive to any other applicable disclosure obligation hereunder. SECTION 13.15 SELLER AND ITS AFFILIATES. Seller hereby acknowledges that any reference to Seller in this Agreement shall be to Seller and those of its Affiliates that own or possess the Purchased Assets. Seller also agrees that any reference to action to be taken by Seller under this Agreement shall, without further expression, include a covenant by Seller to cause those of its Affiliates that own or possess the Purchased Assets to take such action, as the case may be. [Remainder of Page Intentionally Left Blank] F-44 IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto all as of the date first above written. ASTRAZENECA AB By: ---------------------------- Name: Title: NEOSAN PHARMACEUTICALS INC. By: ---------------------------- Name: Title: aaiPharma Inc. Guaranty In consideration of AstraZeneca AB's entering into the foregoing Asset Purchase Agreement (the "Agreement") with NeoSan Pharmaceuticals Inc. ("Buyer"), a wholly-owned subsidiary of aaiPharma Inc., aaiPharma Inc. hereby guaranties the performance by Buyer of its obligations under the Agreement, when and as due, subject to all defenses that Buyer may lawfully raise with respect to any claims by AstraZeneca AB, other than defenses under or relating to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally. aaiPHARMA INC. By: ---------------------------- Name: Title: F-45 EX-99.1 5 g72571ex99-1.txt RISK FACTORS Exhibit 99.1 RISK FACTORS Key risk factors that may have a direct bearing on the Company's results, performance and financial condition include: o the Company's ability to successfully develop, on its own behalf and on behalf of its customers, and timely and successfully commercialize, launch and sell new and improved pharmaceutical products and services; o the potential outcomes and commercial implications of clinical trials related to products under development by the Company; o the ability and willingness of the Company's customers to successfully commercialize, launch and sell new and improved pharmaceutical products in which the Company has an economic interest; o the Company's ability to successfully enter into and perform beneficial royalty, milestone and fee-for-service agreements with pharmaceutical companies; o the introduction and sale of new or modified pharmaceutical products and technologies by other companies that affect the demand for pharmaceutical products and services in which AAI has a financial interest, either directly or through sales to, or royalties, milestones or other fees to be received from, AAI's customers and marketing partners; o the Company's success in obtaining timely regulatory approvals of the Company's internally developed products and to obtain other regulatory approvals and regulatorily acceptable governmental audits and inspections of the Company's facilities, records and other regulated activities; o our ability to hire and retain adequate numbers of qualified employees; o industry outsourcing trends and volumes; o changes in economic and market conditions that impact the demand for the Company's products and services; o our ability to obtain suitable types and quantities of raw materials, excipients and active pharmaceutical ingredients used to develop, improve or manufacture products, at commercially viable prices; o federal, state and foreign regulatory and legal changes and developments that impact the pharmaceutical industry and those companies developing or providing services and products to the pharmaceutical industry, including the Company, as well as the outcome of related judicial cases involving or affecting the industry or such companies, including any such changes, developments or judicial cases pertaining to FDA or other regulatory, environmental, health and safety matters; o changes in tariffs and import/export controls and restrictions; o account receivable collection by the Company, and bankruptcy, insolvency or impaired ability by the Company's customers to pay amounts owed to the Company, in full and on a timely basis; o risks inherent in international operations, including, e.g., possible economic, political, military, trade restraints or restrictions, monetary, or currency instabilities or developments affecting the United States, Canada, the European Union and its member states, the People's Republic of China, Turkey and Argentina, among others; o the effects of vigorous competition and/or mergers and acquisitions in the pharmaceutical industry and those companies developing or providing services and products to the pharmaceutical industry; o changes in interpretations and application of generally accepted accounting practices and policy standards by regulatory and accounting bodies that may cause the Company's reported financial results to differ from anticipated results; o the concurrence of the Internal Revenue Service and state and foreign taxation agencies with the Company's interpretation and application of the applicable tax laws and regulations to the Company's operations and financial results, including in the Company's tax filings and returns; o the Company's ability to successfully persuade the U.S. Patent and Trademark Office and its foreign counterparts to issue patents with strong claims, on a timely basis, and to enforce such issued patents against infringing companies; o the outcome of any government reviews, investigations, claims or challenges that may arise with respect to the contracts, asset and stock sales and acquisitions, mergers, and joint ventures of or involving the Company; o our ability to successfully find and complete advantageous acquisitions, joint ventures and mergers, including, e.g., our ability to accurately identify and assess the value, strengths, weaknesses, synergies, contingent and other liabilities and potential profitability of acquisition or merger candidate or of joint ventures and to successfully integrate acquired or merged operations into the operations of the Company; and o the compliance by the Company's customers, suppliers, licensors, licensees or other third parties with which the Company has contractual relations, with their contractual obligations to the Company, as well as the Company's ability to enforce such obligations through litigation, arbitration, mediation or other dispute resolution efforts. Discussion of Risk Factors in the Pharmaceutical Industry. The Company believes that the pharmaceutical industry in which it currently operates through its development and commercialization of new and improved pharmaceutical products and services holds tremendous opportunities for companies successful in competing in that industry. At the same time, the Company is aware of what it takes to be successful in this industry and the risk factors associated with the industry. In order to assist our stockholders in better understanding the risk factors in the pharmaceutical industry, the Company is taking this opportunity to summarize and discuss them: COMPETITION. The Company encounters aggressive competition in all areas of its business. Our competitors are numerous, ranging from large pharmaceutical companies to many smaller specialized firms. AAI competes primarily on the basis of innovation, ability to obtain regulatory approvals successfully and at early dates, technology and patents, a sophisticated understanding of chemistry, finding and developing novel chemical opportunities with respect to new or existing pharmaceutical products, service performance, price, quality, reliability, and customer service and support. Product opportunities frequently arise as innovator drugs approach the end of their patent lives. These include both product life cycle management (PLCM) activities to extend the product franchise life cycles for innovator pharmaceutical firms and to engage in generic product development. Developing new or improved drug products is complex and difficult, both technically and from a regulatory standpoint. Commercial success and viability depends on whether (and how many) other companies are developing new or improved competing drugs or generic equivalents to innovator drugs, which companies receive the earliest regulatory approvals to market the competing or generic products, and differences in the competing products' characteristics, effectiveness, safety, stability and side effects profiles. The product development process requires, often years in advance, accurate anticipation of market and customer acceptance of particular products, customers' needs, emerging technological trends, and a timely ability to complete successfully many dependent and complex chemistry, analytical, testing and regulatory approval requirements. When developed, new formulations may not accomplish desired delivery, clinical or product stability characteristics, and new or reformulated drugs may not have acceptable safety, effectiveness, stability or side effect profiles. Complications can also arise during production scale-up and/or developing or using acceptable analytical methodologies that materially affect the commercial or technical viability of a new or improved product. New or improved products can also encounter unexpected unresolvable patent conflicts. Delays or problems may also arise from internal conflicts for resource availability, personnel errors or equipment failures. Pharmaceutical product development life cycles are long (typically several years) with substantial risks of failure in any of the development and clinical testing phases. The windows of opportunity to develop and commercialize such products open and close quickly with regulatory and market developments. To remain competitive, the Company must develop or license new and improved products, find, develop and commercialize PLCM opportunities for innovator drugs whose patent protection is soon to expire or generic products, periodically enhance its existing products and services, and compete effectively on the basis of the factors described above. The Company is also subject to the impact of marketplace actions of its competitors. For example, in the event of business difficulties faced by a major competitor, the competitor may decide to slash its prices or take other pricing or market actions in order to obtain new business at any price, thereby disrupting the entire marketplace for pricing and obtaining of new business for the Company and other marketplace participants. There can be no assurance that disruptive actions by the Company's competitors will not occur or affect the Company's financial results or business operations. SELECTION AND INVESTMENT IN NEW RESEARCH AND DEVELOPMENT PROJECTS. The Company seeks to select new or improved products and services to work on in its judgment of those that may yield strong commercial success for the Company, in light of its then-available resources, technical capabilities and alternatives. However, in light of the multi-year product development cycle times, the Company must make long-term investments in its research and development projects and commit significant resources before knowing whether its predictions will eventually result in products that achieve customer and market acceptance and success. MARKETING OF NEW AND IMPROVED PRODUCTS AND SERVICES. After a new or improved pharmaceutical product or service is successfully developed, the Company must either find a pharmaceutical marketing partner and successfully enter into a profitable license and distribution agreement or seek to sell the product or service through its own sales force. Commercial success by the Company depends on our ability to create and maintain such effective marketing channels. MANUFACTURING OBLIGATIONS. Frequently, the Company has related manufacturing obligations that require it to manufacture sufficient volumes of marketable product at acceptable costs. This is a process that requires accurate forecasting of costs, volumes and mix of products and service estimates. Moreover, the supply and timing of a new product or service must match customers' demand and timing for the particular product or service. Given the wide variety of products and services the Company offers and is developing, the process of planning production and projecting profitable cost charges is difficult. INTELLECTUAL PROPERTY. The Company generally relies upon patent, copyright, trademark and trade secret laws in the United States and in selected other countries to establish and maintain its proprietary rights in its intellectual property, technology and products. However, there can be no assurance that any of the Company's proprietary rights will not be challenged, invalidated or circumvented, or that any such rights will provide significant competitive advantages. Moreover, because of the rapid pace of technological change in the pharmaceutical industry, many of the Company's products rely on key technologies developed by itself or others that may be obsoleted at any time. There can be no assurance that the Company will be able to continue to develop or obtain licenses to necessary technologies. In addition, from time to time, the Company receives notices from third parties regarding patent claims. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources and cause the Company to incur significant expenses. In the event of a successful claim of infringement against the Company and failure or inability of the Company to license the infringed technology or to substitute similar non-infringing technology, the Company's business could be adversely affected. The Company also routinely enters into confidential disclosure agreements with third parties and customers that restrict the disclosure and/or use of the Company's intellectual property, including its confidential and proprietary information, disclosed to such third parties. Failure of such third-parties to honor their confidentiality and non-use obligations owed to AAI can materially harm the Company. RELIANCE ON SUPPLIERS. The Company's operations are dependent on our ability to obtain suppliers of quality raw materials, excipients and active pharmaceutical ingredients at commercially acceptable prices and terms, in time to satisfy critical product development, testing, analytical and manufacturing activities, customer contracts, or the development plans of the Company. The Company from time to time experiences constrained timely and cost-effective supplies of such desired materials. Such constraints, if persistent or widespread, may adversely affect the Company's operating results until resolved or alternate sourcing can be developed. DEVELOPMENT OF DIRECT SALES OF NICHE PHARMACEUTICAL PRODUCTS. The Company is currently planning the development of its own distribution channels for certain "niche" pharmaceutical products not intended to conflict with products being sold by the Company's customers. The Company is in the process of developing its own, and actively seeking to buy from third parties, non-conflicting "niche" pharmaceutical products. There is no assurance that such distribution channels can be successfully developed, that such products can be successfully identified, acquired or developed, or that the Company's customers may not react adversely to such marketing efforts by the Company. The Company's operational and financial results could be materially and adversely affected due to any such adverse reactions. INTERNATIONAL. Sales outside the United States make up a significant portion of the Company's revenues. In addition, a significant portion of the Company's facilities and personnel, along with key customers and suppliers, are located outside the United States. Accordingly, the Company's future results could be adversely affected by a variety of factors, including changes in a specific country's or region's political conditions or changes or continued weakness in economic conditions, trade protection measures, import or export licensing requirements, facility or ownership interest nationalization, the overlap of different tax structures, unexpected changes in regulatory requirements, military conflicts or actions, and natural disasters. MANAGEMENT AND SKILLED PERSONNEL. As with any technological company, the Company's operations require adequate numbers of skilled scientific and technical personnel, as well as strong management and sales capabilities, to be successful. Such personnel are in strong demand by many other companies and the Company's personnel are frequently hired away by other companies. Retaining skilled personnel, and hiring replacements, are critical to the Company's success. There can be no assurance that the loss of key personnel, whether to other companies or to accident, illness, death, injury or retirement, will not occur at a time or in a manner that will not disrupt or delay key projects and activities of the Company and thereby adversely affect our operations or financial results. DEMANDS OF GROWTH. In recent years, the Company has been growing in size and complexity of operations. An organization bears many burdens organizationally caused by such growth, including, among others, successfully improving, increasing and changing the financial, information technology, operational, personnel-related and other systems, policies and practices of the organization and the organizational structure of the business and its management, as well as finding and hiring the appropriate people for new or changed positions. The Company believes that it is presently meeting the challenges of growth, but any failure or inability to meet such challenges, or to successfully create, maintain or use such systems, policies or practices, can materially and adversely affect the operations and financial result of the Company. LITIGATION, INVESTIGATIONS AND CLAIMS. Any company, including AAI, always faces the risk of potential litigation being brought against it in the course of its business operations. By their nature, litigation, pre-litigation investigations and controversies, and claim demands occur when disputes arise between two parties, or between a party and a government agency, as to whether legal obligations are owed or breached. These are often difficult or impossible to predict, avoid or mitigate in advance. When they occur, litigation, investigations and claim demands may be based on either valid or unfounded claims. In either case, however, litigation typically seeks substantial amounts of money and/or injunctive relief and involve substantial legal fees and expenses, and pre-litigation investigations and claim demands frequently involve major costs and diversions of management and personnel time and attention, which, in each case, can materially and adversely affect the Company's operations or financial results. CREDITWORTHINESS AND CONTRACT COMPLIANCE OF CUSTOMERS. The magnitude of the Company's contracts are often substantial in comparison to the Company's size. While many of the Company's customers are large and well-funded pharmaceutical companies, others are small (or are "virtual" companies) with substantially less resources which can run into financial or operational difficulties from time to time. In the event that a customer with a significant contract with the Company runs into financial or credit difficulties, declares bankruptcy, becomes insolvent or otherwise is unable or unwilling to pay monies owed to the Company on a timely basis or otherwise honor its obligations under such a contract, the Company could be materially and adversely affected. DERIVATIVE FINANCIAL INSTRUMENTS. As is common with companies operating internationally, the Company is exposed to foreign currency exchange rate risk inherent in its contracts, business dealings, and assets and liabilities denominated in currencies other than the U.S. dollar, as well as interest rate risk inherent in the Company's debt, investment and accounts receivable portfolio. The Company's risk management strategy utilizes derivative financial instruments, including forwards and swaps, to hedge certain foreign currency and interest rate exposures, with the intent of offsetting gains and losses that occur on the underlying exposures with gains and losses on the derivative contracts hedging them. The Company does not enter into derivatives for trading purposes. The Company has performed a sensitivity analysis assuming a hypothetical adverse movement of 10% in foreign exchange rates and 1% in interest rates (applied to variable rate debt and leases tied to interest rates) and disclosed the results in Part I, Item 3 of the current Form 10-Q. Actual gains and losses in the future may differ materially from that analysis, however, based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and the Company's actual exposures and hedges. ACQUISITIONS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES. From time to time, the Company engages in discussions with a variety of parties relating to possible acquisitions, strategic alliances, joint ventures and divestitures. The implementation or integration of a transaction may contribute to the Company's results differing from the investment community's expectation in a given quarter. Divestitures may result in the cancellation of orders and charges to earnings. Acquisitions and strategic alliances may require, among other things, integration or coordination with a different company culture, management team organization and business infrastructure. They may also require the development, manufacture and marketing of product offerings that enhance or detract from the performance of the combined business or product line. Depending on the size and complexity of the transaction, successful integration depends on a variety of factors, including the hiring and retention of key employees, management of geographically separate facilities, and the integration or coordination of different research and development and product manufacturing facilities. All of these efforts require varying levels of management resources, which may temporarily adversely impact other business operations. EVENTS OF SEPTEMBER 11 AND AFTERMATH. The horrific attacks against the United States and the aftermath of those events are not anticipated to have a direct material effect on the Company's operations. However, the Company's plans to acquire additional product lines through NeoSan depends on the Company's ability to timely obtain necessary financing. To the extent that those events and other terrorist activities continue to depress the United States economy and capital markets, the Company may not be able to pursue its product acquisition strategy as vigorously as it had planned. HURRICANES. A significant portion of the Company's research and development activities, its corporate headquarters, and other critical business operations and certain of its suppliers are located in geographic areas that have had, and are likely to continue to have, hurricanes and major storms. To mitigate this risk, the Company maintains certain levels of business interruption and other insurance coverage. However, the ultimate impact on the Company, its operations and its infrastructure of future hurricanes and storms cannot be foreseen or controlled at this time. DRUG ENFORCEMENT AGENCY ("DEA") REGULATION. Certain of the Company's development, testing and other activities are subject to the Controlled Substances Act, administered by the Drug Enforcement Agency (the "DEA"), which regulates strictly all narcotic and habit-forming substances. The Company maintains separate, restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA. Any failure or inability by the Company to comply with such Act and regulations could materially and adversely affect the business, operations and financial results of the Company. ENVIRONMENTAL AND HAZARDOUS MATERIALS IN THE WORKPLACE. Certain of the Company's operations involve the use of substances regulated under various federal, state, local, and international laws governing the environment. Moreover, the Company's activities involve the controlled use of hazardous materials and chemicals. The Company is subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products. In the event of an accident, discharges (e.g., to the groundwater or air) or other non-compliance, the Company could be held liable for any damages that result, including damages or injuries, including deaths, to persons, property or the environment, which could materially and adversely affect the financial condition and operations of the Company. PROFIT MARGIN. The profit margins realized by the Company vary among its products and services, its customers, its competitive situation, and its geographic areas of operation. Consequently, the overall profitability of the Company's operations in any given period is partially dependent on the product, service, customer and geographic mix, and competitive situation, reflected in that period's net sales. CHANGES IN LAWS AND REGULATIONS. The Company operates in a highly regulated business. Failure or inability to comply with the laws and regulations applicable to our business would materially and adversely affect the Company's business and financial results. Moreover, these laws and regulations and governmental interpretations and applications thereof, both in the United States and in foreign countries, change over time. The Company can give no assurance that the laws and regulations applicable to our business will not change, or be interpreted or re-interpreted by governmental agencies or bodies, in ways harmful to the Company and its financial results and business operations. CREDIT FACILITIES AND AVAILABILITY OF CASH. The Company is dependent on its bank relationships and credit facilities to provide cash and funding for Company operations. In the event of any future disruption or limitation in such relationships or facilities, any decision by the Company's banks to terminate, reduce or impose limitations on our credit facilities or to exercise rights to impose restrictions or declare breaches under banking contract provisions, any decisions by the Company's banks to collect on any assets of the Company as collateral for such lending facilities, or in the event that the Company requires more cash than is available to it under such credit facilities, the Company's operations and financial condition could be materially and adversely affected. FLUCTUATIONS AND VOLATILITY OF STOCK PRICES. In the pharmaceutical industry, future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its operations, which could cause period-to-period fluctuations in operating results. The Company's stock price, like that of other small pharmaceutical companies, is subject to significant volatility. The announcement of new products, services, technological innovations or business developments by the Company or its competitors, quarterly or annual variations in the Company's results of operations, changes in revenue or earnings estimates by the investment community, and speculation in the press, Internet web sites or investment community are among the factors affecting the Company's stock price. In addition, the stock price may be affected by general market conditions and domestic and international macroeconomic factors unrelated to the Company's performance. Moreover, major potential contracts or business arrangements being negotiated or pursued by the Company frequently occur late in given financial quarters or years. Any failure or inability by the Company in achieving, or even brief delays in implementing, potential licensing, product life cycle management, product development and other major contracts or arrangements being pursued or negotiated by the Company can, and from time to time does, move the financial and sales impact of expected or planned sales and contracts from one accounting period to another or prevent them from being booked at all. Such delays or inabilities are difficult or impossible to predict or control and can materially and adversely affect quarterly or annual revenues and profitability, which can materially and adversely affect the price of the Company's stock. In addition, typical trading volumes in the Company stock are thin, so that the purchase or sale of relatively small amounts of the Company stock and announcements of Company-related news and developments can materially affect the price of such stock, either through increases or decreases. Because of the foregoing reasons, recent trends should not be considered reliable indicators of future stock prices or financial results. -----END PRIVACY-ENHANCED MESSAGE-----