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Public Offering Registration - KING PHARMACEUTICALS INC - 10-24-1997

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Public Offering Registration - KING PHARMACEUTICALS INC - 10-24-1997 Powered By Docstoc
					AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997 REGISTRATION NO. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

KING PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE (State or other jurisdiction of incorporation or organization) 2834 (Primary Standard Industrial Classification Code Number) 54-1684963 (I.R.S. Employer Identification Number)

501 FIFTH STREET, BRISTOL, TENNESSEE 37620, (423) 989-8000 (Address, including zip code, and telephone number, including area code of registrant's principal executive offices) JOHN M. GREGORY KING PHARMACEUTICALS, INC. 501 FIFTH STREET BRISTOL, TENNESSEE 37620 (423) 989-8001 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO:
LINDA M. CROUCH, ESQ. BAKER, DONELSON, BEARMAN & CALDWELL 2000 FIRST TENNESSEE BUILDING 165 MADISON AVENUE MEMPHIS, TENNESSEE 38103 (901) 577-2262 JOHN A. A. BELLAMY, ESQ. KING PHARMACEUTICALS, INC. 501 FIFTH STREET BRISTOL, TENNESSEE 37620 (423) 989-8010 DAVID J. BEVERIDGE, ESQ. SHEARMAN & STERLING 599 LEXINGTON AVENUE NEW YORK, NEW YORK (212) 848-4000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box: [ ] CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) FEE ----------------------------------------------------------------------------------------------------------------------Common Stock, no par value, including Preferred Stock Purchase Rights...... 9,200,000 shares $19.50 $179,400,000 $54,364 =======================================================================================================================

(1) Includes 1,000,000 shares that the Underwriters have the option to purchase solely to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997. PROSPECTUS 8,200,000 SHARES [KING PHARMACEUTICALS LOGO] COMMON STOCK Of the 8,200,000 shares of common stock, no par value per share (the "Common Stock"), offered hereby, 6,000,000 shares are being sold by King Pharmaceuticals, Inc. (the "Company") and 2,200,000 shares are being sold by certain shareholders of the Company (the "Selling Shareholders"). The Company will not receive any proceeds from the sale of the shares by the Selling Shareholders. See "Principal and Selling Shareholders." Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $16.50 and $19.50 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "KING". THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
====================================================================================================================== UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS ---------------------------------------------------------------------------------------------------------------------Per Share............. $ $ $ $ -----------------------------------------------------------------------------------------------------------------Total(3).............. $ $ $ $ ==================================================================================================================

(1) The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (2) Before deducting estimated expenses of $1,825,000 payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to 1,000,000 additional shares of Common Stock on the same terms and conditions as set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the several Underwriters subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and to certain other conditions. It is expected that delivery of certificates representing the shares of Common Stock will be made at the offices of Lehman Brothers Inc. New York, New York on or about , 1997. LEHMAN BROTHERS CREDIT SUISSE FIRST BOSTON HAMBRECHT & QUIST , 1997

Photo on inside Front cover top center: stacked tubes, bottles and boxes of the Cortosporin(R) pharmaceutical products. AN EXPANDING PRODUCT LINE In March 1997 the Company acquired a full line of prescription formulations of ophthalmic ointments and suspensions, otic solutions and suspensions, and dermatologic creams and ointments marketed under the brand-name CORTISPORIN[R]. This topical antibiotic anti-inflammatory prescription product line, along with U.S. sales and marketing rights, were obtained from Glaxo Wellcome, Inc. Photo on inside Front cover mid-page left: two bottles of Thalitone(R) tablets. In December 1996 the Company acquired the prescription brand-name product THALITONE[R] (chlorthalidone tablets USP) from Horus Therapeutics, Inc. Thalitone[R] is a low-dose, hypertension-diuretic. The Company also acquired the patented formulation technology for the manufacture of this product from Boehringer Ingelheim Inc. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING TO COVER THE SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THIS ACTIVITIES, SEE "UNDERWRITING." Photo on gate-Fold page upper left and continuing onto adjacent page: King Pharmaceuticals, Inc. building with King Pharmaceuticals (TM) logo on upper left corner of photo. A HIGH QUALITY, MULTI-DOSAGE FACILITY The Company's integrated manufacturing facility consists of approximately 500,000 square foot and includes space for manufacturing, packaging, laboratories, offices and warehouse space. The Company manufactures and packages a broad range of dosage formulations, including sterile solutions, injectables, tablets and capsules, liquids, creams and ointments, suppositories and powders. The Company believes its integrated manufacturing capabilities and support systems allowing for higher margins and enhanced ability to acquire and develop pharmaceutical products. Monarch Pharmaceuticals (R) logo on bottom left gate-Fold page in blue box which continues onto adjacent page. A GROWING, DEDICATED SALES FORCE Monarch Pharmaceuticals's goal is to aggressively promote acquired branded pharmaceutical products in order to increase sales. Monarch Pharmaceuticals has 48 sales representatives who market primarily in the southeastern and midwestern United States. Marketing and sales promotions principally target physicians through detailing and sampling to encourage physicians to prescribe the Company's products. Picture bottom right on gate-Fold page: map of continental United States with States in which King Sales Force operates highlighted in green and certain cities designed by circled stars. 2

PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus, including information under "Risk Factors." THE COMPANY The Company is an integrated pharmaceutical company that manufactures, markets and sells branded and generic prescription pharmaceutical products. The Company seeks to capitalize on niche opportunities in the pharmaceutical industry created by cost containment initiatives and consolidation among large global pharmaceutical companies. The Company's strategy is to acquire branded pharmaceutical products and increase their sales by focused promotion and marketing, as well as by developing product line extensions and through product life cycle management. Since December 1994, the Company has acquired nine branded pharmaceutical products, developed one product internally, divested one product and introduced seven product line extensions. In October 1997, the Company entered into Letters of Intent with Glaxo Wellcome Inc. ("Glaxo Wellcome") to acquire several additional product lines for a total of $23.0 million. The Company markets its branded pharmaceutical products through its wholly-owned subsidiary, Monarch Pharmaceuticals, Inc. ("Monarch Pharmaceuticals"). Monarch Pharmaceuticals' goal is to aggressively promote acquired branded pharmaceutical products in order to increase their sales. Monarch Pharmaceuticals has 48 sales representatives who market primarily in the southeastern and midwestern United States. This sales force is dedicated to promoting and marketing branded pharmaceutical products and is supported by telemarketers and customer service representatives who promote the Company's products in territories not currently covered by field representatives. The Company expects its sales and marketing staff to grow significantly as the Company acquires additional branded pharmaceutical products. The Company's current branded pharmaceutical products include, among others, Cortisporin, acquired from Glaxo Wellcome in March 1997, Thalitone, acquired from Horus Therapeutics, Inc. in December 1996, and Viroptic, acquired from Glaxo Wellcome in May 1997. Branded pharmaceutical products represented 79.8% of the net sales of the Company for the first nine months ended September 30, 1997, with the Cortisporin product line representing 60.7% of net sales. The Company acquired its first branded product, Anexsia, and a related generic product line (the "Anexsia Product Line") for $17.6 million in December 1994. During the 12 months following its acquisition, the Company significantly increased annual sales of the Anexsia Product Line through a combination of product development and marketing. In December 1995, the Company sold the Anexsia Product Line to Mallinckrodt Chemical, Inc. ("Mallinckrodt"), for $32.0 million in cash and recognized a $13.1 million net gain (these transactions are hereinafter referred to collectively as the "Anexsia Transaction"). The Company believes its integrated manufacturing capabilities and support systems allow for higher margins and enhanced ability to acquire and develop pharmaceutical products. The Company can produce a broad range of dosage formulations, including sterile solutions, injectables, tablets and capsules, liquids, creams and ointments, suppositories and powders, and is licensed by the Drug Enforcement Agency ("DEA") to procure and produce controlled substances. The Company's manufacturing capability is integrated with its support services, including quality control, quality assurance, packaging, distribution and inventory management and purchasing and production planning. These integrated services enable the Company to maintain high quality standards for its products as well as provide reliable and timely service to its customers. The Company currently manufactures certain of its own branded and generic products and uses its excess manufacturing capacity to contract manufacture for other pharmaceutical companies. The Company's product development efforts are currently focused on developing product line extensions, which allow the Company to enhance product differentiation, create market exclusivity and minimize sales lost to generic substitution. To date, the Company has introduced seven line extensions for its acquired products. The Company also manufactures and markets a number of generic pharmaceutical products as well as a comprehensive line of nutritional supplements for companion animals. The Company markets its generic pharmaceutical products under the King Pharmaceuticals label and its companion animal health products under the Royal Vet and Show Winner tradenames. 3

THE OFFERING
Common Stock offered by the Company......... Common Stock offered by the Selling Shareholders................................ Common Stock to be outstanding after the offering.................................... Use of proceeds............................. 6,000,000 shares 2,200,000 shares 34,000,000 shares(1) Acquisition of additional branded products, repayment of certain indebtedness and for general corporate purposes including investments in facilities to accommodate new products acquired, development of branded product line extensions and generic products and expansion of sales force.

See "Use of Proceeds." Proposed Nasdaq National Market symbol...... KING (1) Excludes 3,500,000 shares of Common Stock available for future grants under the Company's 1997 Incentive and Nonqualified Stock Option Plan for Employees. No options are currently outstanding. 4

SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED DECEMBER 31, --------------------------1994 1995 1996 ------------------STATEMENT OF OPERATIONS DATA: Net sales...................................... Development revenue(1)......................... Total revenue, net................... Costs of sales................................. Selling, general and administrative............ Depreciation and amortization.................. Total costs and expenses............. Gain on sale of product line, net(2)........... Other (expenses) income........................ Non-operating income (loss).................... Income tax (benefit) expense................... Net income (loss) before extraordinary gain.... Extraordinary gain(3).......................... Net income (loss).............................. Net income (loss) per share(4)................. Weighted average number of common and common stock equivalents(5)......................... $13,311 -------13,311 9,754 1,987 639 ------12,380 -------931 (515) (501) ------917 -------$ 917 ======= $ .20 ======= 4,538 ======= $25,441 -------25,441 12,130 8,605 1,777 ------22,512 13,102 ------16,031 (1,639) 5,058 ------9,334 528 ------$ 9,862 ======= $ .79 ======= 12,446 ======= $15,457 5,000 ------20,457 8,782 12,106 982 ------21,870 -------(1,413) 1,066 (107) ------(240) -------$ (240) ======= $ (.02) ======= 13,631 ======= NINE MONTHS ENDED SEPTEMBER 30, --------------------1996 1997 ----------------(UNAUDITED) $11,310 2,500 ------13,810 7,050 8,441 655 ------16,146 -------(2,336) 1,317 (316) ------(703) -------$ (703) ======= $ (.06) ======= 12,572 ======= $33,817 -------33,817 9,538 13,734 1,631 ------24,903 -------8,914 (1,519) 2,840 ------4,555 -------$ 4,555 ======= $ .18 ======= 25,656 =======

BALANCE SHEET DATA: Cash and cash equivalents............................ Working capital...................................... Total assets......................................... Long-term debt (excluding current portion and line of credit)............................................ Shareholders' equity.................................

DECEMBER 31, 1996 ----------------$ 1,392 7,749 39,279 13,980 15,693

SEPTEMBER 30, 1997 -----------------------ACTUAL AS ADJUSTED(6) -------------------$ 35 83 74,253 22,913 27,809 $ 95,137 96,360 169,355 20,575 126,424

(1) In connection with the Anexsia Transaction, the Company agreed to develop four Abbreviated New Drug Applications ("ANDAs") to be filed with the Food and Drug Administration ("FDA") on Mallinckrodt's behalf for a maximum of $2.5 million each due upon FDA approval. In 1996 the FDA approved two of these ANDAs and as of September 30, 1997, the two additional ANDAs were on file with the FDA. (2) In December 1994, the Company acquired the Anexsia Product Line. The Company sold the Anexsia Product Line to Mallinckrodt in December 1995 for $32.0 million and recorded a $13.1 million net gain. (3) Reflects gain from early extinguishment of debt in connection with the disposition of the Anexsia Product Line. (4) Net income (loss) per share is unchanged on a fully diluted basis for all periods presented. (5) Reflects retroactively the effects of the 15.0% stock dividend paid in 1996 and a 2.8 for 1 stock split. (6) As adjusted to give effect to the sale of 6,000,000 shares of Common Stock offered hereby, after deducting underwriting discount and offering expenses, at an assumed initial public offering price of $18.00 per share and the application of the estimated net proceeds therefrom as set forth in "Use of Proceeds."

Except as otherwise noted, all information in this Prospectus reflects a 2.8 for 1 stock split and assumes no exercise of the Underwriters' over-allotment option. See "Description of Capital Stock," "Underwriting" and Notes to Consolidated Financial Statements. 5

RISK FACTORS The following risk factors should be considered carefully in addition to the other information in this Prospectus before purchasing the shares of Common Stock offered hereby. Dependence on Acquisition of Products. The Company has increased its sales and net income in the first nine months of 1997 through a series of strategic acquisitions of branded products and related internal growth initiatives intended to develop marketing opportunities with respect to the acquired product lines. The Company's strategy for growth is primarily dependent upon its continued ability to acquire branded products that can be promoted through existing marketing and distribution channels and, when appropriate, the enhancement of such marketing and distribution channels. Because the Company is not engaged in proprietary research activities leading to the introduction of new products, it must rely upon the availability for purchase of product lines of other manufacturers. Other companies, including those with substantially greater financial, marketing and sales resources, are competing with the Company for the right to acquire such products. There can be no assurance that the Company will be able to acquire rights to additional products on acceptable terms, if at all, or be able to obtain future financing for such acquisitions on acceptable terms, if at all. The inability to effect such acquisitions would have a material adverse effect on the Company's future business, financial condition and results of operations. Furthermore, there can be no assurance that the Company, once it has obtained rights to a pharmaceutical product and committed to payment terms, will be able to generate sales sufficient to create a profit or otherwise avoid a loss. In addition, the Company's marketing strategy, distribution channels and levels of competition with respect to acquired products may be different than those of the Company's current products and there can be no assurance that the Company will be able to compete favorably in those product categories. See "Business." Dependence on Cortisporin Sales. The Company acquired the Cortisporin product line from Glaxo Wellcome in March 1997 and derives a substantial portion of its revenue from sales of the Cortisporin product line. The Cortisporin product line accounted for 60.7% of net sales during the nine months ended September 30, 1997. The Company believes that sales of the Cortisporin product line will continue to constitute a significant portion of net sales for the foreseeable future. Accordingly, any factor adversely affecting the Cortisporin product line sales, including any interruption in the supply of the Cortisporin product line, would have a material adverse effect on the Company's business, financial condition and results of operations. See "-- Competition," "-- Reliance on Third Party Manufacturers" and "Business -- Products and Product Development." Generic Substitution. The Company's branded pharmaceutical products are subject to competition from generic equivalents and alternate therapies. There is no proprietary protection for most of the branded pharmaceutical products sold by the Company and generic and other substitutes for most of its branded pharmaceutical products are sold by other pharmaceutical companies. In addition, governmental and other pressure toward the dispensing of generic equivalents will likely result in generic substitution and competition generally for the Company's branded pharmaceutical products. Increased competition in the sale of generic pharmaceutical products may cause a decrease in revenue from the Company's branded products. While the Company will seek to mitigate the effect of this substitution through, among other things, creation of strong brand name recognition and product line extensions for its branded pharmaceutical products, there can be no assurance that the Company will be successful in these efforts. See "-- Competition; Uncertainty of Technological Change" and "Business -- Competition." Managing Growth of Business. Due to the Company's business strategy to acquire branded pharmaceutical products, the Company anticipates that the integration of newly-acquired products will require significant management attention and expansion of its sales force. The Company's ability to manage change will require it to continue to implement and improve its operational, financial and management information systems and to motivate and effectively manage an increasing number of employees. If the Company's management is unable to manage such changes effectively, it could materially adversely affect the Company's business, financial condition and results of operations. See 6

"-- Attraction and Retention of Key Personnel" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Quarterly Fluctuation of Results; Uncertainty of Profitability. The Company's results of operations may vary from quarter to quarter due to a variety of factors including acquisitions and sales of branded pharmaceutical products, expenditures incurred to acquire and promote additional pharmaceutical products, changing customer base, the availability and cost of raw materials, interruptions in supply by third-party manufacturers, the introduction of new products by the Company or its competitors, the mix of products sold by the Company, seasonality of certain product sales, changes in sales and marketing expenditures, competitive pricing pressures and general economic and industry conditions which affect customer demand. These factors could also affect annual results of operations. The Company experienced operating losses in the year ended December 31, 1996. There can be no assurance that the Company will be successful in maintaining or improving its profitability or avoiding losses in any future period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Reliance on Third-Party Manufacturers. Certain of the Company's recent product acquisitions are presently manufactured by third parties until such products Company's manufacturing facilities. Until such time, the Company's dependence upon third parties for the manufacture of its proposed products may adversely affect the Company's profit margins and its ability to develop and deliver its products on a timely and competitive basis. If for any reason the Company is unable to obtain or retain third-party manufacturers on commercially acceptable terms, it may not be able to distribute its products as planned. If the Company should encounter delays or difficulties with contract manufacturers in producing or packaging its products, the distribution, marketing and subsequent sales of such products would be adversely affected and the Company may have to seek alternative sources of supply or abandon or sell a product line on unsatisfactory terms. No assurance can be made that the Company will be able to enter into alternative supply arrangements at commercially acceptable rates, if at all. No assurance can be made that the manufacturers utilized by the Company will be able to provide the Company with sufficient quantities of its products or that the products supplied to the Company will meet the Company's specifications or delivery and other requirements. See "Business -Manufacturing." Third-Party Reimbursement; Pricing Pressures. The Company's commercial success in producing, marketing and selling generic products will depend, in part, on the availability of adequate reimbursement from third-party health care payers, such as government and private health insurers and managed care organizations. Third-party payers are increasingly challenging the pricing of medical products and services. There can be no assurance that reimbursement will be available to enable the Company to achieve market acceptance of its products or to maintain price levels sufficient to realize an appropriate return on the Company's investment in product acquisition and development. If adequate reimbursement levels are not provided, the Company's business, financial condition and results of operations could be materially adversely effected. The market for the Company's products may be limited by actions of third-party payers. For example, many managed health care organizations are now controlling the pharmaceutical products that are on their formulary lists. The resulting competition among pharmaceutical companies to place their products on these formulary lists has created a trend of downward pricing pressure in the industry. In addition, many managed care organizations are pursuing various ways to reduce pharmaceutical costs and are considering formulary contracts primarily with those pharmaceutical companies that can offer a full line of products for a given therapy sector or disease state. There can be no assurance that the Company's products will be included on the formulary lists of managed care organizations or that downward pricing pressures in the industry generally will not negatively impact the Company's operations. Further, a number of legislative and regulatory proposals aimed at changing the health care system have been proposed. While the Company cannot predict whether any such proposals will be adopted or the effect such proposals may have on its business, the pending nature of such proposals, as well as the adoption of any proposal, may exacerbate industry-wide pricing pressures and could have a material adverse effect on the Company. See "Business -- Government Regulation." 7

Customer Concentration; Consolidation of Distribution Network. The Company is currently dependent upon a small number of customers. In the first nine months ended September 30, 1997, approximately 56.9% of the Company's sales were to four customers and for the year ended December 31, 1996, approximately 69.7% of the Company's sales were to three customers. These customers are wholesale drug distributors through which the Company distributes its products. The loss of any one of these customers could result in a material adverse effect on the Company's business, financial condition or results of operations. Additionally, the distribution network for pharmaceutical products has in recent years been subject to increasing consolidation. As a result, a few large wholesale distributors control a significant share of the market. In addition, the number of independent drug stores and small chains has decreased as retail consolidation has occurred. Further consolidation among, or any financial difficulties of, distributors or retailers could result in the combination or elimination of warehouses thereby stimulating product returns to the Company. Further consolidation or financial difficulties could also cause customers to reduce their inventory levels, or otherwise reduce purchases of the Company's products which could result in a material adverse effect on the Company's business, financial condition and results of operations. See "-- Product Liability; Product Recall; Product Returns" and "Business -- Sales and Marketing." Government Regulation. Virtually all aspects of the Company's activities are regulated by federal and state statutes and government agencies. The manufacturing, processing, formulation, packaging, labeling, distribution and advertising of the Company's products, and disposal of waste products arising from such activities, are subject to regulation by one or more federal agencies, including the FDA, the DEA, the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission, the U. S. Department of Agriculture, the Occupational Safety and Health Administration ("OSHA") and the U. S. Environmental Protection Agency ("EPA") and foreign governments. These activities are also regulated by various agencies of the states and localities in which the Company's products are sold. The Company believes that its facilities are in substantial compliance with all provisions of federal and state laws concerning the environment and does not believe that future compliance with such provisions will have a material adverse effect on its financial condition or results of operations. All pharmaceutical manufacturers, including the Company, are subject to regulation by the FDA under the authority of the Federal Food, Drug, and Cosmetic Act ("FDC Act"). All "new drugs" must be the subject of an FDA approved new drug application ("NDA") before they may be marketed in the United States. Certain prescription drugs are not currently required to be the subject of an approved NDA but, rather, may be marketed pursuant to an FDA regulatory enforcement policy permitting continued marketing of those drugs until the FDA determines whether they are safe and effective. The FDA has the authority to withdraw existing NDA approvals and to review the regulatory status of products marketed under the enforcement policy. The FDA may require an approved NDA for any drug product marketed under the enforcement policy if new information reveals questions about the drug's safety or effectiveness. All drugs must be manufactured in conformity with current good manufacturing practices ("cGMP"), and drug products subject to an approved NDA must be manufactured, processed, packaged, held, and labeled in accordance with information contained in the NDA. The Company and its third party manufacturers are subject to periodic inspection by the FDA to assure such compliance. Pharmaceutical products must be distributed, sampled and promoted in accordance with FDA requirements. The FDA also regulates the advertising of prescription drugs. Under the FDC Act, the federal government has extensive enforcement powers over the activities of pharmaceutical manufacturers to ensure compliance with FDA regulations. Those powers include, but are not limited to, the authority to initiate court action to seize unapproved or non-complying products, to enjoin non-complying activities, to halt manufacturing operations that are not in compliance with cGMP and to seek civil monetary and criminal penalties. The initiation of any of these enforcement activities, including the restriction or prohibition on sales of products marketed by the Company, could materially adversely affect the Company's business, financial condition and results of operations. 8

While the Company believes that all of its current pharmaceuticals are lawfully marketed in the United States under current FDA enforcement policies or have received the requisite agency approvals for manufacture and sale, such marketing authority is subject to withdrawal by the FDA. In addition, modifications or enhancements of approved products are in many circumstances subject to additional FDA approvals which may or may not be received and which may be subject to a lengthy application process. The Company's and the third party manufacturers' manufacturing facilities are continually subject to inspection by such governmental agencies and manufacturing operations could be interrupted or halted in any such facilities if such inspections prove unsatisfactory. Any change in the FDA's enforcement policy or any decision by the FDA to require an approved NDA for a Company product not currently subject to the approved NDA requirements could have a material adverse effect on the Company's business, financial condition and results of operations. The Company also manufactures and sells drugs which are "controlled substances" as defined in the Controlled Substances Act, which establishes, among other things, certain security and record keeping requirements administered by the DEA. The Company has not experienced restrictions or fines for non-compliance with the foregoing regulations but no assurance can be given that restrictions or fines which could have a material adverse effect upon the Company's business, financial condition, and results of operations will not be imposed upon the Company in the future. The Company may also be subject to fees under The Prescription Drug User Fee Act of 1992 ("PDUFA"). PDUFA authorizes the FDA to collect three types of user fees for: (i) certain types of applications and supplements for approval of drug and biologic products, (ii) certain establishments where such products are made, and (iii) certain marketed products. Fees for applications, establishments, and products are determined by the FDA using criteria delineated in the statute. When certain conditions are met, the FDA may waive or reduce fees. To date, the Company has not been obligated to pay any such fee. There can be no assurance, however, that the FDA will not impose such a fee in the future. The Company cannot determine what effect changes in regulations or statutes or legal interpretation, when and if promulgated or enacted, may have on its business in the future. Changes could, among other things, require changes to manufacturing methods, expanded or different labeling, the recall, replacement or discontinuance of certain products, additional record keeping and expanded documentation of the properties of certain products and scientific substantiation. Such changes, or new legislation, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Government Regulation" and "Business -- Environmental Matters." Competition; Uncertainty of Technological Change. The Company competes with other pharmaceutical companies, including large global pharmaceutical companies with financial resources substantially greater than those of the Company, for product and product line acquisitions. There can be no assurance (i) that the Company will be able to acquire commercially attractive pharmaceutical products, (ii) that additional competitors will not enter the market, or (iii) that competition for product and product line acquisitions will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company also competes with pharmaceutical companies in developing, marketing and selling pharmaceutical products. The selling prices of pharmaceutical products typically decline as competition increases. Further, other products now in use, under development or acquired by other pharmaceutical companies, may be more effective or offered at lower prices than the Company's current or future products. The industry is characterized by rapid technological change which may render the Company's products obsolete, and competitors may develop their products more rapidly than the Company. Competitors may also be able to complete the regulatory process sooner, and therefore, may begin to market their products in advance of the Company's products. The Company believes that competition in sales of its products will be based on, among other things, product efficacy, safety, reliability, availability and price. See "-Generic Substitution," and "Business -- Competition." 9

Product Liability; Product Recall; Product Returns. The Company faces an inherent business risk of exposure to product liability claims in the event that the use of its technologies or products is alleged to have resulted in adverse effects. Such risks will exist even with respect to those products that receive regulatory approval for commercial sale. While the Company has taken, and will continue to take, what it believes are appropriate precautions, there can be no assurance that it will avoid significant product liability exposure. The Company currently has product liability insurance in the amount of $25.0 million for aggregate annual claims with a $50,000 deductible per incident and a $500,000 aggregate annual deductible; however, there can be no assurance that the level or breadth of any insurance coverage will be sufficient to fully cover potential claims. There can be no assurance that adequate insurance coverage will be available in the future at acceptable costs, if at all, or that a product liability claim or recall would not materially and adversely affect the business or financial condition of the Company. Product recalls may be issued at the discretion of the Company, the FDA or other government agencies having regulatory authority for pharmaceutical product sales. Recalls may occur due to disputed labeling claims, manufacturing issues, quality defects or other reasons. No assurance can be given that product recalls will not occur in the future. Any product recall could materially adversely affect the Company's business, financial condition and results of operations. The Company permits customers to return unused pharmaceutical products under certain conditions. Although product returns were less than 4.0% of revenues for the nine months ended September 30, 1997, there can be no assurance that actual levels of returns will not increase or significantly exceed the amounts anticipated by the Company. See "-- Customer Concentration; Consolidation of Distribution Network" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Attraction and Retention of Key Personnel. The Company is highly dependent on the principal members of its management staff, the loss of whose services might impede the achievement of acquisition and development objectives. Although the Company believes that it is adequately staffed in key positions and that it will be successful in retaining skilled and experienced management, operational and scientific personnel, there can be no assurance that the Company will be able to attract and retain such personnel on acceptable terms. The loss of the services of key scientific, technical and management personnel could have a material adverse effect on the Company, especially in light of the Company's recent growth. The Company does not maintain key-person life insurance on any of its employees. See "Business -- Employees" and "Management." No Prior Public Market; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock of the Company, and there can be no assurance that an active trading market will develop or be sustained after this offering. The initial public offering price has been determined by negotiations between the Company and the representatives of the Underwriters and may not be indicative of the market price after the offering. See "Underwriting" for the factors considered in determining the initial public offering price. The stock prices of emerging growth companies, such as the Company, have historically been volatile. Factors such as the announcements of technological innovations or new products by the Company, its competitors and other third parties, as well as variations in the Company's results of operations, perceptions about market conditions in the pharmaceutical industry, the impact of various regulatory proposals and general market conditions, many of which are unrelated to the Company's operating performance, may cause the market price of the Company's Common Stock to fluctuate significantly. Shares Eligible for Future Sale. Sales of a substantial number of shares of the Company's Common Stock in the public market following this offering, or the perception that such sales could occur, could adversely affect the market price of the Common Stock. Upon completion of this offering, there will be 34,000,000 shares of Common Stock outstanding (35,000,000 shares if the Underwriters' over-allotment option is exercised in full). Other than the 8,200,000 shares offered hereby, all shares of Common Stock held by the Company's current shareholders are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), and may only be sold subject to the provisions of Rule 144 under the Securities Act. 10

Of the 34,000,000 shares of Common Stock to be outstanding after the offering, approximately 22,000,000, or 78.6%, of the outstanding shares of Common Stock will be subject to lock-up agreements entered into by certain officers, directors and other shareholders of the Company (the "Lock-up Agreements"). The Company and its directors, officers and certain other shareholders have, among other things, agreed not to, directly or indirectly, offer for sale, sell, pledge or otherwise dispose of or during the term of the Lock-up Agreement enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future, any Common Stock or securities convertible into or exchangeable for Common Stock, with certain limited exceptions, or sell or grant options, rights or warrants with respect to any shares of Common Stock or securities convertible into or exchangeable for Common Stock, with certain limited exceptions, or enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives. Of the 12,000,000 shares of Common Stock to be outstanding after the offering that are not subject to the Lock-up Agreements, other than the 8,200,000 shares of Common Stock sold in the offering, (i) approximately 1.8 million shares will be immediately eligible for resale in the public market without restriction in reliance on Rule 144(k) under the Securities Act, (ii) approximately 800,000 shares may be sold subject to the volume and manner of sales restrictions of Rule 144 and (iii) the remaining approximately 1.2 million shares may not be sold pursuant to Rule 144 prior to the expiration of their one-year holding period. Beginning 180 days after the date of this Prospectus, after the Lock-up Agreements have expired, (i) approximately 10.0 million additional shares of Common Stock will become eligible for resale into the public market in reliance on Rule 144(k) and (ii) approximately 12.0 million additional shares may be sold subject to the volume and manner of sales restrictions of Rule 144. See "Shares Eligible for Future Sale" and "Underwriting." Dilution; Absence of Dividends. Investors purchasing shares of Common Stock in this offering will incur immediate substantial dilution of $15.41 per share in the net tangible book value of the Common Stock from the initial public offering price. The Company has never paid any cash dividends on its Common Stock. The Company currently anticipates that it will retain all available funds for use in its business and does not expect to pay any cash dividends in the foreseeable future. Furthermore, the payment of cash dividends from earnings is currently restricted by the Company's credit arrangements with a commercial lender. See "Dilution" and "Dividend Policy." Concentration of Ownership; Lack of Independent Directors. Following this offering, the present officers and directors of the Company and their affiliates will beneficially own approximately 40.2% of the outstanding shares of Common Stock. Accordingly, they will have the ability to exercise significant influence over the management and policies of the Company. Following completion of the offering, independent directors will not constitute a majority of the Board of Directors and the Company's Board of Directors may not have a majority of independent directors in the future. In the absence of a majority of independent directors, the Company's executive officers, who also are principal shareholders and directors, could establish policies and enter into transactions without independent review and approval thereof. Transactions without an independent review could present the potential for a conflict of interest between the Company and its shareholders generally and the executive officers, shareholders or directors. See "Management" and "Principal and Selling Shareholders." Certain Charter, Bylaws and Statutory Provisions; Rights Agreement. The Company's Second Amended and Restated Charter (the "Charter") and Amended and Restated Bylaws (the "Bylaws") provide for a classified Board of Directors, restrict the ability of shareholders to call special meetings and contain advance notice requirements for shareholder proposals and nominations and special voting requirements for the amendment of the Company's Charter and Bylaws. These provisions could delay or hinder the removal of incumbent directors and could discourage or make more difficult a proposed merger, tender offer or proxy contest involving the Company or may otherwise have an adverse effect on the market price of the Common Stock. The Company also is subject to provisions of 11

Tennessee corporate law that provides that a party owning 10.0% or more of stock in a "resident domestic corporation" (such party is called an "interested shareholder") cannot engage in a business combination with the resident domestic corporation unless the combination (i) takes place at least five years after the interested shareholder first acquired 10.0% or more of the resident domestic corporation, and (ii) either (A) is approved by at least two-thirds of the non-interested voting shares of the resident domestic corporation or (B) satisfies certain fairness conditions specified in the specific provisions. There are certain other Tennessee statutes which provide antitakeover protection for Tennessee corporations. See "Description of Capital Stock -- Certain Provisions of the Charter and Bylaws and Statutory Provisions." The Company's Board of Directors has declared a dividend of one preferred share purchase right (a "Right") for each share of Common Stock outstanding. A Right will also be attached to each share of Common Stock subsequently issued. The Rights will have certain anti-takeover effects. If triggered, the Rights would cause substantial dilution to a person or group of persons (other than certain exempt persons) that acquires more than 15.0% of the Common Stock on terms not approved by the Company's Board of Directors. The Rights could discourage or make more difficult a merger, tender offer or other similar transaction. See "Description of Capital Stock -- Rights Agreement." Pursuant to the Charter, shares of preferred stock may be issued in the future without shareholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine in the exercise of its business judgment. The rights of the holders of Common Stock are subject to, and may be adversely affected by, any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions, financings and other corporate transactions, could have the effect of discouraging, or making more difficult, a third party's acquisition of a majority of the Company's outstanding voting stock. The Company has no present plans to issue any shares of preferred stock. See "Description of Capital Stock -Preferred Stock." CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere, including statements regarding the anticipated development and expansion of the Company's business; the products which the Company expects to offer; anticipated development expenditures and regulatory reform; the intent, belief or current expectations of the Company, its directors or its officers, primarily with respect to the future operating performance of the Company; and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). In addition, when used in this Prospectus, the words "believe," "anticipate," "expects," "intends" and similar expressions are intended to identify forward-looking statements. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to the factors set forth in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." 12

THE COMPANY The Company was incorporated in the State of Tennessee in 1993. The Company's executive offices are located at 501 Fifth Street, Bristol, Tennessee 37620. Its telephone number is (423) 989-8000. USE OF PROCEEDS The net proceeds to be received by the Company from the sale of Common Stock in this offering are estimated to be $98.6 million ($115.3 million if the Underwriters' over-allotment option is exercised in full), after deducting the underwriting discount and estimated offering expenses payable by the Company, assuming an estimated initial public offering price of $18.00. The net proceeds of this offering, together with the Company's existing cash and cash equivalents, will be used for: (i) acquisition of additional branded products, (ii) repayment of certain indebtedness, and (iii) general corporate purposes, including investments in facilities to accommodate any newly acquired products, development of branded product line extensions and internally developed generic products and expansion of the sales force. The Company is actively pursuing the acquisition of rights to several products which may require the use of substantial capital resources. Except for Letters of Intent with Glaxo Wellcome, there are no present agreements or commitments with respect to any such acquisition. A portion of the proceeds will be used to repay the outstanding principal balance and accrued interest of a promissory note in the aggregate amount of $1.8 million payable to General Injectables and Vaccines, Inc. ("GIV"). This note bears interest at the rate of 8.0% and matures on December 31, 1998. In addition, a portion of the proceeds will be used to repay the outstanding principal balance and accrued interest of a promissory note in the aggregate amount of $1.8 million payable to The United Company. This note bears interest at the rate of 10.0% and matures on April 1, 1999. Proceeds of the loan from The United Company were used to fund, in part, the acquisition of the Cortisporin product line from Glaxo Wellcome. The cost, timing and amount of funds required for all specific uses by the Company cannot be precisely determined by the Company at this time and is at management's discretion. The rate of the Company's progress in acquiring new branded products or acquiring companies with such products, the timing and nature of regulatory action and the availability of alternative methods of financing, will also determine the allocation and timing of the Company's use of the proceeds from this offering. Pending application of the proceeds as described above, the Company plans to invest the net proceeds of the offering in short-term marketable securities. DIVIDEND POLICY The Company has never paid cash dividends on its Common Stock. Furthermore, the payment of cash dividends from earnings is currently restricted by the Company's credit arrangements with a commercial lender. Assuming removal of this restriction, the payment of cash dividends is subject to the discretion of the Board of Directors and will be dependent upon many factors, including the Company's earnings, its capital needs, and its general financial condition. The Company anticipates that for the foreseeable future, it will retain its earnings, if any, in order to finance the expansion and development of its business. See "Risk Factors -- Dilution; Absence of Dividends" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 13

CAPITALIZATION The following table sets forth the actual capitalization of the Company as of September 30, 1997, and as adjusted to reflect the sale of 6,000,000 shares of Common Stock, offered hereby at the assumed public offering price of $18.00 per share and the application of the estimated net proceeds of such sale (after deducting the underwriting discounts and estimated offering expenses payable by the Company). See "Use of Proceeds." This table should be read in conjunction with "Pro Forma Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1997 -----------------------ACTUAL AS ADJUSTED -------------------(IN THOUSANDS) $ 35 $ 95,137 ======= ======== $ 9,090 22,913 2,282 $ 7,915 20,575 2,282

Cash and cash equivalents................................... Current portion of long-term obligations and short term debt(1)................................................... Long-term obligations (excluding current portion of long-term obligations)(1)................................. Line of credit(1)........................................... Shareholders' equity: Common Stock, no par value; 150,000,000 shares authorized; 28,000,000 issued and outstanding (actual); 34,000,000 shares outstanding (as adjusted)(2)(3)(4).............. Due from related party...................................... Retained earnings........................................... Total shareholders' equity........................ Total capitalization..............................

16,455 (1,139) 12,493 ------27,809 ------$62,094 =======

115,070 (1,139) 12,493 -------126,424 -------$157,196 ========

(1) For additional information relating to long-term obligations, see Notes 9 and 10 to the Consolidated Financial Statements. (2) Shareholders of the Company will vote at the November 14, 1997 annual meeting on a proposal to increase the number of authorized shares of Common Stock of the Company from 10,000,000 to 150,000,000 shares. The above assumes such proposal will be effected. (3) On October 15, 1997, the Board of Directors of the Company approved a 2.8 for 1 stock split. (4) Excludes 3,500,000 shares of Common Stock available for future grants under the Company's 1997 Incentive and Nonqualified Stock Option Plan for Employees. No options are currently outstanding. 14

DILUTION The net tangible book value of the Company as of September 30, 1997, was approximately $(10.4) million, or $(.37) per share. "Net tangible book value" equals the total tangible assets of the Company. The calculation of net tangible book value on a per share basis is equal to net tangible book value divided by the aggregate number of shares of Common Stock outstanding. The calculation of aggregate shares outstanding gives effect to the 2.8 for 1 stock split. After giving effect to the sale of the 6,000,000 shares of Common Stock offered by the Company hereby at an assumed Price to Public of $18.00 per share, the pro forma net tangible book value of the Company as of September 30, 1997 would have been $88.2 million, or $2.59 per share. This represents an effective net increase in net tangible book value of $2.96 per share to existing shareholders and an immediate dilution of $15.41 per share to new investors purchasing shares at the initial public offering price. The following table illustrates this per share dilution, after deduction of underwriting discount and offering expenses:
Price to Public per share................................... Net tangible book value per share before offering(1)...... Increase per share attributable to price paid by purchasers in this offering............................ Pro forma net tangible book value per share after offering(1)............................................... Dilution in pro forma net book value per share to new investors................................................. $ (.37) 2.96 -----2.59 -----$15.41 ====== $18.00

The following table sets forth, on a pro forma as adjusted basis as of September 30, 1997, the differences between the existing shareholders and the new investors with respect to the number of shares purchased from the Company, the total consideration paid and the average price per share paid:
SHARES PURCHASED -------------------NUMBER PERCENT ---------------28,000,000 82% 6,000,000 18% -----------34,000,000 100% ========== === TOTAL CONSIDERATION ---------------------AMOUNT PERCENT -----------------$ 14,613,000 12% 108,000,000 88% -------------$122,613,000 100% ============ ===

Existing shareholders.......... New investors(1)............... Total................

PER SHARE --------$ 0.52 18.00

(1) Sales by the Selling Shareholders in the offering will reduce the number of shares held by the existing shareholders prior to the offering to 25,800,000, or 76% (or 74% if the over-allotment option is exercised in full), and will increase the number of shares held by new investors of Common Stock in the offering to 8,200,000, or 24% (9,200,000, or 26% if the over-allotment option is exercised in full), of the total number of shares of Common Stock outstanding after the offering. See "Principal and Selling Shareholders." The calculations in the tables set forth above do not reflect an aggregate of 3,500,000 shares of Common Stock available for future grants under the Company's 1997 Incentive and Nonqualified Stock Option Plan for Employees. 15

SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Pro Forma Financial Statements" and the Company's Consolidated Financial Statements and related Notes thereto included elsewhere in this Prospectus. The consolidated statement of operations data for each of the years ended December 31, 1994, 1995 and 1996, and the nine months ended September 30, 1997, and the consolidated balance sheet data as of December 31, 1995 and 1996 and September 30, 1997, have been derived from the consolidated financial statements of the Company that have been audited by Coopers & Lybrand L.L.P. and included elsewhere in this Prospectus. The consolidated balance sheet data as of December 31, 1994 have been derived from the consolidated financial statements of the Company that have been audited by Coopers & Lybrand L.L.P. but not included in this Prospectus. The consolidated statements of operations for the nine months ended September 30, 1996 and the consolidated balance sheet data as of September 30, 1996 have been derived from unaudited consolidated financial statements prepared on the same basis as the audited consolidated financial statements. The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of results to be expected for the entire year ending December 31, 1997 or any future period. The statement of operations data for the fiscal years ended December 31, 1992 and 1993 and the balance sheet data as of December 31, 1992 and 1993, are derived from unaudited financial statements of the Predecessor Company (defined below).
PREDECESSOR COMPANY ------------------THE COMPANY --------------------------------------------------NINE MONTHS ENDED FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------------------------------------1992(1) 1993(1) 1994 1995 1996 1996 1997 ------------------------------------------------(UNAUDITED) STATEMENT OF OPERATIONS DATA: Net sales(2)........................... Development revenue(3)................. Total revenue, net............ Costs of sales......................... Selling, general and administrative.... Depreciation and amortization.......... Total costs and expenses...... Gain on disposition of net assets(4)... Sale of product line(2)................ Operating income (loss)................ Gain on sale of investment in affiliate(5)......................... Interest expense....................... Other (expenses) income................ Net income (loss) before income taxes and extraordinary gain............... Income tax (benefit) expense........... Net income (loss) before extraordinary gain................................. Extraordinary gain on early extinguishment of long-term debt, net of income taxes of $272(6)........... Net income (loss)...................... Net income (loss) per share(7)......... Weighted average number of common and common stock equivalents(8).......... (IN THOUSANDS, EXCEPT PER SHARE DATA) $23,108 -------23,108 17,913 3,542 469 ------21,924 --------1,184 -(116) 60 1,128 91 ------1,037 -------$ 1,037 ======= N/A N/A $24,637 -------24,637 19,373 6,964 489 ------26,826 10,500 -------(8,311) -(96) (152) 8,063 516 ------7,547 -------$ 7,547 ======= N/A N/A $13,311 -------13,311 9,754 1,987 639 ------12,380 --------931 -(1,069) 554 416 (501) ------917 -------$ 917 ======= $ 0.20 ======= 4,538 $25,441 -------25,441 12,130 8,605 1,777 ------22,512 -13,102 ------16,031 -(2,006) 367 14,392 5,058 ------9,334 528 ------$ 9,862 ======= $ 0.79 ======= 12,446 $15,457 5,000 ------20,457 8,782 12,106 982 ------21,870 --------(1,413) 1,760 (1,272) 578 (347) (107) ------(240) -------$ (240) ======= $ (0.02) ======= 13,631 $11,310 2,500 ------13,180 7,050 8,441 655 ------16,146 --------164 1,760 (850) 407 (1,019) (316) ------(703) -------$ (703) ======= $ (0.06) ======= 12,572 $33,817 -------33,817 9,538 13,734 1,631 ------24,903 --------8,914 -(1,730) 212 7,395 2,840 ------4,555

------$ 4,555 ======= $ 0.18 ======= 25,656

16

BALANCE SHEET DATA: Cash and cash equivalents.............. Working capital........................ Total assets........................... Long-term debt (excluding current portion).................................. Shareholders' equity...................

DECEMBER 31, ----------------------------------------------1992 1993 1994 1995 1996 ------------------------------(IN THOUSANDS) $417 1,582 7,756 630 3,473 $501 2,747 11,805 -11,021 $1,028 (2,408) 38,447 27,065 1,935 $10,568 7,599 33,942 9,497 11,011 $1,392 7,749 39,279 13,980 15,693

SEPTEMBER 30, --------------------1996 1997 ----------------(UNAUDITED) $5,543 7,563 34,244 11,029 11,176 $35 83 74,253 22,913 27,809

(1) Effective December 31, 1993, the Company acquired certain assets and assumed certain liabilities of RSR Laboratories, Inc. (the "Predecessor Company"). The 1992 and 1993 financial data of the Predecessor Company is not comparable to the Company's financial data for 1994 through 1997 since the 1992 and 1993 financial data of the Predecessor Company includes the gross up of customer supplied materials in net sales and cost of sales. Such gross up of net sales and cost of sales in 1992 and 1993 was $7.3 million and $7.9 million, respectively. Such costs were not paid by the Company or billed to the customer and the Company's accounting practice does not include these costs in net sales or cost of sales. (2) In December 1994, the Company acquired the Anexsia Product Line. The Company sold the Anexsia Product Line to Mallinckrodt in December 1995 for $32.0 million and recorded a $13.1 million net gain. (3) In connection with the Anexsia Transaction, the Company agreed to develop four ANDAs to be filed with the FDA on Mallinckrodt's behalf for a maximum of $2.5 million each due upon FDA approval. In 1996 the FDA approved two of these ANDAs and as of September 30, 1997, the two additional ANDAs were on file with the FDA. (4) The Predecessor Company sold the net assets of its over-the-counter human and animal pharmaceutical and health products business effective December 31, 1993. The net book value of assets sold had a recorded book value of $3.0 million. (5) In September 1996, the Company sold its entire 6.0% interest in an affiliated, privately held pharmaceutical company. See Note 15 to the Consolidated Financial Statements. (6) Reflects gain from early extinguishment of debt in connection with the disposition of the Anexsia Product Line. (7) Net income (loss) per share is unchanged on a fully diluted basis for all periods presented. (8) Reflects retroactively the effects of the 15.0% stock dividend paid in 1996 and a 2.8 for 1 stock split. 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. See "Risk Factors" for trends and uncertainties known to the Company that could cause reported financial information to differ materially from future results. OVERVIEW The Company is an integrated pharmaceutical company that manufactures, markets and sells branded and generic prescription pharmaceutical products. The Company seeks to capitalize on niche opportunities in the pharmaceutical industry created by cost containment initiatives and consolidation among large global pharmaceutical companies. The Company's strategy is to acquire branded pharmaceutical products and increase their sales by focused promotion and marketing, as well as by developing product line extensions and through product life cycle management. The Company was founded in December 1993 when it acquired its manufacturing facility and assumed contracts to manufacture pharmaceutical products and companion animal health products for pharmaceutical companies. When the Company was first formed, contract manufacturing made up a significant portion of the Company's net sales. In December 1994, the Company acquired its first branded pharmaceutical product line, the Anexsia Product Line, for $17.6 million. The acquisition was funded by a note payable to the seller (the "Anexsia Note Payable"). During the 12 months following its acquisition, the Company significantly increased annual sales of Anexsia through a combination of product development and marketing. In December 1995, the Company sold the Anexsia Product Line to Mallinckrodt for $32.0 million in cash and recognized a $13.1 million net gain. In connection with the sale, the Company entered into a manufacture and supply agreement with Mallinckrodt, with guaranteed minimum revenues of $4.8 million through 1999, and an agreement to develop four ANDAs on Mallinckrodt's behalf for a maximum of $2.5 million each due upon FDA approval. In 1996 the FDA approved two of these ANDAs and, as of September 30, 1997 the additional two ANDAs were on file. The Company has used the proceeds from the sale of the Anexsia Product Line to acquire additional branded pharmaceutical products. Since December 1994, the Company has acquired nine branded pharmaceutical products, developed one product internally, divested one product and introduced seven product line extensions for these. The Company has improved the sales of most of its acquired products. Branded pharmaceutical products represented approximately 79.8% of the net sales of the Company for the first nine months ended September 30, 1997, with the Cortisporin product line representing 60.7% of net sales. As part of its business strategy, the Company intends to continue to acquire branded pharmaceutical products and to create value by leveraging its marketing, manufacturing and product development capabilities. The Company expects that its strategy of acquiring branded pharmaceutical products will increase its revenues as a result of sales of such products and will increase gross margins. In general, margins are higher on the Company's branded pharmaceutical products than on the Company's other products, making branded products attractive to the Company. In addition, as soon as practicable after regulatory requirements are satisfied, the Company expects that using its manufacturing capability to ultimately produce these acquired pharmaceutical products will increase the Company's margins because the cost of producing pharmaceutical products on its own is lower than the cost of having these products manufactured by third parties. The Company's strategy is also expected to increase its selling, general and administrative expenses due to the hiring of additional sales representatives and increased sampling, advertising and other marketing costs as a result of more focused marketing efforts. In accordance with its focus on branded pharmaceutical products, the Company expects that, over time, its contract manufacturing and generic pharmaceutical and companion animal health product lines will become a smaller percentage of revenues. 18

The following summarizes approximate net revenues by product categories.
FISCAL YEAR ENDED DECEMBER 31, --------------------------1994 1995 1996 ------------------(IN THOUSANDS) $ 305 $ 5,921 $ 2,938 1,711 7,492 1,572 11,295 12,028 10,890 --57 --5,000 ------------------$13,311 $25,441 $20,457 ======= ======= ======= NINE MONTHS ENDED SEPTEMBER 30, ------------1997 ------------$26,972 1,039 5,090 716 -------$33,817 =======

Branded pharmaceuticals............................... Generic pharmaceuticals............................... Contract manufacturing................................ Companion animal health............................... Development revenues.................................. Total revenues..............................

RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Revenues Net revenues increased $20.0 million, or 144%, to $33.8 million in the nine months ended September 30, 1997 from $13.8 million in the nine months ended September 30, 1996. This increase was due primarily to the acquisition of seven branded products since October 1996. Of these acquired products, the Cortisporin product line contributed $20.5 million in 1997, or 60.7% of total net sales, while the Company's additional branded products contributed an additional $6.5 million, or 19.2%. Although there are two additional ANDAs on file with the FDA in connection with the Anexsia Transaction in 1997, the Company did not recognize any income in the first nine months ended September 30, 1997 related to this contract, compared to $2.5 million recognized in the nine months ended September 30, 1996. Revenues from contract manufacturing decreased $4.4 million, or 46.3%, to $5.1 million in the nine months ended September 30, 1997 from $9.5 million in the nine months ended September 30, 1996, due primarily to the expiration of a manufacturing contract. Operating Costs and Expenses Total operating costs and expenses increased $8.8 million, or 54.7%, to $24.9 million in the nine months ended September 30, 1997 from $16.1 million in the nine months ended September 30, 1996. The increase was due to increases in the costs of sales, selling, general and administrative expenses and depreciation and amortization expenses. Cost of sales increased $2.4 million, or 33.8%, to $9.5 million in the nine months ended September 30, 1997 from $7.1 million in the nine months ended September 30, 1996. The increase was due primarily to the costs associated with the new branded product lines. Cost of sales increased more slowly than sales because acquired branded product lines generally had higher margins than the Company's other product lines. Selling, general and administrative expenses increased $5.3 million, or 63.1%, to $13.7 million in the nine months ended September 30, 1997 from $8.4 million in the nine months ended September 30, 1996. This increase was primarily attributable to the hiring of additional field sales representatives during late 1996 and early 1997, other additional personnel costs and marketing, promotion and sampling costs associated with the new branded product lines. Depreciation and amortization expense increased $976,000, or 149%, to $1.6 million in the nine months ended September 30, 1997 from $655,000 in the nine months ended September 30, 1996. This increase was primarily attributable to the amortization of the purchase price of the new branded product lines. Operating Income Operating income increased $11.2 million to $8.9 million in the nine months ended September 30, 1997 from an operating loss of $2.3 million in the nine months ended September 30, 1996. As a percentage of net revenues operating income was 26.3% in the nine months ended September 30, 1997. 19

This increase was primarily due to increased revenues from the acquisition of additional branded products. Gain on Sale of Investment in Affiliate In September 1996, the Company sold its entire 6.0% interest in an affiliated, privately held pharmaceutical company, which had been co-founded by the Company's Chief Executive Officer, for $2.0 million, resulting in a gain of $1.8 million. Interest Expense Interest expense increased $880,000, or 104%, to $1.7 million in the nine months ended September 30, 1997 from $850,000 in the nine months ended September 30, 1996, as a result of additional term loans used to finance, in part, the acquisitions of branded product lines. Income Tax (Benefit) Expense The effective tax rate in 1997 of 38.4% was higher than the federal statutory rate of 34.0% due to state income taxes. Net Income Due to the factors set forth above, net income increased $5.3 million to $4.6 million in the nine months ended September 30, 1997 from a net loss of $703,000 in the nine months ended September 30, 1996. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenues Net revenues decreased $4.9 million, or 19.3%, to $20.5 million in 1996 from $25.4 million in 1995 due primarily to the disposition of the Anexsia Product Line, which had generated net revenues of $9.6 million in 1995. In addition, the Company experienced a general decline in revenues from generic pharmaceutical products as a result of erosion of generic pricing due to competition as well as a decline in revenues from contract manufacturing as a result of the expiration of a significant contract offset, in part, by the addition of new contracts. These revenue decreases were offset by the recognition of $5.0 million in developmental revenues from the Anexsia Transaction and revenues from three branded pharmaceutical products acquired in the fourth quarter of 1996. Operating Costs and Expenses Total operating costs and expenses decreased $642,000, or 2.9%, to $21.9 million in 1996 from $22.5 million in 1995. The decrease was due to decreases in both costs of sales and depreciation and amortization expenses, offset by an increase in selling, general and administrative expenses. Cost of sales decreased $3.3 million, or 27.3%, to $8.8 million in 1996 from $12.1 million in 1995. The decrease was due primarily to the sale of the Anexsia Product Line, offset by the acquisition of a number of smaller product lines in the fourth quarter of 1996. Selling, general and administrative expenses increased $3.5 million, or 40.7%, to $12.1 million in 1996 from $8.6 million in 1995. This increase was primarily attributable to the hiring of additional employees during 1996 and late 1995 to support the Company's expansion, and increased costs associated with marketing efforts relating to three branded pharmaceutical products acquired by the Company in the fourth quarter of 1996 and additional product development expenses incurred in developing branded and generic pharmaceutical product reformulations in 1996. 20

Depreciation and amortization expense decreased $795,000, or 44.2%, to $982,000 in 1996 from $1.8 million in 1995. This decrease was primarily attributable to reduced amortization expense as a result of the disposition of the Anexsia Product Line. Operating Income Operating income decreased $17.4 million to a loss of $1.4 million in 1996 from operating income of $16.0 million in 1995 and decreased as a percentage of net revenues to (6.9%) from 63.0% in 1995. This decrease was primarily as a result of greater selling, general and administrative expenses and lost revenues and a 1995 nonrecurring gain due to the disposition of the Anexsia Product Line, offset, in part, by an increase in development revenues. Gain on Sale of Investment in Affiliate In September 1996, the Company sold its entire 6.0% interest in an affiliated, privately held pharmaceutical company, which had been co-founded by the Company's Chief Executive Officer, for $2.0 million, resulting in a gain of $1.8 million. Interest Expense Interest expense decreased $734,000, or 36.7%, to $1.3 million in 1996 from $2.0 million in 1995, primarily due to the repayment of the Anexsia Note Payable in December 1995. Income Tax (Benefit) Expense The effective tax rate of 31.0% in 1996 and 35.1% in 1995 does not differ significantly from the federal statutory rate of 34.0%. Net Income Due to the factors set forth above, net income decreased $10.1 million, to a net loss of $240,000 in 1996 from net income of $9.9 million in 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues Net revenues increased $12.1 million, or 91.0%, to $25.4 million in 1995 from $13.3 million in 1994 due primarily to the acquisition of the Anexsia Product Line as well as an increase in revenues from generic pharmaceutical products. The Company also increased revenues from contract manufacturing due to the renewal of contracts that had expired during 1995 under more favorable terms. Operating Costs and Expenses Total operating costs and expenses increased $10.1 million, or 81.5%, to $22.5 million in 1995 from $12.4 million in 1994. The increase was due to increases in the costs of sales, selling, general and administrative expenses and depreciation and amortization expense. Cost of sales increased $2.3 million, or 23.5%, to $12.1 million in 1995 from $9.8 million in 1994. The increase was due primarily to costs associated with the acquisition of the Anexsia Product Line prior to its disposition in December 1995. Selling, general and administrative expenses increased $6.6 million, or 330%, to $8.6 million in 1995 from $2.0 million in 1994. This increase was primarily attributable to increased promotional costs attributable to marketing efforts relating to branded pharmaceutical products acquired by the Company during 1995, variable costs commensurate with increased sales volumes, and an increase in personnel costs attributable to the hiring of additional employees during 1995. 21

Depreciation and amortization expense increased $1.1 million, or 172%, to $1.8 million in 1995 from $639,000 in 1994. This increase was primarily attributable to the amortization of the purchase price of the Anexsia Product Line. Operating Income Operating income increased $15.1 million, or 1,622%, to $16.0 million in 1995 from $931,000 in 1994 and increased as a percentage of net revenues to 63.0% from 7.0% in 1994. This increase was due primarily to increased revenues from the acquisition of the Anexsia Product Line. Interest Expense Interest expense increased $937,000, or 85.2%, to $2.0 million in 1995 from $1.1 million in 1994, as a result of the Anexsia Note Payable issued in connection with the purchase of the Anexsia Product Line. Income Tax (Benefit) Expense The effective tax rate in 1995 approximated the federal statutory rate. In 1994 the rate was substantially lower than the statutory rate due to the basis differences on certain assets purchased and the lower level of taxable income. Net Income Due to the factors set forth above, as well as the gain of $13.1 million recognized by the Company as a result of the disposition of the Anexsia Product Line, net income increased $8.9 million, or 971%, to $9.9 million in 1995 from $917,000 in 1994. LIQUIDITY AND CAPITAL RESOURCES General The Company's liquidity requirements arise from net cash used in operations, payments on outstanding indebtedness and funding of acquisitions of branded products. The Company has met its cash requirements through 1996 primarily through bank borrowings and the proceeds from the disposition of the Anexsia Product Line. The Company's recent cash requirements arose primarily in connection with the acquisition of branded pharmaceutical products. In 1995 the Anexsia Product Line was acquired and financed with the Anexsia Note Payable. The Anexsia Note Payable was repaid upon the completion of the disposition of the Anexsia Product Line in December 1995. In 1996 the acquisition of two branded pharmaceutical products for $7.0 million was financed with a combination of cash and seller financing. In March 1997, the Company raised $23.0 million through a combination of equity ($8.0 million) and notes payable with banks and borrowing under its revolving line of credit to finance the acquisition of the Cortisporin product line. Other product acquisitions in 1997, which totalled $6.6 million, were financed primarily with notes payable from banks and internally generated funds. As of September 30, 1997, the Company had available up to $6.2 million under its revolving line of credit which allows for total borrowing of up to $8.5 million. Nine Months Ended September 30, 1997 Net cash provided by operating activities was $5.3 million for the nine months ended September 30, 1997, which was primarily attributable to increased operating income. Increases of receivables and inventory of $5.1 million and $2.5 million, respectively, were offset by $1.6 million of depreciation and amortization expenses, increases in accounts payable, accrued expenses and income taxes payable of $2.7 million, $2.8 million and $1.7 million, respectively. 22

Net cash used in investing activities was $32.5 million for the nine months ended September 30, 1997, which consisted primarily of the purchase of the Cortisporin product line for $23.7 million, two additional branded products at a combined cost of $6.7 million, and the purchase of additional property and equipment for $957,000 and deposit on equipment of $1.3 million. Net cash provided by financing activities was $25.8 million for the nine months ended September 30, 1997, which consisted of $13.2 million, $1.3 million and $15.9 million in proceeds from the revolving line of credit, and additional short-term and long-term debt to finance branded product acquisitions, respectively, offset by payments of $10.9 million and $3.3 million on the revolving line of credit and long-term debt, respectively. Further, the Company received net proceeds of $8.0 million from the issuance of common shares and received $2.1 million in payments from officers of the Company on shareholder notes receivable. As a result of the factors discussed above, cash and cash equivalents decreased to $35,000 from $1.4 million as of December 31, 1996. Year ended December 31, 1996 Net cash used in operating activities was $6.0 million for the year ended December 31, 1996. The Company's net use of operating cash in 1996 was primarily a result of a $1.4 million operating loss, excluding the $1.8 million gain on sale of investment in affiliate, offset by $1.0 million of depreciation and amortization, an increase in income taxes receivable of approximately $3.6 million resulting from federal and state tax payments made by the Company in 1996, as well as an increase in inventory of $1.9 million due to the acquisition of three branded pharmaceutical products and the internal development of a complete generic product line in the fourth quarter of 1996. Net cash used in investing activities for the year ended December 31, 1996 was $2.4 million and was primarily the result of cash paid of $3.3 million and $1.0 million for the acquisition of three new branded product lines and costs associated with generic pharmaceutical products as well as property and equipment purchases, respectively. Additionally, the Company received $2.1 million from the sale of its 6.0% investment in an affiliated, privately-held pharmaceutical company. Net cash used in financing activities was $781,000 for the year ended December 31, 1996, which was comprised of payments on the revolving line of credit and other term loans of $3.4 million and $2.8 million, respectively, offset by proceeds from a $2.5 million term loan used to finance, in part, the acquisition of certain branded pharmaceutical products and $2.8 million raised in an employee stock purchase plan. As a result of the factors discussed above, cash and cash equivalents decreased from $10.6 million as of December 31, 1995, to $1.4 million as of December 31, 1996. Year ended December 31, 1995 Net cash used in operating activities was $2.6 million for the year ended December 31, 1995. The Company's net use of operating cash in 1995 was primarily a result of an increase in inventory and receivables of $1.3 million and $876,000, respectively, due to increased revenues during 1995. Additionally, the Company decreased its accounts payable and accrued expenses by $288,000 and $220,000, respectively. Net cash provided by investing activities was $30.3 million for the year ended December 31, 1995 which consisted primarily of the $32.0 million in proceeds received from the disposition of the Anexsia Product Line, offset by the costs of improvements to the Company's manufacturing facility. Net cash used in financing activities was $18.1 million for the year ended December 31, 1995, which primarily was the repayment of the $17.5 million Anexsia Note Payable. Additionally, the Company had proceeds from its revolving line of credit and other term loans of $200.8 million and 23

$329,000, and made payments on such indebtedness of $198.4 million and $20.1 million, respectively. Further, the Company paid $100,000 to retire preferred stock and paid $8,000 dividends on such stock. As a result of the factors discussed above, cash and cash equivalents increased from $1.0 million at December 31, 1994 to $10.6 million at December 31, 1995. Year ended December 31, 1994 Net cash provided by operating activities was $672,000 for the year ended December 31, 1994. Net cash provided by operating activities in 1994 was primarily a result of net income plus depreciation and amortization of $639,000, deferred tax expense of $629,000, offset by changes in working capital of $706,100. Net cash used in investing activities was $890,000, consisting primarily of purchases of property and equipment. Net cash provided by financing activities was $927,000 for the year ended December 31, 1994, which was primarily a result of borrowings on the Company's revolving line of credit of $12.0 million offset by payments of $11.0 million. Additionally, the Company received payments from the issuance of $800,000 in preferred stock, and repaid $346,000 in indebtedness, and received an advance from an affiliate of $520,000. In December 1994, the Company purchased the Anexsia Product Line in exchange for the $17.5 million Anexsia Note Payable, with no cash down. As a result of the factors discussed above, cash and cash equivalents increased to $1.0 million as of December 31, 1994 from $319,000 as of December 31, 1993. Certain Indebtedness and Other Matters As of September 30, 1997, the Company had outstanding approximately $30.7 million of long-term debt, $1.3 million of short-term debt and $2.3 million in borrowings under its revolving lines of credit agreements and term loans. Of these amounts, approximately $12.2 million were at variable rates based on LIBOR and the remainder at fixed rates. The Company does not believe its exposure to changes in interest rates under these variable rate agreements will have a material effect on its financial condition or results of operations. Certain financing arrangements require the Company to maintain certain minimum net worth, debt to equity, cash flow and current ratio requirements. The Company has obtained waivers from its commercial lenders for violations of cash flow and current ratio covenants. On October 6, 1997, the Company signed Letters of Intent with Glaxo Wellcome to acquire certain branded pharmaceutical product lines for $23.0 million. The Company plans to finance this acquisition with a new credit facility, the terms and conditions of which are currently being negotiated. The Company plans to use the proceeds from this offering primarily to fund future acquisitions of branded pharmaceutical products and to repay certain borrowings. See "Use of Proceeds." The Company believes that existing credit facilities and cash expected to be generated from operations are sufficient to finance its current operations and working capital requirements. However, in the event the Company makes significant future acquisitions, it may be required to raise funds in addition to those being raised in this offering, through additional borrowings or the issuance of additional debt or equity securities. At present, the Company is actively pursuing the acquisition of additional branded pharmaceutical products which may require the use of substantial capital resources. There are, however, no present agreements or commitments with respect to any such acquisitions except for those described elsewhere in this Prospectus. Capital Expenditures Capital expenditures, including capital lease obligations, were $1.0 million for the nine months ended September 30, 1997 and $2.2 million, $1.7 million and $1.1 million in 1996, 1995 and 1994, respectively. The principal capital expenditures included property and equipment purchases and building improvements. The Company is anticipating total capital expenditures in the final three 24

months of 1997 to be approximately $500,000 and total capital expenditures in 1998 to be approximately $3.0 million primarily to fund additional equipment purchases and building improvements. The Company expects to increase its capital expenditures over the next few years as a part of its acquisition and growth strategy. IMPACT OF INFLATION The Company has experienced only moderate raw material and labor price increases in recent years. While the Company has passed some price increases along to its customers, the Company has primarily benefited from rapid sales growth negating most inflationary pressures. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, effective for fiscal periods ending after December 15, 1997. The new standard simplifies the computation of earnings (loss) per share by replacing primary earnings (loss) per share with basic earnings (loss) per share. Basic earnings (loss) per share will not include the effect of any potentially dilutive securities, as under the current accounting standard, and will be computed by dividing reported income available to common shareholders by the weighted average number of common shares outstanding during the period. Fully diluted earnings (loss) per share will now be called diluted earnings (loss) per share and will reflect the dilution of all potentially dilutive securities. The adoption of this standard by the Company will have no impact on the historical reported earnings (loss) per share amounts since the Company did not have any potentially dilutive securities. In October 1997, the Board of Directors approved the 1997 Incentive and NonQualified Stock Option Plan for Employees for which there are currently no outstanding options. Statement of Financial Accounting Standards (SFAS) No. 129 ("Statement 129") establishes standards for disclosing information about an entity's capital structure and is effective for periods ending after December 15, 1997. Management of the Company does not expect Statement 129 to have a significant impact, if any, on the Company's Consolidated Financial Statements. Statement of Financial Accounting Standards (SFAS) No. 130 ("Statement 130") establishes standards for reporting and display of comprehensive income and its components (revenues, gains, expenses, losses) in a full set of general purpose financial statements and is effective for fiscal years beginning after December 15, 1997. Management of the Company does not expect Statement 130 to have a significant impact, if any, on the Company's Consolidated Financial Statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information ("Statement 131"). Statement 131 requires public business enterprises to adopt its provisions for periods beginning after December 15, 1997, and to report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. The Company is evaluating the provisions of Statement 131, but has not yet determined if additional disclosures will be required. YEAR 2000 COMPLIANCE The Company is currently in the process of converting its computer systems to year 2000 compliant software. The Company does not expect that the cost of converting such systems will be material to its financial condition or results of operations. The Company believes it will be able to achieve year 2000 compliance by the end of 1999, and does not currently anticipate any material disruption in its operations as the result of any failure by the Company to be in compliance. The Company does not currently have any information concerning the year 2000 compliance status of its suppliers and customers. 25

BUSINESS COMPANY OVERVIEW The Company is an integrated pharmaceutical company that manufactures, markets and sells branded and generic prescription pharmaceutical products. The Company seeks to capitalize on niche opportunities in the pharmaceutical industry created by cost containment initiatives and consolidation among large global pharmaceutical companies. The Company's strategy is to acquire branded pharmaceutical products and increase their sales by focused promotion and marketing, as well as by developing product line extensions and through product life cycle management. Since December 1994, the Company has acquired nine branded pharmaceutical products, developed one product internally, divested one product and introduced seven product line extensions. In October 1997, the Company entered into Letters of Intent with Glaxo Wellcome to acquire several additional product lines for a total of $23.0 million. The Company markets its branded pharmaceutical products through its wholly-owned subsidiary, Monarch Pharmaceuticals. Monarch Pharmaceuticals' goal is to aggressively promote acquired branded pharmaceutical products in order to increase their sales. Monarch Pharmaceuticals has 48 sales representatives who market primarily in the southeastern and midwestern United States. This sales force is dedicated to promoting and marketing branded pharmaceutical products and is supported by telemarketers and customer service representatives who promote the Company's products in territories not currently covered by field representatives. The Company expects its sales and marketing staff to grow significantly as the Company acquires additional branded pharmaceutical products. The Company's current branded pharmaceutical products include, among others, Cortisporin, acquired from Glaxo Wellcome in March 1997, Thalitone, acquired from Horus Therapeutics, Inc. in December 1996, and Viroptic, acquired from Glaxo Wellcome in May 1997. Branded pharmaceutical products represented 79.8% of the net sales of the Company for the first nine months ended September 30, 1997, with the Cortisporin product line representing 60.7% of net sales. The Company acquired its first branded product, the Anexsia Product Line for $17.6 million in December 1994. During the 12 months following its acquisition, the Company significantly increased annual sales of the Anexsia Product Line through a combination of product development and marketing. In December 1995, the Company sold the Anexsia Product Line to Mallinckrodt for $32.0 million in cash and recognized a $13.1 million net gain. The Company believes its integrated manufacturing capabilities and support systems allow for higher margins and enhanced ability to acquire and develop pharmaceutical products. The Company can produce a broad range of dosage formulations, including sterile solutions, injectables, tablets and capsules, liquids, creams and ointments, suppositories and powders, and is licensed by the DEA to procure and produce controlled substances. The Company's manufacturing capability is integrated with its support services, including quality control, quality assurance, packaging, distribution and inventory management and purchasing and production planning. These integrated services enable the Company to maintain high quality standards for its products as well as provide reliable and timely service to its customers. The Company currently manufactures certain of its own branded and generic products and uses its excess manufacturing capacity to contract manufacture for other pharmaceutical companies. The Company's product development efforts are currently focused on developing product line extensions, which allow the Company to enhance product differentiation, create market exclusivity and minimize sales lost to generic substitution. To date, the Company has introduced seven line extensions for its acquired products. The Company also manufactures and markets a number of generic pharmaceutical products as well as a comprehensive line of nutritional supplements for companion animals. The Company markets its generic pharmaceutical products under the King Pharmaceuticals label and its companion animal health products under the Royal Vet and Show Winner tradenames. 26

INDUSTRY BACKGROUND Sales of pharmaceutical products in the United States were estimated to be in excess of $98 billion in 1996. During the past decade, the pharmaceutical industry has been faced with cost containment initiatives from government and managed care organizations and has begun to consolidate. Consolidation is being driven by a desire among pharmaceutical companies to reduce costs through economies of scale and synergies, to add previously lacking U. S. or European sales strength or to add promising product pipelines or manufacturing capabilities in key therapeutic categories. Industry consolidation and cost containment pressures have increased the level of sales necessary for an individual product to justify active marketing and promotion from large pharmaceutical companies. This has led large pharmaceutical companies to focus their marketing efforts on drugs with high sales and on newer drugs which have the potential for high sales. In addition, in certain cases pharmaceutical companies may choose not to market or promote products actively if such products do not fit with the Company's therapeutic or marketing priorities. As a result of these factors, sales of certain pharmaceutical products have stagnated or declined, which has caused large pharmaceutical companies to consider divesting product lines that are not strategically important. Because these product lines are generally small and may not be cost-effective for large pharmaceutical companies, they can be profitable for smaller companies to manufacture and market. BUSINESS STRATEGY The Company's strategy is to identify product opportunities that large global pharmaceutical companies neglect and create value by leveraging its marketing, manufacturing and product development capabilities. In order to execute this strategy, the Company seeks to acquire branded pharmaceutical products and increase their sales by focused promotion and marketing, as well as by developing product line extensions and through product life cycle management. The Company believes that there are substantial opportunities to acquire branded pharmaceutical products at attractive prices from large global pharmaceutical companies. The Company generally seeks branded pharmaceutical products that (i) can benefit from focused marketing efforts in addition to product development, (ii) complement the Company's existing product lines, and (iii) have some patent protection or potential for market exclusivity or product differentiation, such as through a delivery mechanism, as part of a combination therapy or lack of a therapeutic substitute. Since December 1994, the Company has acquired nine branded pharmaceutical products, and in October 1997, the Company entered into Letters of Intent with Glaxo Wellcome to acquire several additional product lines. The Company believes that it can increase the sales of its branded pharmaceutical products through focused promotion and marketing efforts. The Company's wholly-owned subsidiary, Monarch Pharmaceuticals, has an established sales force of 48 field representatives. This sales force is dedicated to promoting and marketing branded pharmaceutical products. These efforts are supported by telemarketers and customer service representatives who also promote the Company's products in territories not currently covered by field representatives by distributing samples to physicians selected using a computer sampling system developed by the Company. The sales and marketing staff is expected to grow significantly as the Company continues to acquire more branded products. A key component of the Company's strategy is its integrated manufacturing capabilities and support systems. The Company's ability to manufacture products enables the Company to capture higher margins and enhances the Company's ability to acquire and develop products. The Company's plant manufactures a broad range of dosage forms, including sterile solutions, injectables, tablets and capsules, liquids and suspensions, creams and ointments, suppositories and powders. The Company's support systems include quality assurance, quality control, regulatory compliance, inventory control and packaging which are coordinated by the Company's management information services. When the Company acquires a product, it transfers production of such product to its manufacturing facilities as soon as practicable after regulatory requirements are satisfied. 27

The Company also believes it can create value by utilizing its product development capabilities to enhance product differentiation and to create market exclusivity for its products. In particular, the Company seeks to develop new combination therapies in order to broaden product lines and minimize generic substitution. To date, the Company has introduced seven line extensions for its acquired products. PRODUCTS AND PRODUCT DEVELOPMENT The Company develops, manufactures, packages, markets and distributes branded and generic pharmaceutical products and companion animal health products. It also manufactures certain pharmaceutical products for other pharmaceutical companies. The Company is focused primarily on the acquisition and development of branded pharmaceuticals which are marketed through its wholly-owned subsidiary, Monarch Pharmaceuticals. Since December 1994, the Company has acquired nine branded pharmaceutical products, developed one product internally and divested one product. The Company's current line of branded pharmaceutical products include: CORTISPORIN, acquired from Glaxo Wellcome in March 1997, includes combination antibiotic and anti-inflammatory ophthalmic, otic and topical formulations indicated for eye, ear and skin infections. The Cortisporin product line represented 60.7% of the Company's net sales in the nine months ended September 30, 1997. PEDIOTIC, which is part of the Cortisporin product line, is an ear infection preparation specially formulated for children. THALITONE is a hypertension-diuretic which is produced in tablet form indicated for the management of hypertension and edema associated with congestive heart failure and renal dysfunction. VIROPTIC is a sterile solution indicated for the treatment of ocular herpes simplex virus, idoxuridine-resistant herpes and vidarabine-resistant herpes. QUIBRON is a respiratory preparation containing theophylline which is produced in capsule, tablet and sustained release tablet forms indicated for the relief and/or prevention of asthma, chronic bronchitis and emphysema. PROCTOCORT is a hemorrhoidal preparation which is produced in cream and an internally developed suppository form. TUSSEND is an internally developed cough/cold preparation containing hydrocodone which is produced in syrup, tablet and elixir forms indicated in the relief of cough and congestion due to colds, acute respiratory infections, bronchitis and hay fever. NUCOFED is a dye-free cough/cold preparation containing codeine which is produced in syrup and capsule forms indicated in the treatment of coughing and congestion associated with upper respiratory infections, common cold, bronchitis, influenza and sinusitis. MONAFED is an internally developed non-narcotic cough/cold preparation in a sustained release tablet form. In December 1994, the Company acquired its first branded product line, the Anexsia Product Line for $17.6 million. Anexsia is a prescription branded narcotic analgesic for mild to moderate skeletal muscular pain. The acquisition was funded by the Anexsia Note Payable. During the 12 months following its acquisition, the Company significantly increased annual sales of Anexsia through a combination of product development and aggressive marketing. In December 1995, the Company sold the Anexsia Product Line to Mallinckrodt for $32.0 million in cash and recognized a $13.1 million net gain. In connection with the sale, the Company entered into a manufacture and supply agreement with Mallinckrodt that provided for guaranteed minimum revenues of $4.8 million through 1999 and an 28

agreement to develop four ANDAs on Mallinckrodt's behalf for a maximum of $2.5 million each due upon FDA approval. In 1996, the FDA approved two of these ANDAs and, as of September 30, 1997, the additional two ANDAs were on file. For the year ended December 31, 1996 and the nine months ended September 30, 1997, branded pharmaceutical products accounted for 19.0% and 79.8%, respectively, of net sales of the Company. The Company is engaged in the development, manufacturing, packaging, marketing, distribution and sale of generic pharmaceutical products sold as prescription drugs. The Company currently has two generic products on the market and has five ANDAs on file. The Company will continue to add new development projects as more pharmaceutical products lose their patent protection. For the year ended December 31, 1996 and the nine months ended September 30, 1997, generic products accounted for 10.2% and 3.1%, respectively, of net sales of the Company. King Pharmaceuticals Animal Health, a division of the Company, manufactures and markets a comprehensive line of nutritional supplements for companion animals which are marketed under the Royal Vet and Show Winner tradenames. The Company is also developing a comprehensive line of over-the-counter companion animal health pharmaceutical products. For the year ended December 31, 1996 and the nine months ended September 30, 1997, companion animal health products accounted for 0.4% and 2.1%, respectively, of net sales of the Company. SALES AND MARKETING The Company's principal marketing focus is on the sales of branded pharmaceutical products through Monarch Pharmaceuticals. Monarch Pharmaceuticals has 48 sales representatives who market primarily to the southeastern and midwestern United States. The Company distributes its branded pharmaceutical products primarily through wholesale drug distributors. These products are ordinarily dispensed to the public through pharmacies on the prescription of a physician. For branded pharmaceutical products, the Company's marketing and sales promotions principally target physicians through detailing and sampling to encourage physicians to prescribe more of the Company's products. The Company markets its products to pharmacists to encourage them to fill prescriptions using the Company's products. The Company also contacts wholesalers to promote the Company's products. The sales force is supported and supplemented by telemarketing and direct mail, as well as through advertising in trade publications and representations at regional and national medical conventions. The Company's telemarketing and direct mailing efforts are performed primarily by using a computer sampling system which the Company developed to distribute samples to physicians. The Company intends to seek new markets in which to promote its product lines and will continue expansion of its field sales force as product acquisitions warrant. The Company also markets and sells generic pharmaceutical products as well as companion animal health products. The Company markets and sells its generic pharmaceutical products primarily to major hospitals and hospital buying groups. These products are marketed and sold primarily through six additional full-time sales representatives, telemarketing and by direct mail. The Company's companion animal health care products are sold to retailers such as pet store chains, grocery stores and mass merchandisers. The promotion of its companion animal health care products is focused on obtaining shelf space in retail outlets through sales representatives and direct mail advertising. PetsMart Inc., an international operator of pet care superstores, is the principal purchaser of the Company's companion animal health care products under the Show Winner label. The Company is currently dependent upon a small number of customers. In the nine months ended September 30, 1997, approximately 56.9% of the Company's sales were attributable to four customers and for the year ended December 31, 1996, approximately 69.7%% of the Company's sales were attributable to three customers. The loss of any one of these customers could result in a material adverse effect on the Company's business, financial condition and results of operations. Additionally, the distribution network for pharmaceutical products has in recent years been subject to increasing 29

consolidation. As a result, a few large wholesale distributors control a significant share of the market. In addition, the number of independent drug stores and small chains has decreased as retail consolidation has occurred. Further consolidation among, or any financial difficulties of, distributors or retailers could result in the combination or elimination of warehouses, thereby stimulating product returns to the Company. Further consolidation or financial difficulties could also cause customers to reduce their inventory levels, or otherwise reduce purchases of the Company's products which could result in a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Customer Concentration; Consolidation of Distribution Network." MANUFACTURING The Company's approximately 500,000 square foot facilities include manufacturing, packaging, laboratory, office and warehouse space. The Company manufactures its products in accordance with cGMP requirements and is licensed by the DEA to procure and produce controlled substances. The Company manufactures certain of its own branded and generic pharmaceutical products and companion animal health products as well as products owned by other pharmaceutical companies under manufacture and supply contracts which expire over periods ranging from one to three years. The Company can produce a broad range of dosage formulations, including sterile solutions, injectables, tablets and capsules, liquids, creams and ointments, suppositories, and powders. The Company believes its manufacturing capability allows it to capture higher margins and pursue product line extensions more efficiently. The Company, however, cannot immediately begin manufacturing the products it acquires. Currently four of its products, including Cortisporin, are manufactured in the same facilities in which they were previously manufactured. The Company intends to transfer production of newly acquired branded pharmaceutical products and their product line extensions to its manufacturing facilities as soon as practicable after regulatory requirements are satisfied. In addition to manufacturing, the Company has fully integrated manufacturing support systems including quality assurance, quality control, regulatory compliance, inventory control, and packaging. These support systems enable the Company to maintain high standards of quality for its products and simultaneously deliver reliable services and goods to its customers on a timely basis. Companies that do not have such support systems in-house must out source these services. The Company currently has manufacturing contracts with, among others, Mallinckrodt, Roberts Pharmaceutical Corporation, SmithKline Beecham Corporation ("SmithKline Beecham"), Novartis Animal Health US, Inc. and Milex Products, Inc. These contracts represented in the aggregate approximately 70.0% and 12.3% of the total revenues of the Company for the year ended December 31, 1996, and the nine months ended September 30, 1997, respectively. In 1995, in conjunction with the Anexsia Transaction, the Company entered into a manufacture and supply contract with Mallinckrodt for the manufacture of the Anexsia Product Line, which provides for a guaranteed minimum manufacturing fee of $4.8 million through 1999 and annual renewals thereafter at the option of Mallinckrodt for up to an additional four years. The Company requires a supply of quality raw materials and components to manufacture and package drug products for itself and for third parties with which it has contracted. While the Company generally has not had difficulty obtaining raw materials and components from suppliers in the past, there can be no assurance that such raw materials and components will continue to be available on commercially acceptable terms in the future. Currently, the Company relies on approximately 100 suppliers to deliver the necessary raw materials and components. The loss of any one of these suppliers is not expected to have a material adverse effect on the Company's ability to acquire raw materials and components. Although the Company has no reason to believe it will be unable to procure adequate supplies of raw materials and components on a timely basis, if for any reason the Company is unable to obtain sufficient quantities of any of the raw materials or components required to produce and package its products, it may not be able to distribute its products as planned, which could have a materially adverse effect on the Company's business, financial condition and results of operations. 30

BACKLOG As of September 30, 1997, the Company had no material backlog. RESEARCH AND DEVELOPMENT At the present time, the Company is not engaged in substantial clinical research activities. The Company, however, is involved in product development and continually seeks to develop extensions to its product lines and to improve the quality, efficiency and cost-effectiveness of its manufacturing processes. The Company's laboratories and product development scientists have produced several product line extensions to existing branded pharmaceutical products and secured several ANDA approvals from the FDA. The Company currently has five ANDA applications pending with the FDA. GOVERNMENT REGULATION The manufacture, testing, packaging, labeling, distribution and marketing of the Company's products and its ongoing product development activities are subject to extensive and rigorous regulation at both the federal and state levels. At the federal level, the Company is principally regulated by the FDA as well as by the DEA, the Consumer Product Safety Commission, the FTC, the U.S. Department of Agriculture and the EPA. The FDC Act, the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the development, testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of the Company's products and those manufactured by and for third parties. Product development and approval within this regulatory framework requires a number of years and involves the expenditure of substantial resources. The Company believes that it or its contract customers have the proper FDA approvals or other marketing authority for the drugs that the Company currently produces. When the Company acquires the right to market an existing approved new drug, both it and the former application holder are required to submit certain information to the FDA. The former application holder must submit a letter stating that all rights to the application have been transferred to the Company. Simultaneously, the Company submits a form acknowledging the transfer of the application under which the drug product is manufactured and packaged, and committing to honor the agreements, promises and conditions made by the former application holder as contained in the application. The Company is also required to advise the FDA about any changes in certain conditions in the approved application as set forth in the FDA's regulations. The Company's strategy focuses on acquiring branded pharmaceutical products and transferring their manufacturing into the Company's manufacturing facilities as soon as practicable after regulatory requirements are satisfied. In order to transfer manufacturing of the acquired branded products, the Company must demonstrate, by filing information with the FDA, that it can manufacture the product in accordance with the specifications and conditions of the approved NDA. With the recent FDA guidelines on Scale-Up and Post-Approval Changes ("SUPAC") guidelines, the regulatory filing and approval timelines on transfer of products from the former application holder's facilities into the Company's facilities have been shortened. The FDA has published SUPAC guidelines for immediate release and modified release, solid oral dosage forms and semi-solid products. Guidelines for sterile aqueous dosage forms exist only in draft format. These guidances provide recommendations to holders of drug applications who intend, during the post-approval period, to change: (i) the components or composition of a drug product under an approved application; (ii) the site of manufacture; (iii) the scale-up or scale-down of manufacture; and/or (iv) the manufacturing processes or equipment used in an approved application. Federal regulations permit the Company to make changes to an approved application in accordance with a guideline, notice, or regulation published in the Federal Register that provides for a less burdensome notification of the change. The FDA regulatory regime applicable to the Company's generic pharmaceutical products depends, on whether the branded drug is the subject of an approved NDA or is marketed pursuant to the FDA's enforcement policy. If the pharmaceutical product to be offered as a generic version of a 31

branded product is the subject of an approved NDA, the generic product must be the subject of an ANDA and must be approved by the FDA prior to marketing. Pharmaceutical products produced by any manufacturer and marketed in accordance with the FDA's enforcement policy, are not subject to ANDA filings and approval prior to replication and introduction to the market. The FDA also mandates that drugs be manufactured, packaged and labeled in conformity with cGMP. In complying with cGMP regulations, manufacturers must continue to expend time, money and effort in production, record keeping and quality control to ensure that the product meets applicable specifications and other requirements to ensure product safety and efficacy. The FDA periodically inspects drug manufacturing facilities to ensure compliance with applicable cGMP requirements. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product or voluntary recall of a product. Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restrictions through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval. The federal government has extensive enforcement powers over the activities of pharmaceutical manufacturers, including authority to withdraw product approvals, commence actions to seize and prohibit the sale of unapproved or non-complying products, to halt manufacturing operations that are not in compliance with cGMP, and to impose civil monetary penalties and seek criminal penalties. Such a restriction or prohibition on sales or withdrawal of approval of products marketed by the Company could materially adversely affect the Company's business, financial condition and results of operation. While the Company believes that all of its current pharmaceuticals are legally marketed under applicable FDA enforcement policies or have received requisite government approvals for manufacture and sale, such marketing authority is subject to revocation by the applicable government agencies. In addition, modifications or enhancements of approved products are in many circumstances subject to additional FDA approvals which may or may not be received and which may be subject to a lengthy application process. The Company's manufacturing facilities are continually subject to inspection by such governmental agencies and manufacturing operations could be interrupted or halted in any such facilities if such inspections prove unsatisfactory. The Company also manufactures and sells drug products which are "controlled substances" as defined in the Controlled Substances Act, which establishes certain security and record keeping requirements administered by the DEA, a division of the Department of Justice. The DEA has a dual mission -- law enforcement and regulation. The former deals with the illicit aspects of the control of abusable substances and the equipment and raw materials used in making them. The DEA shares enforcement authority with the Federal Bureau of Investigation, another division of the Department of Justice. The DEA's regulatory responsibilities are concerned with the control of licensed handlers of controlled substances, and with the substances themselves, equipment and raw materials used in their manufacture and packaging, in order to prevent such articles from being diverted into illicit channels of commerce. The Company has not experienced restrictions or fines for non-compliance with the foregoing regulations but no assurance can be given that restrictions or fines which could have a material adverse effect upon the Company's business, financial condition and results of operations will not be imposed upon the Company in the future. State law generally controls the determination of who will be entitled to registration under the Controlled Substances Act. In most cases, the DEA is required by the Controlled Substances Act to register an entity to handle controlled substances if the entity is licensed by a state to practice a profession involving the possession or manufacture of controlled substances. The Company maintains a State of Tennessee Board of Pharmacy License in order to engage in pharmaceutical development, manufacturing and distribution. 32

The Company is licensed by the DEA to manufacture and distribute controlled substances in Schedules II-V. The Schedules are used to classify substances by various criteria. The Controlled Substances Act lists the following criteria for Schedule II substances; (i) a high potential for abuse; (ii) a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions; and (iii) abuse of the drug may lead to severe psychological or physical dependence. Schedule III substances are characterized by: (i) a potential for abuse less than substances in Schedules I and II; (ii) currently accepted medical use for treatment in the United States; and (iii) abuse of the drug may lead to moderate or low physical dependence or high psychological dependence. Schedules IV, and V continue to use the same criteria in decreasing order of potential for abuse or misuse. In connection with the use of sampling of pharmaceutical products to prescribing physicians, the Company's activities are subject to the Prescription Drug Marketing Act ("PDMA") which permits regulation of such activities at both the federal and state level. Under PDMA and its implementing regulations, states are permitted to require registration of manufacturers and distributors who provide sample pharmaceuticals even if such manufacturers or distributors have no place of business within the state and states are also permitted to adopt regulations limiting the distribution of sample products to licensed practitioners. PDMA also imposes extensive licensing, personnel record keeping, packaging, quantity, labeling product handling and facility storage and security requirements intended to prevent sale of sampled pharmaceutical products or other diversions from their intended use. The Company may also be subject to fees under The Prescription Drug User Fee Act of 1992 ("PDUFA"). PDUFA authorizes the FDA to collect three types of user fees for: (i) certain types of applications and supplements for approval of drug and biologic products, (ii) certain establishments where such products are made, and (iii) certain marketed products. Fees for applications, establishments, and products are determined by the FDA using criteria delineated in the statute. When certain conditions are met, the FDA may waive or reduce fees. To date, the Company has not been obligated to pay any such fee. There can be no assurance, however, that the FDA will not impose such a fee in the future. The Company cannot determine what effect changes in regulations or legal interpretations, when and if promulgated, may have on its business in the future. Changes could, among other things, require expanded or different labeling, the recall or discontinuance of certain products, additional record keeping and expanded documentation of the properties of certain products and scientific substantiation. Such changes, or new legislation, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -Government Regulation." ENVIRONMENTAL MATTERS The Company's operations are subject to substantial and evolving federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, transportation, treatment and disposal of toxic and hazardous substances. The Company believes that its facilities are in substantial compliance with all provisions of federal, state and local laws concerning the environment and does not believe that future compliance with such provisions will have a material adverse effect on its financial condition or results of operations. In response to change in environmental laws, the Company's environmental capital expenditures and costs for environmental compliance may increase in the future. Under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the EPA has the authority to impose joint and several liability for the remediation of contaminated properties upon generators of waste, current and former site owners and operators, transporters and other potentially responsible parties, regardless of fault or the legality of the original disposal activity. Many states, including Tennessee, have statutes and regulatory authorities similar to CERCLA and to the EPA. The Company has a hazardous waste hauling agreement with licensed third parties to properly dispose of its hazardous substances. There can be no assurance, however, that the Company will not be found to be potentially responsible under CERCLA for the costs of undertaking a 33

clean up at a site to which its waste products were transported. See "Risk Factors -- Government Regulation." COMPETITION The Company competes with other pharmaceutical companies for product and product line acquisitions. These competitors include Jones Medical Industries, Inc., Dura Pharmaceuticals, Inc., Medicis Pharmaceutical Corporation, Forest Laboratories, Inc., Watson Pharmaceuticals, Inc. and other companies which also acquire branded pharmaceutical product lines from other pharmaceutical companies. Additionally, since the Company's products are generally established and commonly sold, they are subject to competition from products with similar qualities. The Company's branded pharmaceutical products may be subject to competition from alternate therapies during the period of patent protection and thereafter from generic equivalents. The manufacturers of generic products typically do not bear the related research and development costs and consequently are able to offer such products at considerably lower prices than the branded equivalents. There are, however, a number of factors which enable products to remain profitable once patent protection has ceased. These include the establishment of a strong brand image with the prescriber or the consumer, supported by the development of a broader range of alternative formulations than the manufacturers of generic products typically supply. As is the case for the pharmaceutical industry in general, the introduction of new products and processes by competitors may affect pricing levels or result in product replacement for existing products, and there can be no assurance that any of the Company's products may not become outmoded, notwithstanding patent or trademark protection. In addition, increasing governmental and other pressure towards the dispensing of generic pharmaceutical products in substitution for branded pharmaceutical products may increase competition for products no longer covered by patents. The Company's branded pharmaceutical products compete primarily with products of other pharmaceutical companies, including large global pharmaceutical companies. These competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than the Company. Moreover, such competitors may offer broader product lines and have greater name recognition than the Company. There can be no assurance that the Company's competitors will not acquire branded pharmaceutical products which the Company desires or will not develop or market products that are more effective or commercially attractive than the Company's current or future products or that would render the Company's products obsolete. There can be no assurance that the Company will have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully. See "Risk Factors -- Competition; Uncertainty of Technological Change." PATENTS, TRADEMARKS AND PROPRIETARY PROPERTY The Company considers the protection of discoveries in connection with its development activities important to its business. The Company intends to seek patent protection in the U.S. and selected foreign countries where deemed appropriate. The Company owns a U.S. Patent for Novel Chlorthalidone Process and Product which expires in 2007, covering the raw materials used in the manufacture of Thalitone. Monarch also has a paid-up and non-exclusive license to certain other patent rights owned or controlled by Bristol-Myers Squibb which is used in the manufacture of Quibron. The Company has also applied for patents for an analysis test and a certain manufacturing process for products other than Quibron. There can be no assurance that the issued patent or subsequent patents, if issued, will adequately protect the Company's design or that such patents will provide protection against infringement claims by competitors. There can be no assurance that additional patents will be obtained covering the Company's products or that, if issued or licensed to the Company, the patents covering the Company's products will provide substantial protection or be of commercial benefit to the Company. The Company also relies upon trade secrets, unpatented proprietary know-how and continuing technological innovation, where patent protection is not believed to be appropriate or attainable, to develop its competitive position. The Company enters into confidentiality agreements with certain of its employees pursuant to which such employees agree to 34

assign to the Company any inventions relating to the Company's business made by them while employed by the Company, as well as certain confidentiality agreements related to the acquisition of its product lines. There can be no assurance, however, that any confidentiality agreement entered into by the Company with employees or third parties will not be breached, that the Company will have adequate remedies for any breach, that others may not acquire or independently develop similar technology or, if patents are not issued with respect to products arising from research, that the Company will be able to maintain information pertinent to such research as proprietary technology or trade secrets. There can be no assurance that the Company's technology does not infringe upon any valid claims of patents owned by others. If the Company were found to be infringing on a patent held by another, the Company might have to seek a license to use the patented technology. There can be no assurance that, if required, the Company would be able to obtain such a license on terms acceptable to the Company, if at all. If a legal action were to be brought against the Company, or its licensors, the Company could incur substantial costs in defending itself, and there can be no assurance that such action would be resolved in the Company's favor. If such a dispute were to be resolved against the Company, the Company would be subject to significant damages and the testing, manufacturing or sale of one or more of the Company's products or proposed products, if developed, could be enjoined. No assurance can be given as to the degree of protection any patents will afford, whether patents will be issued or whether the Company will be able to avoid violating or infringing upon patents issued to others. Despite the use of confidentiality agreements, which themselves may be of limited effectiveness, if may be difficult for the Company to protect its trade secrets. The branded products sold by the Company are sold under a variety of trademarks. While the Company believes that it or its wholly-owned subsidiary, Monarch Pharmaceuticals, has valid proprietary interests in all currently used trademarks, only certain of the trademarks are registered with the U.S. government, including Cortisporin, Thalitone, Tussend, Nucofed, Quibron, Pediotic, Vita Care(R), Royal Vet, Accudose(R) and Viroptic. Additionally, trademark applications for Proctocort, Virtopic(TM), Monarchpharm(TM), Petrin(TM), Arthose Chews(TM), Show Winner and Monahist(TM) are pending. The Company also owns the registered service mark Secure-A-Sample(R). EMPLOYEES As of September 30, 1997, the Company employed 312 full-time and 8 part-time persons, including 86 in sales and marketing, 68 in manufacturing, 33 in Quality Assurance and 25 in finance and administration. None of the Company's employees is covered by a collective bargaining agreement, and the Company believes its employee relations are good. The Company employs a full-time Chaplain and offers as part of its employee benefits package access to additional counseling services. LITIGATION The Company is not a party to litigation or other legal proceedings which the Company believes could reasonably be expected to have a material adverse effect on the Company's business, financial condition and results of operations. PROPERTIES The Company owns its approximately 500,000 square foot facility in Bristol, Tennessee. This facility includes space for manufacturing, packaging, laboratories, offices and warehouse. The Company believes such facility is adequate for the conduct of its operations. 35

MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES The executive officers, directors and key employees of the Company are as follows:
NAME ---John M. Gregory(2).......... Jefferson J. Gregory........ Joseph R. Gregory(1)........ Brian G. Shrader............ James E. Gregory............ R. Henry Richards, M.D. .... J. Fred Pruden.............. John P. McCoy............... Terri D. White-Gregory...... John A. A. Bellamy.......... Ronald C. Siegfried......... Michael R. Hilton........... Thomas K. Rogers, III....... Norman T. Miller............ Ernest C. Bourne............ Lois A. Clarke(3)........... Frank De Friece, Jr.(1)(2)(3).............. Greg Rooker(1)(2)(3)........ Ted G. Wood................. AGE --44 42 43 29 46 52 51 49 34 35 55 50 44 64 56 52 76 50 59 POSITION HELD ------------Chairman of the Board of Directors and Chief Executive Officer President and Chief Operating Officer of King Pharmaceuticals, Inc. and Director President and Chief Operating Officer of Monarch Pharmaceuticals and Director Chief Financial Officer Executive Vice President, Production/Administration Executive Vice President, Medical Affairs Executive Vice President, Manufacturing Executive Vice President, Quality Executive Vice President, Business Development Executive Vice President, Legal Affairs and General Counsel Executive Vice President, Development Vice President, Sales and Marketing Senior Director, Regulatory Affairs (Applications) Senior Director, Regulatory Affairs (Compliance) Director Director Director Director Director

(1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Stock Option Committee. John M. Gregory has served as Chairman of the Board of Directors since the Company's inception in 1993 and Chief Executive Officer since 1994. He previously co-founded GIV and served as President of GIV from 1984 through 1994. Prior to co-founding GIV, he was the owner and registered pharmacist of a pharmacy located in Bastian, Virginia. He graduated from the University of Maryland School of Pharmacy with a B.S. in Pharmacy in 1976. Jefferson J. Gregory has served as President and Chief Operating Officer of King Pharmaceuticals, Inc., since 1993, and has served as a Director since 1995. He was formerly the Director of Regulatory Affairs and Product Information for GIV from 1991 to 1993 and was a consultant to the pharmaceutical industry from 1989 to 1991. He formerly served as a registered pharmacist in retail pharmacies in the Washington D.C. and Baltimore, Maryland metropolitan areas. He graduated from the University of Maryland School of Law with a Juris Doctor in 1985, University of Maryland School of Pharmacy with a B.S. in Pharmacy in 1979, and Montgomery College with an Associate of Arts in 1976. Joseph R. Gregory has served as President and Chief Operating Officer of Monarch Pharmaceuticals since 1994, and has served as a Director since 1993. Prior to joining the Company, he was the Chief Operating Officer of GIV from 1987 to 1994 and also served as the President of Insource/Williams, Inc., a GIV subsidiary, from 1989 to 1994. He previously served as President of The Buying Group Network/A Service of Pharmacist Shared Services. He graduated from the University of Maryland School of Business with a B.S. in Business Administration in 1977. 36

Brian G. Shrader, CPA, has served as Chief Financial Officer since 1993. He was formerly the Manager of Accounting for GIV from 1990 to 1993. He is a current member of the Virginia Society of CPA's. He graduated from the Virginia Polytechnic Institute and State University with a B.S. in Accounting in 1990 and a Masters of Accountancy in 1991. James E. Gregory has served as Executive Vice President of Production/Administration since February 1995. Previously, he was the Deputy Executive Officer of the Washington D.C. Court system from 1990 through 1995 and a senior administrator with that court from 1987 to 1990. He was responsible for managing all business affairs for another major urban court system in Phoenix, Arizona from 1982 to 1985 and was the Deputy County Recorder for Maricopa County (Phoenix) from 1985 to 1987. Through management consulting firms, he provided administrative systems consulting services to various state court systems from 1973 to 1982. He graduated from American University with a Masters of Public Administration in 1979 and the University of Maryland with a B.A. in History in 1973. R. Henry Richards, M.D. has served as Executive Vice President of Medical Affairs since 1994. He also was the Medical Director/Director of Managed Care for GIV during 1993. He served as the Vice President Medical Director for Medical Dimensions, Inc. from 1991 to 1993, after having served as a M.D. in private practice (Internal Medicine, Hypertension and Nephrology) since 1976. He was also the Medical Director for the Hypertension Medical Clinic of San Jose and Review Services Inc., Resource Consultant for Health Strategies in San Jose, was associated with Samaritan Kidney Medical Associates, San Jose and Medical Director, Hospital Private Review in Campbell, California. Dr. Richards graduated from the University of Maryland with a M.D. in 1971, the Atlantic Christian College with a B.S. in Biology in 1966, and Montgomery College with an Associate of Arts in 1963. J. Fred Pruden has served as Executive Vice President of Manufacturing since 1995. He previously served as General Manager for Novo Nordisk Pharmaceuticals, Inc., from 1988 to 1995, Vice President Operations for Fujisawa U.S.A. from 1983 to 1988, Plant Manager for Sterling Drug from 1979 to 1983, and served as Production Manager, Materials Manager and Process Engineering for Abbott Laboratories for 8 years. During this time, he helped Abbott Laboratories build a new manufacturing facility in Puerto Rico. He graduated from the University of North Carolina in 1969 with a B.A. in Mathematics. John P. McCoy has served as Executive Vice President of Quality since 1994. He previously served as the Director of Total Quality Management/Marketing/Logistics, Material Management and Planning for Connaught Laboratories in Swiftwater, Pennsylvania from 1986 to 1993. He was the Group Manager, Logistics Services Manager and Manufacturing Planner for McNeil Pharmaceuticals from 1982 to 1986; Distribution Planning Manager from 1979 to 1982; and Manager, Marketing/Sales Systems, Distribution Center Manager and Traffic Manager from 1971 to 1979. He graduated from Pennsylvania State University with a B.S. in Business in 1970, and he also completed graduate work at the University of Pennsylvania from 1983 to 1986. Terri D. White-Gregory, CPA, has served as Executive Vice President of Business Development since 1996. She served as a financial analyst for Westinghouse Electric in 1995 and as a consultant and sole proprietor in public accounting from 1993 to 1996. From 1988 to 1993, she was an audit manager and supervisor in the Emerging Business Services Group of Coopers & Lybrand L.L.P., in Washington D.C. and Roanoke, Virginia and was a senior associate on the audit staff of Ernst & Young LLP in Columbia, South Carolina from 1985 to 1988. She graduated from The Ohio State University with a B.S. in Business Administration in 1985. John A. A. Bellamy has served as Executive Vice President of Legal Affairs and General Counsel since February 1995. He was formerly a corporate attorney with the law firm of Hunter, Smith & Davis in Kingsport, Tennessee from 1990 to 1995. He graduated from the University of Tennessee College of Law with a J.D. with Honors in 1990, and graduated Summa Cum Laude with Honors in Independent Study from King College in 1984 with a B. A. degree in Classics and English. He is a member of the Licensing Executive Society. 37

Ronald C. Siegfried has served as Executive Vice President of Development, Vice President of Development, Technical Services and Manufacturing since December 1993. He previously served as Director of Manufacturing for RSR Laboratories, Inc. ("RSR Laboratories"), from 1990 to 1993, was the Manager of Manufacturing and a Product Development Chemist for Beecham Laboratories from 1972 to 1990, and was a Product Development Chemist for Bristol Laboratories, a division of Bristol-Myers Squibb from 1964 to 1972. He graduated from the Rochester Institute of Technology with a B.S. in Chemistry in 1964. Michael R. Hilton has served as Vice President of Sales and Marketing and Director of Marketing since July 1995. From 1991 to 1995, he served in the capacity of Vice President -- Marketing and Business Development and marketing director for Richwood Pharmaceuticals, KV Pharmaceuticals and RSR Laboratories. From 1973 to 1990 he served in various sales and marketing and public relations positions with Beecham Laboratories. He graduated from Ferris State University with a B.S. in Marketing in 1970. Thomas K. Rogers, III has served as Senior Director, Regulatory Affairs (Applications), since April 1997. He previously served as Director of Regulatory Affairs from 1995 to 1997 and as Manager of Regulatory Affairs from 1994 to 1995. Prior to joining the Company, he served RSR Laboratories as Manager of Scientific Development from 1991 to 1993, and Manager of Quality Assurance from 1990 to 1991. He served Beecham Laboratories as Manager of Quality Assurance from 1988 to 1990 and as Microbiologist from 1979 to 1988. He graduated from East Tennessee State University with a M.S. in Microbiology in 1977 and from Milligan College with a B.S. in Biology in 1975. Norman T. Miller has served as Senior Director, Regulatory Affairs (Compliance), since December 1993. He previously served as a Research Compliance Specialist and as acting Director of Compliance for Beecham Laboratories from 1988 to 1990. From 1990 to 1993 he served as Manager of Regulatory Affairs for RSR Laboratories. Prior to 1988, he served as Resident-in-Charge, Senior Investigator and Inspector for the FDA for 28 years. He graduated from South Dakota State University with a M.S. in Animal Science-Biochemistry minor in 1960 and a B.S. in Animal Husbandry in 1958. Ernest C. Bourne has served as a Director since October, 1997. He has been employed since 1968 with Bourne & Co., Inc., an investment banking firm, where he currently serves as President. Lois A. Clarke has served as a Director of the Company since April 1997. Presently she is Executive Vice President and Chief Financial Officer of The United Company in Bristol, Virginia, one of the Company's principal shareholders. She also serves as President of United Investment Corporation, a registered investment advisor, and an affiliate of The United Company. Ms. Clarke has been with The United Company since 1971 and has been responsible for financial matters of the Company. She is a graduate of McClains College with a degree in Accounting. Frank W. De Friece, Jr. has served as a Director of the Company since October 1997. He has served as President, Vice President, Fund Administrator and Board member of the Massengill De Friece Foundation, Inc. since 1950. Since 1946 he served in various capacities with the S.E. Massengill Company. He served as President of the S.E. Massengill Company from 1960 to 1971 when the company was purchased by Beecham, Inc. From 1971 to 1973, he served as Board Member Vice Chairman of Beecham, Inc. He graduated from Roanoke College with a B.S. in Chemistry in 1946. Greg Rooker has served as a Director of the Company since October 1997. Mr. Rooker is the owner and President of Family Community Newspapers of Southwest Virginia, Inc., Wytheville, Virginia ("FCN"). FCN consists of five community newspapers and a national monthly motor sports magazine. Mr. Rooker is a graduate of Northwestern University with a degree in Journalism. Ted G. Wood has been a Director of the Company since April 1997. Presently, he is affiliated with The United Company in Bristol, Virginia, one of the Company's principal shareholders. He was formerly President of Boehringer Mannheim Pharmaceutical Corporation in Rockville, Maryland from 1992 to 1994. From 1975 to 1991, he was employed by SmithKline Beecham where he served as President of Beecham Laboratories from 1988 to 1989 and Executive Vice President of SmithKline 38

Beecham from 1990 to 1991. He served as account supervisor at Frank J. Corbett, Inc. in Chicago, Illinois from 1972 to 1974. From 1962 to 1971, he held various sales and marketing management positions with The Dow Chemical Company. He graduated from the University of Kentucky with a B.S. in Commerce in 1960. In 1986 he completed the Advanced Management Program at Harvard University. Messrs. John, Joseph, Jefferson, and James Gregory, and R. Henry Richards, M.D., are brothers. Ms. Terri D. White-Gregory is the spouse of Jefferson Gregory. COMPENSATION OF DIRECTORS Directors of the Company do not currently receive any fees for serving in such capacity. CLASSIFICATION OF BOARD OF DIRECTORS Pursuant to the Company's Bylaws, the Board of Directors is divided into three classes of directors each containing, as nearly as possible, an equal number of directors. Directors within each class are elected to serve three-year terms and approximately one-third of the directors sit for election at each annual meeting of the Company's shareholders. A classified board of directors may have the effect of deterring or delaying any attempt by any group to obtain control of the Company by a proxy contest since such third party would be required to have its nominees elected at two separate meetings of the Board of Directors in order to elect a majority of the member of the Board of Directors. See "Risk Factors -Certain Charter, Bylaws and Statutory Provisions; Rights Agreement." COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has appointed an Audit Committee, a Compensation Committee and a Stock Option Committee. Audit Committee. The Audit Committee, which currently consists of Joseph R. Gregory, Greg Rooker and Frank DeFriece, Jr., has the authority and responsibility to hire one or more independent public accountants to audit the Company's books, records and financial statements and to review the Company's systems of accounting (including its systems of internal control); to discuss with such independent accountants the results of such audit and review; to conduct periodic independent reviews of the systems of accounting (including systems of internal control); and to make reports periodically to the Board of Directors with respect to its findings. Compensation Committee. The Compensation Committee, which currently consists of John M. Gregory, Frank DeFriece, Jr. and Greg Rooker, is responsible for reviewing and approving compensation for the executive officers. Stock Option Committee. The Stock Option Committee, which currently consists of Lois A. Clarke, Frank DeFriece, Jr. and Greg Rooker, is responsible for administering, and determining awards under, the Company's 1997 Incentive and Nonqualified Stock Option Plan for Employees. DIRECTORS AND OFFICERS' INSURANCE The Company maintains liability insurance for its directors and officers in the aggregate amount of $8.0 million, subject to a $25,000 deductible loss per occurrence payable by the Company. Upon the consummation of this offering, the Company intends to increase its liability insurance for its directors and officers up to an aggregate amount of $15.0 million. 39

EXECUTIVE COMPENSATION The following table summarizes all compensation paid to the Company's Chief Executive Officer and to each of the Company's four other most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 for services rendered in all capacities to the Company during the year ended December 31, 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------SALARY ($) BONUS ($) -----------------360,000 -0240,001 240,001 200,005 200,004 -0-0-0-0ALL OTHER COMPENSATION($)(1) -----------------9,500 7,200 7,200 6,000 6,000

NAME AND PRINCIPAL POSITION --------------------------John M. Gregory................................... Chairman of the Board and Chief Executive Officer Jefferson J. Gregory.............................. President and Chief Operating Officer, King Pharmaceuticals, Inc. Joseph R. Gregory................................. President and Chief Operating Officer, Monarch Pharmaceuticals James E. Gregory.................................. Executive Vice President Production/Administration R. Henry Richards, M.D............................ Executive Vice President Medical Affairs

YEAR ---1996 1996 1996 1996 1996

(1) All Other Compensation reflects the Company's matching contributions to the Company's 401(k) plan. INCENTIVE STOCK OPTION PLAN In October 1997, the Company adopted the 1997 Incentive and Nonqualified Stock Option Plan for Employees (the "Plan") pursuant to which a committee of the Board of Directors ("Stock Option Committee") may grant incentive stock options (within the meaning of the Internal Revenue Code of 1986, as amended (the "Code")) and nonqualified options (collectively, the "Options") to employees of the Company for the purchase of Common Stock. The Plan is intended to provide incentives to, and rewards for employees of the Company who have contributed and will continue to contribute to the success of the Company. The option prices are determined by the Stock Option Committee, but option prices may not be less than 100% of the fair market value of the Common Stock on the date the option is granted. An aggregate of 3,500,000 shares of Common Stock has been reserved for issuance under the Plan subject to appropriate adjustments for stock splits, dividends and other transactions or events as described in the Plan. All options may be exercised at such times and in such amounts as may be determined at the time of the granting of the options by the Stock Option Committee; provided, however, that no options may be exercised later than ten years after the date upon which they were granted. Options may be exercised within 30 days, or such longer period as the Stock Option Committee may determine, after retirement, resignation, or termination of the option holder's employment or service with the Company, but only to the extent that they had become exercisable at retirement, resignation or termination. Any unexercised options shall expire in the event of an option holder's retirement or dismissal or otherwise as described above. Under certain circumstances involving change of control of the Company, the Board of Directors may accelerate the exercisability and termination of the option. No awards can be made under the Plan after October 2007. 40

The Board of Directors may, at any time, amend, modify, suspend or terminate the Plan; provided however, that no amendment, suspension or termination of the Plan may alter or impair any rights or obligations under any Option already granted except with the consent of the holder of the Option, and no action of the Stock Option Committee or the Board of Directors may increase the limit on the maximum number of shares which may be issued upon exercise of Options, reduce the minimum option price requirements or extend the limit on the period during which Options may be granted, without approval by the Company's shareholders given within 12 months before or after such action by the Board of Directors or the Stock Option Committee. An employee to whom an incentive stock option ("ISO") which qualifies under Section 422 of the Code is granted will not recognize income at the time of grant or exercise of such Option. However, upon the exercise of an ISO, any excess in the fair market price of the Common Stock over the option price constitutes a tax preference item which may have alternative minimum tax consequences for the employee. If the employee sells such shares more than one year after the date of transfer of such shares and more than two years after the date of grant of such ISO, the employee will generally recognize a long-term capital gain or loss equal to the difference, if any, between the sale prices of such shares and the option price. The Company will not be entitled to a federal income tax deduction in connection with the grant or exercise of the ISO. If the employee does not hold such shares for the required period, when the employee sells such shares, the employee will recognize ordinary compensation income and possibly capital gain or loss (long-term or short-term depending on the holding period of the stock sold) in such amounts as are prescribed by the Code and the regulations thereunder and the Company will generally be entitled to a Federal income tax deduction in the amount of such ordinary compensation income recognized by the employee. An employee to whom a nonqualified stock option ("NSO") is granted will not recognize income at the time of grant of such Option. When such employee exercises such NSO, the employee will recognize ordinary compensation income equal to the excess, if any, of the fair market value, as of the date of Option exercise, of the shares the employee receives upon such exercise over the option price paid. The tax basis of such shares to such employee will be equal to the option price paid plus the amount, if any, includible in the employee's gross income, and the employee's holding period for such shares will commence on the date on which the employee recognizes taxable income in respect of such shares. Gain or loss upon a subsequent sale of any Common Stock received upon the exercise of a NSO generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). Subject to the applicable provisions of the Code and regulations thereunder, the Company will generally be limited to a Federal income tax deduction in respect of a NSO in an amount equal to the ordinary compensation income recognized by the employee. This deduction will, in general, be allowed for the taxable year of the Company in which the participant recognizes such ordinary income. Currently there are no outstanding options granted under the Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors appointed the Compensation Committee in October 1997. For the year ended December 31, 1996, Messrs. John M., Jefferson J., Joseph R., James E. Gregory and Dr. Henry Richards, M.D. participated in deliberations of the Board of Directors concerning executive officer compensation. 41

CERTAIN TRANSACTIONS King Pharmaceuticals Benevolent Fund, Inc. (the "Benevolent Fund") is a nonprofit corporation organized under the laws of the Commonwealth of Virginia and is exempt from taxation under sec. 501(c)(3) of the Internal Revenue Code. The Board of Directors of the Benevolent Fund includes certain executive officers of the Company. In the past, the Company has paid the salaries of Benevolent Fund employees and certain of its operational expenses. The Company has a secured receivable from the Benevolent Fund in the amount of approximately $1.1 million, as of September 30, 1997. After the offering, the Benevolent Fund will be independent of the Company and maintain its own accounting records. The United Company, a Virginia corporation, and certain of its shareholders, officers, directors and employees are the beneficial owners of approximately 30.5% of the Common Stock of the Company (the "United Company Shares"). Currently, two members of the Company's Board of Directors are affiliates of The United Company. As part of the sale of stock to The United Company on March 17, 1997, the Company executed a Promissory Note in the amount of $1.8 million payable to The United Company. The Promissory Note provides for quarterly payments of interest, at a rate of 10.0% per annum, commencing on July 1, 1997, together with a single payment of principal and any accrued unpaid interest on April 1, 1999. The Company is entitled to prepay the principal and any accrued interest without penalty. Proceeds of the loan from The United Company were used to fund, in part, the acquisition of the Cortisporin and Pediotic product lines from Glaxo Wellcome. In the past, pursuant to the terms of an Employee Stock Purchase Plan adopted by the Company on January 1, 1996, and as later amended on October 1, 1996, employees and existing shareholders were permitted to purchase shares of the Common Stock of the Company through either cash payments or regular payroll deductions. Additionally, certain beneficial owners of more than 5.0% of the Company's Common Stock were permitted to execute promissory notes payable to the Company. All such beneficial owners have paid their notes in full. There are no outstanding promissory notes payable to the Company for the purchase of Common Stock and the Company has no obligation to sell any shares of its Common Stock to any person or entity. The Employee Stock Purchase Plan has since been terminated. The Company has entered into an agreement for consulting services with Mr. Bourne, a director. The agreement provides that Mr. Bourne will receive upon consummation of the offering a fee equal to 1.0% of the net proceeds. The agreement is for a one-year term which began August 1, 1997 and provides for a monthly retainer fee of $10,000 for the term of the agreement. The 1.0% fee resulting from this offering will be offset by the amount of the monthly retainer paid prior to the consummation of the offering. See "Underwriting." In addition, as of September 30, 1997, the Company had paid Mr. Bourne approximately $743,000 and $58,000 for his advisory services in the acquisition of the Cortisporin product line and consulting services, respectively. 42

PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the ownership of the Common Stock as of September 30, 1997, and as adjusted to reflect the sale of the shares of the Common Stock offered hereby by the Company and the Selling Shareholders, for (i) each person who will beneficially own more than 5% of the Common Stock, (ii) each director and executive officer of the Company, (iii) all executive officers and directors of the Company as a group, and (iv) each of the Selling Shareholders.
BENEFICIAL OWNERSHIP OF COMMON STOCK PRIOR TO OFFERING(1) -----------------------PERCENTAGE NUMBER OF OUTSTANDING SHARES SHARES -------------------8,805,531 31.4% 2,943,150 10.5 1,101,635 3.9 196,048 * 256,141 * 572,510 2.0 3,220 * 42,826 * --38,643 * 138,000 * 95,200 * 28,000 * 14,220,904 5,172,594 50.8 18.5 BENEFICIAL OWNERSHIP OF COMMON STOCK AFTER THE OFFERING(1) -----------------------PERCENTAGE NUMBER OF OUTSTANDING SHARES SHARES -------------------8,518,394 25.1% 2,883,150 8.5 1,051,635 3.1 146,048 * 221,141 * 507,510 1.5 3,220 * 42,826 * --38,643 * 138,000 * 95,200 * 28,000 * 13,676,767 5,172,594 40.2 15.2

EXECUTIVE OFFICERS, DIRECTORS AND 5% SHAREHOLDERS ----------------------------John M. Gregory(2)................. Joseph R. Gregory(4)............... Jefferson J. Gregory............... James E. Gregory................... R. Henry Richards, M.D............. Brian G. Shrader................... J. Fred Pruden..................... John P. McCoy...................... Terri D. White-Gregory(5).......... John A. A. Bellamy................. Ernest C. Bourne................... Lois A. Clarke(6).................. Ted G. Wood(6)..................... All executive officers and directors as a group (13 persons)......................... The United Company(7).............. OTHER SELLING SHAREHOLDERS King Pharmaceuticals Benevolent Fund, Inc.(8).................... Mary Ann and Herschel P. Blessing(9)...................... Mary and Fred Jarvis(10)........... Randal J. Kirk(11)................. Total shares sold by Selling Shareholders...

NUMBER OF SHARES TO BE OFFERED -----------287,137(3) 60,000 50,000 50,000 35,000 65,000 -0-0--0-0-0-0547,137 -0-

186,246 477,965 115,806 1,358,863

* 1.7 * 4.9

175,000 90,000 29,000 1,358,863 --------2,200,000 =========

11,246 387,965 86,806 -0-

* 1.1 * --

* Less than 1%. (1) Based on 28,000,000 shares of Common Stock outstanding prior to and 34,000,000 shares outstanding after the offering. (2) Includes 6,855,660 shares jointly owned with Mr. Gregory's spouse; 1,852,539 shares owned by S.J., LLC, a limited liability company, the primary members of which are Mr. Gregory's children; 84,000 shares registered in the name of The Lazarus Foundation, Inc., a private foundation controlled by John M. Gregory, 13,332 shares held in trusts for the benefit of Martha Rachel Richards and for Erin Spinner Richards, for which Mr. Gregory serves as trustee. Mr. Gregory's address is 501 Fifth Street, Bristol, Tennessee 37620. (3) Includes 212,137 shares to be sold by Mr. Gregory and his spouse and 75,000 shares to be sold by The Lazarus Foundation, Inc. (4) Mr. Gregory's address is 501 Fifth Street, Bristol, Tennessee 37620. (5) Ms. White-Gregory and Jefferson J. Gregory jointly beneficially own 1,045,523 of the shares shown above. (6) Ms. Clark and Mr. Wood are affiliates of The United Company. (7) The United Company along with certain of its affiliates beneficially own in the aggregate 8,532,595 representing approximately 30.5% of the outstanding shares of the Company. The address of The United Company is 1005 Glenway Avenue, Bristol, Virginia 24201. (8) King Pharmaceuticals Benevolent Fund, Inc., is a nonprofit charitable organization. See "Certain Transactions." (9) Ms. Blessing is a sister to Messrs. John M., Joseph R., Jefferson J. and James E. Gregory, and to R. Henry Richards, M.D. She resigned from the Board of Directors in March 1997. (10) Ms. Jarvis is the mother of Messrs. John M., Joseph R., Jefferson J. and James E. Gregory, and of R. Henry Richards, M.D. (11) Includes 161,000 shares owned by Kirkfield, L.L.C., 42,151 shares owned by Rahn Labs, 322,000 shares owned by RJK, L.L.C, 748 shares owned by the estate of Carol Kirk, 3,220 shares owned by Joseph L. Kirk and 5,474 shares owned by Julian Kirk, all of which are affiliates of Mr. Kirk. Mr. Kirk was the co-founder with John M. Gregory of GIV. 43

Messrs. John M. Gregory, Joseph R. Gregory, Jefferson J. Gregory, James E. Gregory, Richards, Shrader and Ms. White-Gregory, each of whom is a Selling Shareholder, serve as executive officers of the Company. Messrs. John M. Gregory, Joseph R. Gregory and Jefferson J. Gregory also serve as directors of the Company. See "Management." 44

DESCRIPTION OF CAPITAL STOCK GENERAL MATTERS The total amount of authorized capital stock of the Company consists of 150,000,000 shares of Common Stock, no par value per share, and 15,000,000 shares of preferred stock, no par value per share (the "Preferred Stock"). Upon consummation of the offering, 34,000,000 shares of Common Stock will be issued and outstanding and no shares of Preferred Stock will be outstanding. The following summary of certain provisions of the Company's capital stock describes certain material provisions of, but does not purport to be complete and is subject to and qualified in its entirety by, the Charter and the Bylaws of the Company that are included as exhibits to the Registration Statement of which this Prospectus forms a part and by the provisions of applicable law. COMMON STOCK The issued and outstanding shares of Common Stock are validly issued, fully paid and nonassessable. Subject to the prior rights of any Preferred Stock, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board of Directors may from time to time determine. See "Dividend Policy." The shares of Common Stock are not redeemable or convertible, and the holders thereof have no preemptive or subscription rights to purchase any securities of the Company. Upon liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive pro rata the assets of the Company which are legally available for distribution after payment of all debts and other liabilities and subject to the prior rights of any holders of Preferred Stock then outstanding. Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of shareholders. The Company has applied for listing of its Common Stock on the Nasdaq National Market under the symbol "KING." PREFERRED STOCK The Board of Directors, without further action by the Company's shareholders, from time to time, may authorize the issuance of shares of Preferred Stock in series, and may, at the time of issuance, determine the rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding shares of Preferred Stock would reduce the amount of funds available for the payment of dividends on shares of Common Stock. Holders of shares of Preferred Stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of Common Stock. Under certain circumstances, the issuance of shares of Preferred Stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by holders of a large block of the Company's securities or the removal of incumbent management. See "Risk Factors -- Certain Charter, Bylaws and Statutory Provisions; Rights Agreement." The Board of Directors, without shareholder approval, may issue shares of Preferred Stock with voting and conversion rights which could adversely affect the holders of shares of Common Stock. Currently, there are no shares of Preferred Stock outstanding, and the Company has no present intention to issue any shares of Preferred Stock. CERTAIN PROVISIONS OF THE CHARTER AND BYLAWS AND STATUTORY PROVISIONS The Charter provides that the Board of Directors will be divided into three classes, with each class serving for three years, and one class being elected each year. A majority of the remaining directors then in office, though less than a quorum, will be empowered to fill any vacancy on the Board of Directors that arises during the term of a director. The provision for a classified board may be amended, altered or repealed only upon the affirmative vote of the holders of at least 80.0% of the outstanding shares of the voting stock of the Company. The classification of the Board of Directors may discourage a third party from making a tender offer or otherwise attempting to gain control of the 45

Company and may have the effect of maintain the incumbency of the Board of Directors. See "Risk Factors -- Certain Charter, Bylaws and Statutory Provisions; Rights Agreement" and "Management." The Bylaws provide that special meetings of the shareholders of the Company be called only by a majority of the entire Board of Directors or by certain officers. In addition, the Bylaws provide that shareholders seeking to bring business before or to nominate directors at any annual meeting of shareholders must provide timely notice thereof in writing. To be timely, the shareholders' notice must be delivered to, or mailed and received at, the principal executive offices of the Company not less than 60 days nor more than 90 days prior to such meeting or, if less than 70 days' notice was given for the meeting, within 10 days following the date on which such notice was given. The Bylaws also specify certain requirements for a shareholders' notice to be in proper written form. These provisions restrict the ability of shareholders to bring matters before the shareholders or to make nominations for directors at meetings of shareholders. The Company is subject to certain antitakeover provisions provided under Tennessee law. Business Combination Statute. Tennessee's Business Combination Act provides that a party owning 10.0% or more of stock in a "resident domestic corporation" (such party is called an "interested shareholder") cannot engage in a business combination with the resident domestic corporation unless the combination (i) takes place at least five years after the interested shareholder first acquired 10.0% or more of the resident domestic corporation, and (ii) either (A) is approved by at least two-thirds of the non-interested voting shares of the resident domestic corporation or (B) satisfies certain fairness conditions specified in the Business Combination Act. These provisions apply unless one of two events occurs. A business combination with an entity can proceed without delay when approved by the target corporation's board of directors before that entity becomes an interested shareholder, or the resident corporation may enact a charter amendment or bylaw to remove itself entirely from the Business Combination Act. This charter amendment or bylaw must be approved by a majority of the shareholders who have held shares for more than one year prior to the vote. It may not take effect for at least two years after the vote. The Company has not adopted a charter or bylaw amendment removing the Company from coverage under the Business Combination Act. The Business Combination Act further provides an exemption from liability for officers and directors of resident domestic corporations who do not approve proposed business combinations or charter amendments and bylaws removing their corporations from the Business Combination Act's coverage as long as the officers and directors act in "good faith belief" that the proposed business combination would adversely affect their corporation's employees, customers, suppliers, or the communities in which their corporation operates and such factors are permitted to be considered by the board of directors under the charter. Control Share Acquisition Act. The Tennessee Control Share Acquisition Act ("TCSAA") strips a purchaser's shares of voting rights any time an acquisition of shares in a covered Tennessee corporation brings the purchaser's voting power to one-fifth, one-third or a majority of all voting power. The purchaser's voting rights can be established only by a majority vote of the other shareholders. The purchaser may demand a meeting of shareholders to conduct such a vote. The purchaser can demand such a meeting before acquiring a control share only if it holds at least 10.0% of outstanding shares and announces a good faith intention to make the control share acquisition. A target corporation may or may not redeem the purchaser's shares if the shares are not granted voting rights. Investor Protection Act. Tennessee's Investor Protection Act ("TIPA") applies to tender offers directed at corporations (called "offeree companies") that have "substantial assets" in Tennessee and that are either incorporated in or have a principal office in Tennessee. The TIPA requires an offeror making a tender offer for an offeree company to file with the Commissioner of Commerce and Insurance (the "Commissioner") a registration statement. When the offeror intends to gain control of 46

the offeree company, the registration statement must indicate any plans the offeror has for the offeree. The Commissioner may require additional information material to the takeover offer and may call for hearings. The TIPA does not apply to an offer that the offeree company's board of directors recommends to shareholders. In addition to requiring the offeror to file a registration statement with the Commissioner, the TIPA requires the offeror and the offeree company to deliver to the Commissioner all solicitation materials used in connection with the tender offer. The TIPA prohibits "fraudulent, deceptive, or manipulative acts or practices" by either side, and gives the Commissioner standing to apply for equitable relief to the Chancery Court of Davidson County, Tennessee, or to any other chancery court having jurisdiction whenever it appears to the Commissioner that the offeror, the offeree company, or any of its respective affiliates has engaged in or is about to engage in a violation of the TIPA. Upon proper showing, the Chancery Court may grant injunctive relief. The TIPA further provides civil and criminal penalties for violations. Authorized Corporation Protection Act. The Tennessee Authorized Corporation Protection Act ("TACPA") is the vehicle through which the Tennessee statutes attempt to permit the Business Combination Act and the TCSAA to govern foreign corporations. The TACPA provides that an authorized corporation can adopt a bylaw or a charter provision electing to be subject to the operative provisions of the Business Combination Act and the TCSAA, which then become applicable "to the same extent as such provisions apply to a resident domestic corporation." Authorized corporations are those that are required to obtain a Certificate of Authority from the Tennessee Secretary of State and that satisfy any two of the following tests: having its principal place of business located in Tennessee; having a significant subsidiary located in Tennessee; having a majority of such corporation's fixed assets located in Tennessee; having more than 10.0% of the beneficial owners of the voting stock or more than 10.0% of such corporation's shares of voting stock beneficially owned by residents of Tennessee; employing more than 250 individuals in Tennessee or having an annual payroll paid to residents of Tennessee that is in excess of $5.0 million; producing goods and/or services in Tennessee that result in annual gross receipts in excess of $10.0 million; or having physical assets and/or deposits located within Tennessee that exceed $10.0 million in value. The U. S. Court of Appeals for the Sixth Circuit, however, has held the TACPA unconstitutional as it applies to target corporations organized under the laws of states other than Tennessee. Greenmail Act. The Tennessee Greenmail Act ("TGA") applies to any corporation chartered under the laws of Tennessee which has a class of voting stock registered or traded on a national securities exchange or registered with the Securities and Exchange Commission pursuant to Section 12(g) of the Exchange Act. The TGA provides that it is unlawful for any corporation or subsidiary to purchase, either directly or indirectly, any of its shares at a price above the market value, as defined in the TGA, from any person who holds more than 3.0% of the class of the securities purchased if such person has held such shares for less than two years, unless either the purchase is first approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued or the corporation makes an offer of at least equal value per share to all holders of shares of such class. RIGHTS AGREEMENT The Company's Board of Directors has declared a dividend of one Right for each share of Common Stock outstanding. The holders of any additional Common Stock subsequently issued before the earliest of the Distribution Date, as hereinafter defined, the redemption of the Rights, the exchange of the Rights or the expiration of the Rights also will be entitled to one Right for each such additional share. Such Rights entitle the registered holder under certain circumstances to purchase from the Company one-thousandth of a share of Junior Participating Preferred Stock, Series A, (the "Preferred Stock") at a price of $60 per one-thousandth of a share of Preferred Stock (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement. 47

The Rights will be evidenced by the Common Stock certificates and not by separate certificates until the earlier of (i) the day following the first date of public disclosure that a person or group other than an "Exempt Person" (the "Acquiring Person"), together with persons affiliated, or associated with such Acquiring Person (other than Exempt Persons), has acquired, or obtained the right to acquire, beneficial ownership of 15.0% of the outstanding Common Stock (the "Stock Acquisition Date") and (ii) the tenth business day after the date of commencement or public disclosure of an intention to commence a tender offer or exchange offer by a person other than an Exempt Person, the Company and certain related entities if, upon consummation of the offer, such person or group, together with persons affiliated or associated with it (other than those that are Exempt Persons) would acquire beneficial ownership of 15.0% or more of the outstanding Common Stock (the earlier of such dates being called the "Distribution Date"). Until the Distribution Date (or earlier redemption, exchange, or expiration of the Rights), (i) the Rights will be transferable only with the Common Stock (except with redemption of the Rights); (ii) Common Stock certificates will contain a notation incorporating the Rights Agreement by reference; and (iii) the surrender for transfer of any certificates for Common Stock will also constitute the transfer of the Right associated with the Common Stock represented by such certificate. For purposes of the Rights Agreement "Exempt Persons" is defined to include Messrs. John M., Joseph R. and Jefferson J. Gregory (the "Gregory Entities"). As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date. From and after the Distribution Date, such separate Rights Certificates alone will evidence the Rights. The Rights will become exercisable on or after the Distribution Date (unless sooner redeemed or exchanged). The Rights will expire at the close of business on the tenth anniversary of the date of initial issuance (the "Expiration Date") unless earlier redeemed or exchanged by the Company as described below. The Purchase Price payable and the number of shares of Preferred Stock or other securities, cash or other property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend or distribution on, or a subdivision or combination of, or reclassification of the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights, options, or warrants to subscribe for Preferred Stock or securities convertible into Preferred Stock at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the Preferred Stock of other securities, cash (excluding regular periodic cash dividends), property, evidences of indebtedness, or assets. If a person becomes an Acquiring Person, the Rights will "flip-in" and entitle each holder of a Right, except as provided below, to purchase, upon exercise at the then-current Purchase Price, that number of shares of Common Stock having a market value of two times such Purchase Price. In addition, following a "flip-in," the Board has the option of exchanging all or part of the Rights, except as provided below, for Common Stock. In the event that, following a "flip-in," the Company is acquired in a merger or other business combination in which the Common Stock does not remain outstanding or is exchanged or 50% or more of its consolidated assets or earning power is sold, leased, exchanged, mortgaged, pledged or otherwise transferred or disposed of (in one transaction or a series of related transactions), the Rights will "flip-over" and entitle each holder (other than the Acquiring Person and certain related persons or transferees) of a Right to purchase, upon the exercise of the Right at the then-current Purchase Price, that number of shares of common stock of the acquiring company (or, in certain circumstances, one of its affiliates) which at the time of such transaction would have a market value of two times such Purchase Price. Any Rights beneficially owned at any time on or after the earlier of the Distribution Date and the Stock Acquisition Date by an Acquiring Person or an affiliate or associate (other than an exempt person) of an Acquiring Person (whether or not such ownership is subsequently transferred) will 48

become null and void upon the occurrence of a "Triggering Event," and any such holder of such Rights will have no right to exercise such Rights or have such Rights exchanged as provided above. A "Triggering Event" will be deemed to occur in the event that any person becomes an Acquiring Person. The number of outstanding Rights and the number of one-thousandths of a share of Preferred Stock issuable upon exercise of each right and the Purchase Price are subject to adjustment in the event of a stock dividend on the Common Stock payable in Common Stock or subdivision or combination of the Common Stock occurring, in any such case, prior to the Distribution Date. At any time prior to the earlier of the Stock Acquisition Date and the Expiration Date, the Company may redeem the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive the dividends or distributions. At any time prior to the Stock Acquisition Date, a majority of the Continuing Directors (as defined in the Rights Agreement) may, without the approval of an holder of the Rights (except, in certain circumstances, an Exempt Person), supplement or amend any provision of the Rights Agreement (including the date on which the Distribution Date will occur after announcement of commencement of a tender offer). Thereafter, the Rights Agreement may be amended by a majority of the Continuing Directors without the approval of any holder of the Rights only to cure ambiguities, to correct defective or inconsistent provisions, or in ways that do not adversely affect the Rights holders. Notwithstanding the foregoing, the Rights Agreement may not be amended to change the Purchase Price, the number of shares of Preferred Stock, other securities, cash or other property obtainable upon exercise of a Right, the redemption price or the Expiration Date. The Rights have certain anti-takeover effects. The Right may cause substantial dilution to a person or group other than an Exempt Person that attempts to acquire the Company on terms not approved by the Board, except pursuant to an offer conditioned on a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors prior to the time a person or group other than an Exempt Person has acquired beneficial ownership of 15.0% or more of the Common Stock, because until such time the Rights may be redeemed by the Company at $.01 per Right. The foregoing description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement (a copy of the form of which is filed as an exhibit to the Registration Statement), including the definitions therein of certain terms. LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS The Charter limits the liability of directors to the fullest extent permitted by the Tennessee Business Corporation Act. In addition, the Charter provides that the Company shall indemnify directors and officers of the Company to the fullest extent permitted by such law. TRANSFER AGENT, REGISTRAR, RIGHTS AGENT AND CUSTODIAN The transfer agent, registrar and Rights Agent for the Company's Common Stock and the Preferred Stock Purchase Rights and the custodian for the Selling Shareholders is Union Planters National Bank, Memphis, Tennessee. 49

SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock of the Company. Sales of a substantial number of shares of the Company's Common Stock in the public market following this offering, or the perception that such sales could occur, could adversely affect the market price of the Common Stock. Upon completion of this offering, there will be 34,000,000 shares of Common Stock outstanding. Other than the 8,200,000 shares offered hereby, all shares of Common Stock held by the Company's current shareholders are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), and may only be sold subject to the provisions of Rule 144 under the Securities Act. Of the 34,000,000 shares of Common Stock to be outstanding after the offering, approximately 22,000,000 or 78.6%, of the outstanding shares of Common Stock will be subject to lock-up agreements entered into by certain offers, directors and other shareholders of the Company (the "Lock-up Agreements"). The Company and its directors, officers and certain other shareholders have, among other things, agreed not to, directly or indirectly, offer for sale, sell, pledge or otherwise dispose of (or during the term of the Lock-up Agreement enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of), any Common Stock or securities convertible into or exchangeable for Common Stock, with certain exceptions, or sell or grant options, rights or warrants with respect to any shares of Common Stock or securities convertible into or exchangeable for Common Stock, with certain limited exceptions, or enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risk of ownership of such shares of Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives. Of the 12,000,000 shares of Common Stock to be outstanding after the Offering that are not subject to the Lock-up Agreements, other than the 8,200,000 shares of Common Stock sold in the Offering, (i) approximately 1.8 million shares will be immediately eligible for resale in the public market without restriction in reliance on Rule 144(k) under the Securities Act, (ii) approximately 800,000 shares may be sold subject to the volume and manner of sales restrictions of Rule 144 and (iii) the remaining 1.2 million shares may not be sold pursuant to Rule 144 prior to the expiration of their one-year holding period. Beginning 180 days after the date of this Prospectus, after the Lock-up Agreements have expired, approximately (i) 10.0 million additional shares of Common Stock will become eligible for resale into the public market in reliance of Rule 144(k)and (ii) approximately 12.0 million additional shares may be sold subject to the volume and manner of sales restrictions of Rule 144. See "Underwriting." In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated), including affiliates, who has beneficially owned shares for at least one year (including holding periods of prior owners other than affiliates) is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) one percent of the then outstanding shares of the Company's Common Stock (approximately 34,000,000 shares immediately after this offering) or (ii) the average weekly trading volume in the Company's Common Stock during the four calendar weeks preceding such sale. A person (or persons whose shares are aggregated) who is not deemed to be an affiliate of the Company and who has beneficially owned shares for at least two years (including holding periods of prior owners other than affiliates) is entitled to sell such shares under Rule 144 without regard to the volume limitations described above. The Company intends to file a registration statement under the Securities Act on Form S-8 covering 3,500,000 shares of Common Stock reserved for issuance under its Plan. See "Management -- Incentive Stock Option Plan." Such registration statement is expected to be filed as soon as practicable after the date of this Prospectus and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with the Company or the contractual restrictions described above. 50

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK The following is a general discussion of certain U.S. federal income and estate tax consequences of the ownership and disposition of Common Stock by "Non-U.S. Holders." In general, a "Non-U.S. Holder" is an individual or entity other than: (i) a citizen or resident of the United States; (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or of any state; (iii) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. This discussion does not address all aspects of U.S. federal income and estate taxation and does not deal with foreign, state and local consequences that may be relevant to Non-U.S. Holders in light of their personal circumstances, or to certain types of Non-U.S. Holders which may be subject to special treatment under U.S. federal income tax laws (for example, insurance companies, tax-exempt organizations, financial institutions and broker-dealers). Furthermore, this discussion is based on provisions of the Internal Revenue Code of 1986, amended (the "Code"), existing and proposed regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and all of which are subject to change, possibly with retroactive effect. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK. DIVIDENDS The Company does not expect to pay any cash dividends in the foreseeable future. See "Dividend Policy." In the event, however, that dividends are paid on shares of Common Stock, dividends paid to a Non-U.S. Holder will generally be subject to U.S. withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax treaty) unless the dividends are either (i) effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States and the Non-U.S. Holder provides the payor with proper documentation, as discussed below, or (ii) if certain income tax treaties apply, attributable to a permanent establishment in the United States maintained by the Non-U.S. Holder. Dividends effectively connected with such a U.S. trade or business or attributable to such a U.S. permanent establishment generally will not be subject to withholding tax (if the Non-U.S. Holder files certain forms, including, currently, Internal Revenue Service ("IRS") Form 4224, with the payor of the dividend) and generally will be subject to U.S. federal income tax on a net income basis, in the same manner as if the Non-U.S. Holder were a resident of the United States. In the case of a Non-U.S. Holder that is a corporation, dividend income so connected or attributable may also be subject to the branch profits tax (which is generally imposed on a foreign corporation on the repatriation from the United States of its effectively connected earnings and profits subject to certain adjustments) at a 30% rate (or a lower rate prescribed by an applicable income tax treaty). For purposes of determining whether tax is to be withheld at a 30% rate or at a lower rate as prescribed by an applicable tax treaty, current law permits the Company to presume that dividends paid prior to January 1, 1999 to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. However, under newly issued regulations, in the case of dividends paid after December 31, 1998, a Non-U.S. Holder generally would be subject to U.S. withholding tax at a 31% rate under the backup withholding rates described below, rather than at a 30% rate or at a reduced rate under an income tax treaty, unless certain certification procedures (or, in the case of payments made outside the United States with respect to an offshore account, certain documentary evidence procedures) are complied with. Further, in order to claim the benefit of an applicable tax treaty rate for dividends paid after December 31, 1998, a Non-U.S. Holder must comply with certain certification requirements. Certain certification and disclosure requirements must be complied with in order to be exempt from withholding under the effectively connected income exemption. The new regulations also provide special rules for dividend payments made to foreign 51

intermediaries, U.S. or foreign wholly owned entities that are disregarded for U.S. federal income tax purposes and entities that are treated as fiscally transparent in the United States, the applicable income tax treaty jurisdiction, or both. Prospective investors should consult with their own tax advisors concerning the effect, if any, of the adoption of these new regulations on an investment in the Common Stock. A Non-U.S. Holder that is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the IRS. SALE OF COMMON STOCK In general, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain recognized upon the disposition of Common Stock unless: (i) the gain is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States or, alternatively, if certain tax treaties apply, attributable to a permanent establishment in the United States maintained by the Non-U.S. Holder (and in either such case, the branch profits tax may also apply if the Non-U.S. Holder is a corporation); (ii) in the case of a Non-U.S. Holder who is a nonresident alien individual and holds shares of stock as a capital asset, such individual is present in the United States for 183 days or more in the taxable year of disposition, and certain other conditions are met; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates; or (iv) the Company is or has been a United States real property holding corporation (a "USRPHC") for United States federal income tax purposes at any time within the shorter of the five-year period preceding such disposition or such Non-U.S. Holder's holding period. A corporation is a USGPHC if the fair market value of the U.S. real property interests held by the corporation is 50% or more of the aggregate fair market value of certain assets of the corporation. The Company believes that it has not been and is not currently a USRPHC. If the Company were or were to become a USRPHC, gains realized upon a disposition of Common Stock by a Non-U.S. Holder which did not directly or indirectly own more than 5% of the Common Stock during the shorter of the periods described above generally would not be subject to U.S. federal income tax so long as the Common Stock is "regularly traded" on an established securities market. If a Non-U.S. Holder who is an individual falls under clause (i) above, such individual generally will be taxed on the net gain derived from a sale of Common Stock under regular graduated U.S. federal income tax rates. If an individual Non-U.S. Holder falls under clause (ii) above, such individual generally will be subject to a flat 30% tax on the gain derived from a sale, which may be offset by certain U.S. capital losses (notwithstanding the fact that such individual is not considered a resident alien of the United States). Thus, individual Non-U.S. Holders who have spent (or expect to spend) more than a del minimis period of time in the United States in the taxable year in which they contemplate a sale of Common Stock are urged to consult their tax advisors prior to the sale as to the U.S. tax consequences of such sale. If a Non-U.S. Holder that is a foreign corporation falls under clause (i) above, it generally will be taxed on its net gain under regular graduated U.S. federal income tax rates and, in addition, will be subject to the branch profits tax equal to 30% of its "effectively connected earnings and profits," within the meaning of the code for the taxable year, as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty. ESTATE TAX Common Stock owned or treated as owned by an individual who is not a citizen or resident (as defined for U.S. federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to U.S. federal estate tax. 52

INFORMATION REPORTING AND BACKUP WITHHOLDING The Company must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply regardless of whether withholding was not required because the dividends were effectively connected with a U.S. trade or business of the Non-U.S. Holder or reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the Non-U.S. Holder resides or is established. Under current rules, United States backup withholding (which generally is imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the U.S. information reporting requirements) and information reporting generally will not apply (i) to dividends paid on Common Stock to a Non-U.S. Holder that is subject to withholding at the 30% rate (or that is subject to withholding at a reduced rate under an applicable treaty) or (ii) before January 1, 1999, to dividends paid to a Non-U.S. Holder at an address outside the United States. However, under newly issued regulations, in the case of dividends paid after December 31, 1997, a Non-U.S. Holder generally will be subject to backup withholding at a 31% rate, unless certain certification procedures (or, in the case of payments made outside the United States with respect to an offshore account, certain documentary evidence procedures) are complied with. The payment of proceeds from the disposition of Common Stock to or through a U.S. office of a broker will be subject to information reporting and backup withholding unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Holder, or otherwise establishes an exception. The payment of proceeds from the disposition of Common Stock to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting. Before January 1, 1999, however, in the case of proceeds from the disposition of Common Stock effected at a non-U.S. office of a broker that is: (i) a U.S. person; (ii) a "controlled foreign corporation" for U.S. federal income tax purposes or (iii) a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business, such payments will not be subject to backup withholding but will be subject to information reporting, unless (a) such broker has documentary evidence in its files that the owner is a Non-U.S. Holder and certain other conditions are met, or (b) the beneficial owner otherwise establishes an exemption. Further, after December 31, 1998, under the newly issued regulations referred to above, information reporting and backup withholding may apply to payments of the gross proceeds from the sale or redemption of Common Stock effected through foreign offices of brokers having any of a broader class of connections with the United States unless certain certification requirements are complied with. Prospective investors should consult with their own tax advisors regarding these regulations, and in particular with respect to whether the use of a particular broker would subject the investor to these rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS. 53

UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement, dated , 1997 (the "Underwriting Agreement"), among the Company, the Selling Shareholders and the underwriters named below (the "Underwriters") for whom Lehman Brothers Inc., Credit Suisse First Boston Corporation and Hambrecht & Quist LLC are acting as representatives (the "Representatives"), the Underwriters have severally agreed to purchase from the Company and the Selling Shareholders, and the Company and the Selling Shareholders have agreed to sell to each Underwriter, the aggregate number of shares of Common Stock set forth opposite the name of each such Underwriter below:
UNDERWRITER ----------Lehman Brothers Inc. ....................................... Credit Suisse First Boston Corporation...................... Hambrecht & Quist LLC....................................... Total............................................. NUMBER OF SHARES ----------------

--------8,200,000 =========

The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public at the offering price set forth on the cover page hereof, and to certain dealers at such public offering price less a selling concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other Underwriters or to certain other brokers or dealers. After the offering to the public, the offering price and other selling terms may be changed by the Representatives. The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to approval of certain legal matters by counsel and to certain other conditions, including the condition that no stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose are pending or threatened by the Securities and Exchange Commission and that there has been no material adverse change or development involving a prospective material adverse change in the condition of the Company from that set forth in the Registration Statement otherwise than as set forth or contemplated in this Prospectus, and that certain certificates, opinions and letters have been received from the Company and its counsel, the Selling Shareholders and their counsel and independent auditors. The Underwriters are obligated to take and pay for all of the above shares of Common Stock if any such shares are taken. The Underwriters and each of the Company and the Selling Shareholders have agreed in the Underwriting Agreement to indemnify each other against certain liabilities, including liabilities under the Securities Act. The Company has granted to the Underwriters an option to purchase up to an additional 1,000,000 shares of Common Stock, exercisable solely to cover over-allotments, at the public offering price, less the underwriting discounts and commissions shown on the cover page of this Prospectus. Such option may be exercise at any time until 30 days after the date of the Underwriting Agreement. To the extent that the option is exercised, each Underwriter will be committed to purchase a number of additional shares of Common Stock proportionate to such Underwriter's initial commitment as indicated in the table above. The Representatives have informed the Company and the Selling Shareholders that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. Shareholders of the Company, including directors and officers, beneficially owning an aggregate of approximately 22,000,000, or 78.6%, of the outstanding shares of Common Stock prior to giving effect to the offering have agreed not to, directly or indirectly, offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the 54

disposition by any person at any time on the future of) any shares of Common Stock or securities convertible into or exchangeable for Common Stock, or sell or grant options, rights or warrants with respect to any Shares of Common Stock or securities convertible into or exchangeable for Common Stock, or enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives. Except for the Common Stock to be sold in the offering, the Company has agreed not to offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of Common Stock or securities convertible into or exchangeable for Common Stock or other capital stock, with certain limited exceptions, or sell or grant options, rights or warrants with respect to any shares of Common Stock or securities convertible into or exchangeable for Common Stock, with certain limited exceptions, or enter into any swap or other derivations transactions that transfers to another in whole or in part, any of the economic benefits or risks of ownership of such shares of Common Stock prior to the expiration of 180 days from the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives. Prior to this offering, there has been no public market for the Common Stock. The public offering price will be negotiated between the Company and the Representatives. The material factors considered in determining the public offering price of the Common Stock, in addition to the prevailing market conditions, were the Company's historical performance, capital structure, estimates of the business potential, revenues and earnings prospects of the Company, an assessment of the Company's management and consideration of the above factors in relation to the market values of companies in related businesses. Until the distribution of the Common Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase shares of Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the offering, (i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus), the Representatives may reduce that short position by purchasing Common Stock in the open market. The Representatives also may elect to reduce any short position by exercising all or part of the over-allotment option described herein. The Representatives also may impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the offering. In general, purchases of a security for the purpose of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the offering. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. 55

The Company has agreed to pay Ernest C. Bourne, a director, upon consummation of this offering, a fee equal to 1.0% of the net proceeds. The agreement is for a one-year term which began August 1, 1997 and provides for a monthly retainer fee of $10,000 for the term of the agreement. The 1.0% fee resulting from the offering will be offset by the amount of the monthly retainer paid prior to the consummation of the offering. The Company has applied for listing on the Nasdaq National Market under the symbol "KING." LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Baker, Donelson, Bearman & Caldwell, P.C., Memphis, Tennessee. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Shearman & Sterling, New York, New York. EXPERTS The consolidated financial statements of the Company as of September 30, 1997 and for each of the three years in the period ended December 31, 1996 and the nine months ended September 30, 1997 included in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent auditors, as stated in their reports appearing herein and are included in reliance upon such reports given upon the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (together with all amendments, exhibits and schedules thereto) under the Securities Act of 1933, as amended, with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules filed therewith. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to such Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement or the documents incorporated into the Prospectus by reference, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company intends to furnish its shareholders with annual reports containing financial statements audited by the Company's independent accountants and to make available to its shareholders quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information. 56

CONTENTS
PAGES ----F-2 F-3

King Pharmaceuticals, Inc. Report of Independent Accountants......................... Financial Statements: Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997........................... Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 (unaudited) and 1997.................................................. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 (unaudited) and 1997.................................................. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1997..... Notes to Consolidated Financial Statements................ Cortisporin Product Line Report of Independent Accountants......................... Statement of Gross Profit................................. Notes to Financial Statement.............................. Pro Forma Financial Statements.............................. Pro Forma Statement of Operations for the year ended December 31, 1996...................................... Pro Forma Statement of Operations for the nine months ended September 30, 1997............................... Notes to Pro Forma Statements of Operations.................

F-4

F-5 F-6 F-7 F-20 F-21 F-22 F-23 F-24 F-25 F-26

F-1

REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of King Pharmaceuticals, Inc.: We have audited the accompanying consolidated balance sheets of King Pharmaceuticals, Inc. as of December 31, 1995 and 1996 and September 30, 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of King Pharmaceuticals, Inc. as of December 31, 1995 and 1996 and September 30, 1997, and the consolidated results of their operations and their cash flows for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1997, in conformity with generally accepted accounting principles. Greensboro, North Carolina October 22, 1997 The foregoing report is in the form that will be signed by Coopers & Lybrand L.L.P. upon consummation of the matters, on or before the effective date of the Registration Statement of which this Prospectus is a part, as described in Notes 15 and 17 to the consolidated financial statements and assuming that from the date hereof to the effective date no other events shall have occurred that would affect the accompanying consolidated financial statements.
/s/ Coopers & Lybrand L.L.P. Greensboro, North Carolina October 22, 1997

F-2

KING PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
DECEMBER 31, ----------------SEPTEMBER 30, 1995 1996 1997 ------------------------(IN THOUSANDS) $10,568 2,772 4,202 -308 --303 ------18,153 ------15,439 292 58 -------$33,942 ======= $ 1,392 2,305 6,097 209 499 652 2,093 638 ------13,885 ------16,691 -8,703 -------$39,279 ======= $ 35

ASSETS Current assets: Cash and cash equivalents................................. Accounts receivable, net of allowance for doubtful accounts of $93, $93 and $493, respectively............ Inventories............................................... Marketable securities..................................... Deferred income taxes..................................... Income taxes receivable................................... Shareholder notes receivable.............................. Prepaid expenses and other assets......................... Total current assets.............................. Property, plant and equipment, net.......................... Investment in affiliated company............................ Intangible assets, net...................................... Other assets................................................ Total assets......................................

7,393 8,622 -1,135 --533 ------17,718 ------17,006 -38,204 1,325 ------$74,253 =======

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt........................................... $ 3,403 Current portion of long-term debt......................... 2,155 Accounts payable.......................................... 927 Accrued expenses.......................................... 1,098 Income taxes payable...................................... 2,971 ------Total current liabilities......................... 10,554 ------Line-of Credit.............................................. -Long-term debt.............................................. 9,497 Deferred income taxes....................................... 2,880 ------Total liabilities................................. 22,931 ------Commitments Shareholders' equity: Common stock, no par value, 150,000,000 shares authorized, 12,320,000 19,467,406 and 28,000,000 shares issued and outstanding, respectively.............................. 926 Retained earnings......................................... 10,763 Due from related party.................................... (678) Unrealized loss on marketable securities, net of tax...... -------Total shareholders' equity........................ 11,011 ------Total liabilities and shareholders' equity........ $33,942 =======

$

-4,031 844 1,261 -------6,136 -------13,980 3,470 ------23,586 -------

$ 1,325 7,765 3,503 4,027 1,015 ------17,635 ------2,282 22,913 3,614 ------46,444 -------

8,448 7,938 (677) (16) ------15,693 ------$39,279 =======

16,455 12,493 (1,139) -------27,809 ------$74,253 =======

The accompanying notes are an integral part of the consolidated financial statements. F-3

KING PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
YEARS ENDED DECEMBER 31, -------------------------------------1994 1995 1996 -----------------------------REVENUES: Net sales...................... Development revenues........... Total revenues, net.... OPERATING COSTS AND EXPENSES: Cost of sales.................. Selling, general and administrative.............. Depreciation and amortization................ Total operating costs and expenses......... GAIN ON SALE OF PRODUCT LINE, NET............................ OPERATING INCOME (LOSS).......... OTHER (EXPENSES) INCOME: Gain on sale of investment in affiliate................... Interest expense............... Other income, net.............. Total other (expenses) income............... INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY GAIN......... Income tax (benefit) expense... INCOME (LOSS) BEFORE EXTRAORDINARY GAIN............. Extraordinary gain on early extinguishment of long-term debt, net of income taxes of $272........................ NET INCOME (LOSS)................ Income (loss) per common stock before extraordinary gain... Extraordinary gain, net........ Net income (loss) per share.... Weighted average number of common and common stock equivalents (Note 2)........ NINE MONTHS ENDED SEPTEMBER 30, ------------------------1996 1997 --------------------(UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) $ 15,457 5,000 ----------20,457 ----------8,782 12,106 982 ----------21,870 -----------(1,413) ----------1,760 (1,272) 578 ----------1,066 ----------(347) (107) ----------(240) $ 11,310 2,500 ----------13,810 ----------7,050 8,441 655 ----------16,146 -----------(2,336) ----------1,760 (850) 407 ----------1,317 ----------(1,019) (316) ----------(703) $ 33,817 -----------33,817 ----------9,538 13,734 1,631 ----------24,903 -----------8,914 -----------(1,730) 211 ----------(1,519) ----------7,395 2,840 ----------4,555

$

13,311 ----------13,311 ---------9,754 1,987 639 ---------12,380 ----------931 ----------(1,069) 554 ---------(515) ---------416 (501) ---------917

$

25,441 -----------25,441 ----------12,130 8,605 1,777 ----------22,512 13,102 ----------16,031 -----------(2,006) 367 ----------(1,639) ----------14,392 5,058 ----------9,334

----------$ 917 ========== $ .20 ----------$ .20 ========== 4,537,555 ==========

528 ----------$ 9,862 =========== $ .75 .04 ----------$ .79 =========== 12,445,993 ===========

-----------$ (240) =========== $ (.02) -----------$ (.02) =========== 13,630,813 ===========

-----------$ (703) =========== $ (.06) -----------$ (.06) =========== 12,572,103 ===========

-----------$ 4,555 =========== .18 -----------$ .18 =========== 25,655,881 =========== $

The accompanying notes are an integral part of the consolidated financial statements. F-4

KING PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
YEARS ENDED DECEMBER 31, ----------------------------1994 1995 1996 --------------------NINE MONTHS ENDED SEPTEMBER 30, ---------------------1996 1997 -----------------(UNAUDITED)

Cash flows from operating activities: Net income (loss)......................................... Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization........................... Loss on sale of marketable securities................... Extraordinary gain on early extinguishment of long-term debt.................................................. Gain on sale of product line............................ Gain on sale of property and equipment.................. Gain on sale of investment in affiliate................. Income from equity in earnings of affiliated company.... Gain on conversion of accounts payable to long-term debt.................................................. Employee salaries and other benefits paid by affiliate............................................. Accrued interest added to amount due to affiliate....... Deferred income taxes................................... Changes in operating assets and liabilities: Accounts receivable..................................... Inventories............................................. Prepaid expenses and other current assets............... Accounts payable........................................ Accrued expenses and other.............................. Income taxes (receivable) payable....................... Net cash provided by (used in) operating activities........................................ Cash flows from investing activities: Purchases of property and equipment....................... Deposit on equipment...................................... Purchase of intangible assets............................. Purchases of marketable securities........................ Proceeds from sales of marketable securities.............. Proceeds from sale of product line........................ Proceeds from sale of investment in affiliated company.... Proceeds from sale of property and equipment.............. Net cash (used in) provided by investing activities........................................ Cash flows from financing activities: Proceeds from revolving line of credit.................... Payments on revolving line of credit...................... Proceeds from issuance of preferred shares................ Proceeds from issuance of common shares................... Payments to retire 8% cumulative common shares............ Repayment on shareholder notes receivable................. Proceeds from short-term debt............................. Proceeds from long-term debt.............................. Payments on long-term debt and capital lease obligations............................................. Dividends on preferred shares............................. Due from affiliate........................................ Advances from affiliate................................... Payment of affiliated note payable........................ Net cash provided by (used in) financing activities........................................ Increase (decrease) in cash................................. Cash and cash equivalents, beginning of period.............. Cash and cash equivalents, end of period.................... Supplemental disclosure of cash paid for: Interest............................................ Taxes...............................................

(IN THOUSANDS) $ 917 639 ------(25) 250 226 (629) (608) (770) (227) 209 690 --------672 -------(890) --------------(890) -------12,039 (11,078) 800 -----(346) (8) -520 (1,000) -------927 -------709 319 -------$ 1,028 ======== $ 439 ======== $ 12 ======== $ 9,862 1,777 -(800) (15,608) --(166) ---2,193 (876) (1,326) 12 (288) (220) 2,855 -------(2,585) -------(1,672) (60) --32,000 ---------30,268 -------200,847 (198,405) --(100) --329 (20,127) (8) (679) ---------(18,143) -------9,540 1,028 -------10,568 ======== $ 2,505 ======== $ 283 ======== $ (240) 982 1 --(54) (1,760) ----410 467 (1,895) (335) (83) 163 (3,624) ------(5,968) ------(1,069) (3,275) (307) 72 -2,052 100 ------(2,427) -------(3,403) -2,844 ---2,549 (2,772) -1 --------(781) ------(9,176) 10,568 ------$ 1,392 ======= $ 1,170 ======= $ 3,078 ======= $ (703) 655 1 --(54) (1,760) ----447 828 (792) (695) (364) (106) (3,896) ------(6,439) ------(705) (1,153) (307) 25 -2,052 100 ------12 ------72,142 (72,402) 190 ---2,549 (1,152) -75 --------1,402 ------(5,025) 10,568 ------$ 5,543 ======= $ 484 ======= $ 3,078 ======= $ 4,555 1,631 32 --------(501) (5,088) (2,525) 105 2,659 2,766 1,667 -------5,301 -------(957) (1,325) (30,406) -203 ----------(32,485) -------13,219 (10,937) -8,007 -2,093 1,325 15,924 (3,342) -(462) ---------25,827 -------(1,357) 1,392 -------$ 35 ======== $ 1,059 ======== $ 1,675 ========

F-5

KING PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA) Supplemental schedule of non-cash investing and financing activities: During 1996 the Company issued 699,711 common shares for $2,093 in notes receivable from shareholders. These notes were paid in full in 1997. For the year ended December 31, 1996 and the nine months ended September 30, 1996 and 1997, the Company entered into capital leases totaling $1,082, $935 and $85, respectively. The Company purchased intangible assets financed by the seller of $5,500 during 1996 and $750 during the nine months ended September 30, 1997. The Company converted its 40,000 shares of Series B Preferred Stock into 400,000 common shares during 1995. In 1994, the Company's acquisition of the exclusive right to manufacture and distribute the product Anexsia was recorded as follows:
Intangible asset............................................ Inventory................................................... $17,600 600 ------$18,200 ======= $17,500 700 ------$18,200 =======

Note payable................................................ Other liabilities...........................................

During 1994, accounts payable of $313 were converted into a note payable to vendor after reducing the payable by $120 for return of inventory to the vendor. In 1994, the Company issued 2,660,000 common shares with a carryover basis of $126 in exchange for common shares of an affiliated Company. In 1994, certain equipment amounting to $161 was acquired on behalf of the Company by an affiliate in exchange for a note payable that is included in due to affiliate. The accompanying notes are an integral part of the consolidated financial statements. F-6

KING PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMMON -------------------SHARES AMOUNT ---------------Common stock granted at formation................... Exchange of King stock for shares of an affiliated Company..................... Issuance of preferred stock... Issuance of 8% preferred stock....................... Dividends on preferred stock....................... Net income.................... Balance, December 31, 1994...... Conversion of Series B preferred stock to common stock....................... Repurchase of 8% cumulative preferred stock............. Dividends on preferred stock....................... Advances to Benevolent fund... Net income.................... Balance, December 31, 1995...... Issuance of common stock...... Issuance of common stock under employee stock purchase plan........................ 15% Stock Dividend............ Unrealized loss on securities, net of tax.................. Payments from Benevolent Fund........................ Net income (loss)............. Balance, December 31, 1996...... Issuance of common stock, net of $743 of expenses......... Realized loss on securities... Advances to Benevolent Fund... 2.8 to 1 common stock split (Note 17)................... Net income.................... Balance, September 30, 1997..... 1,340,000 2,660,000 -------------4,000,000 400,000 -------------4,400,000 1,386,230 259,532 906,883 ------------6,952,645 3,047,355 --18,000,000 ----------28,000,000 ========== $ -126 ----------126 800 ----------926 4,159 778 2,585 ---------8,448 8,007 ----------$16,455 ======= PREFERRED UNREALIZED ---------------RETAINED LOSS ON SHARES AMOUNT EARNINGS SECURITIES ---------------------------(IN THOUSANDS, EXCEPT SHARE DATA) --40,000 10,000 --------50,000 (40,000) (10,000) -----------------------------------======= $ --800 100 ------900 (800) (100) ----------------------------$ -===== $ ----(8) 917 ------909 --(8) -9,862 ------10,763 --(2,585) --(240) ------7,938 ----4,555 ------$12,493 ======= $ ----------------------(16) -----(16) -16 ------$ -==== DUE FROM RELATED PARTY ------$ ----------------(678) -------(678) ----1 -------(677) --(462) --------$(1,139) ======= TOTAL SHAREHOLDERS' EQUITY ------------$ -126 800 100 (8) 917 ------1,935 -(100) (8) (678) 9,862 ------11,011 4,159 778 -(16) 1 (240) ------15,693 8,007 16 (462) -4,555 ------$27,809 =======

The accompanying notes are an integral part of the consolidated financial statements. F-7

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS) 1. THE COMPANY King Pharmaceuticals, Inc. ("King" or the "Company") is an integrated pharmaceutical company that manufactures, acquires, markets and sells branded and generic form products. The Company also develops and markets over-the-counter veterinary products. These products are marketed throughout the United States to pharmaceutical wholesalers, retail pharmacies, and chain drug stores. The Company also manufactures similar products for others on a contract basis. Management of the Company believes that the unaudited information at September 30, 1996, and for the nine months then ended contains all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of such consolidated financial statements. These consolidated financial statements include the accounts of King and its wholly owned subsidiaries, Monarch Pharmaceuticals, Inc. (formerly a division of King) and King Pharmaceuticals of Nevada, Inc. All intercompany transactions and balances have been eliminated in consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates -- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. Assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities are affected by such estimates and assumptions. Actual results could differ from those estimates. The most significant estimates in the consolidated financial statements relate to receivables, inventory, self-insurance and revenues. Revenue Recognition -- Sales are reported net of an estimate for returns and allowances and an estimate for chargebacks. Chargebacks and returns and allowances are included in sales when goods are shipped to the customer. Development revenue is recognized upon approval of the product from the FDA. Cash and Cash Equivalents -- The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company's cash and cash equivalents are placed in large domestic banks which limit the amount of credit exposure. Marketable Securities -- Marketable securities consisted of stock in another pharmaceutical company, which management had classified as available-for-sale in the accompanying consolidated financial statements. Such securities were carried at fair value with the unrealized gains and losses reported net of tax as a separate component of shareholders' equity. The unrecognized loss on these securities at December 31, 1996 was $25 ($16, net of tax). The Company sold these securities at a loss in 1997. Inventories -- Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Income Taxes -- Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse (see Note 12). Financial Instruments -- The fair value of financial instruments are determined by reference to various market data or other valuation techniques as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values (Note 11). Property, Plant and Equipment -- Property, plant and equipment are stated at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed over the estimated useful lives of the related assets using the straight-line method for financial statement purposes and accelerated methods for income tax purposes. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation with any resulting gain or loss reflected in income. F-8

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In the event that facts and circumstances indicate that the cost of property, plant and equipment may be impaired, evaluation of recoverability is performed using the estimated future undiscounted cash flows associated with the asset compared to the asset's carrying amount to determine if a writedown is required. Intangible Assets -- Intangible assets are stated at cost, net of accumulated amortization. Amortization is computed over the estimated useful lives of 10 to 25 years using the straight-line method. The Company continually reevaluates the propriety of the carrying amount of intangibles as well as the related amortization period to determine whether the current events and circumstances warrant adjustments to the carrying values and/or revised estimates of useful lives. This evaluation is performed using the estimated projected future undiscounted cash flows associated with the asset compared to the asset's carrying amount to determine if a writedown is required. To the extent such projection indicates that undiscounted cash flow is not expected to be adequate to recover the carrying amounts the assets are written down to discounted cash flows. Other Assets -- Other assets includes a deposit of $1,325 for equipment that will be leased back to the Company under an operating lease (Note 10). Gain on Sale of Product Line/Development Revenue -- In December 1995, the Company sold the Anexsia brand product line and related Abbreviated New Drug Applications ("ANDA's"), both approved and in the process of development, for $32,000, which resulted in a net gain of $13,102. As part of the agreement, the Company entered into a manufacture and supply agreement with the purchaser, with guaranteed minimum revenues of $4,750 over 4 years. Additionally, the Company agreed to develop four ANDA's with the Food and Drug Administration ("FDA") on the purchaser's behalf, for a maximum of $2,500 each, due upon FDA approval. In 1996, the Company recognized $5,000 as development revenue under this agreement. In connection with the gain on the transaction, the Company incurred certain non-recurring costs related to employee bonuses and charitable contributions of $2,506. Self-Funded Health Insurance -- The Company is self-insured with respect to its health care benefit program. The Company contributes estimated amounts to a third-party administrator on a monthly basis which are used to pay health care claims during the year. Under the plan, the Company pays a minimum amount annually and has an aggregate stop-loss limit based upon the number of participants and their insured status. Self-insured costs are accrued based upon reported claims and an estimated liability for claims incurred but not reported. Research and Development -- The Company incurs research and development costs that are expensed as incurred. These costs were approximately $543, $682, $1,298, $704 and $660, for the years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997, respectively. Advertising and Promotion -- The Company expenses advertising and promotion costs as incurred and these costs are included as selling, general and administrative expenses. Income (Loss) Per Share -- Income (loss) per share is calculated by dividing net income (loss), after deducting preferred stock dividends, by the weighted average number of common shares outstanding during the period. The weighted average shares outstanding includes the effects of the stock dividend paid in December 1996 and the stock split in October 1997 for all periods on a retroactive basis. Statement of Accounting Standards Not Yet Adopted -- In February 1997, the Financial Accounting Standards Board issued Statement Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, F-9

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) effective for fiscal periods ending after December 15, 1997. The new standard simplifies the computation of earnings (loss) per share by replacing primary earnings (loss) per share with basic earnings (loss) per share. Basic earnings (loss) per share will not include the effect of any potentially dilutive securities, as under the current accounting standard, and will be computed by dividing reported income available to common shareholders by the weighted average number of common shares outstanding during the period. Fully diluted earnings (loss) per share will now be called diluted earnings (loss) per share and will reflect the dilution of all potentially dilutive securities. Companies will be required to restate all prior period earnings (loss) per share data. The adoption of this standard by the Company will have no impact on the historical reported earnings (loss) per share amounts since, prior to September 30, 1997, there were no potentially dilutive securities. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires public business enterprises to adopt its provisions for periods beginning after December 15, 1997, and to report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. The Company is evaluating the provisions of SFAS No. 131, but has not yet determined if additional disclosures will be required. Reclassifications -- Certain amounts from the prior consolidated financial statements have been reclassified to conform to the presentation adopted in 1997. 3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS A significant portion of the Company's sales are to customers in the pharmaceuticals industry. Approximately 54%, 34% and 33% of accounts receivable at December 31, 1995 and 1996 and September 30, 1997, respectively were due from one customer. At December 31, 1995 and 1996 and September 30, 1997, an additional 27%, 39% and 35%, respectively, were due from two other customers. The Company monitors the extension of credit to customers and has not experienced significant credit losses. Furthermore, the majority of sales are made to large well-established companies. The following table represents a summary of sales to significant customers as a percentage of the Company's total revenues:
FOR THE YEARS ENDED DECEMBER 31, -------------------1994 1995 1996 ---------66.6% 27.0% 18.1% n/a n/a 36.7 n/a 11.8 14.9 n/a 18.1 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 ------------n/a n/a n/a n/a 19.5 13.4 13.1 10.9

Customer Customer Customer Customer Customer Customer Customer Customer

A.................................... B.................................... C.................................... D.................................... E.................................... F.................................... G.................................... H....................................

n/a -- sales were less than 10% for the period. F-10

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, -----------------1995 1996 ------------$ 169 $ 306 13,006 13,407 2,960 3,380 406 1,488 140 189 ------------16,681 18,770 (1,242) (2,079) ------------$15,439 $16,691 ======= ======= SEPTEMBER 30, 1997 ------------$ 319 13,563 4,059 1,573 298 ------19,812 (2,806) ------$17,006 =======

Land.............................................. Buildings and improvements........................ Machinery and equipment........................... Equipment under capital lease..................... Construction in progress.......................... Less accumulated depreciation.....................

Depreciation and amortization expense for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997 was $541, $701, $853, $639, and $728 respectively. 5. INVENTORY Inventory consists of the following:
DECEMBER 31, -----------------1995 1996 ----------$1,603 $3,176 675 525 1,924 2,396 ----------$4,202 $6,097 ====== ====== SEPTEMBER 30, 1997 ------------$5,239 646 2,737 -----$8,622 ======

Finished goods.................................. Work-in-process................................. Raw materials...................................

6. ACQUISITIONS/INTANGIBLE ASSETS On May 15, 1997, the Company acquired the rights, title and interest in the United States to the Viroptic(R) product line for $5,100, plus the assumption of an estimated liability of $129 for returns of products shipped prior to the acquisition. The entire purchase price was allocated to intangible assets and is being amortized over its estimated useful life of 25 years. The purchase price was financed from internally generated cash funds and borrowings under its revolving line of credit agreement. On March 21, 1997, the Company acquired the rights, title and interest in the United States to the Cortisporin(R) product line for $22,845, plus the assumption of an estimated $849 for returns of products shipped prior to the acquisition. The entire purchase price was allocated to intangible assets and is being amortized over its estimated useful life of 25 years. The purchase price was financed principally through the raising of equity (Note 15), notes payable to certain banks and borrowings under the Company's revolving line of credit agreement. On January 22, 1997, the Company acquired the rights, title and interest to the Proctocort(TM) product line for approximately $1,500. The entire purchase was allocated to intangible assets and is being amortized over its estimated useful life of 20 years. The acquisition was financed with a note payable to a bank. On December 17, 1996, the Company acquired the rights, title and interests to the Thalitone(R) product line for $1,000, including inventory valued at $268. The remaining $832 was allocated to F-11

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) intangible assets and is being amortized over 10 years, the estimated remaining useful life of its patent. The acquisition was financed with a note payable to a bank. On October 2, 1996, the Company acquired the rights, titles and interest to the Nucofed(R) and Quibron(R) (United States only) product lines for $7,000, plus the assumptions of an estimated $301 for returns of products shipped prior to the acquisition. The entire purchase price was allocated to intangible assets and is being amortized over its estimated useful life of 20 years. The purchase price was financed by the seller for $5,500 and borrowings under the Company's revolving line of credit. The following unaudited pro forma summary presents net sales information as if the above acquisitions had occurred on January 1, 1996. These pro forma results have been prepared for comparative purposes and do not purport to be indicative of what would have occurred had the acquisitions been made on January 1, 1996, nor is it indicative of future results.
FOR THE YEAR ENDED DECEMBER 31, 1996 -----------$33,484 ======= NINE MONTHS ENDED SEPTEMBER 30, 1997 -----------------$40,402 =======

Net sales.........................................

Historical cost data prior to the acquisition was not available, therefore proforma net income amounts and per share amounts have not been disclosed. Intangible assets consist of the following:
DECEMBER 31, -------------1995 1996 --------$-$ ----7,301 ---832 60 702 -------60 8,835 (2) (132) -------$58 $8,703 === ====== SEPTEMBER 30, 1997 ------------$23,694 5,229 7,301 1,483 832 702 ------39,241 (1,037) ------$38,204 =======

Cortisporin........................................ Viroptic........................................... Nucofed/Quibron.................................... Proctocort......................................... Thalitone.......................................... Other.............................................. Less accumulated amortization......................

Amortization expense for the years ended December 31, 1994, 1995, and 1996 and for the nine months ended September 30, 1996 and 1997 was $98, $1,076, $129, $2, and $905, respectively. 7. LEASE OBLIGATIONS The Company leases certain office and manufacturing equipment under noncancelable operating leases with terms from one to five years. Estimated future minimum lease payments, as of September 30, 1997 for leases with initial or remaining terms in excess of one year are as follows:
1998...................................................... 1999...................................................... 2000...................................................... 2001...................................................... 2002...................................................... $116 97 77 17 2

F-12

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rent expense for the years ended December 31, 1994, 1995 and 1996, and for the nine months ended September 30, 1996 and 1997 was approximately $131, $111, $196, $131, and $148, respectively. Additionally, the Company leases office space in its building to tenants under agreements ranging from one to twenty years. Such leases are accounted for as operating leases. Rental income for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997 was approximately $201, $87, $86, $68, and $33, respectively. As of September 30, 1997 estimated future minimum rental payments to be received are as follows:
1998...................................................... 1999...................................................... 2000...................................................... 2001...................................................... 2002...................................................... Thereafter................................................ $ 18 18 16 16 16 189

Capital lease obligations for certain equipment as of September 30, 1997 are as follows:
1998........................................................ 1999........................................................ 2000........................................................ 2001........................................................ 2002........................................................ Total minimum lease payments................................ Less imputed interest....................................... Present value of minimum lease payments..................... Less current maturities..................................... $ 404 385 366 332 49 -----1,536 (257) -----1,279 -----(295) -----$ 984 ======

8. ACCRUED EXPENSES Accrued expenses were as follows:
DECEMBER 31, --------------1995 1996 ----------$ 275 $ 346 570 351 7 110 52 24 --112 108 82 322 ----------$1,098 $1,261 ====== ====== SEPTEMBER 30, 1997 ------------$ 304 1,678 803 47 750 314 131 -----$4,027 ======

Payroll and outside personnel services................ Returns and allowances and chargebacks................ Accrued interest...................................... Franchise taxes....................................... Due to seller of Proctocort........................... Incurred but not reported medical claims.............. Other.................................................

F-13

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LONG-TERM DEBT Long-term debt consisted of the following:
DECEMBER 31, ----------------1995 1996 ------------$ 7,611 $ 6,842 SEPTEMBER 30, 1997 ------------$ 6,842

Notes payable to former owners, due in equal annual installments of principal and interest (at a rate of 6%) of $1,226 through December 2003............ Note payable to pharmaceutical company, due in 5 annual installments of principal and interest (at a rate of 8%) of $1,378 through October 2, 2001, collateralized by certain intangible assets....... Note payable, due in semiannual installments of $588, through December 1998, plus monthly interest at 8%............................................. Note payable to a bank, due in monthly installments of $69 through May 15, 1999 with interest at a rate of LIBOR plus 1.75%, collateralized by accounts receivable, inventory, contract rights and certain intangible assets..................... Note payable to a bank, due in monthly installments of $42 through April 1, 2000 with interest at a rate of 8.25%, collateralized by various equipment and machinery, accounts receivable, furniture and intangibles....................................... Note payable to a bank, due in monthly installments of $49 through January 31, 2000 with interest at a rate of LIBOR plus 1.75%, collateralized by the Proctocort product line and associated rights..... Note payable to a bank, due in monthly installments of $49 through January 21, 2000 with interest at a rate of LIBOR plus 1.75%, collateralized by the Thalitone product line and associated rights...... Note payable to a bank, due in monthly installments of $139 through March 31, 2000 with interest at a rate of LIBOR plus 1.75%, collateralized by the Cortisporin product line and associated rights.... Note payable to a bank, due in monthly installments of $28 through August 1, 2000 with interest at a rate of LIBOR plus 1.75%, collateralized by a first deed of trust on a building................. Note payable to a bank, due August 20, 2000 with interest at a rate of LIBOR plus 1.75%, collateralized by a first deed of trust on a building.......................................... Note payable to shareholder with quarterly interest payments (interest rate of 10%) through January 1, 1999 with remaining principal due April 1, 1999, collateralized by real estate of the Company......

-3,525

5,500 2,350

5,500 1,763

--

2,014

1,389

--

--

1,250

--

--

1,361

--

--

1,361

--

--

4,167

--

--

968

--

--

2,975

--

--

1,750

F-14

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, ----------------1995 1996 ------------SEPTEMBER 30, 1997 -------------

Various capital leases with interest rates ranging from 8.3% to 12.7% and maturing at various times through 2002...................................... Other notes payable................................. Less current portion......................

320 196 ------11,652 2,155 ------$ 9,497 =======

1,237 68 ------18,011 4,031 ------$13,980 =======

1,279 73 ------30,678 7,765 ------$22,913 =======

The notes payable to former owners are personally guaranteed by the Company's Chairman of the Board and CEO. During December 1995, a fixed rate term note payable of $17,500 to a pharmaceutical company was retired in advance of maturity due to the sale of the Anexsia product line. The gain associated with the retirement of the note amounted to $800 ($528 net of taxes) and was recorded as an extraordinary gain in the Consolidated Statements of Operations. Certain financing arrangements of the Company require the Company to maintain certain minimum net worth, debt to equity, cash flow and current ratio requirements. As of September 30, 1997, the Company was in violation of the current ratio requirements, however waivers have been obtained from the appropriate lending institutions. The aggregate maturities of long-term debt (including capital lease obligations -- Note 7) at September 30, 1997 are as follows:
1998.................................... 1999.................................... 2000.................................... 2001.................................... 2002.................................... Thereafter.............................. $ 7,470 8,465 6,752 2,159 2,305 2,248 ------$29,399 =======

10. LINE OF CREDIT AND SHORT-TERM DEBT On April 30, 1996, the Company entered into a $3,500 revolving line of credit facility with a bank. This line of credit was extended and increased to $8,500 in September 1997. At September 30, 1997 $2,282 was outstanding under this line of credit. At December 31, 1996 there were no borrowings outstanding under this line of credit. The principal is due May 1999 and interest is payable monthly at a rate of LIBOR plus 1.75%. Borrowings under the agreement are limited to 85% of eligible accounts receivable and 60% of eligible inventory as defined in the agreement. Collateral consists of accounts receivable, inventory, and certain intangible assets. The weighted average interest rate for this line of credit was 8.51% for the nine months ended September 30, 1997. During 1997, the Company entered into a financing arrangement to make certain payments for machinery and equipment. As of September 30, 1997, the Company had a demand note payable plus interest at prime plus .33% with $1,325 outstanding. The Company intends to refinance this obligation under an operating lease (Note 14). F-15

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. FINANCIAL INSTRUMENTS The following disclosures of the estimated fair values of financial instruments are made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Cash and Cash Equivalents, Accounts Receivable and Accounts Payable -- The carrying amounts of these items are a reasonable estimate of their fair values. Long-Term Debt, Line of Credit and Short-Term Debt -- The carrying amounts of the Company's line of credit and short-term debt approximates fair value. The fair value of the Company's long-term debt including the current portion at December 31, 1995 and 1996 and September 30, 1997 is estimated to be approximately $11.1 million, $17.6 million and $30.6 million, respectively using discounted cash flow analyses and based on the Company's incremental borrowing rates for similar types of borrowing arrangements. 12. INCOME TAXES The net income tax expense (benefit) is summarized as follows:
YEARS ENDED DECEMBER 31, ---------------------1994 1995 1996 -------------Current................................ Deferred............................... Total (benefit) expense...... $ 128 (629) ----$(501) ===== $2,865 2,193 -----$5,058 ====== $(635) 528 ----$(107) ===== NINE MONTHS ENDED SEPTEMBER 30, --------------------1996 1997 ---------------(UNAUDITED) $(763) $3,332 447 (492) ---------$(316) $2,840 ===== ======

A reconciliation of the difference between the federal statutory tax rate and the effective income tax rate as a percentage of income (loss) before income taxes and extraordinary item is as follows:
YEARS ENDED DECEMBER 31, --------------------------1994 1995 1996 ----------------Federal statutory tax rate..... State income taxes, net of federal benefit.............. Permanent differences.......... Decrease in valuation allowance.................... Other.......................... Effective tax rate............. (34.0)% 4.0 1.0 (89.3) (1.7) ------(120.0)% ======= 35.0% 3.3 (1.3) -(1.9) -----35.1% ====== (34.0)% -2.3 -.9 -----(30.8)% ====== NINE MONTHS ENDED SEPTEMBER 30, --------------------1996 1997 ---------------(UNAUDITED) (34.0)% 34.0% -.4 -2.6 -----(31.0)% ====== 4.0 .6 -(.2) -----38.4% ======

F-16

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liability are as follows:
DECEMBER 31, -----------------1995 1996 ------------$ 35 $ 35 --79 225 1,350 -65 261 ------------1,529 521 ------------(4,023) (2,997) (78) (495) ------------(4,101) (3,492) ------------$(2,572) $(2,971) ======= ======= SEPTEMBER 30, 1997 ------------$ 35 36 1,108 -431 ------1,610 ------(3,825) (264) ------(4,089) ------$(2,479) =======

Allowance for doubtful accounts................. Uniform cost capitalization..................... Accrued expenses................................ Intangible assets............................... State net operating loss carryforward........... Total deferred tax assets............. Property, plant and equipment................... Miscellaneous................................... Total deferred tax liabilities........ Net deferred tax liability............

The Company's state net operating loss carryforward of approximately $13.0 million expires in 2011. Management has determined, based on both their ability to carryback earnings to prior years and existing deferred tax liabilities, it is more likely than not that the deferred tax assets will be realizable and no valuation allowance has been recorded. 13. BENEFIT PLANS The Company maintains a defined contribution employee benefit plan which covers all employees over 21 years of age. The plan allows for employees' salary deferrals, which are matched by the Company up to a specific amount under provisions of the plan. The plan also provides for discretionary profit-sharing contributions by the Company. Company contributions during the years ended December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997 were $92, $197, $278, $197, and $155, respectively. From January 1996 through October 1996, in connection with the Company's Employee Stock Purchase Plan adopted in January 1996, the Company offered 275,000 and sold 259,532 common shares to employees of the Company. The selling price was $3 per share. The Plan was terminated in October 1996. 14. COMMITMENTS As of September 30, 1997 the Company has entered into a firm commitment to obtain financing for capital expenditures under an operating lease of approximately $3,500 for machinery and equipment. 15. RELATED PARTY TRANSACTIONS AFFILIATED COMPANY The Company owned a 6% interest in a privately held, affiliated pharmaceutical company. In 1996, the Company sold its investment for $2,052, resulting in a gain of $1,760. The Company's share of earnings in this affiliated company was not material and was included in other income in the consolidated statement of operations. In connection with the Company's initial acquisition in 1993, 10,000 shares of Preferred 8% Cumulative Stock were issued to the affiliated company for $100. The shares were redeemed by the Company at the issue price during 1995. F-17

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) THE UNITED COMPANY In connection with its purchase of Cortisporin in 1997, the Company received $8,750 from The United Company for 3,047,355 common shares. The common share purchase agreement states that if the Company has not effected a public offering by April 1, 1999 or has not achieved certain forecasted results, The United Company can redeem the shares at an aggregate redemption price of $8,750 plus 10% interest per year from the date of the issuance of the shares or an equivalent amount of convertible debt. OTHER Certain management and employees of the Company sit on the board of directors of a private foundation. The Company made contributions to this foundation and expensed approximately $52, $417, $245, $233, and $108 for the years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997, respectively. At December 31, 1995 and 1996 and September 30, 1997, the Company had receivables from this foundation of approximately $678, $677, and $1,139, respectively, for advances made by the Company on their behalf. The receivables are collateralized by common shares of the Company held by the foundation and are included in shareholders' equity. On October 1, 1997 the Company appointed a new member to its' Board of Directors. For the nine months ended September 30, 1997, the Company paid $743 and $58 to this director's company for assistance in raising capital for the Cortisporin product line acquisition and consulting services, respectively. In 1996, the Company issued 699,711 common shares which were financed by notes receivable of approximately $2,100 from shareholders and members of management. At December 31, 1996, the Company had notes receivable outstanding of $2,093. As of August 5, 1997 these notes were paid in full. The Company paid a certain shareholder $180 and $160 for consulting fees during the years ended December 31, 1995 and 1996, respectively. During 1995, the Company paid $70 to the members of its Board of Directors. In December 1994, a shareholder of the Company contributed $800 of cash in exchange for 40,000 shares of Series B Preferred Stock. The Series B Preferred Stock was converted into 400,000 common shares during 1995. 16. STOCK DIVIDEND The Company paid a 15% stock dividend on all common shares issued and outstanding as of November 1, 1996. Common shares of 906,883 were distributed. The dividend was charged to retained earnings in the amount of $2,585, which was based on a recent common share purchase price of $3 per share. The weighted average shares and all per share amounts included in the accompanying consolidated financial statements and notes are based on the increased number of shares giving retroactive effect to the stock dividend. 17. SUBSEQUENT EVENTS Product Acquisition: On October 6, 1997, the Company signed letters of intent to acquire the pharmaceutical rights, interest and title in the United States to certain product lines. The purchase price is expected to approximate a total of $23 million. The Company is currently pursuing additional financing to fund this acquisition. F-18

KING PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Initial Public Offering: The Company intends to file a Registration Statement with the Securities and Exchange Commission for an initial public offering (the "Offering") of 6,000,000 common shares. The Company's Offering is scheduled for closing on or before December 15, 1997. On October 15, 1997, the Board approved the following matters to be voted upon and/or effective at The Company's Annual Meeting of the Shareholders on November 14, 1997. - The authorization of a new class of preferred shares, with preference terms and rights to be determined by the Board of Directors. - An amendment to the Company's Articles of Incorporation to increase the number of authorized common shares from 10 million shares of no par value to 150 million shares of no par value. - A stock split of 2.8 common shares for each share of the Company's common shares outstanding. The stock split has been reflected in the average shares outstanding, shares outstanding and income (loss) per share amounts in the balance sheets, statements of operations and changes in shareholders' equity. All other per share information included in the footnotes do not reflect the affect of the stock split. - A dividend of one preferred share purchase right (a "Right") for each common share outstanding. Such rights entitle the registered holder under certain circumstances to purchase from the Company one-thousandth of a share of a newly created series of the Company's preferred shares, at a price of $60 per one-thousandth shares of Preferred Stock, subject to adjustment. - A stock-option plan (the "Plan") for employees of the Company. The aggregate number of shares which may be issued under the Plan shall not exceed 3,500,000. The vesting of incentive stock options and nonqualified stock options will be determined by the Board on an individual basis. The Company plans to account for stock option grants to employees under the intrinsic method, which does not result in compensation expense when the option price is equal to the fair value of the shares at the date of grant. F-19

CORTISPORIN PRODUCT LINE STATEMENT OF GROSS PROFIT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 F-20

REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Glaxo Wellcome, Inc. and King Pharmaceuticals, Inc.: We have audited the accompanying Statement of Gross Profit of the Cortisporin Product Line of Glaxo Wellcome Inc. ("Glaxo Wellcome") for the years ended December 31, 1995 and 1996. The Statement of Gross Profit is the responsibility of Glaxo Wellcome management. Our responsibility is to express an opinion on this special purpose statement based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement of Gross Profit is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement of Gross Profit. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Statement of Gross Profit. We believe that our audit provides a reasonable basis for our opinion. The operations covered by the Statement of Gross Profit referred to above have no separate legal status or existence. The accompanying statement was prepared as described in Note 1 to present the Cortisporin Product Line and is not intended to be a complete presentation of the Cortisporin Product Line. Accordingly, the resulting statement is not necessarily indicative of the costs and expenses that would have resulted if the Cortisporin Product Lines had been operated as a separate entity. In our opinion, the statement referred to above presents fairly, in all material respects, the Statement of Gross Profit of the Cortisporin Product Line for the years ended December 31, 1995 and 1996 in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P. Greensboro, North Carolina October 20, 1997

F-21

CORTISPORIN PRODUCT LINE STATEMENT OF GROSS PROFIT (NOTE 1) FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996 ------------(IN THOUSANDS) $14,083 $11,562 2,376 1,445 ------------$11,707 $10,117 ======= =======

Net sales................................................... Cost of sales............................................... Gross profit......................................

The accompanying notes are an integral part of the Statement of Gross Profit F-22

CORTISPORIN PRODUCT LINE NOTES TO THE FINANCIAL STATEMENT 1. OWNERSHIP/BASIS OF PRESENTATION The Cortisporin Product Line includes all rights, title and interest of seven products within the United States. Effective March 21, 1997 Glaxo Wellcome Inc. ("Glaxo Wellcome") sold the rights, title and interest of this Product Line to Monarch Pharmaceuticals, Inc. ("Monarch"), a subsidiary of King Pharmaceuticals Inc. Glaxo Wellcome continued to manufacture these products until July 1997, at which point the facility was sold and Monarch was able to negotiate an agreement with the buyer for which Monarch is charged an agreed upon contractual amount. Historically, financial statements were not prepared for the Cortisporin Product Lines. These statements have been developed from the historical accounting records of Glaxo Wellcome. All of estimates in the financial statements, as described in Note 2, are based on the assumptions that Glaxo Wellcome management believes are reasonable. However, these estimates are not necessarily indicative of the net sales and costs that would have resulted if the Cortisporin Product Line had been operated as a separate entity. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INCOME RECOGNITION Sales and related cost of sales are included in income when goods are shipped to the customer. NET SALES Net sales include the sales price, net of allowances specifically identified by product, less an allocation of Glaxo Wellcome's returns and chargebacks and other miscellaneous sales adjustments based on sales of the Cortisporin Product Line to total sales of Glaxo Wellcome. COST OF GOODS SOLD Elements in cost of sales include raw materials, direct labor and plant overhead. Certain of these costs are specifically identifiable to specific brands, and the remaining costs are allocated based on sales for business relative to total sales for Glaxo Wellcome. Inventory from period to period was determined using the first-in, first-out (FIFO) method of valuation. Depreciation of plant facilities is computed using the straight-line method based on estimated useful lives ranging from 5 to 40 years. 3. SIGNIFICANT CUSTOMER Net sales to 4 customers represented approximately 56% and 57% of net sales in 1995 and 1996, respectively. 4. ESTIMATES The preparation of the financial statement of Gross Profit in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect certain reported amounts of gross profit for the years ended December 31, 1995 and 1996. Actual results could differ from those estimates. F-23

PRO FORMA FINANCIAL STATEMENTS The following Pro Forma Financial Statements of Operations have been prepared to give effect to the acquisition ("Cortisporin Acquisition") of the Cortisporin product line ("Cortisporin Product Line") as if such acquisition had occurred January 1, 1996. A pro forma balance sheet as of September 30, 1997 is not presented because the Cortisporin Acquisition is reflected in the September 30, 1997 historical balance sheet of King Pharmaceuticals, Inc. (the "Company") included elsewhere in this Prospectus. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. Pro forma adjustments are applied to the historical combined financial statements of the Company and the Cortisporin Product Line to account for the Cortisporin Acquisition under the purchase method of accounting. Under purchase accounting, the total purchase cost will be allocated to the assets and liabilities acquired and assumed, respectively, based on their relative fair value. The entire purchase price of $22.8 million was allocated to intangible assets since no tangible assets were purchased. The Pro Forma Financial Statements should be read in conjunction with the Company's historical Consolidated Financial Statements and related Notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations and other Financial information included elsewhere in this Prospectus. The Pro Forma Financial Statements and related notes are provided for information purposes only and do not purport to be indicative of the results which would have actually been obtained had the Cortisporin Acquisition been completed on the dates indicated or which may be expected to occur in the future. F-24

KING PHARMACEUTICALS, INC. PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
CORTISPORIN PRODUCT LINE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 -------------$11,562 1,445 ------10,117 --------10,117 ---------10,117 -------$10,117 =======

INCOME STATEMENT DATA: Total revenues, net........... Cost of sales................. Gross profit........ Selling, general and administrative.............. Depreciation and amortization................ Operating income (loss)....... Gain on sale of investment in affiliate................... OTHER (EXPENSES) INCOME: Interest expense.............. Other income, net............. Income (loss) before income taxes....................... Income tax (benefit) expense..................... Net income (loss)............. Net income (loss) per common and common stock equivalents................. Weighted average number of common and common stock equivalents.................

THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 1996 -----------------$ 20,457 8,782 ---------11,675 (12,106) (982) ---------(1,413) 1,760 (1,272) 578 ---------(347) (107) ---------$ (240) ========== $ (.02) ========== 13,630,813 ==========

PRO FORMA ADJUSTMENTS ----------$ ---------(5,550)(1)

PRO FORMA ---------$ 32,019 10,227 ---------21,792 (17,656)

(948)(2) (1,930) ---------------(6,498) 2,206 -1,760

(1,109)(3) (2,381) -578 ---------------(7,607) 773(4) ------$(8,380) ======= 2,163 666 ---------$ 1,497 ========== $ .11 ========== 13,630,813 ==========

See Notes to Pro Forma Statements of Operations F-25

KING PHARMACEUTICALS, INC. PRO FORMA STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
CORTISPORIN PRODUCT LINE JANUARY 1, 1997 THROUGH MARCH 20, 1997 --------------$4,262 1,699 -----2,563 -------2,563 -------2,563 ------$2,563 ======

INCOME STATEMENT DATA: Total revenues, net.......... Cost of sales................ Gross profit....... Selling, general and administrative............. Depreciation and amortization............... Operating income (loss)...... OTHER (EXPENSES) INCOME: Interest expense............. Other income, net............ Income (loss) before income taxes...................... Income tax (benefit) expense.................... Net income (loss)............ Net income (loss) per common and common stock equivalents................ Weighted average number of common and common stock equivalents................

THE COMPANY FOR THE YEAR ENDED SEPTEMBER 30, 1997 -----------------$ 33,817 9,538 ---------24,279 (13,734) (1,631) ---------8,914 (1,730) 211 ---------7,395 2,840 ---------$ 4,555 ========== $ .18 ========== 25,655,881 ==========

PRO FORMA ADJUSTMENTS ----------$ ---------(1,390)(1) (237)(2) ------(1,627) (270)(3) -------(1,897) 255(4) ------$(2,152) =======

PRO FORMA ---------$ 38,079 11,237 ---------26,842 (15,124) (1,868) ---------9,850 (2,000) 211 ---------8,061 3,095 ---------$ 4,966 ========== $ .19 ========== 25,655,881 ==========

See Notes to Pro Forma Statements of Operations F-26

NOTES TO PRO FORMA STATEMENTS OF OPERATIONS (1) The prior owners of the Cortisporin Product Line did not directly allocate selling, general and administrative, including distribution costs, expenses to the Cortisporin Product Line. Selling, general and administrative expenses resulting from the Cortisporin Product Line are estimated to be $5,550 and $1,390 for the year ended December 31, 1996 and the period January 1, 1997 through March 20, 1997, respectively. (2) Includes amortization of intangible assets over 25 years resulting from the Cortisporin Acquisition. (3) Assumes the additional interest costs on approximately $14.0 million of additional indebtedness, from several lending institutions, incurred on the Cortisporin Acquisition at estimated interest rates ranging from 7.25% to 10.0%. (4) Assumes the effective tax rate of 30.8% and 38.4% in for the year ended December 31, 1996 and the nine months ended September 30 1997, respectively. F-27

Photo inside back cover top center: pharmaceutical laboratory with lab technicians performing various functions. AN EXPERIENCED PRODUCT DEVELOPMENT TEAM The Company's laboratories and experienced product development scientists focus on product line extensions to existing branded products. The Company has filed a number of abbreviated new drug applications with the FDA, several of which have been approved.

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER, OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, STOCK TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS
PAGE ---5 7 7 14 14 15 16 17 20 28 38 43 44 46 50 52 55 56 57 57 F-1

Prospectus Summary.................... Risk Factors.......................... Cautionary Statement Regarding Forward-Looking Statements.......... The Company........................... Use of Proceeds....................... Dividend Policy....................... Capitalization........................ Dilution.............................. Selected Consolidated Financial Data................................ Management's Discussion and Analysis of Financial Condition and Results of Operations....................... Business.............................. Management............................ Certain Transactions.................. Principal and Selling Shareholders.... Description of Capital Stock.......... Shares Eligible for Future Sale....... Certain United States Federal Tax Considerations for Non-U.S. Holders of Common Stock..................... Underwriting.......................... Legal Matters......................... Experts............................... Additional Information................ Index to Consolidated Financial Statements..........................

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

8,200,000 SHARES [KING PHARMACEUTICALS] COMMON STOCK PROSPECTUS , 1997 LEHMAN BROTHERS CREDIT SUISSE FIRST BOSTON HAMBRECHT & QUIST

PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee........................................ NASD Filing Fee............................................. Nasdaq National Market Listing Fee.......................... Transfer Agent's Fee........................................ Blue Sky Fees and Expenses.................................. Printing and Engraving...................................... Accounting Fees and Expenses................................ Legal Fees and Expenses..................................... Advisor Fees................................................ Miscellaneous............................................... Total....................................................... $ 54,364 18,440 1,000 15,000 10,000 125,000 175,000 150,000 1,260,000 16,196 ---------$1,825,000 ==========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Tennessee Code Annotated Sections 48-18-501 through 48-18-509 authorize a corporation to provide for the indemnification of officers, directors, employees and agents in terms sufficiently broad to permit indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended. The Company has adopted the provisions of the Tennessee statute pursuant to Paragraph 9 of its Amended and Restated Charter. Also, the Company will have upon consummation of the offering a "Directors' and Officers' Liability Insurance Policy" which provides coverage sufficiently broad to permit indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following information reflects sales by the Company of unregistered securities within the past three years. Share amounts and designations have been adjusted for the stock split effected October 1997. The issuance by the Company of the securities sold in the transactions referenced below were not registered under the Securities Act of 1933, pursuant to the exemption contemplated in Section 4(2) thereof, for transactions not involving a public offering. The consideration paid to the Company in respect of each issuance was cash, unless otherwise indicated. In November 1994, an aggregate of 7,448,000 shares of the Company's Common Stock was issued to Randall J. Kirk, Jefferson J. Gregory, C.B.B., L.L.C., A. Willard Lester, John M. Gregory and Joseph R. Gregory in exchange for 76,000 shares of General Injectables and Vaccines, Inc. These securities were issued pursuant to the exemption available under Section 4(2) of the Securities Act of 1933 (the "1933 Act"). In October 1995, an aggregate of approximately 1.1 million shares of the Company's Common Stock was issued to John M. Gregory in exchange for 40,000 shares of the Company's Preferred Stock originally purchased for $800,000.00. These securities were issued pursuant to the exemption available under Section 4(2) of the 1933 Act. From January through October 1996, an aggregate of approximately 727,000 shares of the Company's Common Stock was issued to approximately 200 employees of the Company under the Company's Employee Stock Purchase Plan. All such shares were issued for $1.07 cash per share. These securities were issued pursuant to the exemption available under Section 4(2) of the 1933 Act. II-1

In December 1996, the Company issued an additional approximately 2,500,000 shares of its Common Stock pursuant to a 15.0% stock dividend. These securities were issued pursuant to the exemption available under Section 4(2) of the 1933 Act. In October 1996, certain members of management and other existing shareholders purchased approximately 3.9 million shares of the Company's Common Stock for a purchase price of $1.07 per share. These securities were issued pursuant to the exemption available under Section 4(2) of the 1933 Act. In March 1997, 8,532,594 shares of the Company's Common Stock were issued to The United Company in exchange for $8,750,000 in cash ($1.03 per share). These securities were issued pursuant to the exemption available under Section 4(2) of the 1933 Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. ------*1.1 3.1 3.1(a) 3.2 3.2(a) 4.1 4.2 5.1 10.1 DESCRIPTION ----------Form of Underwriting Agreement Amended and Restated Charter of King Pharmaceuticals, Inc. Proposed Second Amended and Restated Charter of King Pharmaceuticals, Inc. Bylaws of King Pharmaceuticals, Inc., as amended. Proposed Amended and Restated Bylaws of King Pharmaceuticals, Inc. Specimen Common Stock Certificate. Form of Rights Agreement by and between King Pharmaceuticals, Inc. and Union Planters National Bank. Form of Opinion of Baker, Donelson, Bearman & Caldwell, P.C. Promissory Note between RSR Acquisition Corporation (predecessor to King Pharmaceuticals, Inc.) and RSR Laboratories, Inc., dated December 28, 1993, in the amount of $3,500,000. Promissory Note between King Pharmaceuticals, Inc., and General Injectables and Vaccines, Inc., dated October 6, 1994, in the amount of $4,700,000. Loan Agreement between King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated April 30, 1996; associated Master Note in the amount of $3,500,000; associated Promissory Note in the amount of $2,500,000. Promissory Note between Monarch Pharmaceuticals, Inc. and Roberts Laboratories, Inc., dated October 2, 1996, in the amount of $5,500,000. Loan Agreement by and among Monarch Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated January 21, 1997; associated Promissory Note in the amount of $1,750,000. Loan Agreement by and among Monarch Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated January 29, 1997; associated Promissory Note in the amount of $1,750,000. Promissory Note between King Pharmaceuticals, Inc., and Signet Bank in the amount of $1,500,000, dated March 19, 1997. Promissory Note between King Pharmaceuticals, Inc., and The United Company, dated March 17, 1997, in the amount of $1,750,000. Loan Agreement by and among Monarch Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated March 20, 1997; associated Promissory Note in the amount of $5,000,000. Loan and Security Agreement by and between King Pharmaceuticals, Inc. and First American National Bank, dated August 21; associated Revolving Credit Note in the principal amount of $2,975,000; and associated Term Promissory Note in the principal amount of $1,025,000.

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10.2 10.3

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10.4 10.5

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10.6

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10.7 10.8 10.9

----

10.10

--

II-2

EXHIBIT NO. ------10.11

--

10.12

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10.13 10.14 11.1 21.1 23.1 23.2 24.1 27.1

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DESCRIPTION ----------Loan Agreement by and among King Pharmaceuticals, Inc., Monarch Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated September 10, 1997; associated Promissory Note in the amount of $8,500,000. Asset Purchase Agreement by and among King Pharmaceuticals, Inc., King Pharmaceuticals of Nevada, Inc. and Mallinckrodt Chemical, Inc. for the disposition of the Anexsia Product Line, dated December 13, 1995. Agreement between King Pharmaceuticals, Inc. and Ernest C. Bourne dated July 30, 1997. 1997 Incentive and Nonqualified Stock Option Plan for Employees of King Pharmaceuticals, Inc. Statement regarding Computation of Per Share Earnings Subsidiaries of the Registrant Consent of Baker, Donelson, Bearman & Caldwell, P.C. (included as Exhibit 5.1) Consent of Coopers & Lybrand, L.L.P. Powers of Attorney (included on the signature page of this Registration Statement). Financial Data Schedule (for SEC use only)

* To be filed by amendment. (b) Financial Statement Schedules -- Not applicable ITEM 17. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant for expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that: (i) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (ii) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (iii) It will provide to the underwriters at the closing(s) specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-3

SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Bristol, State of Tennessee on October , 1997. KING PHARMACEUTICALS, INC.
By: /s/ -----------------------------------John M. Gregory, Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitute and appoints John M. Gregory or Joseph R. Gregory, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE --------/s/ ----------------------------------------------------John M. Gregory /s/ ----------------------------------------------------Brian G. Shrader /s/ ----------------------------------------------------Joseph R. Gregory /s/ ----------------------------------------------------Jefferson J. Gregory /s/ ----------------------------------------------------Ernest C. Bourne /s/ ----------------------------------------------------Lois A. Clarke ----------------------------------------------------Greg Rooker /s/ ----------------------------------------------------Ted G. Wood TITLE ----Chairman of the Board and Chief Executive Officer (principal executive officer) Chief Financial Officer (principal financial and accounting officer) Director DATE ---October 24, 1997

October 24, 1997

October 24, 1997

Director

October 24, 1997

Director

October 24, 1997

Director

October 24, 1997

Director

October

, 1997

Director

October 24, 1997

II-4

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER ------*1.1 3.1 3.1(a) 3.2 3.2(a) 4.1 4.2 5.1 10.1 DESCRIPTION ----------Form of Underwriting Agreement Amended and Restated Charter of King Pharmaceuticals, Inc. Proposed Second Amended and Restated Charter of King Pharmaceuticals, Inc. Bylaws of King Pharmaceuticals, Inc., as amended. Proposed Amended and Restated Bylaws of King Pharmaceuticals, Inc. Specimen Common Stock Certificate. Form of Rights Agreement by and between King Pharmaceuticals, Inc. and Union Planters National Bank. Form of Opinion of Baker, Donelson, Bearman & Caldwell, P.C. Promissory Note between RSR Acquisition Corporation (predecessor to King Pharmaceuticals, Inc.) and RSR Laboratories, Inc., dated December 28, 1993, in the amount of $3,500,000. Promissory Note between King Pharmaceuticals, Inc., and General Injectables and Vaccines, Inc., dated October 6, 1994, in the amount of $4,700,000. Loan Agreement between King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated April 30, 1996; associated Master Note in the amount of $3,500,000; associated Promissory Note in the amount of $2,500,000. Promissory Note between Monarch Pharmaceuticals, Inc. and Roberts Laboratories, Inc., dated October 2, 1996, in the amount of $5,500,000. Loan Agreement by and among Monarch Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated January 21, 1997; associated Promissory Note in the amount of $1,750,000. Loan Agreement by and among Monarch Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated January 29, 1997; associated Promissory Note in the amount of $1,750,000. Promissory Note between King Pharmaceuticals, Inc., and Signet Bank in the amount of $1,500,000, dated March 19, 1997. Promissory Note between King Pharmaceuticals, Inc., and The United Company, dated March 17, 1997, in the amount of $1,750,000. Loan Agreement by and among Monarch Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated March 20, 1997; associated Promissory Note in the amount of $5,000,000. Loan and Security Agreement by and between King Pharmaceuticals, Inc. and First American National Bank, dated August 21; associated Revolving Credit Note in the principal amount of $2,975,000; and associated Term Promissory Note in the principal amount of $1,025,000. Loan Agreement by and among King Pharmaceuticals, Inc., Monarch Pharmaceuticals, Inc., and First Tennessee Bank National Association, dated September 10, 1997; associated Promissory Note in the amount of $8,500,000. Asset Purchase Agreement by and among King Pharmaceuticals, Inc., King Pharmaceuticals of Nevada, Inc. and Mallinckrodt Chemical, Inc. for the disposition of the Anexsia Product Line, dated December 13, 1995. Agreement between King Pharmaceuticals, Inc. and Ernest C. Bourne dated July 30, 1997. 1997 Incentive and Nonqualified Stock Option Plan for Employees of King Pharmaceuticals, Inc. Statement regarding Computation of Per Share Earnings Subsidiaries of the Registrant Consent of Baker, Donelson, Bearman & Caldwell, P.C. (included as Exhibit 5.1) Consent of Coopers & Lybrand, L.L.P. Powers of Attorney (included on the signature page of this Registration Statement). Financial Data Schedule (for SEC use only) Financial Data Schedule (for SEC use only)

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10.2 10.3

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10.4 10.5

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10.6

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10.7 10.8 10.9

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10.10

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10.11

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10.12

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10.13 10.14 11.1 21.1 23.1 23.2 24.1 27.1 27.2

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* To be filed by amendment.

EXHIBIT 3.1 STATE OF TENNESSEE ***** AMENDED AND RESTATED CHARTER OF KING PHARMACEUTICALS, INC. Pursuant to the provisions of Section 48-20-107 of the Tennessee Business Corporation Act, Tennessee Code Annotated, the undersigned Corporation hereby adopts the following Amended and Restated Charter: 1. Name. The name of the Corporation (previously known as "RSR Acquisition Corp.") is: KING PHARMACEUTICALS, INC. 2. Authorized Shares. The Corporation is authorized to issue 10,000,000 shares of common stock, having no par value, which shares shall have unlimited voting rights and full and equal rights to share in the profits of the Corporation and its net assets upon dissolution. 3. Registered Office. The address of the Corporation's registered office in the State of Tennessee shall be: 501 Fifth Street Bristol, Tennessee 37620 Sullivan County 4. Registered Agent. The name of the registered agent at that office is John A.A. Bellamy. 1

5. Principal Office. The address of the principal office of the Corporation is: 501 Fifth Street Bristol, Tennessee 37620 Sullivan County 6. Incorporator. The name and address of the original incorporator was: Kenneth D. Hale c/o Penn, Stuart, Eskridge & Jones 306 Piedmont Avenue Post Office Box 2009 Bristol, Virginia 24203 7. For Profit; Duration. The Corporation is for profit and its duration shall be perpetual. 8. Director Liability. No director of the Corporation shall have or owe any personal liability to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director: a. For any breach of the director's duty of loyalty to the Corporation or its Shareholders; b. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or c. Under Tennessee Code Annotated ss.48-18-304. 9. Indemnification. Each director, officer, and employee of the Corporation shall be entitled to all indemnification rights and protections now or hereafter available under applicable Tennessee law. 10. These amendments were adopted on the 11th day of October, 1996. 2

11. These amendments shall be effective as of the filing of this Amended and Restated Charter. 12. This restatement does not contain an amendment requiring shareholder approval and these amendments were duly adopted by the unanimous approval of the Board of Directors of the Corporation. The undersigned submits this Amended and Restated Charter of King Pharmaceuticals, Inc. to the State of Tennessee with the rights, powers and privileges herein declared. Dated: October 11, 1996. KING PHARMACEUTICALS, INC.
By:/s/ John A. A. Bellamy --------------------------------------Title: Vice President and General Counsel ------------------------------------

3

CERTIFICATE OF AMENDED AND RESTATED CHARTER Pursuant to the provisions of Tennessee Code Annotated ss.48-20-107, the undersigned, does hereby submit the attached Amended and Restated Charter of King Pharmaceuticals, Inc. (the "Corporation") for filing on behalf of the Corporation and does hereby certify as follows: 1. The name of the Corporation (previously known as RSR Acquisition Corp.) is: KING PHARMACEUTICALS, INC. 2. The Amended and Restated Charter contains amendments to the Charter which do not require shareholder approval. The Amended and Restated Charter amends the Charter by deleting Article 2 in its entirety and substituting in lieu thereof the following: 2. Authorized Shares. The Corporation is authorized to issue 10,000,000 shares of common stock, having no par value, which shares shall have unlimited voting rights and full and equal rights to share in the profits of the Corporation and its net assets upon dissolution. 3. The Amended and Restated Charter further amends the Charter by adding new Articles 8 and 9 as follows: 8. Director Liability. No director of the Corporation shall have or owe any personal liability to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director: a. For any breach of the director's duty of loyalty to the Corporation or its Shareholders; b. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or c. Under Tennessee Code Annotated ss.48-18-304. 9. Indemnification. Each director, officer, and employee of the Corporation shall be entitled to all indemnification rights and protections now or hereafter available under applicable Tennessee law. 4

4. The Amendments were duly adopted by the Board of Directors of the Corporation at a duly called meeting held on October 11, 1996. KING PHARMACEUTICALS, INC.
By: /s/ John M. Gregory ---------------------------------Title: Chairman of the Board -------------------------------

5

EXHIBIT 3.1(a) STATE OF TENNESSEE ***** SECOND AMENDED AND RESTATED CHARTER OF KING PHARMACEUTICALS, INC. Pursuant to the provisions of Section 48-20-107 of the Tennessee Business Corporation Act, Tennessee Code Annotated, the undersigned Corporation hereby adopts the following Second Amended and Restated Charter: 1. Name. The name of the Corporation is: KING PHARMACEUTICALS, INC. 2. Authorized Shares. (a)The total number of shares of common stock that the Corporation shall have authority to issue is 150,000,000, no par value (the "Common Stock"). The total number of shares of preferred stock that the Corporation shall have authority to issue is 15,000,000, no par value per share (the "Preferred Stock"). (b) The common Stock shall rank junior to the Preferred Stock in right of payment of dividends and upon liquidation and is subject to all the powers, rights, privileges, preferences and priorities of the Preferred Stock as provided herein or in any resolutions or resolutions or adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of subparagraph (c) of this Paragraph 2. (c) Authority is hereby expressly vested in the Board of Directors of the Corporation, subject to the provisions of this Paragraph 2 and to the limitations prescribed by law, to authorize the issuance from time to time of one or more series of Preferred Stock. The authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination or fixing of the following by resolution or resolutions adopted by the affirmative vote of a majority of the total number of the directors then in office: (i) The designation of such series; (ii) The dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or series of the Corporation's capital stock, and whether such dividends shall be cumulative or noncumulative; (iii) Whether the shares of such series shall be subject to redemption for cash, property or rights, including securities of any other corporation by the Corporation, or upon the happening of a specified event, and, if made subject to any such redemption, the times or events, prices, rates, adjustments and other terms and conditions of such redemptions;

(iv) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; (v) Whether or not the shares of such series shall be convertible into, or exchangeable for, at the option of either the holder or the Corporation or upon the happening of a specified event, shares of any other class or classes or of any other series of the same or any other class or classes of the Corporation's capital stock, and, if provision be made for conversion or exchange, the times or events, prices, rates, adjustments and other terms and conditions of such conversions or exchanges; (vi) The restrictions, if any, on the issue or reissue of any additional series of Preferred Stock; (vii) The rights of the holders of the shares of such series upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (viii) The provisions as to voting, optional and/or other special rights and preferences, if any, including, without limitation, the right to elect one or more directors. 3. Registered Office. The address of the Corporation's registered office in the State of Tennessee shall be 501 Fifth Street, Bristol, Tennessee 37620, Sullivan County. 4. Registered Agent. The name of the registered agent at that office is John A.A. Bellamy. 5. Principal Office. The address of the principal office of the Corporation is 501 Fifth Street, Bristol, Tennessee 37620, Sullivan County. 6. Board of Directors. The number of directors shall be fixed by resolution of the Board of Directors. The directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. Membership in such classes shall be as nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the annual election of directors by shareholders of the Corporation in 1998, the term of office of the initial Class II directors shall expire at the annual election of directors by shareholders of the Corporation in 1999, the term of office of the initial Class III directors shall expire at the annual election of directors by shareholders of the Corporation in 2000, or thereafter when their respective successors in each case are elected by the shareholders and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office with or without cause. At each succeeding annual election of directors by the shareholders of the Corporation beginning in 1997, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed and shall be elected for a term expiring at the third succeeding annual election of directors by the shareholders of the Corporation, or thereafter when their respective successors in each case are elected by the shareholders and qualified. If the number of directors is changed, any increase or decrease shall be

apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. 7. For Profit; Duration. The Corporation is for profit and its duration shall be perpetual. 8. Director Liability. No director of the Corporation shall have or owe any personal liability to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director: a. For any breach of the director's duty of loyalty to the Corporation or its shareholders; b. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or c. Under Tennessee Code Annotated Section 48-18-304, as such provision may be amended from time to time. 9. Indemnification. Each director, officer, and employee of the Corporation shall be entitled to all indemnification rights and protections now or hereafter available under applicable Tennessee law. 10. Section 6 and this Section 10 of this Second Amended and Restated Charter and Sections 2 and 6 of Article I and Section 3 of Article II of the Amended and Restated Bylaws of the Corporation shall not be altered, amended or repealed by, and no provision inconsistent therewith shall be adopted by, the shareholders without the affirmative vote of the holders of at least 80% of the Common Stock, voting together as a single class. 11. These amendments shall be effective as of the filing of this Second Amended and Restated Charter. 12. This restatement contains amendments requiring shareholder approval and these amendments were duly adopted by the shareholders at a meeting duly called on the 14th day of November, 1997.

The undersigned submits this Second Amended and Restated Charter of King Pharmaceuticals, Inc., to the State of Tennessee with the right, powers and privileges herein declared. Dated: November 14, 1997 KING PHARMACEUTICALS, INC. By: John A. A. Bellamy Executive Vice President and General Counsel

CERTIFICATE OF AMENDED AND RESTATED CHARTER Pursuant to the provisions of Tennessee Code Annotated ss.48-20-107, the undersigned, does hereby submit the attached Second Amended and Restated Charter of King Pharmaceuticals, Inc. (the "Corporation") for filing on behalf of the Corporation and does hereby certify as follows: 1. The name of the Corporation is: KING PHARMACEUTICALS, INC. 2. The Second Amended and Restated Charter contains amendments to the Charter which were approved by the shareholders of the Corporation at a duly called meeting on November 14, 1997. The Second Amended and Restated Charter amends the Charter by deleting Article 2 in its entirety and substituting in lieu thereof the following: 2. Authorized Shares. (a)The total number of shares of common stock that the Corporation shall have authority to issue is 150,000,000, no par value (the "Common Stock"). The total number of shares of preferred stock that the Corporation shall have authority to issue is 15,000,000, no par value per share (the "Preferred Stock"). (b) The Common Stock shall rank junior to the Preferred Stock in right of payment of dividends and upon liquidation and is subject to al the powers, rights, privileges, preferences and priorities of the Preferred Stock as provided herein or in any resolutions or resolutions or adopted by the board of directors pursuant to authority expressly vested in it by the provisions of subparagraph (c) of this Paragraph 2. (c) Authority is hereby expressly vested in the board of directors of the Corporation, subject to the provisions of this Paragraph 2 and to the limitations prescribed by law, to authorize the issuance from time to time of one or more series of Preferred Stock. The authority of the board of directors with respect to each series shall include, but not be limited to, the determination or fixing of the following by resolution or resolutions adopted by the affirmative vote of a majority of the total number of the directors then in office: (i) The designation of such series; (ii) The dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bar to the dividends payable on any other class or classes or series of the Corporation's capital stock, and whether such dividends shall be cumulative or noncumulative; (iii) Whether the shares of such series shall be subject to redemption for cash, property or rights, including securities of any other corporation, by the Corporation, or upon

the happening of a specified event, and, if made subject to any such redemption, the times or events, prices, rates, adjustments and other terms and conditions of such redemptions; (iv) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; (v) Whether or not the shares of such series shall be convertible into, or exchangeable for, at the option of either the holder or the corporation or upon the happening of a specified event, shares of any other class or classes or of any other series of the same or any other class or classes of the corporation's capital stock, and, if provision be made for conversion or exchange, the times or events, prices, rates, adjustments and other terms and conditions of such conversions or exchanges; (vi) The restrictions, if any, on the issue or reissue of any additional Preferred Stock; (vii) The rights of the holders of the shares of such series upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation; and (viii) The provisions as to voting, optional and/or other special rights and preferences, if any, including, without limitation, the right to elect one or more directors. 3. The Second Amended and Restated Charter further amends the Charter by adding the following: 6. Board of Directors. The number of directors shall be fixed by resolution of the Board of Directors. The directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. Membership in such classes shall be as nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the annual election of directors by shareholders of the Corporation in 1998, the term of office of the initial Class II directors shall expire at the annual election of directors by shareholders of the Corporation in 1999, the term of office of the initial Class III directors shall expire at the annual election of directors by shareholders of the Corporation in 2000, or thereafter when their respective successors in each case are elected by the shareholders and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office with or without cause. At each succeeding annual election of directors by the shareholders of the Corporation beginning in 1997, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed and shall be elected for a term expiring at the third succeeding annual election of directors by the shareholders of the Corporation, or thereafter when their respective successors in each case are elected by the shareholders and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of

directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. 4. The Second Amended and Restated Charter further amends the Charter by adding the following: 10. Section 6 and this Section 10 of this Second Amended and Restated Charter and Sections 2 and 6 of Article I and Section 3 of Article II of the Amended and Restated Bylaws of the Corporation shall not be altered, amended or repealed by, and no provision inconsistent therewith shall be adopted by, the shareholders without the affirmative vote of the holders of at least 80% of the Common Stock, voting together as a single class. 5. The Amendments were duly adopted by the Board of Directors of the Corporation at a duly called meeting held on October 15, 1997 and by the shareholders at a duly called meeting on November 14, 1997. KING PHARMACEUTICALS, INC. By: John A.A. Bellamy Executive Vice President and General Counsel

EXHIBIT 3.2 BYLAWS OF KING PHARMACEUTICALS, INC. ARTICLE I MEETING OF SHAREHOLDERS 1. Annual Meeting. The annual meeting of the shareholders shall be held at such time and place, either within or without this State, as may be designated from time to time by the directors. 2. Special Meeting. Special meetings of the shareholders may be called by the President, a majority of the Board of Directors, or by the holders of not less than ten percent (10%) of all the shares entitled to vote at such meeting. The place of said meeting shall be designated by the directors. 3. Notice of Shareholder Meetings. Written notice stating the date, time, and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered either personally, or by mail, by or at the direction of the President, Secretary, officer, or person calling the meeting to each shareholder entitled to vote at the meeting. Such notice shall be delivered not less than ten (10) days nor more than two (2) months before the date of the meeting, and shall be deemed to be delivered when deposited in the United States mail postpaid and correctly addressed (if mailed), or upon actual receipt (if hand delivered). The person giving such notice shall certify that the notice required by this paragraph has been given. 1

4. Quorum Requirements. A majority of the shares entitled to vote shall constitute a quorum for the transaction of business. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 5. Voting and Proxies. If a quorum exists, action on a matter (other than the election of directors) shall be approved if the votes favoring the action exceed the votes opposing the action. A shareholder may vote his or her shares either in person or by written proxy, which proxy is effective when received by the Secretary or other person authorized to tabulate votes. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. ARTICLE II BOARD OF DIRECTORS 1. Qualification and Election. Directors need not be shareholders or residents of this State. They shall be elected by a plurality of the votes cast at a meeting at which a quorum is present. Each director shall hold office until the expiration of the term for which the director is elected, and thereafter until a successor has been elected and qualified. 2. Number. The number of directors shall be eight (8) unless another number is fixed by the Board of Directors. 3. Meetings. The Board of Directors may hold such regular and special meetings as it from time to time decides. These meetings may be either in person or by conference call. Special 2

meetings may be called at any time by the Chairman of the Board, President, or any two (2) directors. 4. Notice of Directors' Meetings. All regular board meetings may be held without notice. Special meetings shall be preceded by at least two (2) days' notice of the date, time and place of the meeting. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one adjournment. 5. Quorum and Vote. The presence of a majority of the directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board. 6. Board Committees. The Board of Directors, by a resolution adopted by a majority of its members, may create one or more committees, consisting of one or more directors, and may delegate to such committee or committees any and all such authority as is permitted by law. ARTICLE III OFFICERS 1. Numbers. The Corporation shall have a President, a Secretary, a Chairman of the Board of Directors or a Chief Executive Officer, and such other officers as the Board of Directors shall from time to time deem necessary. Any two or more offices may be held by the same person with the exception of the President and the Secretary. 3

2. Election and Term. The officers shall be elected by the Board of Directors. Each officer shall serve at the pleasure of the Board until such officer's resignation or removal. 3. Duties. All officers shall have such authority and perform such duties in the management of the Corporation as are normally incident to their offices and as the Board of Directors may from time to time provide. ARTICLE IV RESIGNATION, REMOVALS AND VACANCIES 1. Resignations. Any officer or director may resign at any time by giving notice to the Chairman of the Board, the President, or the Secretary. Any such resignation shall take effect at the time specified therein, or, if no time is specified, then upon its delivery. 2. Removal of Officers. Any officer may be removed by the Board or its designate at any time with or without cause. 3. Removal of Directors. Any or all of the directors may be removed either with or without cause by a proper vote of the shareholders. 4. Vacancies. Newly created directorships resulting from an increase in the number of directors, and vacancies occurring in any office or directorship for any reason, including removal of an officer or director, may be filled by the vote of a majority of the directors then in office, even if less than a quorum exists. 4

ARTICLE V CAPITAL STOCK 1. Stock Certificates. Every shareholder shall be entitled to a certificate or certificates of capital stock of the corporation in such form as may be prescribed by the Board of Directors. Unless otherwise decided by the Board, such certificates shall be signed by the President and the Secretary of the Corporation. 2. Transfer of Shares. Shares of stock may be transferred on the books of the Corporation by delivery and surrender of the properly assigned certificate, but subject to any restrictions on transfer imposed by either the applicable securities laws or any shareholder agreement. 3. Loss of Certificates. In the case of the loss, mutilation, or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms as the Board of Directors shall prescribe. ARTICLE VI ACTION BY CONSENT Whenever the shareholders or directors are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by all the persons or entities entitled to vote thereon. The affirmative vote of the number of shares or directors that would be necessary to take such action at a meeting shall be the act of the shareholders or directors, as the case may be. 5

ARTICLE VII INDEMNIFICATION With respect to claims of liabilities arising out of service as a director or officer of the Corporation, the Corporation shall indemnify and advance expenses to each present and future director or officer (and his or her estate, heirs, and personal representatives) to the fullest extent allowed by the laws of the State of Tennessee, both as now in effect and as hereafter adopted or amended. In the event that the Corporation indemnifies or makes any advance of expenses under this provision, the Secretary shall, in writing, report such action to the shareholders with or before the notice of the next shareholder's meeting. ARTICLE VIII AMENDMENT OF BYLAWS These Bylaws may be amended, added to, or repealed either by the shareholders or the Board of Directors as provided by statute. Any change in the Bylaws made by the Board of Directors, however, may be amended or repealed by the shareholders. 6

CERTIFICATION I certify that these initial Bylaws for the Corporation were duly adopted by the Unanimous Written Consent of the Board of Directors as of the 28th day of October 1996.
/s/ John A. A. Bellamy ---------------------------------John A. A. Bellamy Vice-President and General Counsel

7

EXHIBIT 3.2(a) AMENDED AND RESTATED BYLAWS OF KING PHARMACEUTICALS, INC. ARTICLE I MEETING OF SHAREHOLDERS 1. Annual Meeting. The annual meeting of the shareholders shall be held at such time and place, either within or without this State, as may be designated from time to time by the Board of Directors. 2. Special Meeting. Special meetings of the shareholders may be called by the Chairman of the Board and Chief Executive Officer, the President or a majority of the Board of Directors. The place of said meeting shall be designated by the directors. 3. Notice of Shareholder Meetings. Written notice stating the date, time, and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered either personally, or by mail, by or at the direction of Chairman of the Board and Chief Executive Officer, the President, Secretary, officer, or person calling the meeting to each shareholder entitled to vote at the meeting. Such notice shall be delivered not less than ten (10) days nor more than two (2) months before the date of the meeting, and shall be deemed to be delivered when deposited in the United States mail postpaid and correctly addressed (if mailed), or upon actual receipt (if hand delivered). The person giving such notice shall certify that the notice required by this paragraph has been given. 4. Quorum Requirements. A majority of the shares entitled to vote shall constitute a quorum for the transaction of business. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 5. Voting and Proxies. If a quorum exists, action on a matter (other than the election of directors) shall be approved if the votes favoring the action exceed the votes opposing the action. A shareholder may vote his or her shares either in person or by written proxy, which proxy is effective when received by the Secretary or other person authorized to tabulate votes. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. 6. Business Brought Before a Meeting. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) brought before the 1

meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the tenth (10) day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Ccorporation which are beneficially owned by the shareholder, and (d) any material interest of the shareholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedure set forth in this Section 6 of Article I. The presiding officer of an annual meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting and in accordance with the provisions of this Section 6 of Article I; and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE II BOARD OF DIRECTORS 1. Qualification and Election. Directors need not be shareholders or residents of this State. They shall be elected by a plurality of the votes cast at a meeting at which a quorum is present. Each director shall hold office until the expiration of the term for which the director is elected, and thereafter until a successor has been elected and qualified. 2. Number. The number of directors shall be eight (8) unless another number is fixed by the Board of Directors. 3. Nominations. (a) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in these Bylaws, who is entitled to vote for the 2

election of directors at the meeting and who shall have complied with the notice procedures set forth below in Section (b) of this Article II. (b) In order for a shareholder to nominate a person for election to the Board of Directors of the Corporation at a meeting of shareholders, such shareholder shall have delivered timely notice of such shareholder's intent to make such nomination in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an annual meeting, not less than sixty (60) nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, notice by the shareholder to be timely must be so received not later than the close of business on the tenth (10) day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting was made, and (ii) in the case of a special meeting at which directors are to be elected, not later than the close of business on the tenth (10) day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting was made. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election as a director at such meeting, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to this shareholder giving the notice (A) the name and address, as they appear on the Corporation's books, of such shareholder and (B) the class and number of shares of the Corporation which are beneficially owned by such shareholder and also which are owned of record by such shareholder; and (iii) as to the beneficial owner, if any, on whose behalf the nomination is made, (A) the name and address of such person and (B) the class and number of shares of the Corporation which are beneficially owned by such person. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. (c) No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3 of Article II. The chairman of the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by this Section 6 of Article II, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. A shareholder seeking to nominate a person to serve as a director must also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 3 of Article II. 3

4. Meetings. The Board of Directors may hold such regular and special meetings as it from time to time decides. These meetings may be either in person or by conference call. The actions of any person participating by way of telephone or other electronic means shall be as effective as if the person were physically present at the meeting. Special meetings may be called at any time by the Chairman of the Board, President, or any two (2) directors. 5. Notice of Directors' Meetings. All regular meetings of the Board of Directors may be held without notice. Special meetings shall be preceded by at least two (2) days' notice of the date, time and place of the meeting. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one adjournment. 6. Quorum and Vote. The presence of a majority of the directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 7. Board Committees. The Board of Directors, by a resolution adopted by a majority of its members, may create one or more committees, consisting of one or more directors, and may delegate to such committee or committees any and all such authority as is permitted by law. ARTICLE III OFFICERS 1. Numbers. The Corporation shall have a President, a Secretary, an Assistant Secretary, a Chairman of the Board of Directors or a Chief Executive Officer, and such other officers as the Board of Directors shall from time to time deem necessary. Any two or more offices may be held by the same person with the exception of the President and the Secretary. 2. Election and Term. The officers shall be elected by the Board of Directors. Each officer shall serve at the pleasure of the Board until such officer's resignation or removal. 3. Duties. All officers shall have such authority and perform such duties in the management of the Corporation as are normally incident to their offices and as the Board of Directors may from time to time provide. ARTICLE IV RESIGNATION, REMOVALS AND VACANCIES 1. Resignations. Any officer or director may resign at any time by giving notice to the Chairman of the Board, the President, or the Secretary. Any such resignation shall take effect at the time specified therein, or, if no time is specified, then upon its delivery. 4

2. Removal of Officers. Any officer may be removed by the Board or its designate at any time with or without cause. 3. Removal of Directors. Any or all of the directors may be removed either with or without cause by a proper vote of the shareholders. 4. Vacancies. Newly created directorships resulting from an increase in the number of directors, and vacancies occurring in any office or directorship for any reason, including removal of an officer or director, may be filled by the vote of a majority of the directors then in office, even if less than a quorum exists. ARTICLE V CAPITAL STOCK 1. Stock Certificates. Every shareholder shall be entitled to a certificate or certificates of capital stock of the Corporation in such form as may be prescribed by the Board of Directors. Unless otherwise decided by the Board, such certificates shall be signed by the President and the Secretary of the Corporation. 2. Transfer of Shares. Shares of stock may be transferred on the books of the Corporation by delivery and surrender of the properly assigned certificate, but subject to any restrictions on transfer imposed by either the applicable securities laws or any shareholder agreement. 3. Loss of Certificates. In the case of the loss, mutilation, or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms as the Board of Directors shall prescribe. ARTICLE VI ACTION BY CONSENT Whenever the directors are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken. The affirmative vote of the number of directors that would be necessary to take such action at a meeting shall be the act of the directors. ARTICLE VII INDEMNIFICATION With respect to claims of liabilities arising out of service as a director or officer of the Corporation, the Corporation shall indemnify and advance expenses to each present and future director or officer (and his or her estate, heirs, and personal representatives) to the fullest extent allowed by the laws of the State of Tennessee, both as now in effect and as hereafter adopted or 5

amended. In the event that the Corporation indemnifies or makes any advance of expenses under this provision, the Secretary shall, in writing, report such action to the shareholders with or before the notice of the next shareholder's meeting. ARTICLE VIII AMENDMENT OF BYLAWS These Bylaws may be amended, added to, or repealed either by the shareholders or the Board of Directors as provided by statute or the Charter of the Corporation, as amended from time to time. Any change in the Bylaws made by the Board of Directors, however, may be amended or repealed by the shareholders as provided in the Charter of the Corporation, as amended from time to time, or as allowed by applicable laws of the State of Tennessee. CERTIFICATION I certify that these Amended and Restated Bylaws for the Corporation were duly adopted by the Board of Directors as of the 14th day of November, 1997.

John A. A. Bellamy Executive Vice President and General Counsel 6

Exhibit 4.1 Specimen Stock Certificate COMMON STOCK NO PAR VALUE Incorporated under the laws of the State of Tennessee KING PHARMACEUTICALS, INC. CUSIP 195582 10 8 See Reverse Side for Certain Definitions This Certificate is transferable in New York, NY, or Memphis, TN. THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF King Pharmaceuticals, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: Countersigned and Registered Union Planters National Bank, Memphis, Tennessee Transfer Agent and Registrar
By Authorized Signature /s/ John M. Gregory President /s/ Joseph R. Gregory Secretary

KING PHARMACEUTICALS, INC. King Pharmaceuticals, Inc. will furnish without charge to each shareholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof of the corporation, and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the corporation or the transfer agent. This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between King Pharmaceuticals, Inc. and Union Planters Bank National Bank, as Rights Agent, dated as of , 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of King Pharmaceuticals, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. King Pharmaceuticals, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights that were, are or become beneficially owned by Acquiring Persons or their Associates or Affiliates (as such terms are defined in the Rights Agreement) may become null and void and the holder of such Rights (including any subsequent holder) shall not have any right to exercise such Rights. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - us tenants in common Custodian -----------------------------TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT (Cust) (Minor) under Uniform Gifts to Minors Act..................... (State)

COM PROP - as community property UNIF TRF MIN ACT -....Custodian (until age.......) (Cust) .........under Uniform Transfers (Minor) to Minors Act .................. (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated, X NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). PURSUANT TO S.E.C. RULE 17AD-15.

EXHIBIT 4.2

KING PHARMACEUTICALS, INC. and UNION PLANTERS NATIONAL BANK Rights Agent RIGHTS AGREEMENT Dated as of ____________, 1997

TABLE OF CONTENTS
Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8 Section 9 Section 10 Section 11 Section 12 Section 13 Section 14 Section 15 Section 16 Section 17 Section 18 Certain Definitions ............................................................ Appointment of Rights Agent .................................................... Issuance of Rights Certificates ................................................ Form of Rights Certificates .................................................... Execution. Countersignature and Registration ................................... Transfer, Division, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates .................................. Exercise of Rights. Purchase Price; Expiration Date of Rights .................. Cancellation and Destruction of Rights Certificates ............................ Reservation and Availability of Preferred Stock ................................ Preferred Stock Record Date .................................................... Adjustments to Purchase Price. Number of Shares or Number of Rights ............ Certification of Adjustments ................................................... Consolidation. Merger or Sale or Transfer of Assets or Earning Power ........... Fractional Rights and Fractional Shares ........................................ Rights of Action ............................................................... Agreement of Rights Holders Concerning Transfer and Ownership of Rights ........ Rights Holder Not Deemed a Stockholder ......................................... Concerning the Rights Agent .................................................... -1-8-8-10-11-11-12-14-15-16-17-25-25-28-29-30-30-31-

-i-

Section 19 Section 20 Section 21 Section 22 Section 23 Section 24 Section 25 Section 26 Section 27 Section 28 Section 29 Section 30 Section 31 Section 32 Section 33 EXHIBIT A EXHIBIT B

Merger or Consolidation or Change of Name of Rights Agent ...................... Duties of Rights Agent ......................................................... Change of Rights Agent ......................................................... Issuance of New Rights Certificates ............................................ Redemption and Termination ..................................................... Notice of Certain Events ....................................................... Notices ........................................................................ Supplements and Amendments ..................................................... Successors ..................................................................... Benefits of this Agreement; Determinations and Actions by the Board of Directors Severability ................................................................... Governing Law .................................................................. Counterparts ................................................................... Descriptive Headings ........................................................... Grammatical Construction ....................................................... Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A ................................. Form of Rights Certificate .....................................................

-31-32-33-34-35-36-36-37-38-38-39-39-39-39-39A-1 B-1

-ii-

RIGHTS AGREEMENT Rights Agreement dated as of ________ __, 1997, between King Pharmaceuticals, Inc. a Tennessee corporation (the "Company") and Union Planters National Bank, a national banking association (the "Rights Agent"). RECITALS The Board of Directors of the Company has authorized and declared the payment of a dividend of one preferred share purchase right (the "Right") for each share of Common Stock (as defined in Section 1) outstanding at the Close of Business on the Record Date (as defined in Section 1) and has authorized the issuance of one Right for each share of Common Stock issued between the Record Date and the Distribution Date (as defined in Section 1), and, in certain cases following the Distribution Date. Each Right represents, as of the Close of Business on the Record Date, the right to purchase one one-thousandth of a share of Preferred Stock (as defined in Section 1) upon the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth in this Agreement, the parties hereby agree as follows Section 1. Certain Definitions For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" means any Person who or which, together with all Affiliates and Associates of such Person, is (or has previously been, at any time after the date of this Agreement, whether or not such Person(s) continues to be) the Beneficial Owner of 15% or more of the Common Stock then outstanding, (determined without taking into account any securities exercisable or exchangeable for, or convertible into, Common Stock, other than any such securities beneficially owned by the Acquiring Person and Affiliates and Associates of such Person). In any case, an Exempt Person, so long as such Person remains an Exempt Person, is not an Acquiring Person and an acquisition of Common Stock by an Exempt Person is not a Triggering Event, so long as such acquisition is an Exempt Event. A Person does not become an "Acquiring Person" solely as the result of (i) an acquisition of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Stock then outstanding as determined above, or (ii) such Person becoming the Beneficial Owner of 15% or more of the Common Stock then outstanding as determined above solely as a result of an Exempt Event; provided, however, that if a Person becomes the Beneficial Owner of 15% or more of the Common Stock then outstanding as determined above solely by reason of such a share acquisition by the Company or the occurrence of such an Exempt Event and such Person shall, after

becoming the Beneficial Owner of such Common Stock, become the Beneficial Owner of any additional shares of Common Stock by any means whatsoever (other than as a result of the subsequent occurrence of an Exempt Event, a share acquisition by the Company, a stock dividend or a subdivision of the Common Stock into a larger number of shares or a similar transaction), then such Person shall be deemed to be an "Acquiring Person." (b) "Affiliate" of a Person has the meaning given to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Agreement; provided that, for purposes of this Agreement, the term "Affiliate" shall not include any Person that is an Exempt Person. (c) "Associate" of a Person has the meaning given to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Agreement, provided that, for purposes of this Agreement, the term "Associate" shall not include any Person that is an Exempt Person. (d) Except as provided below, a Person is the "Beneficial Owner" of, and "beneficially owns," any securities: (i) which such Person or any Affiliate or Associate of such Person beneficially owns, directly or indirectly; (ii) which such Person or any Affiliate or Associate of such Person has, directly or indirectly, the right or obligation (whether or not then exercisable or effective) to acquire pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person will not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any Affiliate or Associate of such Person until such tendered securities are accepted for purchase or exchange, and provided further, that prior to the occurrence of a Triggering Event, a Person will not be deemed the Beneficial Owner of, or to beneficially own, securities obtainable upon exercise of the Rights; (iii) which such Person or any Affiliate or Associate of such Person has, directly or indirectly, the right (whether or not then exercisable) to vote, or to direct the voting of, pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security pursuant to this clause (iii) if the agreement, arrangement or understanding to vote, or to direct the voting of, such security (A) arises solely from a revocable proxy or consent given in response to a public proxy or consent solicitation made -2-

pursuant to, and in accordance with, the Exchange Act and applicable rules and regulations thereunder and (B) is not also then reportable under Item 6 (or any comparable or successor item) of Schedule 13D under the Exchange Act (or any comparable or successor schedule or report); (iv) which such Person or any Affiliate or Associate of such Person has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act or any successor provision); or (v) which are beneficially owned, directly or indirectly, by any other Person or any Affiliate or Associate of such other Person with whom such Person or any Affiliate or Associate of such Person has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in subparagraph (iii) of this Section 1 (d)) or disposing of any securities of the Company. Nothing in this Section 1 (d) causes a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. Notwithstanding anything in this Agreement to the contrary, for purposes of this Agreement, in the absence of a written agreement entered into for the purpose of acquiring, holding, voting or disposing of any securities of the Company, no Person is to be treated as the "Beneficial Owner" of, or to "beneficially own," any securities owned by any other Person that is an Exempt Person, and no Exempt Person shall be treated as the "Beneficial Owner" of, or to "beneficially own" any securities owned by any other Person (other than an Associate of such Exempt Person). (e) "Business Combination" has the meaning set forth in Section 13 of this Agreement. (f) "Business Day" means any day other than a Saturday, Sunday, or a day on which banking institutions in the State of Tennessee are authorized or obligated by law or executive order to close. (g) "Close of Business" on any given date means 5:00 p.m. Eastern Time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 p.m. Eastern Time, on the next succeeding Business Day. (h) "Common Stock" when used in any context applicable prior to a Business Combination means the Common Stock, no par value per share, of the Company (as the same may be changed by reason of any combination, subdivision or reclassification of the Common Stock). -3-

"Common Stock" when used with reference to any Person (other than the Company prior to a Business Combination) means shares of capital stock of such Person (if such Person is a corporation) of any class or series, or units of equity interests in such Person (if such Person is not a corporation) of any class or series, the terms of which shares or units do not limit (as a fixed amount and not merely in proportional terms) the amount of dividends or income payable or distributable on such shares or units or the amount of assets distributable on such shares or units upon any voluntary or involuntary liquidation, dissolution or winding up of such Person and do not provide that such shares or units are subject to redemption at the option of such Person, or any shares of capital stock or units of equity interests into which the foregoing shall be reclassified or changed; provided, however, that if at any time there are more than one such class or series of capital stock of or equity interests in such Person, "Common Stock" of such Person will include all such classes and series substantially in the proportion of the total number of shares or other units of each such class or series outstanding at such time. (i) "Continuing Director" means (i) any member of the Board of Directors of the Company, while such Person is a member of the Board of Directors of the Company, who is not an Acquiring Person (as defined herein), or an Affiliate or Associate of an Acquiring Person or a representative, designee or nominee of an Acquiring Person or of any such Affiliate or Associate, and who was a member of the Board of Directors of the Company on the date of this Agreement, and (ii) any Person who becomes a member of the Board of Directors of the Company after the date of this Agreement, while such Person is a member of the Board of Directors of the Company, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative, designee or nominee of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election, or election, to the Board of Directors of the Company is recommended or approved by a majority of the Continuing Directors. (j) "Current Market Price" per share of Common Stock, Preferred Stock or Equivalent Shares on any date is the average of the daily closing prices per share of such Common Stock, Preferred Stock or Equivalent Shares for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date for the purpose of any computation under this Agreement except computations made pursuant to Section 11(a)(iv), and for the Trading Day immediately prior to such date for the purpose of any computation under Section 11(a)(iv); provided, however, that in the event that the Current Market Price per share of Common Stock, Preferred Stock or Equivalent Shares is determined during a period following the announcement by the issuer of such Common Stock, Preferred Stock or Equivalent Shares of (i) a dividend or distribution on such Common Stock, Preferred Stock or Equivalent Shares other than a regular quarterly cash dividend, or (ii) any subdivision, combination or reclassification of such Common Stock, Preferred Stock or Equivalent Shares, and prior to the expiration of 30 Trading Days after the "ex-dividend" date for such dividend or distribution or the record date for such subdivision, combination or reclassification, then, and in each such case, the "Current Market Price" must be appropriately adjusted to take into account such dividend, distribution, subdivision, combination or reclassification. The closing price -4-

for each Trading Day shall be the last sale price, regular way, on such day, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, on such day, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock, Preferred Stock or Equivalent Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction repourities listed on the principal United States national securities exchange on which the Common Stock, Preferred Stock or Equivalent Shares are listed or admitted to trading or, if the Common Stock, Preferred Stock or Equivalent Shares are not listed or admitted to trading on any United States national securities exchange, the last quoted sale price on such day or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market on such days as reported by the Nasdaq National Market ("Nasdaq") or such other system then in use. If on such day the Common Stock, Preferred Stock or Equivalent Shares are not quoted by any such organization, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Common Stock, Preferred Stock or Equivalent Shares selected by a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) shall be used. If no such market maker is making a market, the fair market value of such shares on such day as determined in good faith by a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) or the Board of Directors of the issuer of such Common Stock, Preferred Stock or Equivalent Shares must be used, which determination must be described in a statement filed with the Rights Agent and is binding and conclusive for all purposes. The term "Trading Day" means a day on which the principal United States national securities exchange on which the Common Stock, Preferred Stock or Equivalent Shares are listed or admitted to trading is open for the transaction of business or, if the Common Stock, Preferred Stock or Equivalent Shares are not listed or admitted to trading on any United States national securities exchange, but are traded in the over-the-counter market and reported by Nasdaq, then any day for which Nasdaq reports the high bid and low asked prices in the over-the-counter market, or if the Common Stock, Preferred Stock or Equivalent Shares are not traded in the over-the-counter market and reported by Nasdaq, then a Business Day. If the Common Stock, Preferred Stock or Equivalent Shares have not been so listed or admitted to trading for 30 or more Trading Days or traded in the over-the-counter market and reported by Nasdaq for 30 or more Trading Days, "Current Market Price" per share means the fair market value per share as determined in good faith by a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors of the Company), whose determination must be described in a statement filed with the Rights Agent and will be final, binding and conclusive for all purposes. (k) "Distribution Date" means the earlier of (i) the day after the Company's right to redeem the Rights pursuant to Section 23(a)(i) expires and (ii) the tenth Business Day after commencement or public disclosure of an intention to commence (including, without limitation, any such commencement or public disclosure which occurs on or after the date of this Agreement and prior to the issuance of the Rights) a tender offer or exchange offer by a Person if, after acquiring -5-

the maximum number of securities sought pursuant to such offer, such Person, or any Affiliate or Associate of such Person, would be an Acquiring Person. If there is at least one Continuing Director then in office, the Board of Directors of the Company, with the concurrence of a majority of the Continuing Directors then in office, may defer the date set forth in clause (ii) of the preceding sentence to a specified later date or to an unspecified later date to be determined by a subsequent action or event. (l) "Equivalent Shares" means any class or series of capital stock of the Company, other than the Preferred Stock, which is entitled to participate on a proportional basis with the Preferred Stock in dividends and other distributions, including distributions upon the liquidation, dissolution or winding up of the Company. In calculating the number of any class or series of Equivalent Shares for purposes of Section 11, the number of shares, or fractions of a share, of such class or series of capital stock that is entitled to the same dividend or distribution as a whole share of Preferred Stock shall be deemed to be one share. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor statute. (n) "Exchange Date" means the time at which the Rights are exchanged pursuant to Section 11(a)(iv) . (o) "Exempt Event" means (i) the acquisition of additional Common Stock by an Exempt Person, so long as such Person does not cease to be an Exempt Person under clause (p) below, or (ii) with respect to any Person, the acquisition by such Person of Beneficial Ownership of Common Stock solely as a result of the occurrence of a Triggering Event and the effect of such Triggering Event on the last proviso of clause (ii) of the definition of Beneficial Owner, other than a Triggering Event in which such Person becomes an Acquiring Person. (p) "Exempt Person" means (i) the Company, (ii) any Subsidiary of the Company, (iii) John M. Gregory, Joseph R. Gregory and Jefferson J. Gregory, their respective spouses or issue, any trust of which any of them and/or their respective spouses are the grantor or of which any of them or their respective spouses, his issue or any charity is a beneficiary, (iv) any employee benefit plan of the Company or of any Subsidiary of the Company, and (v) any Person holding Common Stock for any such employee benefit plan or for employees of the Company or of any Subsidiary of the Company pursuant to the terms of any such employee benefit plan. (q) "Expiration Date" means the Close of Business on the tenth anniversary of the Record Date. -6-

(r) "Person" means any individual firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity, and shall include any "group" as that term is used in Rule 13d-5(b) under the Exchange Act (or any successor provision). (s) "Preferred Stock" means the Company's Junior Participating Preferred Stock, Series A, no par value per share, having the rights and preferences set forth in the Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, attached hereto as Exhibit A (t) "Principal Party" means (i) in the case of any Business Combination described in clause (i), (ii) or (iii) of the first sentence of Section 13(a), (A) the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted or for which they are exchanged in such Business Combination or, if there is more than one such issuer, the issuer of the Common Stock which has the greatest aggregate market value or (B) if no securities are so issued, the Person that survives or results from the Business Combination or, if there is more than one such Person, the Person the Common Stock of which has the greatest aggregate market value, and (ii) in the case of any Business Combination described in clause (iv) of the first sentence in Section 13(a), the Person that receives the greatest portion of the assets or earning power transferred pursuant to such Business Combination or, if each Person that is a party to such Business Combination receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot reasonably be determined, whichever of such Persons is the issuer of the Common Stock which has the greatest aggregate market value; provided, however, that in any such case, if the Common Stock of such Person is not at such time and has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act and such Person is a direct or indirect Subsidiary of one or more other Persons, then (x) "Principal Party" refers to whichever of such other Persons has Common Stock that is and has been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, (y) if the Common Stocks of two or more of such other Persons are and have been so registered, "Principal Party" refers to whichever of such other Persons is the issuer of the Common Stock which has the greatest aggregate market value, or (z) if the Cr Persons has been so registered, "Principal Party" refers to whichever of such other Persons (other than an individual) is the Person which has the equity securities with the greatest aggregate market value. In case such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth above apply to each of the chains of ownership having an interest in such joint venture as if such Person were a Subsidiary of both or all of such joint venturers and the Principal Parties in each such chain shall bear the obligations set forth in Section 13 in the same ratio as their direct or indirect interests in such Person bear to the total of such interests. (u) "Purchase Price" with respect to each Right is initially $60 per one one-thousandth of a share of Preferred Stock, shall be subject to adjustment from time to time as provided in -7-

Sections 11 and 13, and shall be payable in lawful money of the United States of America in cash or by certified check or bank draft payable to the order of the Company. (v) "Record Date" means the date which is four Business Days after the date on which the registration of the Common Stock under the Securities Act becomes effective. (w) "Redemption Date" means the time at which the Rights are scheduled to be redeemed as provided in Section 23. (x) "Redemption Price" has the meaning given to such term in Section 23. (y) "Securities Act" means the Securities Act of 1933, as amended, and any successor statute. (z) "Stock Acquisition Date" means the first date (including, without limitation, any such date which is on or after the date of this Agreement and prior to the issuance of the Rights) of public disclosure by the Company or an Acquiring Person that an Acquiring Person has become such. (aa) "Subsidiary" has the meaning given to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Agreement. (bb) "Triggering Event" means a Person becoming an Acquiring Person. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. Issuance of Rights Certificates. (a) Until the Distribution Date: (i) the Rights shall be issued in respect of and shall be evidenced by the certificates representing the shares of Common Stock issued and outstanding on the Record Date and shares of Common Stock issued after the Record Date and prior to the earliest of the Distribution Date, the Redemption Date, the Exchange Date or the Expiration Date (which certificates for Common Stock shall be deemed to also be certificates evidencing the Rights), and not by separate certificates, (ii) the registered holders of such shares of Common Stock shall also be the registered holders of the Rights associated with such shares, and (iii) the Rights shall be transferable only in connection with the transfer of shares of Common Stock, and the surrender for transfer of any certificate for such shares of Common Stock shall also constitute the surrender for transfer of the Rights associated with such shares. As soon as practicable after the Company has notified the Rights Agent of the occurrence of the Distribution Date, the Rights Agent shall mail, -8-

by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the Close of Business on the Distribution Date. as shown by the records of the Company, at the address of such holder shown on such records, one or more certificates evidencing the Rights ("Rights Certificates"), in substantially the form of Exhibit B hereto, evidencing one Right (as adjusted from time to time pursuant to this Agreement) for each share of Common Stock so held. From and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11 (o) of this Agreement, at the time of distribution of the Rights Certificates, the Company may make the necessary and appropriate adjustments (in accordance with Section 14(a) of this Agreement) so that Rights Certificates representing only whole numbers of nd cash is paid in lieu of any fractional Rights. (b) Rights shall be issued in respect of all shares of Common Stock which are issued or sold by the Company after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date, the Exchange Date and the Expiration Date. In addition, in connection with the issuance or sale of Common Stock by the Company following the Distribution Date and prior to the earliest of the Redemption Date, the Exchange Date and the Expiration Date, the Company shall, with respect to Common Stock so issued or sold pursuant to (i) the exercise of stock options issued prior to the Distribution Date or under any employee plan or arrangement created prior to the Distribution Date, or (ii) upon the exercise conversion or exchange of securities issued by the Company prior to the Distribution Date, issue Rights and Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (x) no such Rights and Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued and (y) no such Rights and Rights Certificates shall be issued, if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Certificates issued after the Record Date representing shares of Common Stock outstanding on the Record Date or shares of Common Stock issued after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date, the Exchange Date and the Expiration Date shall have impressed, printed, or written on, or otherwise affixed to them a legend substantially in the following form: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between King Pharmaceuticals, Inc. and Union Planters National Bank, as Rights Agent, dated as of ________ __, 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of King Pharmaceuticals, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. King -9-

Pharmaceuticals, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, Rights that were, are or become beneficially owned by Acquiring Persons or their Associates or Affiliates (as such terms are defined in the Rights Agreement) may become null and void and the holder of any of such Rights (including any subsequent holder) shall not have any right to exercise such Rights. Section 4. Form of Rights Certificates. (a) The Rights Certificates (and the form of election to purchase shares and form of assignment to be printed on the reverse thereof) shall be in substantially the form of Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of this Agreement, the Rights Certificates, whenever issued, shall be dated as of the Distribution Date, and on their face shall entitle the holders thereof to purchase such number of shares of Preferred Stock as shall be set forth therein at the Purchase Price set forth therein, but the number of such securities and the Purchase Price shall be subject to adjustment as provided in this Agreement. (b) Notwithstanding any other provision of this Agreement, (i) any Rights Certificate issued pursuant to this Agreement that represents Rights beneficially owned or formerly beneficially owned, on or after the earlier of the Distribution Date and the Stock Acquisition Date, by a Person known by the Company to be: (A) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (B) a direct or indirect transferee of an Acquiring Person (or of an Associate or Affiliate of such Acquiring Person) who becomes or becomes entitled to be a transferee after the Acquiring Person becomes such, or (C) a direct or indirect transferee of an Acquiring Person (or of an Associate or Affiliate of such Acquiring Person) who becomes or becomes entitled to be a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (x) a direct or indirect transfer (whether or not for consideration) from the Acquiring Person (or from an Associate or Affiliate of such Acquiring Person) to holders of equity interests in such Acquiring Person (or to holders of equity interests in an Associate or Affiliate of such Acquiring Person) or to any Person with whom such Acquiring Person (or an Associate or Affiliate of such Acquiring Person) has any continuing agreement, arrangement or understanding regarding the transferred Rights or (y) a direct or indirect transfer which a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors of the Company) has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of Section 7(e) of this Agreement, or (ii) any Rights Certificate issued pursuant to this -10-

Agreement upon transfer, exchange, replacement or adjustment of any other Rights Certificate beneficially owned by a Person referred to in this Section 4(b), shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of the Rights Agreement. Section 5. Execution. Countersignature and Registration. (a) Each Rights Certificate shall be executed on behalf of the Company by the Company's Chairman of the Board and Chief Executive Officer, President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Company's Secretary or an Assistant Secretary, either manually or by facsimile signature. Each Rights Certificate shall be countersigned by the Rights Agent either manually or, if permitted by the Company, by facsimile signature and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed a Rights Certificate shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificate nevertheless may be countersigned by the Rights Agent and issued and delivered with the same force and effect as though the Person who signed such Rights Certificate had not ceased to be such officer of the Company, and any Rights Certificate may be signed on behalf of the Company by any Person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Agreement any such Person was not such an officer. (b) Following the Distribution Date, the Rights Agent shall keep or cause to be kept, at its principal corporate trust office, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced by each Rights Certificate, and the certificate number and the date of issuance of each Rights Certificate. Section 6. Transfer, Division, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a) Subject to the provisions of Section 14, at any time after the Close of Business on the Distribution Date and at or prior to the Close of Business on the earliest of the Redemption Date, the -11-

Exchange Date and the Expiration Date, any Rights Certificate or Rights Certificates may be transferred, divided, combined or exchanged for another Rights Certificate or Rights Certificates, entitling the registered holder to purchase a like number of shares of Preferred Stock (or other securities, cash or other property, following a Triggering Event or a Business Combination, as the case may be) as the Rights Certificate or Rights Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, divide, combine or exchange any Rights Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Rights Certificates to be transferred, divided, combined or exchanged at the principal corporate office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. As a condition to such transfer, division, combination or exchange, the Company may require payment by the surrendering holder of a sum sufficient to cover any tax or governmental charge that may be imposed in connection therewith. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have duly completed and executed the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or such former or proposed Beneficial Owner) thereof or such Beneficial Owner's Affiliates or Associates as the Company shall reasonably request (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will make and deliver a new Rights Certificate of like tenor to the Rights Agent for delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights. Purchase Price; Expiration Date of Rights (a) Each Right shall entitle (except as otherwise provided in this Agreement) the registered holder thereof, upon the exercise thereof as provided in this Agreement, to purchase, for the Purchase Price, at any time after the Distribution Date and prior to the earliest of the Expiration Date, the Exchange Date and the Redemption Date, one one-thousandth (1/1000) of a share of Preferred Stock, subject to adjustment from time to time as provided in Sections 11 and 13. (b) The registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided in this Agreement) in whole or in part (except that no fraction of a Right may be exercised) at any time on or after the Distribution Date and prior to the earliest of the Expiration Date, the Exchange Date and the Redemption Date, by surrendering the Rights Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the -12-

Rights Agent at the principal corporate trust office of the Rights Agent, together with payment of the Purchase Price for each one one-thousandth of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which the Rights are exercised (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for each one one-thousandth of a share of Preferred Stock (or, following a Triggering Event or a Business Combination, other securities, cash or other assets, as the case may be) to be purchased and an amount in cash, certified bank check or bank draft payable to the order of the Company equal to any applicable transfer tax required to be paid by the surrendering holder pursuant to Section 9(d), the Rights Agent shall, subject to the provisions of this Agreement, thereupon promptly (i)(A) requisition from any transfer agent for the Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-thousandths of a share of Preferred Stock (or other securities, as the case may be) to be purchased (and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests), or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock (or other securities, as the case may be) issuable upon exercise of the Rights with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandths of a share of Preferred Stock (or other securities, as the case may be) as are to be purchased (in which case certificates for the Preferred Stock (or other securities, as the case may be) represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company shall direct the depositary agent to comply with such request, (ii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iii) if appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 of this Agreement and, promptly after receipt thereof, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate. In the event that the Company is obligated to issue other securities (including shares of Common Stock) of the Company, pay cash and/or distribute other property pursuant to this Agreement, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Rights Certificate or to his duly authorized assigns, subject to the provisions of Section 6 and Section 14. (e) Notwithstanding anything in this Agreement to the contrary, any Rights that are or were formerly beneficially owned on or after the earlier of the Distribution Date or the Stock -13-

Acquisition Date by (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a direct or indirect transferee of an Acquiring Person (or of an Associate or Affiliate of such Acquiring Person) who becomes or becomes entitled to be a transferee after the Acquiring Person becomes such, or (iii) a direct or indirect transferee of an Acquiring Person (or of an Associate or Affiliate of such Acquiring Person) who becomes or becomes entitled to be a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a direct or indirect transfer (whether or not for consideration) from the Acquiring Person (or from an Associate or Affiliate of such Acquiring Person) to holders of equity interests in such Acquiring Person (or to holders of equity interests in any Associate or Affiliate of such Acquiring Person) or to any Person with whom the Acquiring Person (or an Associate or Affiliate of such Acquiring Person) has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a direct or indirect transfer which a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors of the Company) determines is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall, immediately upon the occurrence of a Triggering Event and without any further action, be null and void and no holder of such Rights shall have any rights whatsoever with respect to such Rights whether under this Agreement or otherwise, provided, however, that, in the case of transferees under clause (ii) or clause (iii) above, any Rights beneficially owned by such transferee shall be null and void only if and to the extent such Rights were formerly beneficially owned by a Person who was, at the time such Person beneficially owned such Rights, or who later became, an Acquiring Person or an Affiliate or Associate of such Acquiring Person. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) are complied with, but shall have no liability to any holder of a Rights Certificate or to any other Person as a result of the Company's failure to make, or any delay in making (including any such failure or delay by the Continuing Directors and/or the Board of Directors of the Company) any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to the registered holder of a Rights Certificate upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former or proposed Beneficial Owner) thereof or the Affiliates or Associates of such Beneficial Owner (or former or proposed Beneficial Owner) as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the purpose of exercise, transfer, division, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights -14-

Certificates shall be issued in lieu thereof except as expressly permitted by the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Preferred Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available at all times out of its authorized and unissued shares of Preferred Stock or its authorized and issued shares of Preferred Stock held in its treasury (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares of Common Stock and/or other securities held in its treasury) free from preemptive rights or any right of first refusal, a sufficient number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, shares of Common Stock and/or other securities) to permit the exercise in full of all Rights from time to time outstanding. (b) The Company further covenants and agrees, so long as the Preferred Stock (and, following the occurrence of a Triggering Event, shares of Common Stock and/or other securities) issuable upon the exercise of Rights may be listed on any United States national securities exchange, to use its best efforts to cause, from and after the time that the Rights become exercisable all such shares and/or other securities reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company further covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Preferred Stock (and, following the occurrence of a Triggering Event or a Business Combination, shares of Common Stock and/or other securities) delivered upon the exercise of Rights shall, at the time of delivery of the certificates for such shares and/or such other securities (subject to payment of the Purchase Price), be duly and validly authorized and issued, fully paid, nonassessable, freely tradeable, not subject to liens or encumbrances, and free of preemptive rights, rights of first refusal, or any other restrictions or limitations on the transfer or ownership thereof, of any kind or nature whatsoever. (d) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any certificates for shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however be required to (i) pay any transfer tax which may be payable in respect of any transfer involved in the issuance or delivery of any Rights Certificates or the issuance or -15-

delivery of any certificates for shares of Preferred Stock (or Common Stock and/or other securities as the case may be) to a Person other than, or in a name other than that of, the registered holder of the Rights Certificate evidencing Rights surrendered for exercise or (ii) transfer or deliver any Rights Certificate or issue or deliver any certificates for shares of Preferred Stock (or Common Stock and/or other securities as the case may be) upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. (e) The Company shall use its best efforts (i) as soon as practicable following a Triggering Event (provided the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) of this Agreement), or as soon as is required by law following the Distribution Date, as the case may be, to prepare and file a registration statement on an appropriate form under the Securities Act with respect to the securities purchasable upon exercise of the Rights, (ii) to cause such registration statement to become effective as soon as practicable after such filing, and (iii) to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A) the date as of which Rights are no longer exercisable for such securities and (B) the Expiration Date. The Company shall also use its best efforts to take such action as may be necessary or appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercise of the Rights. The Company may temporarily suspend, for a period of time not to exceed 90 days after the date of a Triggering Event described in clause (i) of the first sentence of this paragraph of Section 9, the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall make a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement has been declared effective. Section 10. Preferred Stock Record Date. Each Person in whose name any certificate for shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (and/or such other securities, as the case may be) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. -16-

Section 11. Adjustments to Purchase Price. Number of Shares or Number of Rights. The Purchase Price, the number and kind of securities, cash and other property obtainable upon exercise of each Right and the number of Rights outstanding shall be subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time on or after the date of this Agreement (A) pay a dividend or make a distribution on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide (by a stock split or otherwise) the outstanding Preferred Stock into a larger number of shares, (C) combine (by a reverse stock split or otherwise) the outstanding Preferred Stock into a smaller number of shares, or (D) issue any securities in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the surviving corporation), then in each such event the Purchase Price and the Redemption Price set forth in Section 23, as each is in effect at the time of the record date for such dividend or distribution, or of the effective date of such subdivision, combination or reclassification, shall be proportionately adjusted by multiplying the Purchase Price and such Redemption Price by a fraction the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to the occurrence of such event and the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately following the occurrence of such event. If an event occurs which would require an adjustment under both this Section 11( a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to any adjustment required pursuant to Section 11(a)(ii). (ii) Upon the first occurrence of a Triggering Event, proper provision shall be made so that each holder of a Right, except as otherwise provided in this Agreement, shall thereafter have the right to receive, and the Company shall issue, upon exercise thereof at the then-current Purchase Price required to be paid in order to exercise a Right in accordance with the terms of this Agreement, in lieu of the number of one one-thousandths of a share of Preferred Stock or other securities receivable upon exercise of a Right prior to the occurrence of the Triggering Event such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then-current Purchase Price by the number of one one-thousandths of a share of Preferred Stock or other securities for which a Right was then exercisable (without giving effect to such Triggering Event) and (y) dividing that product by 50% of the Current Market Price per share of Common Stock on the date of the occurrence of the Triggering Event (such number of shares being referred to as the "Adjustment Shares"); provided, however, that if the transaction or event that would otherwise give rise to the foregoing adjustment is also subject to the provisions of Section 13 of this Agreement, then only the provisions of Section 13 of this Agreement shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii). Upon the occurrence of such Triggering Event, the Purchase Price required to be paid in order to exercise a Right shall be unchanged, and the Purchase Price shall be appropriately adjusted to reflect, and -17-

shall thereafter mean, the amount required to be paid per share of Common Stock upon exercise of a Right (iii) In lieu of issuing shares of Common Stock in accordance with Section 11 (a)(ii), the Company may, if a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) determine that such action is necessary or appropriate and not contrary to the interests of holders of Rights (and, in the event that the number of shares of Common Stock which are authorized by the Company's charter, but which are not outstanding or reserved for issuance for purposes other than upon exercise of the Rights, are not sufficient to permit the exercise in full of the Rights in accordance with Section 11(a)(ii), the Company shall) take one or more of the following actions (A) reduce the Purchase Price required to be paid in order to exercise a Right by any amount (the "Reduction Amount"), in which event the number of Adjustment Shares and/or the amount of any Substitute Consideration (as hereinafter defined) issuable in respect of each Right (the Adjustment Shares, if any, and the Substitute Consideration, if any, issuable in respect of a Right are herein collectively referred to as the "Total Consideration") shall be reduced so that the aggregate value of the Total Consideration issuable in respect of each Right is equal to the Current Value (as hereinafter defined) less the Reduction Amount (herein the "Adjusted Current Value"), and/or (B) make adequate provision with respect to each Right to substitute for all or part of the Adjustment Shares otherwise obtainable upon exercise of a Right: (1) cash, (2) other equity securities of the Company (including without limitation, shares, or units of shares, of preferred stock which a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) have determined to have the same value as shares of Common Stock (such shares or units of preferred stock being referred to as "Common Stock Equivalents")), (3) debt securities of the Company, (4) other assets, or (5) any combination of the foregoing (collectively, "Substitute Consideration"), having an aggregate value which, when added to the value of the Adjustment Shares (if any) in respect of which no substitution is being made, is equal to the Adjusted Current Value. If a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors) determine to issue or deliver any equity securities (other than Common Stock or Common Stock Equivalents), debt securities and/or other assets pursuant to this Section 11(a)(iii), the value of such securities and/or assets shall be determined by a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) based upon the advice of a nationally recognized investment banking firm selected by a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company). If the Company is required to make adequate provision to deliver value pursuant to the first sentence of this Section 11 (a)(iii) and the Company shall not have made such adequate provision to deliver value within ninety (90) days following the first occurrence of a Triggering Event (the "Substitution Period"), then notwithstanding any provision of Section 11(a)(ii) or this Section 11(a)(iii) to the contrary, the Company shall be -18-

obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the excess of the Current Value over the Purchase Price. If both Common Stock and cash are to be delivered pursuant to the preceding sentence, amounts of both Common Stock and cash shall be delivered upon surrender of each Right in a ratio of Common Stock to cash that bears the same ratio as the total value of all Common Stock to be delivered (as determined pursuant to this Section 11(a)(iii)) bears to the total value of all cash to be delivered; provided, however, that the Company may adjust such ratio to avoid issuing any fractional shares of Common Stock so long as the method of adjustment is applied consistently to each holder of Rights entitled to receive value thereon pursuant to this Section 11(a)(iii). To the extent that the Company determines that some action is to be taken pursuant to the first and/or third sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights but in no event to a time later than the expiration of the Substitution Period. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Upon any change in the Adjustment Shares obtainable upon exercise of a Right pursuant to this Section 11(a)(iii), the Purchase Price shall thereafter mean the amount, if any, required to be paid upon exercise of a Right for the Adjustment Shares, if any, and the Substitute Consideration, if any, then issuable or deliverable upon exercise of a Right, and a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) shall make any necessary provisions to ensure that the provisions of Section 11(e) shall thereafter apply as appropriate to the Total Consideration. For purposes of this Section 11(a)(iii), (A) "Current Value" shall be the product derived by multiplying (x) the number of Adjustment Shares issuable in respect of each Right determined under Section 11(a)(ii), by (y) the Current Market Price per share of Common Stock on the date of the Triggering Event, and (B) the value of each share of Common Stock and each share or unit of any "Common Stock Equivalent" shall be deemed conclusively to be equal to the Current Market Price per share of the Common Stock on the date of the Triggering Event. (iv) A majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company) may, at their option at any time and from time to time after the first occurrence of a Triggering Event, cause the Company to exchange, for all or part of the then-outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof), shares of Common Stock or Common Stock Equivalents at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of this Agreement (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Any partial exchange shall be effected on a pro rata -19-

basis based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights. Immediately upon the action of a majority of the Continuing Directors (or if no Continuing Directors are then in office the Board of Directors of the Company) ordering the exchange of any Rights pursuant to this Section 11(a)(iv) and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock and/or Common Stock Equivalents equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange and in addition, the Company shall promptly mail a notice of any such exchange to all of the holders of such Rights in accordance with Section 25 of this Agreement; provided, however, that the failure to give, any delay in giving or any defect in, such notice shall not affect the validity of such exchange. Each such notice of exchange will state the method by which the exchange of the Common Stock or Common Stock Equivalents for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. In the event that the number of shares of Common Stock which is authorized but not outstanding or reserved for issuance for a purpose other than exercise of the Rights is not sufficient to permit any exchange of Rights as contemplated in accordance with this Section 11(a)(iv), the Board of Directors of the Company shall take all such action within its power as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights. The Company shall not be required to issue fractions of shares of Common Stock or Common Stock Equivalents or to distribute certificates which evidence fractional shares of Common Stock or Common Stock Equivalents. In lieu of such fractional shares of Common Stock or Common Stock Equivalents, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock or Common Stock Equivalents would otherwise be issuable an amount in cash equal to the product derived by multiplying (x) the subject fraction, by (y) the last sale price of the Company's Common Stock on the fifth Trading Day following the public announcement of the exchange by the Company, or, in case no such sale takes place on such day, the average of the closing bid and asked prices on such day, in either case on a when issued basis (taking into account the exchange), as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange (or, if the Company's Common Stock is not so listed or traded, then as determined in the manner provided under the definition of "Current Market Price," adjusted to take into account the exchange). For the purposes of this Section 11(a)(iv) the value of any Common Stock Equivalent on any date shall be the same as the value of the Common Stock, as determined pursuant to the previous sentence, on such date. (b) If the Company shall at any time on or after the date of this Agreement fix a record date for the issuance of rights, options or warrants to holders of Preferred Stock entitling them to subscribe for or purchase Preferred Stock or Equivalent Shares (or securities convertible into Preferred Stock or Equivalent Shares) at a price per share of Preferred Stock or Equivalent Shares -20-

(or, in the case of a convertible security, having a conversion price per share of Preferred Stock or Equivalent Shares) less than the Current Market Price per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock and Equivalent Shares (if any) outstanding on such record date, plus the number of shares of Preferred Stock or Equivalent Shares, as the case may be, which the aggregate exercise and/or conversion price for the total number of shares of Preferred Stock or Equivalent Shares, as the case may be, which are obtainable upon exercise and/or conversion of such rights, options, warrants or convertible securities would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Preferred Stock and Equivalent Shares (if any) outstanding on such record date, plus the number of additional shares of Preferred Stock or Equivalent Shares, as the case may be, which may be obtained upon exercise and/or conversion of such rights, options, warrants or convertible securities. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by a majority of the Continuing Directors (or, if no Continuing Directors are then in office, by the Board of Directors of the Company), whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent. Preferred Stock and Equivalent Shares owned by or held for the account of the Company or any Subsidiary of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not issued following such adjustment, the Purchase Price shall be readjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (c) In case the Company shall at any time after the date of this Agreement fix a record date for the making of a distribution to holders of Preferred Stock (including any such distribution made in connection with a reclassification of the Preferred Stock or a consolidation or merger in which the Company is the surviving corporation) of securities (other than Preferred Stock and rights, options or warrants referred to in Section 11 (b)), cash (other than a regular periodic cash dividend at an annual rate not in excess of (x) 125% of the annual rate of the regular cash dividend paid on the Preferred Stock during the immediately preceding fiscal year (or, if the Preferred Stock was not outstanding during such preceding fiscal year, then 125% of the annual rate of the regular cash dividend paid on the Common Stock during such year), or (y) in the event that a regular cash dividend was not paid on the Preferred Stock (or Common Stock) during such preceding fiscal year, 5% of the Current Market Value of the Preferred Stock on the date such regular cash dividend was first declared), property, evidences of indebtedness, or assets, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by a majority of the Continuing Directors (or if no Continuing Directors are then in office, by the Board of Directors of the Company) whose determination shall be described in a statement filed with the -21-

Rights Agent) of such securities, cash, property, evidences of indebtedness or assets to be so distributed in respect of one share of Preferred Stock, and the denominator of which shall be such Current Market Price per share of Preferred Stock on such record date. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not made following such adjustment, the Purchase Price shall be readjusted to be the Purchase Price which would have been in effect if such record date had not been fixed (d) Except as provided below, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent to the nearest ten-thousandth of a share of Common Stock, or to the nearest ten-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(d), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the Expiration Date. (e) If, as a result of an adjustment made pursuant to Section 11(a) or Section 13(a) of this Agreement, the holder of any Right thereafter exercised shall become entitled to receive any securities of the Company other than shares of Preferred Stock, thereafter the Purchase Price and the number of such other securities so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Preferred Stock contained in this Section 11 and the provisions of Sections 7, 9, 10, 12, 13, 14 and 24 with respect to the shares of Preferred Stock shall apply on like terms to any such other securities. (f) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Preferred Stock or other securities, cash or other property purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided in this Agreement. (g) Unless the Company shall have exercised its election as provided in Section 11(h), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11 (a)(i), 11 (b) and 11 (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one ten-millionth of a share of Preferred Stock) obtained by (i) multiplying the number of one one-thousandths of a share of Preferred Stock covered by a Right immediately prior to adjustment pursuant to this Section 11(g) by the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) -22-

dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (h) The Company may elect, on or after the date of any adjustment of the Purchase Price or any adjustment to the number of shares of Preferred Stock for which a Right may be exercised, to adjust the number of Rights, in lieu of an adjustment in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right outstanding prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one hundred-thousandth) obtained by dividing the Purchase Price in effect immediately prior to such adjustment by the Purchase Price in effect immediately after such adjustment. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and. if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter but if the Rights Certificates have been issued, shall be at least 10 days after the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(h) the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date a new Rights Certificate evidencing, subject to Section 14, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record, in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment and upon surrender thereof (if required by the Company), new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment Rights Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for in this Agreement (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (i) Irrespective of any adjustment or change in the Purchase Price or the number or kind of shares issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-thousandth of a share of Preferred Stock and the number of shares of Preferred Stock which were expressed in the initial Rights Certificates issued hereunder. (j) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of one one-thousandth of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable one one-thousandth shares of such Preferred Stock at such adjusted Purchase Price. -23-

(k) In any case in which this Section 11 shall require that an adjustment be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the shares of Preferred Stock and other securities, cash or property of the Company, if any, issuable upon such exercise over and above the shares of Preferred Stock and other securities, cash or property of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or other securities, cash or property upon the occurrence of the event requiring such adjustment. (l) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any combination or subdivision of the Preferred Stock, issuance wholly for cash of any Preferred Stock at less than the Current Market Price, issuance wholly for cash of Preferred Stock or securities which by their terms are convertible into or exchangeable or exercisable for Preferred Stock, stock dividends or issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock, shall not be taxable to such stockholders. (m) The Company covenants and agrees that it shall not (i) consolidate with, (ii) merge with or into, or (iii) directly or indirectly sell, lease, or otherwise transfer or dispose of (in one transaction or a series of related transactions) assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries taken as a whole, to any other Person if (A) at the time of or immediately after such consolidation, merger, sale, lease, transfer or disposition there are any rights, warrants, securities or other instruments outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (B) prior to, simultaneously with or immediately after such consolidation, merger, sale, lease, transfer or disposition the stockholders (or equity holders) of the Person who constitutes, or would constitute, the Principal Party in such transaction shall have received a distribution of Rights previously owned by such Person or any of its Affiliates or Associates or (C) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights. The Company shall not consummate any such consolidation, merger, sale, lease, transfer or disposition unless prior thereto the Company and such other Person shall have executed and delivered to the Rights Agent a supplemental agreement evidencing compliance with this Section 11 (m). (n) The Company covenants and agrees that, after the Stock Acquisition Date it will not, except as permitted by Section 11(a)(iv), 26 or 29(b) of this Agreement, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such -24-

action will, directly or indirectly, diminish or otherwise eliminate the benefits intended to be afforded by the Rights. (o) Anything in this Agreement to the contrary notwithstanding, if the Company shall at any time prior to the Distribution Date (i) pay a dividend or distribution on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares then the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, and the Purchase Price under, and the number of one one-thousandths of a share of Preferred Stock issuable in respect of, the Rights, shall be proportionately adjusted, so that following such event one Right (with the Purchase Price and the number of one one-thousandths of a share proportionately adjusted thereunder) shall thereafter be associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date For example, if the Company effects a two-for-one stock split at a time when each Right (if it becomes exercisable) would entitle the holder to purchase one one-thousandth of a share of Preferred Stock for a Purchase Price of $"Z", then following such stock split each previous Right would be split into two current Rights and thereafter each current Right, upon becoming exercisable would (subject to further adjustment) entitle the holder to purchase one two thousandth of a share of Preferred Stock at a Purchase Price of 1/2 X $"Z". Section 12. Certification of Adjustments. Whenever an adjustment is made as provided in Sections 11 and 13, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Preferred Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if no Rights Certificates have been issued, to each holder of a certificate representing shares of Common Stock) in accordance with Section 2. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Any adjustment to be made pursuant to Sections 11 and 13 of this Agreement shall be effective as of the date of the event giving rise to such adjustment. Section 13. Consolidation. Merger or Sale or Transfer of Assets or Earning Power. (a) A "Business Combination" shall be deemed to occur in the event that, in or following a Triggering Event (i) the Company shall. directly or indirectly, consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) and Section 11(n) of this Agreement) in a transaction in which the Company is not the continuing, resulting or surviving corporation of such merger or consolidation, (ii) any Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) and Section 11(n) of this Agreement) shall, directly or indirectly, consolidate with the Company, or shall merge with and into the Company, in a transaction in which the Company is the continuing, resulting -25-

or surviving corporation of such merger or consolidation and, in connection with such merger or consolidation, all or part of the Common Stock shall be changed (including, without limitation, any conversion into or exchange for securities of the Company or of any other Person, cash or any other property), (iii) the Company shall, directly or indirectly, effect a share exchange in which all or part of the Common Stock shall be changed (including, without limitation, any conversion into or exchange for securities of any other Person, cash or any other property) or (iv) the Company shall, directly or indirectly, sell, lease, exchange, mortgage, pledge or otherwise transfer or dispose of (or one or more of its Subsidiaries shall directly or indirectly sell, lease, exchange, mortgage, pledge or otherwise transfer or dispose of), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person (other than the Company or any of its Subsidiaries in one or more transactions each and all of which comply with Section 11 (m) and Section 11 (n) of this Agreement). In the event of a Business Combination, proper provision shall be made so that each holder of a Right (except as otherwise provided in this Agreement) shall thereafter have the right to receive, upon the exercise thereof at the Purchase Price immediately prior to the first occurrence of a Triggering Event multiplied by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Triggering Event (without giving effect to the Triggering Event) in accordance with the terms of this Agreement, such number of shares of Common Stock of the Principal Party as shall be equal to the result obtained by (x) multiplying the Purchase Price immediately prior to the first occurrence of a Triggering Event by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Triggering Event (without giving effect to the Triggering Event), and (y) dividing that product by 50% of the Current Market Price per share of the Common Stock of such Principal Party immediately prior to the consummation of such Business Combination All shares of Common Stock of any Person for which any Right may be exercised after consummation of a Business Combination as provided in this Section 13(a) shall. when issued upon exercise thereof in accordance with this Agreement, be duly and validly authorized and issued fully paid, nonassessable, freely tradeable, not subject to liens or encumbrances, and free of preemptive rights, rights of first refusal or any other restrictions or limitations on the transfer or ownership thereof of any kind or nature whatsoever. (b) After consummation of any Business Combination, (i) the Principal Party shall be liable for. and shall assume, by virtue of such Business Combination and without the necessity of any further act, all the obligations and duties of the Company pursuant to this Agreement, (ii) the term "Company" as used in this Agreement shall thereafter be deemed to refer to such Principal Party, and (iii) such Principal Party shall take all steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock in accordance with Section 9) in connection with such Business Combination as necessary to ensure that the provisions of this Agreement shall -26-

thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the Rights. (c) The Company shall not consummate any Business Combination unless prior thereto (i) the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance (other than shares reserved for issuance pursuant to this Agreement to the holders of Rights) to permit the exercise in full of the Rights in accordance with this Section 13, (ii) the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the fulfillment of the Principal Party's obligations and the terms as set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable on or after the date of such Business Combination, the Principal Party, at its own expense, shall (A) prepare and file, if necessary, a registration statement on an appropriate form under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights, (B) use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date, (C) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act, (D) use its best efforts to qualify or register the Rights and the securities purchasable upon exercise of the Rights under the state securities or "blue sky" laws of such jurisdictions as may be necessary or appropriate, (E) use its best efforts to list the Rights and the securities purchasable upon exercise of the Rights on a United States national securities exchange, and (F) obtain waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights, (iii) the Company and the Principal Party shall have furnished to the Rights Agent an opinion of independent counsel stating that such supplemental agreement is a legal, valid and binding agreement of the Principal Party enforceable against the Principal Party in accordance with its terms, and (iv) the Company and the Principal Party shall have filed with the Rights Agent a certificate of a nationally recognized firm of independent accountants setting forth the number of shares of Common Stock of such issuer which may be purchased upon the exercise of each Right after the consummation of such Business Combination (d) The provisions of this Section 13 shall similarly apply to successive Business Combinations. In the event a Business Combination shall be consummated at any time after the occurrence of a Triggering Event, the Rights which have not theretofore been exercised shall thereafter be exercisable for the consideration and in the manner described in Section 13(a) Following a Business Combination, the provisions of Section 11(a)(ii) of this Agreement shall be of no effect. (e) Notwithstanding any other provision of this Agreement, no adjustment to the number of shares of Preferred Stock (or fractions of a share) or other securities, cash or other property for -27-

which a Right is exercisable or the number of Rights outstanding or associated with each share of Common Stock or any similar or other adjustment shall be made or be effective if such adjustment would have the effect of reducing or limiting the benefits the holders of the Rights would have had absent such adjustment, including, without limitation, the benefits under Sections 11 and 13, unless the terms of this Agreement are amended so as to preserve such benefits. (f) The Company covenants and agrees that it shall not effect any Business Combination if at the time of, or immediately after such Business Combination, there are any rights, options, warrants or other instruments outstanding which would diminish or otherwise eliminate the benefits intended to be afforded by the Rights. (g) Without limiting the generality of this Section 13, in the event the nature of the organization of any Principal Party shall preclude or limit the acquisition of Common Stock of such Principal Party upon exercise of the Rights as required by Section 13(a) as a result of a Business Combination, it shall be a condition to such Business Combination that such Principal Party shall take such steps (including, but not limited to, a reorganization) as may be necessary to ensure that the benefits intended to be derived under this Section 13 upon the exercise of the Rights are assured to the holders thereof. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractional Rights or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, the Company may at its option pay to the registered holders of the Rights Certificates with respect to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of a Right for the Trading Day immediately prior to the date on which such fractional Rights otherwise would have been issuable. The closing price for any Trading Day shall be the last sale price on such day, regular way or in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, on such day, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal United States national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any United States national securities exchange the last quoted sale price on such day or, if not so quoted, the average of the high bid and low asked prices on such day in the over-the-counter market, as reported by Nasdaq or such other system then in use or, if on such day the Rights are not quoted by any such system, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Rights selected by a majority of the Continuing Directors (or if no Continuing Directors are then in office, -28-

the Board of Directors of the Company). If on such day no such market maker is making a market in the Rights, the current market value of the Rights on such day shall be determined in good faith by a majority of the Continuing Directors (or if no Continuing Directors are then in office, the Board of Directors of the Company), whose determination shall be described in a statement filed with the Rights Agent and shall be binding and conclusive for all purposes. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). Fractions of shares of Preferred Stock may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Stock. In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company may at its option (i) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or in bearer form (represented by a certificate) which shall entitle the holder to receive a full one one-thousandth of a share of Preferred Stock upon the surrender of such scrip or warrants aggregating a full one one-thousandth of a share of Preferred Stock, or (ii) pay to the registered holders of Rights Certificates at the time such Rights Certificates are exercised as provided in this Agreement an amount in cash equal to the same fraction of the current market value of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of a share of Preferred Stock shall be the closing price of a share of Preferred Stock (as determined pursuant to the second sentence of the definition of "Current Market Price" in Section 1) for the Trading Day immediately prior to the date of such exercise (c) The Company shall not be required to issue fractions of shares of Common Stock or Common Stock Equivalents or to distribute certificates which evidence fractional shares of Common Stock or Common Stock Equivalents. In lieu of such fractional shares of Common Stock or Common Stock Equivalents the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock or Common Stock Equivalents would otherwise be issuable an amount in cash equal to the product derived by multiplying (x) the subject fraction, by (y) Current Market Price of the Company's Common Stock (d) The holder of a Right by his acceptance thereof expressly waives any right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as otherwise provided in this Agreement) Section 15. Rights of Action. Except as otherwise provided, all rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior -29-

to the Distribution Date, any registered holders of associated Common Stock), and any registered holder of any Rights Certificate (or, prior to the Distribution Date, any share of associated Common Stock), without the consent of the Rights Agent or of the holder of any other Right, may, on his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his rights pursuant to this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. Section 16. Agreement of Rights Holders Concerning Transfer and Ownership of Rights. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates will be transferable on the registry books of the Rights Agent only if surrendered at the principal corporate trust office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the Person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificate or the associated Common Stock certificate made by anyone other than the Company, the transfer agent for the Common Stock or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Rights Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote or to receive dividends or distributions or shall be deemed for any purpose the holder of Preferred Stock or any other securities, cash or other property which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained in this Agreement or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company, including, without limitation, any right (i) to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, (ii) to give or withhold consent to any corporate action, (iii) to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24), (iv) to receive dividends, distributions or subscription rights, (v) to institute, as a holder of Preferred Stock or other securities issuable on exercise of the Rights represented by any Rights Certificate any derivative -30-

action on behalf of the Company, or otherwise, until and only to the extent that the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions of this Agreement. Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith, willful misconduct or breach of this Agreement on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Preferred Stock or Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document reasonably believed by it to be genuine and to be signed, executed and, when necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any document or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificate so countersigned, and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificate either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent, and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. -31-

In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person or any Affiliate or Associate of an Acquiring Person or the determination of Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be specifically prescribed in this Agreement) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board and Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent, and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for the gross negligence, bad faith, willful misconduct or breach of this Agreement by it or its attorneys or agent. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery of this Agreement (except the due execution and delivery of this Agreement by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof), nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; -32-

nor shall it be responsible for any change or adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 11, 13 or 23 or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any change or adjustment is required), nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Preferred Stock, Common Stock or other securities to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Preferred Stock, Common Stock or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performance by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board and Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though the Rights Agent were not serving as such under this Agreement. Nothing in this Agreement shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents. (j) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause I and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock or Preferred Stock by -33-

registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock or Preferred Stock by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. Notwithstanding any other provision of this Agreement, in no event shall the resignation or removal of a Rights Agent be effective until a successor Rights Agent shall have been appointed and have accepted such appointment. If the Company shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by any holder of a Rights Certificate (who shall, with such notice submit his Rights Certificate for inspection by the Company), then the incumbent Rights Agent or the registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court shall be a corporation organized and doing business under the laws of the United States or of the State of Tennessee (or of any other state of the United States so long as such corporation is authorized to conduct a corporate trust or banking business in the State of Tennessee) in good standing, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000 After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed, but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for such purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock or Preferred Stock and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights Certificates to the contrary, the Company may, at its option, issue new Rights Certificates evidencing new Rights in such form as may be approved by a majority of the Continuing Directors (or if no Continuing Directors are then in office, by the Board of Directors of the Company) to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of securities, cash or other property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. -34-

Section 23. Redemption and Termination. (a) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the Stock Acquisition Date and (ii) the Expiration Date, redeem all but not less than all of the then-outstanding Rights at a redemption price of $.01 per Right (the "Redemption Price") appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of this Agreement. The Company may, at its option, pay the Redemption Price in cash, shares (including fractional shares) of Common Stock (based on the Current Market Price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. (b) At the time and date of effectiveness set forth in any resolution of the Board of Directors of the Company ordering the redemption of the Rights, without any further action and without any further notice the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price; provided, however, that such resolution of the Board of Directors of the Company may be revoked, rescinded or otherwise modified at any time prior to the time and date of effectiveness set forth in such resolution, in which event the right to exercise will not terminate at the time and date originally set for such termination by the Board of Directors of the Company. As soon as practicable after the action of the Board of Directors of the Company ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and to the holders of the then-outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the issuance of Rights Certificates, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner provided in this Agreement shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made In any case, failure to give such notice by mail, or any defect in the notice, to any particular holder of Rights shall not affect the sufficiency of the notice to other holders of Rights. In the case of a redemption permitted under this Section 23, the Company may, at its option, discharge all of its obligations with respect to the Rights by (i) issuing a press release announcing the manner of redemption of the Rights and (ii) mailing payment of the Redemption Price to the registered holders of the Rights at their last addresses as they appear on the registry books of the Rights Agent or, prior to the issuance of the Rights Certificates, on the registry books of the transfer agent for the Common Stock, and upon such action, all outstanding Rights Certificates shall be null and void without any further action by the Company. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23, and other than in connection with the purchase of shares of Common Stock prior to the earlier of the Distribution Date and the Expiration Date. -35-

Section 24. Notice of Certain Events. In case the Company, on or after the Distribution Date, shall propose to (a) pay any dividend payable in stock of any class to the holders of its Preferred Stock or to make any other distribution to the holders of its Preferred Stock (other than a regular periodic cash dividend at an annual rate not in excess of 125% of the annualized rate of the cash dividend paid on the Preferred Stock during the immediately preceding fiscal year), or (b) offer to the holders of its Preferred Stock rights, options, or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (c) effect any reclassification of the Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock, a change in the par value of such Preferred Stock or a change from par value to no par value), or (d) directly or indirectly effect any consolidation or merger into or with, or effect any sale, lease, exchange, or other transfer or disposition (or to permit one or more of its Subsidiaries to effect any sale, lease, exchange or other transfer or disposition), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, or (e) effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 25, a notice of such proposed action, which shall specify any record date for the purposes of such stock dividend or distribution of rights, or the date on which such reclassification, consolidation, merger, sale, lease, exchange, transfer, disposition, liquidation, dissolution, or winding up is to take place and if such holders will or may participate therein, the date of participation therein by the holders of Common Stock and/or Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least 20 days prior to the record date for determining holders of the Preferred Stock for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein, if any, by the holders of Preferred Stock, whichever shall be the earlier. The failure to give notice as required by this Section 24 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. In case any Triggering Event or Business Combination shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, in accordance with Section 25, notice of the occurrence of such Triggering Event or Business Combination, which shall specify the Triggering Event or Business Combination and include a description of the consequences of such event to holders of Rights under Section 11(a)(ii) or 13. Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agreement) as follows: -36-

King Pharmaceuticals, Inc. 501 Fifth Street Bristol, Tennessee 37620 Attention: Chief Executive Officer Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Union Planters National Bank Corporate Trust Department PO Box 387 Memphis, Tennessee 38147 Attention: Account Officer Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company (or, if no Rights Certificates have been issued, if sent by first-class mail, postage prepaid, addressed to each holder of a certificate representing shares of Common Stock at the address of such holder as shown on the Company's Common Stock registry books). Section 26. Supplements and Amendments (a) At any time prior to the Stock Acquisition Date, a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors of the Company) may, except as provided in Section 26(c), and the Rights Agent shall, if so directed, supplement or amend any provision of this Agreement without the approval of any holders of Rights; provided, however, that no amendment shall adversely affect the rights of any Exempt Person without the written consent of such Person (b) From and after the Stock Acquisition Date, a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors of the Company) may, except as provided in Section 26(c), and the Rights Agent shall, if so directed, amend this Agreement without the approval of any holders of Rights Certificates (i) to cure any ambiguity, (ii) to correct or supplement any provision contained in this Agreement which may be defective or inconsistent with any other provision of this Agreement, or (iii) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person). -37-

(c) No supplement or amendment to this Agreement shall be made which changes the Purchase Price, the number of shares of Preferred Stock, other securities, cash or other property for which a Right is then exercisable or the Redemption Price or provides for an earlier Expiration Date. (d) Immediately upon the action of a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors) providing for any amendment or supplement pursuant to this Section 26, and without any further action and without notice, such amendment or supplement shall be deemed effective. Promptly following the adoption of any amendment or supplement pursuant to this Section 26, the Company shall deliver to the Rights Agent a copy, certified by the Secretary or any Assistant Secretary of the Company, of resolutions of a majority of the Continuing Directors (or, if no Continuing Directors are then in office, the Board of Directors of the Company) adopting such amendment or supplement. Upon such delivery, the amendment or supplement shall be administered by the Rights Agent as part of this Agreement in accordance with the terms of this Agreement as so amended or supplemented Section 27. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. Benefits of this Agreement; Determinations and Actions by the Board of Directors. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent, an Exempt Person and the registered holders of Rights any legal or equitable right, remedy or claim under this Agreement, it being understood that each Exempt Person has relied, and will continue to rely, on the exemption set forth herein, and, except as set forth above this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights. For purposes of this Agreement any calculation of the number of shares of Common Stock outstanding at any particular time shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act (or any successor provision); provided, however, that any such calculation made for purposes of determining the particular percentage of outstanding shares of Common Stock of which any Person is the Beneficial Owner shall also include any such other securities not then actually issued and outstanding which such Person would be deemed to be the Beneficial Owner of, or to "beneficially own," pursuant to Section l(d) of this Agreement The Board of Directors of the Company (or, where specifically provided for herein, a majority of the Continuing Directors) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Continuing Directors, the Board of Directors of the Company or the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination -38-

to redeem or not redeem the Rights, to exchange or not exchange the Rights for Common Stock or other securities of the Company, or to amend or supplement this Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors of the Company (or, where specifically provided for herein, a majority of the Continuing Directors) in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other Persons, and (y) not subject the Board of Directors of the Company or the Continuing Directors to any liability to the holders of the Rights. Section 29. Severability. (a) If any term, provision, covenant or restriction of this Agreement or the application thereof to any Person or to any circumstance is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. (b) If legal counsel to the Company delivers to the Company a written opinion to the effect that, as a result of changes in federal law or Tennessee law, any term, provision, covenant or restriction of this Agreement may be invalid, void, or unenforceable, then, notwithstanding any other provision of this Agreement, the Company and the Rights Agent may amend this Agreement to modify, revise or delete such term, provision, covenant or restriction to the extent necessary to comply with such law as so changed. Section 30. Governing Law. This Agreement and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Tennessee and for all purposes shall be governed by and construed in accordance with the internal laws of such state applicable to contracts to be made and performed entirely within such State. Section 31. Counterparts. This Agreement may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and both such counterparts shall together constitute but one and the same instrument. Section 32. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. Section 33. Grammatical Construction. Throughout this Agreement, where such meanings would be appropriate, (a) any pronouns used herein shall include the corresponding masculine, feminine or neuter forms (e g., references to "he" shall also include "she" and "it" and references to "who" and "whom" shall also include "which"), and (b) the plural form of nouns and -39-

pronouns shall include the singular and vice-versa (e g., references to "Continuing Directors" shall also mean "Continuing Director" if there be only one Continuing Director at the relevant time). ***** IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. KING PHARMACEUTICALS, INC. By: Title: UNION PLANTERS NATIONAL BANK By: Title: -40-

EXHIBIT "A" FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A OF KING PHARMACEUTICALS, INC. Pursuant to the Tennessee Business Corporation Act I, John M. Gregory, Chairman of the Board and Chief Executive Officer of King Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Tennessee, in accordance with the provisions thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Second Amended and Restated Charter, the Board of Directors on ___________ __, 1997, adopted the following resolution creating a series of 50,000 shares of Preferred Stock designated as Junior Participating Preferred Stock, Series A: RESOLVED, that pursuant to the authority vested in the Board by Section 2 of the Second Amended and Restated Charter, a series of Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Junior Participating Preferred Stock, Series A" (the "Series A Preferred Stock") and the number of shares constituting such series shall be 50,000. Section 2. Dividends and Distributions. (a) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred A-1

Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $25.00 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. The "Adjustment Number" shall initially be 1000. In the event the Corporation shall at any time after ___________ __, 1997 (i) declare or pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock into a greater number of shares or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. A-2

Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Each share of Series A Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number (as adjusted from time to time pursuant to Section 2A hereof) on all matters submitted to a vote of the stockholders of the Corporation. (b) Except as otherwise provided herein, in the Second Amended and Restated Charter or bylaws, as amended, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) (i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") that shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly period on all shares of Series A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, (1) the number of Directors shall be increased by two, effective as of the time of election of such Directors as herein provided, and (2) the holders of Series A Preferred Stock and the holders of other Preferred Stock upon which these or like voting rights have been conferred and are exercisable (the "Voting Preferred Stock") with dividends in arrears equal to six quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect such two Directors. (ii) During any default period, such voting right of the holders of Series A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of at least one-third in number of the shares of Voting Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Voting Preferred Stock of such voting right. (iii) Unless the holders of Voting Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of Voting Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Voting Preferred Stock, which meeting shall thereupon be called by the Chairman of the Board, the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual A-3

meeting at which holders of Voting Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Voting Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or, in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of Voting Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, after the holders of Voting Preferred Stock shall have exercised their right to elect Directors voting as a class, (x) the Directors so elected by the holders of Voting Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class or classes of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class or classes of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Voting Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Voting Preferred Stock as a class shall terminate and (z) the number of Directors shall be such number as may be provided for in the Amended and Restated Certificate of Incorporation or Amended and Restated By-Laws irrespective of any increase made pursuant to the provisions of paragraph (C) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the Amended and Restated Certificate of Incorporation or Amended and Restated By-Laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (d) Except as set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and A-4

unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, or make any other distributions on, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled: (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. A-5

Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (A) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, and (ii) an aggregate amount per share, equal to the Adjustment Number (as adjusted from time to time pursuant to Section 2A hereof) times the aggregate amount to be distributed per share to holders of Common Stock, or (B) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. Section 7. Consolidation, Merger. etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Preferred Stock then outstanding shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number (as adjusted from time to time pursuant to Section 2A hereof) times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Amendment. The Second Amended and Restated Charter of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this ______ day of _______, 1997.

Chairman of the Board and Chief Executive Officer A-6

EXHIBIT "B" [Form of Rights Certificate] Certificate No. R- __________Rights NOT EXERCISABLE AFTER DECEMBER _, 2007 OR EARLIER IF NOTICE OF REDEMPTION OR EXCHANGE IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION OR EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT. ] Rights Certificate KING PHARMACEUTICALS, INC. This certifies that ____________________________, or registered assigns. is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of _______ ___, 1997 (the "Rights Agreement") between King Pharmaceuticals, Inc., a Tennessee corporation (the "Company"). and Union Planters National Bank, a national banking corporation (the "Agent"), unless notice of redemption shall have been previously given by the Company, to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (Eastern Time) on December ___, 2007, at the principal corporate trust office of the Rights Agent, or at the office of its successor as Rights Agent, one one-thousandth of a fully paid nonassessable share of the Junior Participating Preferred Stock, Series A, no par value per share, of the Company (the "Preferred Stock"), at a purchase price (the "Purchase Price") of $.01 per one one-thousandth share, upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase duly executed. The Purchase Price may be paid in cash or by certified bank check or bank draft payable to the order of the Company As provided in the Rights Agreement, the Purchase Price and the number of shares of Preferred Stock or other securities, cash or other property which may be purchased upon the exercise B-1

of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events. If the Rights evidenced by this Rights Certificate are or were formerly beneficially owned, on or after the earlier of the Distribution Date and the Stock Acquisition Date, by (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, or (ii) a direct or indirect transferee of an Acquiring Person (or of any Associate or Affiliate of an Acquiring Person), such Rights may become null and void, in which event the holder of any such Right (including any subsequent holder) shall not have any right with respect to such Right. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates Capitalized terms used but not defined in this Rights Certificate that are defined in the Rights Agreement shall have the same meanings ascribed to them in the Rights Agreement Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office of the Rights Agent. This Rights Certificate with or without other Rights Certificates, upon surrender at the principal corporate trust office of the Rights Agent, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Preferred Stock or other property as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered entitled such holder to purchase If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (a) may be redeemed by the Board of Directors of the Company at its option at a redemption price of $. 01 per Right subject to adjustment, payable, at the election of the Company in cash or shares (including fractional shares) of Common Stock or such other consideration as the Board of Directors may determine, at any time prior to the earlier of (i) 12:00 a m. (midnight, Eastern Time) on the Stock Acquisition Date, and (ii) the Expiration Date, or, (b) may be exchanged after the Stock Acquisition Date by the Board of Directors of the Company at its option in whole or in part for shares of the Company's Common Stock or other Company securities. No fractional shares of Preferred Stock (other than fractions that are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depository receipts) are required to be issued upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof the Company may elect to (i) evidence fractional shares by depositary receipts, (ii) issue scrip or warrants in registered form (either represented by a certificate B-2

or uncertificated) or in bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share, or (iii) make a cash payment, as provided in the Rights Agreement No holder of this Rights Certificate, as such, shall be entitled to vote or to receive dividends on, or shall be deemed for any purpose the holder of, Preferred Stock or of any other securities, cash or property which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or this Certificate be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company, including, without limitation, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or to institute, as a holder of Preferred Stock or other securities issuable on the exercise of the Rights represented by this Certificate, any derivative action, or otherwise, until and only to the extent the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent ***** B-3

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _________________,________. KING PHARMACEUTICALS, INC. By: Countersigned: By: Authorized Signature B-4

[Form of Reverse Side of Rights Certificate] FORM OF ASSlGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED the undersigned _______________________________ hereby sells, assigns and transfers unto (Please print name and address of transferee) ____________ Rights evidenced by this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ Attorney, to transfer the said Rights and a Rights Certificate evidencing such Rights on the books of King Pharmaceuticals, Inc., with full power of substitution. A new Rights Certificate evidencing the remaining balance, if any, of such Rights not hereby sold, assigned and transferred shall be mailed to and registered in the name of the undersigned unless such person requests that such Rights Certificate be registered in the name of and mailed to (complete only if a Rights Certificate evidencing any remaining balance of Rights is to be registered in a name other than the undersigned). Please insert Social Security or other identifying number of transferee: _________________________________

(Please print name and address)

CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: 1. this Rights Certificate or any Rights evidenced hereby [ ] are [ ] are not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); 2. after due inquiry and to the best knowledge of the undersigned, the undersigned [ ] did [ ] did not acquire any of the Rights evidenced by this Rights Certificate from any Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ___________________________ ----------------------------- Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. NOTICE The signature on the foregoing Form of Assignment must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the case of an assignment or other transfer of this Rights Certificate or any Rights evidenced hereby, will affix a legend to that effect on any Rights Certificate issued in whole or partial exchange for this Rights Certificate.

FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Rights represented by this Rights Certificate) To: KING PHARMACEUTICALS, INC. The undersigned hereby irrevocably elects to exercise _________________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock or other securities, cash or other property issuable upon the exercise of such Rights and requests that certificates for such shares or other securities be issued in the name of, and such cash or other property be paid to: Please insert social security or other identifying number: ________________________

(Please print name and address) A new Rights Certificate evidencing the remaining balance, if any, of such Rights not hereby exercised shall be mailed to and registered in the name of the undersigned unless such person requests that such Rights Certificate be registered in the name of and mailed to (complete only if Rights Certificate evidencing any remaining balance of Rights is to be registered in a name other than the undersigned): Please insert social security or other identifying number. _________________________

(Please print name and address)

CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: 1. the Rights evidenced by this Rights Certificate are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); 2. after due inquiry and to the best knowledge of the undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ___________________________ ----------------------------- Signature Signature Guaranteed Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. NOTICE The signature on the foregoing Form of Election to Purchase must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever In the event the certification set forth above in the Form of Election to Purchase is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and, in the case of an assignment or other transfer of this Rights Certificate or any Rights evidenced hereby, will affix a legend to that effect on any Rights Certificate issued in whole or partial exchange for this Rights Certificate.

EXHIBIT 5.1 [BAKER DONELSON LETTERHEAD] October 21, 1997 Board of Directors King Pharmaceuticals, Inc. 501 Fifth Street Re: Registration Statement on Form S-1 Dear Board of Directors: We have acted as counsel to King Pharmaceuticals, Inc., a Tennessee corporation (the "Company"), in connection with the registration of 9,200,000 shares of Common Stock (the "Common Stock") of the Company. The Company has filed a Registration Statement on Form S-1 pursuant to the Securities Act of 1933, as amended (the "Registration Statement"). We have acted as counsel for the Company in connection with the proposed transaction and have assisted with the preparation of the Registration Statement and various corporate documents related thereto. We have examined and relied upon the following documents and instruments for the purpose of giving this opinion, which, to our knowledge and in our judgment, are all of the documents and instruments that are necessary for us to examine for such purpose: 1. The Registration Statement, the prospectus filed therewith (the "Prospectus") and all exhibits thereto; 2. A copy of the Company's Charter certified by the Tennessee Secretary of State and a copy of the proposed Form of Second Amended and Restated Charter; 3. A copy of the Company's Bylaws certified by the Secretary of the Company and a copy of the proposed Form of Amended and Restated Bylaws; 4. The minute book of the Company; and

Board of Directors October 21, 1997 Page 2 5. The stock records of the Company. In giving our opinion, we have assumed without investigation the authenticity of any document or instrument submitted to us as an original, the conformity to the authentic original of any document or instrument submitted to us as a certified, conformed or photostatic copy and the genuineness of all signatures on such originals or copies. Based upon the foregoing and having regard for such legal considerations as we deem relevant, we are of the opinion that (i) the Company is a corporation duly incorporated and validly existing under the laws of the State of Tennessee and (ii) the Common Stock, when issued in accordance with the Registration Statement, will be validly issued, fully paid and nonassessable. Our opinion is subject to the following qualifications and limitations: i. The opinions expressed herein are subject to the effect of applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights and equitable principles limiting the availability of equitable remedies on the enforceability of contracts, agreements and instruments. ii. Members of our firm are qualified to practice law in the State of Tennessee and nothing contained herein shall be deemed to be an opinion as to any law, rule or regulation other than the law of the State of Tennessee and the federal law of the United States. iii. The opinions set forth herein are expressed as of the date hereof and, except during the time prior to the effectiveness of the Registration Statement filed with the Securities and Exchange Commission, we disclaim any undertaking to advise you of any changes which may subsequently be brought to our attention in the facts and the law upon which such opinions are based. This opinion is intended to be used as an exhibit to the Registration Statement filed with the Securities and Exchange Commission. Except for such use, neither this opinion nor copies hereof may be relied upon by, delivered to, or quoted in whole or in part without our prior written consent. We consent to the reference of our firm name under the caption LEGAL MATTERS in the Prospectus and to the use of our opinion as an exhibit to the Registration Statement. In giving these consents, we do not admit that we come within the category of persons whose consent is

Board of Directors October 21, 1997 Page 3 required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours,

EXHIBIT 10.1 PROMISSORY NOTE $3,500,000.00 Bristol, Tennessee December 28, 1993 FOR VALUE RECEIVED, RSR Acquisition Corporation, a Tennessee corporation ("Maker"), unconditionally promises to pay to the order of RSR Laboratories, Inc. ("Payee"), at Payee's office in 501 Fifth Street, Bristol, TN 37620, or at such other place as the holder hereof may designate in writing, the principal sum of Three Million Five Hundred Thousand And No/100 Dollars ($3,500,000.00) and to pay simple interest at the rate of six percent (6%) per annum on the principal balance hereof from time to time remaining unpaid prior to maturity (whether by acceleration or otherwise, "Maturity") in ten (10) equal annual installments of principal and interest, the first annual installment being due and payable on the 28th day of December, 1994, and consecutive annual installments being due and payable thereafter on the 28th day of each succeeding December with the final installment at Maturity. 1. Prepayment. This Note may be prepaid in whole or in part at any time and from time to time without premium or penalty. All prepayments shall be applied first to accrued interest and thereafter to unpaid principal. 2. Collateral. This Note is given to evidence a debt for a portion of the purchase price for certain assets purchased by Maker from Payee, including certain real property and improvements located at 501 Fifth Street, Bristol, Tennessee (the "Real Estate"), and is secured by a Deed of Trust for the Real Estate, executed by Maker in favor of Payee. 3. Default. The occurrence of any one or more of the following events shall constitute a default (an "Event of Default") under this Note: (a) Maker or guarantor of this Note shall (i) apply for or consent to the appointment of a receiver, trustee, or liquidator of itself, or of all or a substantial part of its assets, (ii) be unable, or admit in writing its inability to pay its debts as they fall due, (iii) make a general assignment for the benefit of its creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law or an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization, or insolvency proceeding, or any corporate action shall be taken by it for the purpose of

effecting any of the foregoing; (b) an order, judgment or decree shall be entered, without the application, consent or approval of Maker, by any court of competent jurisdiction, approving a petition seeking reorganization of Maker or appointing a receiver, trustee, or liquidator of Maker or of all or a substantial part of its assets and such order, judgment or decree shall continue unstayed and in effect for any period of more than thirty (30) consecutive days; or (c) Maker shall fail to make payment of any installment within ten (10) days of the date such installment is due. 4. Standstill. The holder of this Note shall not exercise any remedy provided hereunder for a period of not less than one hundred (100) days following any Event of Default. 5. Right of Offset. Maker, Payee, and/or Harold A. Robinson, John A. Robinson, and Jack A. Sitgreaves (individually or collectively, as appropriate) are parties to a Closing Memorandum, dated December 28, 1993, and other agreements referenced in such Closing Memorandum (the "Agreements"). Maker, from time to time, may offset against amounts due under this Note in accordance with the terms and conditions of any or all of the Agreements. 6. Remedies. If an Event of Default shall occur, and be then continuing, the holder of this Note, at its option, may declare immediately due and payable the entire unpaid principal balance of, and all accrued interest on, this Note, and exercise any other right or remedy provided at law or in equity. 7. Escrow. This Note is being placed in escrow pursuant to an Escrow Agreement, of even date herewith between Maker, Payee, Harold A. Robinson, John A. Robinson, and Jack A. Sitgreaves, and Gentry Locke, Rakes & Moore ("Escrow Agent"). Notwithstanding anything in this Note to the contrary, no payment shall be due hereunder until this Note is released from escrow by the Escrow Agent in accordance with the provisions of such Escrow Agreement. 8. No Waiver. No delay in the exercise of any power or right under this Note shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. 9. Attorneys' Fees. If any action is taken to enforce any provision of this Note whether by legal proceedings or through a bankruptcy court, the prevailing party in such action shall be paid its reasonable attorneys' fees and collection fees by the other party. 10. Governing Law. This Note shall be construed in accordance with and governed by laws of the State of Tennessee and of the United States applicable to the State of Tennessee.

11. Headings. The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. 12. Notices. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date received whether delivered in person or by United States mail at the address set forth below (or at such other address as a party may supply by written notice to the other parties); or on the date a facsimile transmission is confirmed as to content by a writing deposited on the same day in the U.S. mail, postage prepaid, registered or certified mail, return receipt requested:
If to the Payee: RSR Laboratories, Inc. 501 Fifth Street Bristol, Tennessee 37620 Attention: Mr. John S. Robinson If to the Maker: RSR Acquisition Corporation 501 Fifth Street Bristol, TN 37620 Attention: Mr. John M. Gregory

IN WITNESS WHEREOF, THE MAKER HAS EXECUTED THIS NOTE AS OF THE DATE AND YEAR FIRST ABOVE WRITTEN. RSR Acquisition Corporation
By: /s/ Randal J. Kirk --------------------------Randal J. Kirk President

EXHIBIT 10.2 PROMISSORY NOTE $4,700,000.00 Bastian, Virginia October 6, 1994 FOR VALUE RECEIVED, King Pharmaceuticals, Inc., a Tennessee corporation ("Maker"), unconditionally promises to pay to the order of General Injectables & Vaccines, Inc., a Virginia corporation ("Payee"), at Payee's office in Bastian, Virginia, or at such other place as the holder hereof may designate in writing, the principal sum of Four Million Seven Hundred Thousand And No/100 Dollars ($4,700,000.00) and to pay simple interest at the rate of eight percent (8%) per annum on the principal balance hereof from time to time remaining unpaid prior to maturity (whether by acceleration or otherwise, "Maturity") as follows: (a) interest shall be paid monthly in arrears on or before the tenth (10th) day of each month until Maturity, with the first payment of interest due in December, 1994; and (b) principal shall be paid in eight (8) equal annual installments of Five Hundred Eighty-Seven Thousand Five Hundred and No/100 Dollars ($587,500.00), with the first annual installment being due and payable on the 31st day of December, 1995, and consecutive annual installments being due and payable thereafter on the 31st day of each succeeding December until Maturity. 1. Prepayment. This Note may be prepaid in whole or in part at any time and from time to time without premium or penalty. All prepayments shall be applied first to accrued interest and thereafter to unpaid principal. 2. Default . The occurrence of any one or more of the following events shall constitute a default (an "Event of Default") under this Note: (a) Maker shall (i) apply for or consent to the appointment of a receiver, trustee, or liquidator of itself, or of all or a substantial part of its assets, (ii) be unable, or admit in writing its inability to pay its debts as they fall due, (iii)

make a general assignment for the benefit of its creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law or an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding, or any corporate action shall be taken by it for the purpose of effecting any of the foregoing; (b) an order, judgment or decree shall be entered, without the application, consent or approval of Maker, by any court of competent jurisdiction, approving a petition seeking reorganization of Maker or appointing a receiver, trustee, or liquidator of Maker or of all or a substantial part of its assets and such order, judgment or decree shall continue unstayed and in effect for any period of more than thirty (30) consecutive days; or (c) Maker shall fail to make payment of any installment within ten (10) days of the date such installment is due. 3. Standstill. The holder of this Note shall not exercise any remedy provided hereunder for a period of not less than one hundred (100) days following any Event of Default. 4. Remedies. If an Event of Default shall occur, and be then continuing, the holder of this Note, at its option, may declare immediately due and payable the entire unpaid principal balance of, and all accrued interest on, this Note, and exercise any other right or remedy provided at law or in equity. 5. No Waiver. No delay in the exercise of any power or right under this Note shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. 6. Attorneys' Fees. If any action is taken to enforce any provision of this Note whether by legal proceedings or through a bankruptcy court, the prevailing party in such action shall he paid its reasonable attorneys' fees and collection fees by the other party.

7. Governing Law. This Note shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia and of the United States applicable to the Commonwealth of Virginia. 8. Headings. The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. 9. Notice . Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date received whether delivered in person or by United States mail at the address set forth below (or at such other address as a party may supply by written notice to the other parties); or on the date a facsimile transmission is confirmed as to context by a writing deposited on the same day in the U.S. mail, postage prepaid, registered or certified mail, return receipt requested:
If to the Payee: General Injectables and Vaccines, Inc. U.S. Hwy. 52 South P.O. Box 9 Bastian. VA 24314-0009 Attn: General Counsel Fax: 703-688-4060 King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 Attn: General Counsel Fax: 615-989-6282

If to the Maker:

IN WITNESS WHEREOF, the maker has executed this Note as of the date and year first above written. King Pharmaceuticals, Inc.
By: /s/ John M. Gregory ---------------------------------John M. Gregory Chief Executive Officer

EXHIBIT 10.3 LOAN AGREEMENT THIS LOAN AGREEMENT ("Loan Agreement") is made this 30th day of April, 1996, by and between KING PHARMACEUTICALS INC., a Tennessee corporation whose address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Borrower"), and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the statutes of the United States of America, whose address is P. O. Box 3189, Bristol, Tennessee 37625 (the "Bank"). Recitals of Fact The Borrower has requested that the Bank commit to make loans and advances to it on a revolving credit basis in an amount not to exceed at any one time outstanding the principal sum of Three Million Five Hundred Thousand and No/100 Dollars $3,500,000.00 The Borrower will use the revolving credit funds to provide working capital and the Bank has agreed to make such loan and advances on the terms and conditions herein set forth. Furthermore, the Borrower has requested that the Bank commit to loan the Borrower the principal sum of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00), with said extension of credit to be structured as a term loan. The proceeds of the term loan shall be used by the Borrower to finance bioequivalence studies as part of the development of generic drug products. NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in consideration of the mutual agreements herein contained, the parties agree as follows: AGREEMENTS SECTION 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following terms shall have the following meanings (such meanings to be applicable equally to both the singular and plural forms of such terms) unless the context otherwise requires: "Borrowing Base Certificate" means that certain certificate that is attached hereto as Exhibit "B". "Closing Date" means the date set out in the first paragraph of this Loan Agreement. "Collateral" means the tangible and intangible personal property of the Borrower that is intended to secure the loans contemplated under this Loan Agreement, said personal property being specifically described in Section 4.1 of this Loan Agreement "Contra Accounts" means Borrower's accounts receivable from a third party that are offset by the Borrower's accounts payable owed to said third party. "Event of Default" has the meaning assigned to that phrase in Section 9 of this Loan Agreement. "Loan Agreement" means this Loan Agreement between the Borrower and the Bank.

"Revolving Credit Advances" means advances of principal on the Revolving Credit Loan by the Bank under the terms of this Loan Agreement to the Borrower during the term of the Revolving Credit Loan. "Revolving Credit Loan" means the Borrower's revolving credit indebtedness to the Bank pursuant to Section 2 of this Loan Agreement. "Revolving Credit Note" means the promissory note described in Section 2.3 of this Loan Agreement. "Security Agreement" means the Security Agreement described in Section 4.2 of this Loan Agreement. "Termination Date of the Revolving Credit Loan" shall mean May 15, 1997 or, in the event that the Bank and the Borrower shall hereafter mutually agree in writing that the Revolving Credit Loan and the Bank's commitment hereunder shall be extended to another date, and the Note shall be modified or amended to reflect such extension, such other date mutually agreed upon between the Bank and the Borrower to which Bank's commitment shall have been extended. "Term Loan" means the Borrower's term indebtedness to the Bank pursuant to Section 3 of this Loan Agreement. "Term Note" means the promissory note as described in Section 3.2 of this Loan Agreement. "Working Capital" means the amount by which the Borrower's current assets exceed the Borrower's current liabilities, all as determined in accordance with generally accepted accounting principles applied on a consistent basis. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent to those applied in the preparation of the financial statements required to be delivered from time to time pursuant to Section 7.5 of this Loan Agreement. SECTION 2: COMMITMENT, FUNDING AND TERMS OF REVOLVING CREDIT LOAN. 2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the Bank agrees and commits to make loan advances or commitments under letters of credit to the Borrower from time to time, from the Closing Date until the Termination Date of the Revolving Credit Note, in aggregate principal amounts not to exceed at any one time outstanding Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) 2.2 FUNDING THE LOAN. Revolving Credit Advances shall be made (i) by automated transfer, as described in that certain agreement by and between the Borrower and the Bank entitled "Automated Transfer Facility Including Automated Principal Reduction", or (ii) upon the oral request, followed by immediate written or fax confirmation, or the written request of the Borrower to the Bank and to the attention of: Kevin L. Jessee Senior Vice President First Tennessee Bank National Association P.0. Box 3189 Bristol, TN 37625 (423) 968-5308 (423) 968-5612 FAX 2

All Revolving Credit Advances shall be made by depositing the same to a checking account in the name of the Borrower. All written confirmations shall be sent to the address set forth in this Section 2.2. All fax confirmations shall be sent to the fax number set forth in is Section 2.2. 2.3 THE NOTE AND INTEREST. The Revolving Credit Loan shall be evidenced by the Revolving Credit Note of the Borrower, payable to the order of the Bank in the principal amount of Three Million Five Hundred Thousand and No/100 dollars ($3,500,000.00) The entire principal amount of the loan (including outstanding commitments under letters of credit) shall be due and payable on the Termination Date of the Revolving Credit Loan. The unpaid principal balances of the Revolving Credit Note shall bear interest on disbursed and unpaid principal balances at the rates specified in the Revolving Credit Note and shall be payable as provided in the Revolving Credit Note. 2.4 PRE-PAYMENTS OR TERMINATION OF THE REVOLVING CREDIT NOTE. So long as no Event of Default exists, the Borrower may, at its option, from time to time, subject to the terms and conditions hereof, without penalty, borrow, repay, and reborrow amounts under the Revolving Credit Note. By notice to the Bank in writing, the Borrower shall be entitled to terminate the Bank's commitment to make further advances on the Revolving Credit Note. 2.5 CONDITIONS PRECEDENT TO CLOSING AND FUNDING REVOLVING CREDIT NOTE. The obligation of the Bank to fund the initial advance under the Revolving Credit Note is subject to the conditions precedent set forth in Section 5.1 of this Loan Agreement. 2.6 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT NOTE ADVANCES. The obligation of the Bank to make the Revolving Credit Advances pursuant hereto (including the initial advance on the Closing Date) shall be subject to the following additional conditions precedent: (a) The Borrower shall have furnished to the Bank each of the items referred to in Section 5.1 of this Loan Agreement, all of which shall remain in full force and effect as of the date of such Revolving Credit Advance (notwithstanding that the Bank may not have required any such item to be furnished prior to the Closing Date). (b) An Event of Default shall not have occurred. (c) Each of the warranties and representations of Borrower, as set out in Section 6 of this Loan Agreement shall remain true and correct in all material respects. (d) The aggregate Revolving Credit Advances do not exceed 85% of the Borrower's accounts receivable that are less than 90 days from the date of invoice, less Contra Accounts, plus 60% of the Borrower's raw materials and finished goods inventory (the "Borrowing Base") The Borrowing Base shall be determined using the Borrowing Base Certificate, as determined once per month, beginning on the Closing Date and on the first day of each and every month thereafter until the Termination Date of the Revolving Credit Loan. 2.7 BORROWING BASE CERTIFICATE. On the closing date and on the first day of each and every month thereafter until the Termination Date of the Revolving Credit Loan, Borrower shall complete and provide to the Bank the Borrowing Base Certificate that is attached hereto as Exhibit "B". 3

SECTION 3: COMMITMENT, FUNDING AND TERMS OF TERM LOAN. 3.1 THE COMMITMENT. Subject to the terms and condition herein set out, the Bank agrees and commits to loan the Borrower the principal sum of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) to be used for the purpose of financing bioequivalence studies as part of the development of generic drug products. 3.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidenced by the Term Note of Borrower, payable to the order of the Bank, in the principal amount of Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) The unpaid principal balance of the Term Note shall bear interest at the rate specified in the Term Note and shall be payable as provided in the Term Note. 3.3 ACCELERATION OF TERM NOTE. In the event Borrower begins financing all or a portion of its working capital by borrowing from a source other than the Bank, the Term Note shall automatically accelerate and all sums owing thereon shall be immediately due and payable. SECTION 4. COLLATERAL, 4.1 DESCRIPTION OF COLLATERAL. The Revolving Credit Note and the Term Note shall be secured by a first lien on the Borrower's accounts receivable, inventory, contract rights, and general intangibles. The Bank's lien against Borrower's contract rights shall not extend to any contract where such lien would result in a breach of that contract by the Borrower. 4.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide the Bank with the security contemplated by Section 4.1 of this Loan Agreement, the Borrower shall execute a security agreement granting the Bank a security interest in the Collateral and Borrower shall execute such financing statements as may be necessary to perfect said security interest. The Security Agreement and the financing statements shall be in a form acceptable to the Bank. 4.3 LOCKBOX. On the closing date, the Borrower shall establish a lockbox to be administered by the Bank. All of the Borrower's accounts receivable received on or after the Closing Date shall be deposited into the lockbox. In order to facilitate the deposit of all the Borrower's accounts receivable into the lockbox, the Borrower shall instruct all of its customers, now and in the future, to mail their payments to the lockbox address. The Borrower will notify the Bank of any payment on the Borrower's accounts receivable received directly by the Borrower. The Borrower shall give the Bank such notice within one (1) business day of the receipt of any such payment. SECTION 5. CONDITIONS OF LENDING. 5.1 CONDITION PRECEDENT TO FUNDING THE REVOLVING CREDIT NOTE AND THE TERM NOTE. The obligation of the Bank to fund the Term Note and initial Revolving Credit Note advance is subject to the following conditions precedent that the Bank shall have received in a form and substance satisfactory to the Bank: (a) This Loan Agreement. (b) The Revolving Credit Note. (c) The Term Note. (d) The Security Agreement, together with such financing statements as the Bank may require to perfect its security interest in the Collateral. 4

(e) UCC lien searches from such recording offices as the Bank shall specify, evidencing the priority of the Bank's lien under the Security Agreement. (f) Audited financial statements for the year ending December 31, 1995 indicating no material change from the internally prepared statements. (g) A breakdown of current inventory and aging of accounts receivable. (h) Certified corporate resolutions of the Borrower, authorizing this Loan Agreement, the Revolving Credit Note, the Term Note, and the Security Agreement. (i) Certificate(s) of good standing for the Borrower from the state of its incorporation and such other states as the Bank shall require. (j) Such other information and documentation as the Bank shall deem to be necessary or desirable in connection with the funding of the Revolving Credit Note and/or Term Note. (k) The opinion of the Borrower's counsel that the transactions herein contemplated have been duly authorized by all requisite corporate authority, that this Loan Agreement and the other instruments and documents herein referred to have been duly authorized, validly executed and are in full force and effect, and pertaining to such other matters as the Bank may require. SECTION 6: REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that: 6.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 6.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement, the Revolving Credit Note, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower. 6.3 FINANCIAL CONDITION. The balance sheets of the Borrower, copies of each of which are attached hereto, are correct and complete and fairly present the financial condition of the Borrower as of the date of said balance sheets and the results of its operations for said periods and as of the Closing Date in all material respects. All such financial statements have been prepared in accordance with generally accepted accounting principles, applies on a consistent basis, maintained through the period involved. 6.4 TITLE TO ASSETS. Borrower has good and marketable title to all its properties and assets reflected on the balance sheet referred to in Section 6.3 of this Loan Agreement. 5

6.5 LITIGATION. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending, or, to the knowledge of the Borrower, threatened against or affecting the Borrower, or any properties or rights of the Borrower, which, if adversely determined, would materially adversely affect the financial or any other condition of the Borrower. 6.6 TAXES. Borrower has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes in connection therewith. 6.7 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. is not a party to any agreement or instrument or subject to any charter or other corporate restrictions materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 6.8 NO DEFAULT. Borrower is not in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Borrower. SECTION 7: AFFIRMATIVE COVENANTS OF BORROWER. The Borrower covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Revolving Credit Note and Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower will: 7.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 7.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases, franchises, and trade names and preserve all the remainder of its properties used or useful in the conduct of its business substantially as conducted and operated during the present and preceding fiscal year. 7.3 INSURANCE. At all times maintain with insurance companies rated "A" or better or otherwise acceptable to the Borrower and the Bank, hazard insurance and such other insurance, for such amounts as is customarily maintained by companies in the same or substantially similar business. The Bank shall be named as loss payee on the Borrower's principle hazard insurance policies and any policy covering inventory. 7.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 7.5 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrower, an unqualified audit as of the close of such fiscal year of the Borrower, including a balance sheet and statement of income and surplus of the Borrower together with the unqualified audit report and opinion of an independent Certified Public Accountant reasonably acceptable to the Bank, showing the financial condition of the Borrower at the close of such year and the results of operations during such year; (b) 6

within forty-five (45) days after the end of each fiscal quarter, except the last fiscal quarter of the year, financial statements similar to those described above for the Borrower, not audited but certified as to accuracy and content by the Chief Financial Officer or President or Controller of the Borrower (the "Certifying Officer"), such balance sheets to be as of the end of such quarter and such statements of income and surplus to be for the period from the beginning of said year to the end of such quarter, in each case subject only to audit and year-end adjustment. 7.6 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "A" attached hereto. 7.7 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 7.8 ADDITIONAL INFORMATION. Furnish such other relevant information regarding the operations, business affairs and financial condition of the Borrower as the Bank may reasonably request, including but not limited to written confirmation of requests for loan advances, true and exact copies of Borrower's books of account and tax returns and all information furnished to shareholders or any governmental authority, and permit the copying of the same. 7.9 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the Bank's expense, to visit and inspect any of the properties, books and financial reports of the Borrower and to discuss its affairs, finances and accounts with its principal officers, at all such reasonable tunes and on reasonable advance notice and as often as the Bank may reasonably request. 7.10 MINIMUM NET WORTH. Maintain a minimum net worth of Ten Million Eight Hundred Thousand and No/100 Dollars ($10,800,000.00) as determined by generally accepted accounting principles including intangible assets, with assets valued at historical costs less allowances taken for depreciation and depletion. 7.11 DEBT TO EQUITY RATIO. Maintain a maximum debt to equity ratio of 2.50 (total debt divided by total equity). 7.12 CASH FLOW-TO-DEBT SERVICE RATIO. Maintain a ratio of cash flow-to-debt service of not less than 1.25 (total cash flow divided by total debt service) to be measured annually based on the audited financial statements required by Section 7.5(a). For purposes of this requirement, "Cash Flow" shall be defined as net profits plus allowances for depreciation, interest and equity injections consisting of cash; and "Debt Service" shall be defined as all scheduled payments of principal, interest and equipment lease financing payable by the Borrower within the next 365 calendar days. 7.13 CURRENT RATIO. Maintain a current redo of 1.20. For purposes of this Section, "Current Ratio" shall be defined as current assets divided by current liabilities. 7.14 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against the Borrower's tangible and intangible personal assets. If any other such liens exist that have not been released of record, Borrower will obtain the immediate release of any such liens. 7.15 FINANCIAL CONDITION. Maintain a financial condition, at all times, acceptable to the Bank. 7.16 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. 7

SECTION 8: NEGATIVE COVENANTS OF BORROWER. 8.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 8.2 The Borrower covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Borrower's assets. Borrower shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, which shall include the acquisition of product lines (any such lien shall not extend to accounts or inventory). Furthermore, this provision shall not impair the ability of the Borrower to acquire property after the Closing Date (other than inventory) by mesas of leases, or sale and lease back transactions. SECTION 9: EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following shall occur: 9.1 PAYMENT OF PRINCIPAL, INTEREST. The Borrower defaults in the prompt payment as and when due of principal or interest on the Revolving Credit Note or Term Note or any fees due under said notes, this Loan Agreement or the Security Agreement; or in the prompt payment when due of any other indebtedness, liabilities, or obligations to the Bank, whether now existing or hereafter created or arising; direct or indirect, absolute or contingent; or 9.2 OTHER OBLIGATIONS. The Borrower defaults with respect to any other material agreement to which it is a party or with respect to any other material indebtedness when due or the performance of any other obligation incurred in connection with any material indebtedness for borrowed money ("material" as used herein meaning indebtedness or obligations in excess of $50,000.00) if the effect of such default is to accelerate the maturity of such indebtedness, or if the effect of such default is to permit the holder thereof to cause such indebtedness to become due prior to its stated maturity and the holder has not waived its right to accelerate payment of such indebtedness; or 9.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by the Borrower herein, or in any report, certificate, financial statement or other writing furnished in connection with or pursuant to this Loan Agreement shall prove to be false, misleading or incomplete in any material respect on the date as of which made; or 9.4 BANKRUPTCY, ETC. The Borrower shall make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Borrower, in which an order for relief is entered or which remains undismissed for a period of sixty (60) days or more; or the Borrower by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties, or shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; or Borrower shall generally not pay its debts as such debts become due; or 8

9.5 CONCEALMENT OF PROPERTY, ETC. The Borrower shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or made any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings or distraint which is not vacated within sixty (60) days from the date thereof; or 9.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership that results in John M. Gregory owning fifty percent (50%) or less of the capital stock of the Borrower, or fifty percent (50%) or less of the voting power related to the capital stock; or 9.7 COVENANTS. The Borrower defaults in the performance or observance of any other covenant, agreement or undertaking on its part to be performed or observed, contained herein, or in any other instrument or document which now or hereafter evidences or secures all or any part of the Revolving Credit Loan and/or Term Loan. 9.8 REMEDY. Upon the occurrence of any Event of Default, as specified herein, and the expiration of any applicable cure period, the Bank shall, at its option, be relieved of any obligation to make further Revolving Credit Advances under this Loan Agreement or the Revolving Credit Note; and the Bank may, at its option, thereupon declare the entire unpaid principal balance of the Revolving Credit Note and/or Term Note, all interest accrued and unpaid thereon and all other amounts payable under this Loan Agreement to be immediately due and. payable for all purposes, and may exercise all rights and remedies available to it under any other instrument or document which evidences or secures the Revolving Credit Note and/or Term Note, or available at law or in equity, including the right to the appointment of a receiver to take possession of the Borrower's property. SECTION 10: MISCELLANEOUS 10.1 AMENDMENTS. The provisions of this Loan Agreement, the Revolving Credit Note, or the Term Note, or any instrument or document executed pursuant hereto or securing the indebtednesses, may be amended or modified only by an instrument in writing signed by the parties hereto. 10.2 NOTICES. All notices and other communications provided for hereunder shall be in writing and shall be mailed, certified mail, return receipt requested, or delivered. Any such notices and other communications to the Borrower shall be addressed as follows: John M. Gregory Chairman of the Board, President & CEO King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 All such notices and other communications to the Bank shall be addressed as follows: Kevin L. Jessee Senior Vice President First Tennessee Bank National Association P. O. Box 3189 1155 Volunteer Parkway, Suite 201 Bristol, TN 37625, or as to any such person at such other address as shall be designated by such person in a written notice to the other parties hereto complying as to the delivery with the terms of this 9

Section 10.2. All such notices and other communications shall be effective (i) if mailed, when received or three (3) business days after mailing, whichever is earlier; or (ii) if delivered, upon delivery. 10.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege, preclude any other or further exercise there or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 10.4 INDEMNIFICATION. The Borrower agrees to indemnify the Bank from and against any and all claims, losses and liabilities, including, without limitation, reasonable attorneys' fees and expenses, growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Bank's negligence or willful misconduct. The indemnification provided for in this Section shall survive the payment in full of the Revolving Credit Note and the Term Note. 10.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties made herein shall survive the delivery of the Revolving Credit Note and the Term Note. This Loan Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest therein. 10.6 GOVERNING LAW. This Loan Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 10.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 10.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this Loan Agreement, whether used in the masculine, feminine, or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Section headings are for convenience only and neither limit nor amplify the provisions of this Loan Agreement. 10.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions of this Loan Agreement be determined to be illegal or unenforceable, all other provisions, nevertheless, shall remain effective and binding on the parties hereto. 10.10 NON-CONTROL. In no event shall the Bank's rights hereunder be deemed to indicate that the Bank is in control of the business, management or properties of the Borrower or has power over the daily management functions and operating decisions made by the Borrower. 10.11 FEE AND EXPENSES. Except as otherwise expressly provided herein, the Borrower agrees to reimburse the Bank for all legal fees and expenses, and recording fees and taxes incurred by the Bank in connection with the loans contemplated by this Loan Agreement. Furthermore, the Borrower agrees to pay, or reimburse the Bank for, the actual out-of-pocket expenses, including but not limited to counsel fees and expenses, court costs, accountants fees and expenses, and fees and expenses of similar experts as deemed necessary by the Bank, incurred by the Bank in connection with the enforcement of, or the preservation of any rights under this Loan Agreement, the Revolving Credit Note, the Term Note, and any instrument or document now or hereafter securing any of said notes. 10

10.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the revolving credit note, term note, and the other instruments and documents executed and delivered in connection herewith. 10.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured) and other credits of the Borrower against any and all indebtednesses of the Borrower to the Bank. The Borrower acknowledges the Bank's legal and equitable rights to setoff, appropriate. 10.14 VENUE OF ACTIONS. As an integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Borrower, or by any successor, personal representative or assignee with respect to the Revolving Credit Note, Term Note, or this Loan Agreement or any other document or instrument which now or hereafter evidences or secures all or any part of said loans, other than in a state court of competent jurisdiction in Sullivan County Tennessee, or in the United States District Court for the Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph contained shall prohibit the Bank from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or in any other document or instrument which evidences the loans contemplated by this Loan Agreement. 10.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING 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 AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 10.16 ENTIRE AGREEMENT. This written agreement, the related written documents referred to herein, and any other agreements executed contemporaneously herewith set forth the complete and exclusive statement of the terms of the agreement between the Borrower and the Bank with respect to the loans contemplated by this Loan Agreement. Therefore, no prior written agreements or contemporaneous or prior oral agreements between the parties shall be of any effect with respect to the loans contemplated by this Loan Agreement. 11

IN WITNESS WHEREOF, the Borrower and the Bank have caused this Loan Agreement to be executed by their duly authorized officers, all as of the day and year first above written. KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory ---------------------------John M. Gregory Chairman of the Board President & CEO

FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee --------------------------Kevin L. Jessee Senior Vice President

12

STATE OF TENNESSEE COUNTY SULLIVAN Before me, John Andrew Allen Bellamy of the state and county mentioned, personally appeared John M. Gregory, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Chairman of the Board, President & CEO of King Pharmaceuticals, Inc. the within named bargainor, a corporation, and that as such Chairman of the Board, President & CEO, executed the foregoing instrument for the purpose therein contained, by personally signing the name of King Pharmaceuticals, Inc. Witness my hand and seal, at office in this 30th day of April, 1996
/s/ John Andrew Allen Bellamy -------------------------------------Notary Public My commission expires January 24, 1999

STATE OF TENNESSEE COUNTY OF SULLIVAN Before me, John Andrew Allen Bellamy of the state and county mentioned, personally appeared Kevin I. Jessee, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Senior Vice President of First Tennessee Bank National Association, the within named bargainor, and that as such Senior Vice President, executed the foregoing instrument for the purpose therein contained, by personally signing the name of First Tennessee Bank National Association. Witness my hand and seal, at office in this 30th day of April, 1996
/s/ John Andrew Allen Bellamy -------------------------------------Notary Public My commission expires January 24, 1999

13

MASTER NOTE

APPROVAL BRISTOL , TENNESSEE APRIL 30 , 1996 FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one) promise(s) to pay to the order of First Tennessee Bank National Association (hereinafter referred to as the "Bank") at any lending office in the state mentioned above or at such other place as the holder hereof may designate in writing, in current local funds, the sum of up to THREE MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100******************Dollars ($3,500,000.00), or so much thereof as may be advanced hereunder prior to maturity, together with interest on the unpaid principal balance from day-to-day remaining, computed from the day of advance until maturity at the following rate: [ ] FIXED RATE:______% per annum, [X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lesser of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (b) a rate which is______% per annum higher than the base commercial rate of interest ("Base Rate") established from time to time by Bank. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the Base Rate shall become effective, without notice to the undersigned, on [ ] the same date that the Base Rate changes; [ ] the first day of the calender month following any change in the Base Rate; [ ] the first day of the calendar quarter following any change in the Base Rate; [ ] other _________________________. The Base Rate is one of several interest rate indices employed by the Bank. The undersigned acknowledge(s) that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. Such principal and interest shall be payable as shown below: [X] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance, due on May 15, 1997 plus interest payable.

[ ] at maturity. [X] beginning June 15, 1996 and continuing on the same day of each successive [X] monthly or [ ] quarterly calendar period, except that the final interest installment shall be payable on the date the principal is due. [ ] Other: SECURITY: Except as otherwise provided herein, as of the date hereof, [ ] This Note is secured by a mortgage(s) or deed(s) of trust dated

[X] This Note is secured by security agreement(s) dated April 30, 1996. COMMITMENT FEE: The undersigned agrees to pay an annual loan commitment fee of $ N/A , due and payable at the time of execution of this Note, and each year thereafter on the anniversary date thereof. Other Terms and Conditions: Unless otherwise provided herein, all payments shall be applied first to pay the accrued interest to date on the unpaid balance and next to the unpaid principal of the indebtedness. As used herein, "other parties liable hereon" shall include, but not be limited to, any and all guarantors, endorsers, sureties and co-makers. Any payment not made when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the maximum effective contract rate of interest which the Bank may lawfully charge on the date such payment became due. The undersigned acknowledges and agrees that any commitment fees payable hereunder are bona fide commitment fees and are intended as reasonable compensation to Bank for committing to make funds available to undersigned and for no other purpose. Subject to the terms and conditions herein set forth, Bank agrees to advance funds upon the request of and as directed by the undersigned from time to time beginning on the date hereof and terminating upon maturity. Within the limits set forth herein, the undersigned may borrow, repay and reborrow each advance. Notwithstanding the principal amount of the this Note, as stated on the face hereof, the amount of principal actually owing at any given time shall be the aggregate of all advances made, less all payments of principal actually received by Bank. Bank's obligation to make advances hereunder shall be subject to the following conditions: (a) there has been no material adverse change in the undersigned's financial condition, or the financial condition of any other parties liable hereon, since execution of this Note; (b) each advance shall constitute a representation and warranty by the undersigned and other parties liable hereon that all representations and warranties contained herein or in any other document pertaining to this credit facility are true and correct on and as of the date of the advance, and that the

undersigned and other parties liable hereon are in strict compliance with all terms and conditions herein and pertaining hereto; (c) the undersigned and other parties liable hereon will furnish, from time to time, at Bank's option and at Bank's request, statements of financial condition in a form satisfactory to Bank including independently certified and audited statements prepared in accordance with generally accepted accounting principles and auditing standards. The undersigned and other parties liable hereon hereby authorizes Bank to charge an interest rate equal to one-half percent (.5%) per annum higher than the interest rate agreed to herein, or as modified hereafter, should the undersigned or other parties liable hereon fail to deliver a financial statement in the form requested by Bank within 10 days of Bank's request; (d) the undersigned and other parties liable hereon will execute and deliver to Bank all other instruments and take such other actions as Bank may reasonably request during the term hereof in order to carry out the provisions and intent hereof. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect any security given for its payment, or to enforce its collection, the undersigned will pay all the costs of collection and litigation, together with a reasonable attorney's fee, all of which shall be secured by any collateral pledged as security herefor. The undersigned also agrees to pay any and all actual expenses including reasonable attorney's fees incurred by Bank in (i) successfully defending any action or inaction in connection with any aspect of the transaction evidenced by this instrument, or (ii) any action, whether or not successful, taken to protect or enforce Bank's rights in any collateral related to the transaction evidenced by this instrument. The undersigned and all other parties liable hereon waive protest, demand, presentment, and notice of dishonor, and agree that this Note may be extended, in whole or in part, without limit as to the number of such extensions, or the period or periods thereof, and without notice to or further assent from them, all of whom will remain bound upon this Note notwithstanding any such extension(s); and further agree that all or any collateral given, now or hereafter, as security herefor may be released (with or without substitution) without notice and without affecting their liability hereon; and that additional makers, endorsers, guarantors, or sureties may become parties hereto, and that any present or future party may be released from liability hereunder, without notice, and without affecting the liability of any other maker, or other parties liable hereon. In the event of any default in the prompt and punctual payment, when due, of this Note (or any installment hereof) or any bankruptcy, insolvency, receivership, or similar proceeding instituted by or against the undersigned or other parties liable hereon or his/her or their property or assets, or in the event that the undersigned or other parties liable hereon become insolvent, however defined, or make an assignment for the benefit of creditors, or if a judgment be entered against the undersigned, or other parties liable hereon, or upon the issuance of any writ, levy or process, valid or invalid, which purports to restrict the undersigned or other parties liable hereon with respect to any of his/her or their funds or property on deposit with or in the possession or custody or under the control of the Bank, or upon the death or dissolution of the undersigned or other parties liable hereon or in the event of any default in the prompt and punctual payment when due, of any other indebtedness or obligation to the Bank owed, now or hereafter, by the undersigned or other parties liable hereon, or upon any default in any deed of trust, mortgage, security agreement, assignment or other security document given, now or hereafter, to secure the indebtedness evidenced hereby, or if any representation or warranty made by the unsigned or other parties liable hereon pertaining to this credit shall prove to be false, untrue, or materially misleading, or in the event of termination of any guaranty executed in connection with this Note, or in the event that the Bank shall deem itself insecure, then and in any of such events, this Note shall, at Bank's option, without notice or demand for payment (the same being expressly waived), be and become immediately due, payable and enforceable for all purposes, and Bank shall be under no obligation to make further advances. Any money or other property at any time in the possession of the Bank belonging to the undersigned or any other parties liable hereon, and any deposits or other sums at any time credited by or due from the Bank to the undersigned or any other parties liable hereon, may at all times, at the option of the Bank, be held and treated as collateral security for the payment of this Note or any other liability of any of the undersigned, or any other party liable hereon to the Bank, whether due or not due. The Bank may, at any time, at its option, and without notice, set off the amount due or to become due hereon against the claim of any of said parties against the Bank. To affect these rights, the undersigned and all other parties liable hereon agree, upon request by the Bank immediately to endorse, sign and execute all necessary instruments, and do hereby appoint the Bank (acting through any then officer thereof) as attorney-in-fact for them with authority to endorse any instrument requiring endorsement and to effect any transfer, and this appointment shall be irrevocable as long as the undersigned, or any other party liable hereon, shall be indebted to the Bank. In the event of any renewal or extension of the loan indebtedness evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank shall have the right to charge interest at the highest of the following rates: (i) the maximum rate permissible at the time the contract to make the loan was executed; or (ii) the maximum rate permissible at the time the load was made; or (iii) the maximum rate permissible at the time of such renewal or extension; or (iv) the maximum rate permitted by applicable federal law; it being intended that those statutes and laws, state or federal, from time to time in effect, which permit the charging of the high rate of interest shall govern the maximum rate which may be charged hereunder. In the event that for any reason the foregoing provisions hereof shall not contain a valid, enforceable designation of a rate of interest prior to the maturity or method of determining the same, then the indebtedness hereby evidenced shall bear interest prior to the maturity at the maximum effective rate which may be lawfully charged by the Bank under applicable law. Regardless of any provision herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect, or apply, as interest hereon, any amount in excess of the maximum contract rate which may be lawfully charged by the holder hereof under applicable law; and in the event the holder hereof ever receives, collect, or applies as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to the undersigned. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful contract rate, the undersigned and the holder hereof shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as a reasonable loan charge, rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire contemplated term hereof, so that the interest accrued or to accrue throughout the entire term contemplated hereby shall at no time exceed the maximum lawful contract rate.
THE UNDERSIGNED JOINTLY AND SEVERALLY WAIVE(S) ANY RIGHT TO A TRIAL BY

JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT. THE UNDERSIGNED AGREE(S) THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. ---------------------------------------------------------------------------------KING PHARMACEUTICALS, INC. -------------------------BY: /s/ John M. Gregory -------------------------President and CEO --------------------------

ADDENDUM TO PROMISSORY NOTE VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lessor of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawful charge, or (b) a rate which is 1.75% per annum higher than the 90 day London Interbank Offered Rate ("LIBOR"). The 90 Day LIBOR will be that rate so published as the Three Month LIBOR in the Money Rates section of the Wall Street Journal in the edition dated the last business day of the calendar quarter. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the LIBOR shall become effective, without notice to the undersigned, on the first day of the calendar quarter following any change in the LIBOR. LIBOR is one of several interest rate indices employed by the Bank. The undersigned acknowledges(s) that the Bank has made and may hereafter make loans bearing interest at rates which are higher or lower than the LIBOR. Dated this 30th day of April, 1996. King Pharmaceuticals, Inc.
By: /s/ John M. Gregory -------------------------------President & CEO --------------------------------

PROMISSORY NOTE (Business or Commercial Loan)
-----------------------------------Approval $2,500,000.00 -----------------------BRISTOL , Tennessee -----------------------------------APRIL 30 , 1996 ------------------------------------

FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one) promise(s) to pay to the order of First Tennessee Bank National Association (hereinafter referred to as the "Bank") at any lending office in the state mentioned above or at such other place as the holder hereof may designate in writing, in current local funds, the sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100******************************************************Dollars [ ] DISCOUNTED: Including interest, due on __________, 19 ____. [X] INTEREST BEARING: Plus interest from date until maturity on the unpaid principal balance of this Note at the rate of: [ ] FIXED RATE: __% per annum, [X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lesser of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (b) a rate which is ___% per annum higher than the base commercial rate of interest ("Base Rate") established from time to time by Bank. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the Base Rate shall become effective, without notice to the undersigned, on [ ] the same date that the Base Rate changes; [ ] the first day of the calendar month following any change in the Base Rate; [ ] the first day of the calendar quarter following any change in the Base Rate; [ ] other ______________. The Base Rate is one of several interest rate indices employed by the Bank. The undersigned acknowledge(s) that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. Such principal and interest shall be payable as shown below: [ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance, due on _______________________________________, 19__ plus interest payable [ ] at maturity. [ ] beginning ______________, 19 __ and continuing on the same day of each successive [ ] monthly or [ ] quarterly calendar period, except that the final interest installment shall be payable on the date the principal is due. [X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $69,444.44 each, plus a final payment for the balance then owing, beginning June 15, 1996, and continuing on the same day of each successive [X] monthly or [ ] quarterly calendar period. Accrued interest is [ ] included in each of the above payments; or [X] payable in addition to such payments on the above payment dates. [ ] OTHER: SECURITY: Except as otherwise provided herein, as of the date hereof, [ ] This Note is secured by a mortgage(s) or deed(s) of trust dated

[X] This Note is secured by security agreements(s) dated April 30, 1996 OTHER TERMS AND CONDITIONS: Unless otherwise provided herein, all payments shall be applied first to pay the accrued interest to date on the unpaid balance and next to the unpaid principal of the indebtedness. Any payment not made when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the maximum effective contract rate of interest which the Bank may lawfully charge on the date such payment became due. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect any security given for its payment, or to enforce its collection, the undersigned will pay all the costs of collection and litigation, together with a reasonable attorney's fee, all of which shall be secured by any collateral pledged as security herefor. The undersigned also agrees to pay any and all actual expenses including reasonable attorney's fees incurred by Bank in (i) successfully defending any action or inaction in connection with any aspect of the transaction evidenced by this instrument, or (ii) any action, whether or not successful, taken to protect or enforce Bank's rights in any collateral related to the transaction evidenced by this instrument. The maker(s) and any endorsers or guarantors hereof waive protest, demand, presentment, and notice of dishonor, and agree that

this Note may be extended, in whole or in part, without limit as to the number of such extensions, or the period or periods thereof, and without notice to or further assent from them or any other party liable hereon, all of whom will remain bound upon this Note notwithstanding any such extension(s); and further agree that all or any collateral given, now or hereafter, as security herefor may be released (with or without substitution) without notice and without affecting their liability hereon, and that additional makers, endorsers, guarantors, or sureties may become parties hereto, and that any present or future party may be released from liability hereunder, without notice, and without affecting the liability of any other maker, endorser, or guarantor. In the event of any default in the prompt and punctual payment, when due, of this Note (or any installment hereof, whether of principal, interest, or principal and interest), or if the undersigned, or any other party liable hereon, should become insolvent (as defined in the Uniform Commercial Code), or if a petition in bankruptcy be filed by or against any of the undersigned or any other party liable hereon, or if a receiver be appointed for any part of the property or assets of the undersigned or any other party liable hereon, or if any assignment for the benefit of creditors be made by the undersigned or any other party liable hereon, or if a judgment be entered against the undersigned, or any other party liable hereon, or upon the issuance of any writ, levy or process, valid or invalid which purports to restrict the undersigned or any other party liable hereon, with respect to any of his/her or their funds property on deposit with or in the possession or custody or under the control of the Bank, or upon the death or dissolution of any party hereon, or in the event of any default in the prompt and punctual payment when due, or any other indebtedness or obligation to the Bank owed, now or hereafter, by any party liable hereon, or upon any default in any deed of trust, mortgage, security agreement, assignment or other security document given, now or hereafter, to secure the indebtedness evidenced hereby, or if any representation or warranty made by the undersigned pertaining to this credit shall prove to be false, untrue, or materially misleading, or in the event that the Bank shall deem itself insecure, then and in any of such events, this Note shall, without notice or demand for payment (the same being expressly waived), be and become immediately due and payable for all purposes, at the option of the Bank. Any money or other property at any time in the possession of the Bank belonging to any party liable hereon, and any deposits or other sums at any time credited by or due from the Bank to any party liable hereon, may at all times, at the option of the Bank, be held and treated as collateral security for the payment of this Note or any other liability of any of the undersigned, or any other party in any manner liable hereon to the Bank, whether due or not due. The Bank may, at any time, at its option, and without notice, set off the amount due or to become due hereon against the claim of any of said parties against the Bank. To effect these rights, the undersigned and all parties liable hereon agree, upon request by the Bank, immediately to endorse, sign, and execute all necessary instruments, and do hereby appoint the Bank (acting through any then officer thereof) as attorney-in-fact for them with authority to endorse any instrument requiring endorsement and to effect any transfer, and this appointment shall be irrevocable as long as the undersigned, or any other party liable hereon, shall be indebted to the Bank. The undersigned agrees to furnish a current financial statement upon the request of Bank from time to time, and further agrees to execute and deliver all other instruments and take such other actions as Bank may from time to time reasonably request in order to carry out the provision and intent hereof. In the event of any renewal or extension of the loan indebtedness evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank shall have the right to charge interest at the highest of the following rates: (i) the maximum rate permissible at the time the contract to make the loan was executed; or (ii) the maximum rate permissible at the time the loan was made; or (iii) the maximum rate permissible at the time of such renewal or extension; or (iv) the maximum rate permitted by applicable federal law; it being intended that those statutes and laws, state or federal, from time to time in effect, which permit the charging of the higher rate of interest shall govern the maximum rate which may be charged hereunder. In the event that for any reason the foregoing provisions hereof shall not contain a valid, enforceable designation of a rate of interest prior to maturity or method of determining the same, then (unless this Note is discounted, single-payment note) the indebtedness hereby evidenced shall bear interest prior to maturity at the maximum effective rate which may be lawfully charged by the Bank under applicable law. Regardless of any provision herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect, or apply, as interest hereon, any amount in excess of the maximum contract rate which may be lawfully charged by the holder hereof under applicable law; and in the event the holder hereof ever receives, collects, or applies as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to the undersigned. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful contract rate, the undersigned and the holder hereof shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as a reasonable loan charge, rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire contemplated term hereby shall at no time exceed the maximum lawful contract rate. The undersigned jointly and severally waive(s) any right to a trial by jury in any action or proceeding to enforce or defend any rights under this agreement or under any amendment, instrument, document or agreement delivered (or which may in the future be delivered) in connection herewith or arising from any banking relationship existing in connection with this agreement. The undersigned agree(s) that any such action or proceeding shall be tried before a court and not before a jury. KING PHARMACEUTICALS, INC.
BY: /s/ John M. Gregory ---------------------------------President & CEO ----------------------------------

First Tennessee Bank National Association, Member FDIC Registered Service Mark owned and licensed by First Tennessee National Corporation.

ADDENDUM TO PROMISSORY NOTE VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lessor of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawful charge, or (b) a rate which is 1.75% per annum higher than the 90 day London Interbank Offered Rate ("LIBOR"). The 90 Day LIBOR will be that rate so published as the Three Month LIBOR in the Money Rates section of the Wall Street Journal in the edition dated the last business day of the calendar quarter. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the LIBOR shall become effective, without notice to the undersigned, on the first day of the calendar quarter following any change in the LIBOR. LIBOR is one of several interest rate indices employed by the Bank. The undersigned acknowledges(s) that the Bank has made and may hereafter make loans bearing interest at rates which are higher or lower than the LIBOR. Dated this 30th day of April, 1996. King Pharmaceuticals, Inc.
By:/s/ John M. Gregory -------------------------------President & CEO --------------------------------

EXHIBIT 10.4 PROMISSORY NOTE Dated: October 2, 1996 At: Bristol, Tennessee FOR VALUE RECEIVED, the undersigned MONARCH PHARMACEUTICALS, INC., a Tennessee corporation with its principal place of business located at 355 Beecham Street, Bristol, Tennessee 37620 ("Maker"), promises to pay to the order of ROBERTS LABORATORIES, INC., a New Jersey corporation with its principal place of business located at Meridian Center II; Four Industrial Way West, Eatontown, New Jersey 07724-2274 ("Lender"), the principal sum of Five Million, Five Hundred Thousand Dollars ($5,500,000.00) (the "Principal Sum"), with interest thereon at the rate of Eight percent (8%) per annum from the date set forth above, to be paid in lawful money of the United States of America, at Lender's address set forth above or such other place as Lender may from time to time designate in writing. All references to Lender in this Note shall be deemed to mean and include any subsequent holder hereof. 1. Payment of Principal and Interest. The indebtedness evidenced hereby shall be repaid in five equal annual installments of principal and interest in the amount of One Million, Three Hundred Seventy Seven Thousand, Five Hundred Ten Dollars and 50/100 ($1,377,510.50) each, commencing on October 2, 1997, and on every anniversary of October 2nd thereafter until October 2, 2001 at which time the final payment hereunder shall comprise the entire principal balance then outstanding, all accrued and unpaid interest and all other applicable fees, costs and charges if any. EXECUTION COPY 1

2. Security. This Note and all the obligations of Maker hereunder are secured by the security interests granted in the Security Agreement of even date herewith executed by Maker (the "Security Agreement"). This Note, and the Security Agreement, together with all other documents now or at any time hereafter creating, evidencing or securing the indebtedness evidenced by this Note, are herein referred to collectively as the "Loan Documents." 3. Application of Proceeds. Maker is giving this Note to Lender pursuant to an Asset Purchase agreement of even date herewith between Maker and Lender (the "Asset Purchase Agreement") to purchase the Purchased Assets (as that term is defined in the Asset Purchase Agreement). 4. Prepayment Rights. Maker shall have the right to prepay at any time and from time to time all or any portion of the entire principal balance of this Note and interest thereon, together with all other indebtedness evidenced hereby, without penalty, provided that Lender shall have received at least ten (10) days prior written notice of prepayment and Maker shall pay all accrued and unpaid interest thereon and all other fees and costs, if any, due to Lender under this note. Any partial prepayment will be applied first against any fees or charges due under the Loan Documents, if applicable, and then against accrued and unpaid interest and then against the principal of this Note. No partial prepayment will excuse any future payment of principal or interest as long as any amounts remain unpaid. EXECUTION COPY 2

5. Default Provisions. The occurrence of any one or more of the following events shall constitute a default under this Note: (a) failure of Maker to pay when due any amount required to be paid by Maker hereunder or under any of the Loan Documents; (b) the filing of any petition under the Bankruptcy Code or any similar Federal or State statute by or against Maker; (c) the occurrence of a general assignment for the benefit of creditors by Maker; (d) the insolvency of Maker; (e) the appointment of a receiver for Maker or its assets; or (f) any default under the Security Agreement. Whenever there is a default under this Note, Lender may, at its option, declare the unpaid balance of the principal amount, together with all accrued and unpaid interest and all other indebtedness evidenced hereby, to be immediately due and payable, and exercise any and all rights and remedies available to Lender hereunder, under applicable laws and under any of the other Loan Documents, all of which rights and remedies are cumulative. 6. Payment of Collection Costs. If Lender requires the services of an attorney to enforce the payment of this Note or the performance of the other Loan Documents, or if this Note is collected through any lawsuit, bankruptcy, or other proceeding, Maker agrees to pay Lender an amount equal of reasonable attorneys' fees and other actual collection costs. 7. Waiver of Certain Rights of Maker. As to this Note and the Security Agreement, and all other Loan documents, the undersigned waives all applicable exemption rights, whether under any State Constitution or otherwise, and also waives EXECUTION COPY 3

valuation and appraisement, presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and expressly agrees that the maturity of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of Maker. 8. Non-Waiver of Certain Rights of Holder. Any failure by the holder hereof to insist upon the strict performance of any of the terms and provisions of this Note or of any of the other Loan Documents shall not be deemed to be a waiver of any of the terms and provisions hereof and the holder hereof, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Maker of any and all of the terms and provisions of this Note and the other Loan Documents. 9. Invalidity of Provisions. In the event that any one or more of the provisions contained in this Note or any of the other Loan Documents shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note or any of the other Loan Documents, and each term and provision of this Note and the other Loan Documents shall be valid and enforceable to the fullest extent permitted by law. 10. Usurious Interest. In the event the operation of any provision of this Note or of any of the Loan Documents results in an effective rate of interest exceeding the limit of the usury law applicable to the loan evidenced hereby, all sums in excess of those lawfully collectible as interest in the period in question shall, without further agreement EXECUTION COPY 4

or notice be applied to the unpaid principal balance of this Note immediately upon receipt of such monies by the holder hereof, with the same force and effect as though Maker had specifically designated such extra sums to be so applied to the unpaid principal balance of this Note and notwithstanding any other provision contained herein as though Lender had agreed to accept such extra payment(s) as a prepayment of the outstanding principal balance of this Note without premium or penalty. 11. Indebtedness is for Business Purposes. Maker represents and warrants that the indebtedness evidenced by this Note is being made and transacted solely for the purpose of carrying on or acquiring a business or commercial investment. 12. Relationship of Lender and Maker. Nothing herein shall be construed to constitute Maker and Lender or any other holder hereof as partners or joint venturers. They are and intend to be debtor and creditor. 13. Amendments Must Be in Writing. This Note may not be changed orally, but only by an agreement in writing signed by Maker. 14. Governing Law. This Note is to be construed according to the laws of the State of Tennessee and shall be binding upon and inure to the benefit of Maker and Lender and their respective successors and assigns. Maker agrees that any action or proceeding brought by Lender under this Note (a) will be litigated under the laws of the State of Tennessee and agrees to be subject to the jurisdiction of the United States District EXECUTION COPY 5

Court of the Eastern District of Tennessee, (b) that service of process of any summons and complaint in any such action or proceeding may be made by registered or certified mail directed to Maker at the address set forth above, Maker waiving personal service thereof, and (c) within forty-five (45) days after summons and complaint, and should the Maker so served fail to appear or answer within said forty-five (45) day period, Maker shall be deemed in default and judgment entered against Maker for the amount demarked in any summons and complaint so served. 15. Captions. The captions of this Note are for convenience only and shall neither limit nor enlarge the provisions hereof. Executed as of the day and year first above written. MONARCH PHARMACEUTICALS, INC.
By:/s/ Joseph R. Gregory -------------------------Title: President and C.E.O. ----------------------Date: 10/2/96 ------------------------

EXECUTION COPY 6

EXHIBIT 10.5 LOAN AGREEMENT THIS LOAN AGREEMENT ("Loan Agreement") is made this 21st day of January, 1997, by and between MONARCH PHARMACEUTICALS, INC., a Tennessee corporation whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the "Borrower"), KING PHARMACEUTICALS, INC., a Tennessee corporation whose address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the statutes of the United States of America, whose address is P.O. Box 3189, Bristol, Tennessee 37625 (the "Bank"). Recitals of Fact The Borrower has requested that the Bank commit to loan the Borrower the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00), with said extension of credit to be structured as a term loan. The proceeds of the term loan shall be used by the Borrower to finance the acquisition, development and marketing of the Thalitone(R) Product Line. Furthermore, the Guarantor desires that the Bank commit to loan the Borrower the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00) for the purposes recited hereinabove. In consideration of Bank's commitment, the Guarantor has agreed to guarantee repayment of the loan contemplated by this Loan Agreement. NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in consideration of the mutual agreements herein contained, the parties agree as follows: AGREEMENTS SECTION 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following terms shall have the following meanings (such meanings to be applicable equally to both the singular and plural forms of such terms) unless the context otherwise requires: "ANDA" shall mean an Abbreviated New Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "Closing Date" means the date set out in the first paragraph of this Loan Agreement. "Collateral" means the tangible and/or intangible personal property of the Borrower that is intended to secure the loan contemplated under this Loan Agreement, said personal property being specifically described in Section 3.1 of this Loan Agreement. "Contingent Assignment" means the Contingent Assignment described in Section 3.2 of this Loan Agreement. "Event of Default" has the meaning assigned to that phrase in Section 14 of this Loan Agreement. "FDA" means the Food and Drug Administration, a agency of the government of the United States of America.

"Guaranty" means the guaranty agreement described in Section 4.2 of this Loan Agreement. "Horus" means Horus Therapeutics, Inc. "Horus Asset Purchase Agreement" shall mean that certain contract dated December 17, 1996, by and between Horus and Borrower, entitled Asset Purchase Agreement, whereby Borrower acquired Horus' interest in the Thalitone(R) Product Line. "Loan Agreement" means this Loan Agreement between the Borrower and the Bank. "NDA" shall mean a New Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "Security Agreement" means the Security Agreement described in Section 3.2 of this Loan Agreement. "Term Loan" means the Borrower's term indebtedness to the Bank pursuant to Section 2 of this Loan Agreement. "Term Note" means the promissory note as described in Section 2.2 of this Loan Agreement. "Thalitone(R) Product Line" shall refer to Thalitone(R) tablets (15 mg., 25 mg. and all other presentation sizes) and all other chlorthalidone dosage forms, along with all product codes and strengths associated with Borrower's NDA #19-574, which has been consolidated with ANDA #88-051, and, any and all changes, amendments, periodic reports, supplements, authorizations, documentation, or permits relative thereto. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent to those applied in the preparation of the financial statements required to be delivered from time to time pursuant to Section 11.1 of this Loan Agreement. SECTION 2: COMMITMENT, FUNDING AND TERMS OF TERM LOAN. 2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the Bank agrees and commits to loan the Borrower the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00), to be used for the purpose of financing the borrower's acquisition, development and marketing of the Thalitone(R) Product Line. 2.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidenced by the Term Note of Borrower, payable to the order of the Bank, in the principal amount of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00). The unpaid principal balance of the Term Note shall bear interest at the rate specified in the Term Note and shall be payable as provided in the Term Note. SECTION 3. COLLATERAL. 3.1 DESCRIPTION OF COLLATERAL. The Term Note shall be secured by a first lien on the following: (a) The Thalitone(R) Product Line, and the goodwill associated therewith, as well as any registered patents, trademarks or service marks (or applications therefor) or any tradenames, trade dress, trade secrets, service 2

marks, proprietary data, or other intellectual property rights of any nature associated or used therewith, along with all presentations, product codes, strengths, and formulations associated with the Thalitone(R) Product Line and Borrower's NDA #19-574, which has been consolidated with ANDA #88-051, as well as any future ANDA's or NDA's related to the Thalitone(R) Product Line, and any other present or future regulatory filing wheresoever occurring, whether issued or pending, and any and all changes, amendments, periodic reports, supplements, authorizations, documentation, or permits relative thereto, for the production of the Thalitone(R) Product Line, including without limitation, ANDA's and NDA's, formulations, annual product reviews, copies of completed batch records, copies of all manufacturing and packaging control procedures and specifications, all validation and protocol reports, stability protocols and reports, dose ranging study reports and protocols, product complaint files and protocols, adverse drug experience reports and protocols, supplier audit reports and protocols, and field alert reports. Registered trademarks include, but are not limited to, the trademarks Thalitone(R) and the kidney-shaped tablet that are subject to United States Registration No. 1,216,341, dated November 16, 1982, and No. 1,350,257, dated July 23, 1985. Patents include, but are not limited to U.S. Patent No. 4,933,360, issue date June 12, 1990, expiration date June 12, 2007, together with any improvements or change reflected in continuations or separate filings; (b) (i) Any and all customer lists, marketing information, documentation, data, clinical data, research and development, or other information, from any source whatsoever, related solely or primarily to the Thalitone(R) Product Line, (ii) any and all punches, and dies related to the production of the Thalitone(R) Product Line; (iii) any and all production technology or know-how including batch records, protocols, validation and analytical methods and methodology, stability protocol and procedures, Standard Operating Procedures related to the production, manufacturing, packaging, release, sale or distribution of the Thalitone(R) Product Line, (iv) any and all ANDA and NDA documentation for all product codes and strengths and all other regulatory filings related to the Thalitone(R) Product Line, and (v) any and all data, documents, charts, information and records (whether written or electronically or magnetically archived) related to any of the foregoing in subsections (i) through (iv) inclusive; (c) Borrower's contract rights under the Horus Asset Purchase Agreement; (d) The right to use names, logos, and trademarks used by Borrower on the Thalitone(R) Product Line and the packaging thereof, and in connection with the sale and distribution of the Thalitone(R) Product Line to wholesale and retail distributors; provided that the Thalitone(R) Product Line shall not be manufactured bearing any such name and logos after eighteen months from the date this interest is sold to enforce the security interest created under the Security Agreement; (e) Manufacturing technology consisting of all information, technical data or other know-how used in or related to the manufacture of the Thalitone(R) Product Line, including but not limited to the specifications, manufacturing and quality control data, test methods and validation data; and all products and proceeds of the foregoing. 3

3.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide the Bank with the security contemplated by Section 3.1 of this Loan Agreement, the Borrower shall execute a security agreement granting the Bank a security interest in the Collateral and Borrower shall execute such financing statements as the Bank deems necessary to perfect said security interest. The Security Agreement and the financing statements shall be in a form acceptable to the Bank. For the purpose of further perfecting the Bank's security interest in the Collateral, the Borrower shall execute a Contingent Assignment referencing the security interest created by the Security Agreement, which Contingent Assignment shall be filed with the United States Patent and Trademark office, together with such other documents as necessary for that purpose. The Contingent Assignment shall be in a form satisfactory to the Bank. Furthermore, the Borrower shall execute such other documents as the Bank deems necessary to perfect its security interest in and lien against the Collateral under both the laws of the United States of America, State of Tennessee, and any other state or locality the bank deems necessary. SECTION 4. GUARANTY. 4.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment of all sums at any time owing to the Bank under this Loan Agreement, the Term Note, and/or Security Agreement. 4.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty contemplated by Section 4.1 of this Loan Agreement, the Guarantor shall execute the guaranty agreement that is attached hereto as Exhibit "A". 4.3 SECURITY FOR GUARANTY. The Guarantor acknowledges that the security interest created by means of that certain Security Agreement dated April 30, 1996, whereby Guarantor granted the Bank a security interest securing the payment of certain promissory notes of even date therewith and any other indebtedness then existing or thereafter arising, due or to become due, absolute or contingent, and whether several, joint, or joint and several, of the Guarantor to the Bank secures, and was intended to secure the Term Loan and the obligations of the Guarantor under this Loan Agreement. SECTION 5. CONDITIONS OF LENDING. 5.1 CONDITIONS PRECEDENT TO FUNDING THE TERM NOTE. The obligation of the Bank to fund the Term Note is subject to the following conditions precedent that the Bank shall have received in a form and substance satisfactory to the Bank: (a) This Loan Agreement. (b) The Term Note. (c) The Security Agreement, together with the Contingent Assignment, and such financing statements and other documents as the Bank deems necessary to perfect its security interest in and lien against the Collateral. (d) Lien searches from such recording offices as the Bank shall specify, evidencing the priority of the Bank's lien under the Security Agreement. (e) Opinion letter from Jon L. Roberts, Roberts & Brownell, L.L.C. to the Bank providing that (i) he has reviewed the records of the United States Patent and Trademark Office, (ii) Borrower is the owner of the registered trademarks Thalitone(R) and the kidney-shaped tablet that are subject to United States Registration No. 1,216,341, dated November 16, 1982, and No. 1,350,257, dated July 23, 1985, and U.S. Patent No. 4,933,360, issue date June 12, 1990, expiration date June 12, 2007, together with any 4

improvements or change reflected in continuations or separate filings, (iii) said trademarks and patent are presently in full force and effect, (iv) Borrower's right to said trademarks and patent and their exclusive use is not presently subject to any challenges, and (v) the Bank has a first lien on said trademarks and patent. (f) The Guaranty. (g) Certified corporate resolutions of the Borrower, authorizing this Loan Agreement, the Term Note, and the Security Agreement. (h) Certified corporate resolutions of the Guarantor, authorizing this Loan Agreement and the Guaranty. (i) Certificate(s) of good standing for the Borrower from the state of its incorporation and such other states as the Bank shall require. (j) Certificate(s) of good standing for the Guarantor from the state of its incorporation and such other states as the Bank shall require. (k) Written proof satisfactory to the Bank that 21 CFR 314.72(a)(1) has been fully complied with respect to the assets acquired by the Borrower under the Horus Asset Purchase Agreement. (1) Such other information and documentation as the Bank shall reasonably require in connection with the funding of the Term Note. (m) The opinion of the Borrower's counsel that (i) the Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary; (ii) the transactions herein contemplated have been duly authorized by all requisite corporate authority, (iii) this Loan Agreement and the other instruments and documents herein referred to have been duly authorized, validly executed and are in full force and effect, (iv) the execution, delivery and performance of this Loan Agreement, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Borrower is a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such other matters as the Bank may reasonably require. (n) The opinion of the Guarantor's counsel that (i) the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary; (ii) the guaranty herein contemplated has been duly authorized by all requisite corporate authority and is fully enforceable against the Guarantor under the laws of the State of Tennessee, (iii) this Loan Agreement, the Guaranty and any other instrument 5

and document herein referred to have been duly authorized, validly executed and are in full force and effect, (iv) the execution, delivery and performance of this Loan Agreement and the Guaranty have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Borrower is a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such other matters as the Bank may reasonably require. The obligation of the Bank to fund the Term Note is further subject to each of the warranties and representations of Borrower and Guarantor set out in Sections 6, 7 and 8 of this Loan Agreement being and remaining true and correct in all material respects. SECTION 6: BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that: 6.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 6.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower. 6.3 LITIGATION. There is no suit, claim, action, cause or proceeding now pending or, to the knowledge of Borrower, threatened before any court, administrative, or regulatory body, arbitrator, or any governmental agency, or any grounds therefor which may result in any judgment, order, decree, liability, or other determination which will, or could, have a materially adverse effect upon the Thalitone(R) Product Line, or Borrower's compliance with and performance under the terms of this Loan Agreement, the Term Note or the Security Agreement. No such judgment, order, or decree has been entered or any such liability incurred which has or could have such effect. No party has tendered to Borrower, nor has Borrower accepted the tender of the defense of any claim, action, or proceeding which has or could have such effect. 6.4 TAXES. Borrower has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes due and owing to all such taxing authorities. 6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Borrower is not a party to any agreement or instrument or subject to any charter or other corporate restrictions 6

materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 6.6 NO DEFAULT. Borrower is not in materiel default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Borrower. 6.7 21 CFR 314.72(a)(i). All requirements of 21 CFR 314.72(a)(1) that relate to the transfer of assets to Borrower by Horus under the Horus Asset Purchase Agreement have been satisfied. 6.8 WITHDRAWAL. There exists no set of facts which could reasonably be expected to furnish a basis for the total withdrawal of the Thalitone(R) Product Line from the market or the suspension of said products registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, approval or consent of any governmental regulatory agency with respect to the Thalitone(R) Product Line. 6.9 NO VIOLATION OF LAW. Neither the Borrower or any of it employees with respect to the Thalitone(R) Product Line is or has been in violation of or in default with respect to any applicable law, rule, regulation, order, writ, or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, which violation or default might have a materially adverse effect on the Thalitone(R) Product Line, the Thalitone(R) Product Line business, or Borrower's compliance with and performance under the terms of this Loan Agreement, the Term Note, or Security Agreement. 6.11 TITLE TO COLLATERAL. Borrower has good and marketable title to all of the Collateral, free and clear of all mortgages, liens, security interests, charges, claims, restrictions, and other encumbrances of every kind, wheresoever situated other than the liens and security interests contemplated by this loan agreement to secure the obligations of Borrower to the Bank. 6.12 PATENTS AND TRADEMARKS. The registered trademarks Thalitone(R) and the kidney-shaped tablet that are subject to United States Registration No. 1,216,341, dated November 16, 1982, and No. 1,350,257, dated July 23, 1985 (the "Trademarks") and U.S. Patent No. 4,933,360, issue date June 12, 1990, expiration date June 12, 2007, together with any improvements or change reflected in continuations or separate filings (the "Patent") are presently in full force and effect. Furthermore, the Trademarks and Patents are subject to the sole use and control of Borrower and its licensees. Borrower is not aware of any state of facts that indicate a possible present infringement of the Trademarks and/or Patent. SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES Guarantor represents and warrants that: 7.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 7.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement and the Guaranty have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Guarantor, any provision of any indenture, agreement or other 7

instrument which the Guarantor is a party, or by which the Guarantor's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Guarantor. 7.3 LITIGATION. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending, or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor, or any properties or rights of the Guarantor, which, if adversely determined, would materially adversely affect the financial or any other condition of the Guarantor. 7.4 TAXES. Guarantor has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes due and owing to all such taxing authorities. 7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a party to any agreement or instrument or subject to any charter or other corporate restrictions materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 7.6 NO DEFAULT. Guarantor is not in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Guarantor. 7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not extend the Term Loan to the Borrower but for the Guaranty, Guarantor's execution of the Guaranty is in the best interest of the Guarantor. SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor represent and warrant that: 8.1 FINANCIAL CONDITION. The consolidated financial statements of the Guarantor and its wholly owned subsidiaries, copies of which are attached hereto, are correct and complete and fairly present the financial condition of the Guarantor and its subsidiaries as of the date of said financial statements and the results of their operations for said periods and as of the Closing Date in all material respects. All such financial statements have been prepared in accordance with generally accepted accounting principles, applied on a consistent basis, maintained through the period involved. 8.2 TITLE TO ASSETS. Guarantor and its subsidiaries, have good and marketable title to all their properties and assets as reflected on the balance sheet which is a part of the financial statements referred to in Section 8.1 of this Loan Agreement. 8.3 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of Borrower and Guarantor, neither this Loan Agreement nor any schedule or exhibit hereto (including without limitation the Term Note, Security Agreement and Guaranty), nor any written statement or certificate furnished in connection herewith or any of the transactions contemplated hereby, contain or will contain an untrue statement of a fact or omits or will omit to state a fact that is necessary in order to make the statements contained herein and therein, in the light of the circumstances under which they are made, not materially misleading. 8

8.4 BORROWER SUBSIDIARY OF GUARANTOR. The Borrower is a wholly owned subsidiary of the Guarantor. SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER. The Borrower covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower will: 9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases, franchises, patents, trademarks, trade names, and copyrights, and preserve all the remainder of its properties used or useful in the conduct of its business substantially as conducted and operated during the present and preceding fiscal year. As part of this obligation, Borrower shall take all action necessary to respond to and satisfy any issues raised by any FDA Form 483 or other notice of a governmental agency so as to prevent any action which could result in the withdrawal of the Thalitone(R) Product Line, or the suspension of said product's registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, approval or consent of any governmental regulatory agency with respect to the Thalitone(R) Product Line or any facility manufacturing said product. Furthermore, Borrower shall comply with all reporting requirements of any governmental agency related to the Thalitone(R) Product Line. 9.3 INSURANCE. At all times maintain with insurance companies rated "A" or better or otherwise acceptable to the Borrower and the Bank, hazard insurance and such other insurance, for such amounts as is customarily maintained by companies in the same or substantially similar business. The Bank shall be named as loss payee on the Borrower's principle hazard insurance policies and any policy covering the Collateral. 9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "B" attached hereto. 9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against the Collateral. If any other such liens exist that have not been released of record, Borrower will obtain the immediate release of any such liens. 9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. 9.9 RIGHT TO REIMBURSEMENT. Borrower shall commence performance of the Dose Response Study or reasonably act to initiate same before December 17, 1997, as 9

contemplated Section 3.4 of the Horus Asset Purchase and take any such other action necessary to preserve Its right to reimbursement under Section 3.4 of said agreement. In the event Borrower becomes entitled to exercise its right to reimbursement under Section 3.4 of the Horus Asset Purchase Agreement, it shall take all steps necessary to exercise that right. Furthermore, Borrower shall apply any and all proceeds from that right to reimbursement toward payment of sums owing under the Term Note, Security Agreement and this Loan Agreement, said proceeds being applied to no other purpose until all sums owing under said note and agreements have been fully satisfied. Since said right to reimbursement represents a portion of the Collateral, Borrower shall execute such documents as counsel for the Bank deems reasonably necessary to put Horus on notice of the Bank's right to receive any such reimbursement that may come due. SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR. The Guarantor covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Guarantor will: 10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 10.2 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 10.3 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "C" attached hereto. 10.4 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 10.5 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. SECTION 11: JOINT AFFIRMATIVE COVENANTS. The Borrower and Guarantor, jointly and severally, covenant and agree that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower and Guarantor will: 11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Guarantor, an unqualified audit of the Guarantor's and its wholly owned subsidiaries' consolidated financial statements as of the close of such fiscal year of the Guarantor, which financial statements shall including a consolidated balance sheet and consolidated statement of income and surplus of the Guarantor and its subsidiaries, together with the unqualified audit report and opinion of an independent Certified Public Accountant reasonably acceptable to the Bank, showing the financial condition of the Guarantor and its subsidiaries at the close of such year and the results of operations during such year; (b) 10

within forty-five (45) days after the end each fiscal quarter, except the last fiscal quarter of the year, financial statements similar to those described above for the Guarantor and its subsidiaries, not audited but certified as to accuracy and content by the Chief Financial Officer or President or Controller of the Guarantor (the "Certifying Officer"), such consolidated balance sheets to be as of the end of such quarter and such consolidated statements of income and surplus to be for the period from the beginning of said year to the end of such quarter, in each case subject only to audit and year-end adjustment. 11.2 ADDITIONAL INFORMATION. Furnish such other relevant information regarding the operations, business affairs and financial condition of the Guarantor and its subsidiaries as the Bank may reasonably request, including but not limited to true and exact copies of Guarantor's and its subsidiaries' books of account and tax returns, and all information furnished to shareholders or any governmental authority, and permit the copying of the same. 11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the Bank's expense, to visit and inspect any of the properties, books and financial reports of the Guarantor and its subsidiaries and to discuss its affairs, finances and accounts with the principal officers of the Guarantor and its subsidiaries, at all such reasonable times during regular business hours of the Bank and on reasonable advance notice and as often as the Bank may reasonably request. This right of inspection shall include, but not be limited to, the right to inspect all premises, properties, books, records, contracts, and documents related to the Thalitone(R) Product Line (including, without limitation, access to raw data in support of product lost approvals and stability reports) and such other information concerning the Thalitone(R) Product Line as may be relevant to the protection of the Bank's rights and interests in and to the Thalitone(R) Product Line. The Bank shall keep confidential any information it or its agents obtain as a result of this right of inspection. However, if the Bank enforces it security interest under the Security Agreement it shall be free to share any such information that is related to its Collateral with such persons it deems necessary for purposes of liquidating or selling the Collateral. Furthermore, the Bank and its agents may disclose any such information as required by a subpoena or order of any court of law. 11.4 MINIMUM NET WORTH. The Guarantor and its wholly owned subsidiaries shall maintain a minimum consolidated net worth of Fourteen Million Eight Hundred Thousand and No/100 Dollars ($14,800,000.00), as determined by generally accepted accounting principles including intangible assets, with assets valued at historical costs less allowances taken for depreciation and depletion. The minimum consolidated net worth to be maintained by the Guarantor and its wholly owned subsidiaries shall increase at the end of each fiscal quarter, beginning with the quarter ending December 31, 1996, by an amount equal to Fifty Percent (50%) of the consolidated net profit for that fiscal quarter. There shall, however, be no adjustment to the minimum consolidated net worth requirement in the event of a net loss for a fiscal quarter. 11.5 DEBT TO EQUITY RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a maximum consolidated debt to equity ratio (total debt divided by total equity) as established by this section. The maximum debt to equity ratio as of the Closing Date shall be 1.75. Thereafter, the maximum debt to equity ratio shall be redetermined at the end of each of Guarantor's fiscal quarters based on the following formula: (a) In the event the Guarantor's and its wholly owned subsidiaries' consolidated net worth is less than Eighteen Million Five Hundred Thousand No/100 Dollars ($18,500,000.00), the maximum debt to equity ratio shall be 1.75; (b) In the event the Guarantor's and its wholly owned subsidiaries' consolidated net worth is equal to or greater than Eighteen Million Five 11

Hundred Thousand and No/100 Dollars ($18,500,000.00), but is less than Twenty Million and No/100 Dollars ($20,000,000.00), the maximum debt to equity ratio shall be 1.65; and (c) In the event the Guarantor's and its wholly owned subsidiaries' consolidated net worth is equal to or greater than Twenty Million and No/100 Dollars ($20,000,000.00), the maximum debt to equity ratio shall be 1.55 11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a consolidated ratio of cash flow-to-debt service of not less than 1.25 (total cash flow divided by total debt service) to be measured quarterly based on the consolidated audited financial statements required by Section 11. l(a). For purposes of this requirement, "Cash Flow" shall be defined as Guarantor's and its wholly owned subsidiaries' consolidated net profits plus consolidated allowances for depreciation, interest and equity injections consisting of cash for the past 365 calendar days; and "Debt Service" shall be defined as all scheduled payments of principal, interest and equipment lease financing payable by the Guarantor and its wholly owned subsidiaries within the next 365 calendar days. 11.7 CURRENT RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a consolidated current ratio of 1.50. For purposes of this Section, "Current Ratio" shall be defined as the Guarantor's and its wholly owned subsidiaries' consolidated current assets divided by their consolidated current liabilities. SECTION 12: NEGATIVE COVENANTS OF BORROWER. 12.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 12.2 The Borrower covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Borrower's assets. Borrower shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, which may include the acquisition of product lines (any such lien shall not extend to the Collateral). Furthermore, this provision shall not impair the ability of the Borrower to acquire property after the Closing Date by means of leases, or sale and lease back transactions. SECTION 13: NEGATIVE COVENANTS OF GUARANTOR. 13.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 13.2 The Guarantor covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Guarantor's assets. Guarantor shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, which may include the acquisition of product lines (any such lien shall not extend to the Collateral). Furthermore, this provision shall not impair the ability of the Guarantor to acquire property after the closing Date by means of leases, or sale and lease back transactions. 12

SECTION 14: EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following shall occur: 14.1 PAYMENT OF PRINCIPAL, Interest. The Borrower defaults in the prompt payment as and when due of principal or interest on the Term Note or any fees due under said note, this Loan Agreement or the Security Agreement; or in the prompt payment when due of any other indebtedness, liabilities, or obligations to the Bank, whether now existing or hereafter created or arising; direct or indirect, absolute or contingent (including but not limited to that certain loan to the Borrower presently being contemplated in connection with the Borrower's acquisition of the Proctocort product line); or 14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with respect to any other material agreement to which it is a party or with respect to any other material indebtedness when due or the performance of any other obligation incurred in connection with any material indebtedness for borrowed money ("material" as used herein meaning indebtedness or obligations in excess of $50,000.00) if the effect of such default is to accelerate the maturity of such indebtedness, or if the effect of such default is to permit the holder thereof to cause such indebtedness to become due prior to its stated maturity and the holder has not waived its right to accelerate payment of such indebtedness; or 14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by the Borrower and/or Guarantor herein, or in any report, certificate, financial statement or other writing furnished in connection with or pursuant to this Loan Agreement shall prove to be false, misleading or incomplete in any material respect on the date as of which made; or 14.4 BANKRUPTCY. ETC. The Borrower and/or Guarantor shall make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Borrower and/or Guarantor, in which an order for relief is entered or which remains undismissed for a period of sixty (60) days or more; or the Borrower and/or Guarantor by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties, or shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; or Borrower and/or Guarantor shall generally not pay its debts as such debts become due; or 14.5 CONCEALMENT OF PROPERTY. ETC. The Borrower and/or Guarantor shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or made any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings or distraint which is not vacated within sixty (60) days from the date thereof; or 14.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership that results in John M Gregory, Joseph R. Gregory and Jefferson J. Gregory owning a combined fifty percent (50%) or less of the capital stock of the Guarantor, or fifty percent (50%) or less of the voting power related to the capital stock. 13

14.7 COVENANTS. Borrower and/or Guarantor defaults in the performance or observance of any other covenant, agreement or undertaking on its or their part to be performed or observed, contained herein, or in any other instrument or document which now or hereafter evidences or secures all or any part of the Term Loan. 14.8 WITHDRAWAL OR SUSPENSION. The total withdrawal of the Thalitone(R) Product Line from the market, or the suspension of said product's registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, the approval or consent of any governmental regulatory agency with respect to the Thalitone(R) Product Line. 14.9 REMEDY. Upon the occurrence of any Event of Default, as specified herein, and the expiration of any applicable cure period, the Bank shall, at its option, thereupon declare the entire unpaid principal balance of the Term Note, all interest accrued and unpaid thereon and all other amounts payable under this Loan Agreement to be immediately due and payable for all purposes, and may exercise all rights and remedies available to it under any other instrument or document which evidences, secures or guaranties the Term Note, or available at law or in equity, including the right to the appointment of a receiver to take possession of the Borrower's and/or Guarantor's property. SECTION 15: MISCELLANEOUS 15.1 AMENDMENTS. The provisions of this Loan Agreement, the Term Note, or any instrument or document executed pursuant hereto or securing or guarantying the indebtednesses, may be amended or modified only by an instrument in writing signed by the parties to said document or instrument. Guarantor need only be a party to an amendment of the Guaranty, and waives notice of any amendment, modification or renewal of the Term Note, this Loan Agreement, or any other instrument or document executed pursuant hereto other than the Guaranty. 15.2 NOTICES. All notices and other communications provided for hereunder shall be in writing and shall be mailed, certified mail, return receipt requested, or delivered by hand. Any such notices and other communications to the Borrower shall be addressed as follows: John M. Gregory Chairman of the Board & CEO Monarch Pharmaceuticals, Inc. 355 Beecham Street Bristol, TN 37620 WITH A COPY TO: John A. A. Bellamy Executive Vice President and General Counsel King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 All such notices and other communications to the Guarantor shall be addressed as follows: John M. Gregory Chairman of the Board & CEO King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 14

WITH A COPY TO: John A. A. Bellamy Executive Vice President and General Counsel King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 All such notices and other communications to the Bank shall be addressed as follows: Kevin L. Jessee Community Bank President First Tennessee Bank National Association P.O. Box 3189 1155 Volunteer Parkway, Suite 201 Bristol, TN 37625, or as to any such person at such other address as shall be designated by such person in a written notice to the other parties hereto complying as to the delivery with the terms of this Section 10.2. All such notices and other communications shall be effective (i) if mailed, when received or three (3) business days after mailing, whichever is earlier; or (ii) if delivered by hand, upon delivery. 15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Bank , any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege, preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 15.4 INDEMNIFICATION. The Borrower and Guarantor agree to indemnify the Bank from and against any and all claims, losses and liabilities, including, without limitation, reasonable attorneys' fees and expenses, growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Bank's negligence or willful misconduct. The indemnification provided for in this Section shall survive the payment in full of the Term Note. 15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties made herein shall survive the delivery of the Term Note. This Loan Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest therein. 15.6 GOVERNING LAW. This Loan Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 15.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 15.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this Loan Agreement, whether used in the masculine, feminine, or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Section headings are for convenience only and neither limit nor amplify the provisions of this Loan Agreement. 15

15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions of this Loan Agreement be determined to be illegal or unenforceable, all other provisions, nevertheless, shall remain effective and binding on the parties hereto. 15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be deemed to indicate that the Bank is in control of the business, management or properties of the Borrower and/or Guarantor or has power over the daily management functions and operating decisions made by the Borrower and/or Guarantor. 15.11 FEES AND EXPENSES. Except as otherwise expressly provided herein, the Borrower agrees to reimburse the Bank for all legal fees and expenses, and recording fees and taxes incurred by the Bank in connection with the loan contemplated by this Loan Agreement. Furthermore, the Borrower agrees to pay, or reimburse the Bank for, the actual out-of-pocket expenses, including but not limited to counsel fees and expenses, court costs, accountants fees and expenses, and fees and expenses of similar experts as deemed necessary by the Bank, incurred by the Bank in connection with the enforcement of, or the preservation of any rights under this Loan Agreement, the Term Note, and any instrument or document now or hereafter securing or guarantying said note. The Guaranty shall guaranty the obligations of the Borrower set forth in this section, in addition to the other obligations that may be owing under the terms of this Loan Agreement, the Term Note and the Security Agreement. 15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the Term Note, and the other instruments and documents executed and delivered in connection herewith. 15.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured) and other credits of the Borrower against any and all indebtednesses of the Borrower to the Bank. The Borrower acknowledges the Bank's legal and equitable rights to setoff, appropriate. Furthermore, upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured) and other credits of the Guarantor against any and all indebtednesses of the Borrower to the Bank covered by the Guaranty. The Guarantor acknowledges the Bank's legal and equitable rights to setoff, appropriate. 15.14 VENUE OF ACTIONS. As an integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Borrower, or by any successor, personal representative or assignee with respect to the Term Note, or this Loan Agreement or any other document or instrument which now or hereafter evidences, secures or guaranties all or any part of the Term Loan, other than in a state court of competent jurisdiction in Sullivan County, Tennessee, or in the United States District Court for the Eastern District of Tennessee, and not elsewhere. As a further integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Guarantor, or by any successor, personal representative or assignee with respect to the this Loan Agreement, or any other document or instrument which now or hereafter evidences, secures or guaranties all or any part of the Term Loan, other than in a state court of competent jurisdiction in Sullivan County, Tennessee, or in the United States District Court for the Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph contained shall prohibit the Bank from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or in any other document or instrument which evidences, secures or guaranties the obligations of Borrower and/or Guarantor contemplated by this Loan Agreement. 15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF 16

ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING 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 AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 15.16 ENTIRE AGREEMENT. This written agreement, the related written documents referred to herein, and any other agreements executed contemporaneously herewith set forth the complete and exclusive statement of the terms of the agreement between the Borrower, Guarantor and the Bank with respect to the loans contemplated by this Loan Agreement. Therefore, no prior written agreements or contemporaneous or prior oral agreements between the parties shall be of any effect with respect to the loan contemplated by this Loan Agreement. IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this Loan Agreement to be executed by their duly authorized officers, all as of the day and year first above written. MONARCH PHARMACEUTICALS, INC.
By /s/ John M. Gregory ---------------------------------------John M. Gregory Chairman of the Board & CEO

KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory ---------------------------------------John M. Gregory Chairman of the Board & CEO

FIRST TENNESSEE BANK, NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee ---------------------------------------Kevin L. Jessee Community Bank President

17

STATE OF TENNESSEE COUNTY OF SULLIVAN
Before me, /s/ Kenneth D. Hale of the state and county mentioned, personally appeared John M. Gregory, with whom I am personally acquainted (or proved to me on the of satisfactory evidence), and who, upon oath, acknowledged such person to be the Chairman of the Board & CEO of Monarch Pharmaceuticals, Inc. the within named bargainor, a corporation, and that as such Chairman of the Board & CEO, executed the foregoing instrument for the purpose therein contained, by personally signing the name of Monarch Pharmaceuticals, Inc.

Witness my hand and seal, at office in this 21st day of January, 1997.
/s/ Kenneth D. Hale ------------------------------Notary Public My commission expires 7-20-99 ----------

STATE OF TENNESSEE COUNTY OF SULLIVAN
Before me, /s/ Kenneth D. Hale of the state and county mentioned, personally appeared John M. Gregory, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Chairman of the Board & CEO of King Pharmaceuticals, Inc. the within named bargainor, a corporation, and that as such Chairman of the Board & CEO, executed the foregoing instrument for the purpose therein contained, by personally signing the name of King Pharmaceuticals, Inc.

Witness my hand and seal, at office in this 21st day of January, 1997.
/s/ Kenneth D. Hale ------------------------------Notary Public My commission expires 7-20-99 -----------

STATE OF TENNESSEE COUNTY OF SULLIVAN

Before me, /s/ Kenneth D. Hale of the state and county mentioned, personally appeared Kevin L. Jessee, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Community Bank President of First Tennessee Bank National Association, the within named bargainor, and that as such Community Bank President, executed the foregoing instrument for the purpose therein contained, by personally signing the name of First Tennessee Bank National Association.

Witness my hand and seal, at office in this 21st day of January, 1997.
/s/ Kenneth D. Hale ------------------------------Notary Public My commission expires 7-20-99 -----------

18

PROMISSORY NOTE
(BUSINESS OR COMMERCIAL LOAN) $1,750,000.00 _______________________ Approval BRISTOL, TENNESSEE JANUARY 21, 1997

FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one) promise(s) to pay to the order of First Tennessee Bank National Association (hereinafter referred to as the "Bank") at any lending office in the state mentioned above or at such other place as the holder hereof may designate in writing, in current local funds, the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 Dollars. [ ] DISCOUNTED: Including interest, due on __________, 19 ____. [X] INTEREST BEARING: Plus interest from date until maturity on the unpaid principal balance of this Note at the rate of: [ ] FIXED RATE: __% per annum [X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lesser of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (b) a rate which is ___% per annum higher than the base commercial rate of interest ("Base Rate") established from time to time by Bank. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the Base Rate shall become effective, without notice to the undersigned, on [ ] the same date that the Base Rate changes;[ ] the first day of the calendar month following any change in the Base Rate;[ ] the first day of the calendar quarter following any change in the Base Rate; [ ] other _____________________________ The Base Rate is one of several interest rate indices employed by the Bank. The undersigned acknowledge(s) that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. Such principal and interest shall be payable as shown below: [ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance, due on _____, 19__ plus interest payable [ ] at maturity. [ ] beginning _____, 19 __ and continuing on the same day of each successive [ ] monthly or [ ] quarterly calendar period, except that the final interest installment shall be payable on the date the principal is due. [X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $48,611.11 each, plus a final payment for the balance then owing, beginning last day of february, 1997, and continuing on the same day of each successive [X] monthly or [ ] quarterly calendar period. Accrued interest is [ ] included in each of the above payments; or [X] payable in addition to such payments on the above payment dates. [ ] OTHER: ___________________________________________________________

SECURITY: Except as otherwise provided herein, as of the date hereof, [ ] This Note is secured by a mortgage(s) or deed(s) of trust dated___

[X] This Note is secured by security agreements(s) dated January 21, 1997 Other Terms and Conditions: Unless otherwise provided herein, all payments shall be applied first to pay the accrued interest to date on the unpaid balance and next to the unpaid principal of the Indebtedness. Any payment not made when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the maximum effective contract rate of interest which the Bank may lawfully charge on the date such payment became due. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect any security given for its payment, or to enforce its collection, the undersigned will pay all the costs of collection and litigation, together with a reasonable attorney's fee, all of which shall be secured by any collateral pledged as security herefor. The undersigned also agrees to pay any and all actual expenses including reasonable attorney's fees incurred by Bank in (i) successfully defending any action or inaction in connection with any aspect of the transaction evidenced by this instrument, or (ii) any action, whether or not successful, taken to protect or enforce Bank's rights in any collateral related to the transaction evidenced by this instrument. The maker(s) and any endorsers or guarantors hereof waive protest, demand, presentment, and notice of dishonor, and agree that this Note may be extended, in whole or in part, without limit as to the number of such extensions, or the period or periods thereof, and without notice to or further assent from them or any other party liable hereon, all of whom will remain bound upon this Note notwithstanding any such extension(s); and further agree that all or any collateral given, now or hereafter, as security herefor may be released (with or without substitution) without notice and without affecting their liability hereon; and that additional makers, endorsers, guarantors, or sureties may

become parties hereto, and that any present or future party may be released from liability hereunder, without notice, and without affecting the liability of any other maker, endorser, or guarantor. In the event of any default in the prompt and punctual payment, when due, of this Note (or any installment hereof, whether of principal, interest, or principal and interest), or if the undersigned, or any other party liable hereon, should become insolvent (as defined in the Uniform Commercial Code), or if a petition in bankruptcy be filed by or against any of the undersigned or any other party liable hereon, of if a receiver be appointed for any part of the property of assets of the undersigned or any other party liable hereon, or if any assignment for the benefit of creditors be made by the undersigned or any other party liable hereon, or if a judgment be entered against the undersigned, or any other party liable hereon, or upon the issuance of any writ, levy or process, valid or invalid which purports to restrict the undersigned of any other party liable hereon, with respect to any of his/her or their funds or property on deposit with or in the possession or custody or under the control of the Bank, or upon the death or dissolution of any party liable hereon, or in the event of any default in the prompt and punctual payment when due, of any other indebtedness or obligation to the Bank owed, now or hereafter, by any party liable hereon, or upon any default in any deed of trust, mortgage, security agreement, assignment or other security document given, now or hereafter, to secure the indebtedness evidenced hereby, or if any representation or warranty made by the undersigned pertaining to this credit shall prove to be false, untrue, or materially misleading, or in the event that the Bank shall deem itself insecure, then and in any such events, this Note shall, without notice or demand for payment (the same being expressly waived), be and become immediately due and payable for all purposes, at the option of the Bank. Any money or other property at any time in the possession of the Bank belonging to any party liable hereon, and any deposits or other sums at any time credited by or due from the Bank to party liable hereon, may at all times, at the option of the Bank, be held and treated as collateral security for the payment of this Note or any other liability of any of the undersigned, or any other party in any manner liable hereon to the Bank, whether due or not due. The Bank may, at any time, at its option, and without notice, set off the amount due or to become due hereon against the claim of any of said parties against the Bank. To effect these rights, the undersigned and all parties liable hereon agree, upon request by the Bank, immediately to endorse, sign, and execute all necessary instruments, and do hereby appoint the Bank (acting through any then officer thereof) as attorney-in-fact for them with authority to endorse any instrument requiring endorsement and to effect any transfer, and this appointment shall be irrevocable as long as the undersigned, or any other party liable hereon, shall be indebted to the Bank. The undersigned agrees to furnish a current financial statement upon the request of Bank from time to time, and further agrees to execute and deliver all other instruments and take such other actions as Bank may from time to time reasonably request in order to carry out the provisions and intent hereof. In the event of any renewal or extension of the loan indebtedness evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank shall have the right to charge interest at the highest of the following rates: (i) the maximum rate permissible at the time the contract to make the loan was executed; or (ii) the maximum rate permissible at the time the loan was made; or (iii) the maximum rate permissible at the time of such renewal or extension; or (iv) the maximum rate permitted by applicable federal law; it being intended that those statutes and laws, state or federal, from time to time in effect, which permit the charging of the higher rate of interest shall govern the maximum rate which may be charged hereunder. In the event that for any reason the foregoing provisions hereof shall not contain a valid, enforceable designation of a rate of interest prior to maturity or method of determining the same, then (unless this Note is a discounted, single-payment note) the indebtedness hereby evidenced shall bear interest prior to maturity at the maximum effective rate which may be lawfully charged by the Bank under applicable law. Regardless of any provision herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect, or apply, as interest hereon, any amount in excess of the maximum contract rate which may be lawfully charged by the holder hereof under applicable law; and in the event the holder hereof ever receives, collects, or applies as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to the undersigned. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful contract rate, the undersigned and the holder hereof shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as a reasonable loan charge, rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire contemplated term hereof, so that the interest accrued or to accrue throughout the entire term contemplated hereby shall at no time exceed the maximum lawful contract rate. The undersigned jointly and severally waive(s) any right to a trial by jury in any action or proceeding to enforce or defend any rights under this agreement or under any amendment, instrument, document or agreement delivered (or which may in the future be delivered) in connection herewith or arising from any banking relationship existing in connection with this agreement. The undersigned agree(s) that any such action or proceeding shall be tried before a court and not before a jury. MONARCH PHARMACEUTICALS, INC.
BY: /S/ John M. Gregory ----------------------------------CHAIRMAN & CEO -----------------------------------

First Tennessee Bank National Association, Member FDIC, "Registered Service Mark owned and Licensed by First Tennessee National Corporation.

EXHIBIT 10.6 LOAN AGREEMENT THIS LOAN AGREEMENT ("Loan Agreement") is made this 29th day of January, 1997, by and between MONARCH PHARMACEUTICALS, INC., a Tennessee corporation whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the "Borrower"), KING PHARMACEUTICALS, INC., a Tennessee corporation whose address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the statutes of the United States of America, whose address is P. O. Box 3189, Bristol, Tennessee 37625 (the "Bank"). Recitals of Fact The Borrower has requested that the Bank commit to loan the Borrower the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00), with said extension of credit to be structured as a term loan. The proceeds of the term loan shall be used by the Borrower to finance the acquisition, development and marketing of the PROCTOCORT(TM) Product Line. Furthermore, the Guarantor desires that the Bank commit to loan the Borrower the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00) for the purposes recited hereinabove. In consideration of Bank's commitment, the Guarantor has agreed to guarantee repayment of the loan contemplated by this Loan Agreement. NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in consideration of the mutual agreements herein contained, the parties agree as follows: AGREEMENTS SECTION 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following terms shall have the following meanings (such meanings to be applicable equally to both the singular and plural forms of such terms) unless the context otherwise requires: "ANDA" shall mean an Abbreviated New Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "Closing Date" means the date set out in the first paragraph of this Loan Agreement. "Collateral" means the tangible and/or intangible personal property of the Borrower that is intended to secure the loan contemplated under this Loan Agreement, said personal property being specifically described in Section 3.1 of this Loan Agreement. "Conditional PROCTOCORT(TM) Assignment" means the conditional or contingent Assignment described in Section 3.3 of this Loan Agreement. "Equipment" means collectively two (2) 1965 Kalix-Dupuy Tube Fillers (Kalix Fillers), model number KX60 with serial numbers 2391 and 3123. "Event of Default" has the meaning assigned to that phrase in Section 14 of this Loan Agreement.

"FDA" means the Food and Drug Administration, a agency of the government of the United States of America. "Guaranty" means the guaranty agreement described in Section 4.2 of this Loan Agreement. "Loan Agreement" means this Loan Agreement between the Borrower, Guarantor and the Bank. "NDA" shall mean a New Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "PROCTOCORT(TM) Product Line" shall refer to the preparation PROCTOCORT(TM) (Hydrocortisone Cream, USP) 1%, as well as any enhancements, extensions, variations or improvements in said preparation, its manufacture, packaging or use developed or owned by Borrower, all applications and dosage forms, and any other products that make use of the PROCTOCORT(TM) tradename and/or trademark, or any variation thereof whether or not it is registered or pending with the United States Patent and Trademark Office or a common law trademark or tradename. "Security Agreement" means the Security Agreement described in Section 3.2 of this Loan Agreement. "Solvay" means Solvay Pharmaceuticals, Inc. "Solvay Agreement" shall mean that certain contract dated January 22, 1997, by and between Solvay and Borrower, entitled Asset Disposition and Royalty Agreement, hereby Borrower acquired Solvay's interest in PROCTOCORT(TM). "Solvay Supply Agreement" shall mean that certain contract dated January 22, 1997, by and between Solvay and Borrower, entitled Supply Agreement pertaining to the manufacture of PROCTOCORT(TM) (Hydrocortisone Cream, USP) 1%. "Term Loan" means the Borrower's term indebtedness to the Bank pursuant to Section 2 of this Loan Agreement, "Term Note" means the promissory note as described in Section 2.2 of this Loan Agreement. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent to those applied in the preparation of the financial statements required to be delivered from time to time pursuant to Section 11.1 of this Loan Agreement. SECTION 2: COMMITMENT, FUNDING AND TERMS OF TERM LOAN. 2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the Bank agrees and commits to loan the Borrower the principal sum of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00), to be used for the purpose of financing the borrower's acquisition, development and marketing of PROCTOCORT(TM). 2.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidenced by the Term Note of Borrower, payable to the order of the Bank, in the principal amount of One Million Seven Hundred Fifty Thousand and No/100 Dollars ($1,750,000.00). The unpaid principal balance of the Term Note shall bear interest at the rate specified in the Term Note and shall be payable as provided in the Term Note. 2

SECTION 3. COLLATERAL. 3.1 DESCRIPTION OF COLLATERAL. The Term Note shall be secured by a first lien on the following: (a) The PROCTOCORT(TM) Product Line, and the goodwill associated therewith, as well as any patents; trademarks or service marks (or applications therefor) or any tradenames, trade dress, trade secrets, service marks, proprietary data, or other intellectual property rights of any nature associated or used therewith, along with all presentations, product codes, strengths, and formulations associated with the PROCTOCORT(TM) Product Line and Borrower's ANDA #83-011, as well as any future ANDA's or NDA's related to the PROCTOCORT(TM) Product Line, and any other present or future regulatory filing wheresoever occurring, whether issued or pending, and any and all changes, amendments, periodic reports, supplements, authorizations, documentation, or permits relative thereto, for the production of all or a portion of the PROCTOCORT(TM) Product Line, including without limitation, ANDA's and NDA's, formulations, annual product reviews. FDA annual reports, copies of completed batch records, copies of all manufacturing and packaging control procedures and specifications, all validation and protocol reports, stability protocols and reports, dose ranging study reports and protocols, product complaint files and protocols, adverse drug experience reports and protocols, supplier audit reports and protocols, field alert reports, and all other registrations, certifications, approvals, records, reports or correspondence, from or to the FDA or any other governmental authorities in the U.S, or elsewhere which relate in any way to the PROCTOCORT(TM) Product Line or to any related ANDA or NDA. Any registered trademark shall include, but is not limited to, the trademark, together with any improvements or change reflected in continuations or separate filings: (b) (i) Any and all customer lists, marketing information, documentation, data, clinical data, research and development, or other information, from any source whatsoever, related solely or primarily to the PROCTOCORT(TM) Product Line, including, but not limited to all information relating to the sales or sampling of the PROCTOCORT(TM) Product Line, all available records in any format pertaining to wholesalers, distributors and other customers who have purchased or sampled all or any portion of the PROCTOCORT(TM) Product Line in the past or who have placed unfilled purchase orders, records pertaining to suppliers of the PROCTOCORT(TM) Product Line components and labels and to manufacturers of all or any portion of the PROCTOCORT(TM) Product Line, and reports and information regarding past and current litigation relating to the PROCTOCORT(TM) Product Line; (ii) any and all production technology or know-how including batch records, protocols, validation and analytical methods and methodology, stability protocol and procedures, Standard Operating Procedures related to the production, manufacturing, packaging, release, sale or distribution of all or any portion of the PROCTOCORT(TM) Product Line, (iii) any and all ANDA and NDA documentation for all product codes and strengths and all other regulatory filings related to all or any portion of the PROCTOCORT(TM) Product Line, and (iv) any and all data, documents, charts, information and records (whether written or electronically or magnetically archived) related to any of the foregoing in subsections (i) through (iii) inclusive; (c) Borrower's contract rights under the Solvay Agreement and the Solvay Supply Agreement; 3

(d) In addition to the trademark PROCTOCORT(TM), the right to use any names, logos, and trademarks used by Borrower on all or any portion of the PROCTOCORT(TM) Product Line and the packaging thereof, and in connection with the sale and distribution of all or any portion of the PROCTOCORT(TM) Product Line to wholesale and retail distributors; provided that the PROCTOCORT(TM) Product Line shall not be manufactured bearing any such name and logos other than PROCTOCORT(TM) after eighteen months from the date this interest is sold to enforce the security interest created under the Security Agreement; (e) Manufacturing technology consisting of all current and future know-how, trade secrets, processes, formulae (secret or otherwise), supplier audit reports, specifications, molds or forms and technical data directly relating to or usable in the manufacture, packaging, marketing, distribution, sale or use of the PROCTOCORT(TM) Product Line, including but not limited to the specifications, manufacturing and quality control data, test methods and validation data; (f) Any and all agreements of Borrower, whether oral or written, that relate to the Collateral (including, without exception and without limitation, all contracts or agreements with any customer for the purchase of the PROCTOCORT(TM) Product Line products or any agreements with any party relative to the manufacture, marketing or distribution of all or any portion of the PROCTOCORT(TM) Product Line); (g) The Equipment; and all products and proceeds of the foregoing. 3.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide the Bank with the security contemplated by Section 3.1 of this Loan Agreement, the Borrower shall execute a security agreement granting the Bank a security interest in the Collateral and Borrower shall execute such financing statements as the Bank deems reasonably necessary to perfect said security interest. The Security Agreement and the financing statements shall be in a form acceptable to the Bank. Furthermore, so long as the Borrower continues to owe any sum whatsoever under this Loan Agreement, the Term Note or Security Agreement, the Borrower shall execute such other documents as the Bank From time to time reasonably deems necessary to perfect and maintain the perfection of its security interest in and lien against the Collateral under both the laws of the United States of America, State of Tennessee, and any other state or locality the bank deems reasonably necessary. 3.3 PROCTOCORT(TM) TRADEMARK. Section 9.10 of this Loan Agreement contemplates that the Borrower will be filing an application for registration of the trademark PROCTOCORT(TM) with the United States Patent and Trademark Office. For the purpose of further perfecting the Bank's security interest in the Collateral, the Borrower shall execute a conditional assignment of the trademark covered by said application referencing the security interest created by the Security Agreement. Said conditional assignment shall be in a form substantially similar to that which is attached hereto as Exhibit "A". Said conditional assignment shall be executed with the application number and the date the application was filed left blank. The Bank or its designee is authorize to fill in the application number and the date the application was filed when that information becomes available. The conditional assignment may be filed with the United States Patent and Trademark office, together with such other documents as necessary for the purpose of perfecting the Bank's security interest in said trademark with a notice and copy to the Borrower. Within one week after said conditional assignment has been filed with the United States Patent and Trademark Office, the Borrower shall cause Jon L. Roberts, 4

Roberts & Brownell, L.L.C. to deliver to the Bank his opinion letter which shall provide that (i) he has reviewed the records of the United States Patent and Trademark Office, (ii) the Borrower has filed an application for registration of the trademark PROCTOCORT(TM), (iii) the Borrower's right to said trademark and its exclusive use is not presently subject to any challenges, and (iv) the Bank has a first lien on said trademark. 3.4 PATENTS AND TRADEMARKS GENERALLY. The Collateral includes certain patents and trademarks which may presently be pending or registered with the United States Patent and Trademark Office or may come to be pending or registered with that office at some time in the future. In order to provide the Bank with the security contemplated by Section 3.1 of this Loan Agreement and so long as the Borrower continues to owe any sum whatsoever under this Loan Agreement, the Term Note or Security Agreement, the Borrower shall execute such conditional or contingent assignments as the Bank may from time to time reasonably request for the purpose of perfecting its security interest in said patents and trademarks in the United States Patent and Trademark Office. The Borrower's obligations under this section are in addition to those set out in Sections 3.2 and 3.3 of this Loan Agreement. SECTION 4. GUARANTY. 4.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment of all sums at any time owing to the Bank under this Loan Agreement, the Term Note, and/or Security Agreement. 4.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty contemplated by Section 4.1 of this Loan Agreement, the Guarantor shall execute the guaranty agreement that is attached hereto as Exhibit "B". 4.3 SECURITY FOR GUARANTY. The Guarantor acknowledges that the security interest created by means of that certain Security Agreement dated April 30, 1996, whereby Guarantor granted the Bank a security interest securing the payment of certain promissory notes of even date therewith and any other indebtedness then existing or thereafter arising, due or to become due, absolute or contingent, and whether several, joint, or joint and several, of the Guarantor to the Bank secures, and was intended to secure the Term Loan, the obligations of the Guarantor under this Loan Agreement, as well as other obligations. SECTION 5. CONDITIONS OF LENDING. 5.1 CONDITIONS PRECEDENT TO FUNDING THE TERM NOTE. The obligation of the Bank to fund the Term Note is subject to the following conditions precedent that the Bank shall have received in a form and substance satisfactory to the Bank: (a) This Loan Agreement. (b) The Term Note. (c) The Security Agreement, together with such financing statements and other documents as the Bank deems necessary to perfect its security interest in and lien against the Collateral. (d) The Conditional PROCTOCORT(TM) Assignment. (e) Lien searches from such recording offices as the Bank shall specify, evidencing the priority of the Bank's lien under the Security Agreement. (f) The Guaranty. 5

(g) Certified corporate resolutions of the Borrower, authorizing this Loan Agreement, the Term Note, and the Security Agreement. (h) Certified corporate resolutions of the Guarantor, authorizing this Loan Agreement and the Guaranty. (i) Certificate(s) of good standing for the Borrower from the state of its incorporation and such other states as the Bank shall require. (j) Certificate(s) of good standing for the Guarantor from the state of its incorporation and such other states as the Bank shall require. (k) Written proof satisfactory to the Bank that 21 CFR 314.72(a)(1) has been fully complied with respect to the assets acquired by the Borrower under the Solvay Agreement. (l) Such other information and documentation as the Bank shall reasonably require in connection with the funding of the Term Note. (m) The opinion of the Borrower's counsel that (i) the Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary; (ii) the transactions herein contemplated have been duly authorized by all requisite corporate authority, (iii) this Loan Agreement and the other instruments and documents herein referred to have been duly authorized, validly executed and are in full force and effect. (iv) the execution, delivery and performance of this Loan Agreement, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Borrower is a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such other matters as the Bank may reasonably require. (n) The opinion of the Guarantor's counsel that (i) the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary: (ii) the guaranty herein contemplated has been duly authorized by all requisite corporate authority and is fully enforceable against the Guarantor under the laws of the State of Tennessee, (iii) this Loan Agreement, the Guaranty and any other instrument and document herein referred to have been duly authorized, validly executed and are in full force and effect, (iv) the execution, delivery and performance of this Loan Agreement and the Guaranty have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or 6

constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Borrower is a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such other matters as the Bank may reasonably require. The obligation of the Bank to fund the Term Note is further subject to each of the warranties and representations of Borrower and Guarantor set out in Sections 6, 7 and 8 of this Loan Agreement being and remaining true and correct in all material respects. SECTION 6: BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that: 6.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 6.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower. 6.3 LITIGATION. There is no suit, claim, action, cause or proceeding now pending or, to the knowledge of Borrower, threatened before any court, administrative, or regulatory body, arbitrator, or any governmental agency, or any grounds therefor which may result in any judgment, order, decree, liability, or other determination which will, or could, have a materially adverse effect upon all or any portion of the PROCTOCORT(TM) Product Line, or Borrower's compliance with and performance under the terms of this Loan Agreement, the Term Note or the Security Agreement. No such judgment, order, or decree has been entered or any such liability incurred which has or could have such effect. No party has tendered to Borrower, nor has Borrower accepted the tender of the defense of any claim, action, or proceeding which has or could have such effect. 6.4 TAXES. Borrower has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes due and owing to all such taxing authorities. 6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Borrower is not a party to any agreement or instrument or subject to any charter or other corporate restrictions materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 6.6 NO DEFAULT. Borrower is nor in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Borrower. 7

6.7 21 CFR 314.72(A)(i). All requirements of 21 CFR 314.72(a)(1) that relate to the transfer of assets to Borrower by Solvay under the Solvay Agreement have been satisfied. 6.8 WITHDRAWAL. There exists no set of facts which could reasonably be expected to furnish a basis for the total withdrawal of all or any portion of the PROCTOCORT(TM) Product Line from the marker or the suspension of said products registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, approval or consent of any governmental regulatory agency with respect to all or any portion of the PROCTOCORT(TM) Product Line. 6.9 NO VIOLATION OF LAW. Neither the Borrower or any of its employees with respect to all or any portion of the PROCTOCORT(TM) Product Line is or has been in violation of or in default with respect to any applicable law, rule, regulation, order, writ, or decree of any court or any governmental commission, board, bureau, agency, or instrumentality, which violation or default might have a materially adverse effect on all or any portion of the PROCTOCORT(TM) Product Line, the PROCTOCORT(TM) Product Line business, or Borrower's compliance with and performance under the terms of this Loan Agreement, the Term Note, or Security Agreement. 6.10 TITLE TO COLLATERAL. Borrower has good and marketable title to all of the Collateral, free and clear of all mortgages, liens, security interests, charges, claims, restrictions, and other encumbrances of every kind, wheresoever situated other than the liens and security interests contemplated by this loan agreement to secure the obligations of Borrower to the Bank. 6.11 PATENTS AND TRADEMARKS. The trademark PROCTOCORT(TM) is subject to the sole use and control of Borrower and its licensees. Borrower is not aware of any state of facts that indicate a possible present use or infringement of the trademark PROCTOCORT(TM) by any party other than Borrower, not including any third parties using the trademark PROCTOCORT(TM) under license from the Borrower. SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES Guarantor represents and warrants that: 7.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 7.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement and the Guaranty have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Guarantor, any provision of any indenture, agreement or other instrument to which the Guarantor is a party, or by which the Guarantor's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Guarantor. 7.3 LITIGATION. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending, or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor, or any properties or rights of the Guarantor, which, if adversely determined, would materially adversely affect the financial or any other condition of the Guarantor. 8

7.4 TAXES. Guarantor has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes due and owing to all such taxing authorities. 7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a party to any agreement or instrument or subject to any charter or other corporate restrictions materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 7.6 NO DEFAULT. Guarantor is not in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Guarantor. 7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not extend the Term Loan to the Borrower but for the Guaranty, Guarantor's execution of the Guaranty is in the best interest of the Guarantor. SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor represent and warrant that: 8.1 FINANCIAL CONDITION. The consolidated financial statements of the Guarantor and its wholly owned subsidiaries, copies of which are attached hereto, are correct and complete and fairly present the financial condition of the Guarantor and its subsidiaries as of the date of said financial statements and the results of their operations for said periods and as of the Closing Date in all material respects. All such financial statements have been prepared in accordance with generally accepted accounting principles, applied on a consistent basis, maintained through the period involved. 8.2 TITLE TO ASSETS. Guarantor and its subsidiaries, have good and marketable title to all their properties and assets as reflected on the balance sheet which is a part of the financial statements referred to in Section 8.1 of this Loan Agreement. 8.3 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of Borrower and Guarantor, neither this Loan Agreement nor any schedule or exhibit hereto (including without limitation the Term Note, Security Agreement and Guaranty), nor any written statement or certificate furnished in connection herewith or any of the transactions contemplated hereby, contain or will contain an untrue statement of a fact or omits or will omit to state a fact that is necessary in order to make the statements contained herein and therein, in the light of the circumstances under which they are made, not materially misleading. 8.4 BORROWER SUBSIDIARY OF GUARANTOR. The Borrower is a wholly owned subsidiary of the Guarantor. SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER. The Borrower covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower will: 9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 9

9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases, franchises, patents, trademarks, trade names, and copyrights, and preserve all the remainder of its properties used or useful in the conduct of its business substantially as conducted and operated during the present and preceding fiscal year. As part of this obligation, Borrower shall take all action necessary to respond to and satisfy any issues raised by any FDA Form 483 or other notice of a governmental agency so as to prevent any action which could result in the withdrawal of all or any portion of the PROCTOCORT(TM) Product Line, or the suspension of said product's registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, approval or consent of any governmental regulatory agency with respect to all or any portion of the PROCTOCORT(TM) Product Line or any facility manufacturing any of said product. Furthermore, Borrower shall comply with all reporting requirements of any governmental agency related to all or any portion of the PROCTOCORT(TM) Product Line. 9.3 INSURANCE. At all times maintain with insurance companies rated "A" or better or otherwise acceptable to the Borrower and the Bank, hazard insurance and such other insurance, for such amounts as is customarily maintained by companies in the same or substantially similar business. The Bank shall be named as loss payee on the Borrower's principle hazard insurance policies and any policy covering the Collateral. 9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "C" attached hereto. 9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against the Collateral. If any other such liens exist that have not been released of record, Borrower will obtain the immediate release of any such liens. 9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. 9.9 SUPPLY. The Borrower shall at all times during the term of this Loan Agreement secure and maintain a ready source of supply, whether by means of manufacture or inventory, of PROCTOCORT(TM) (Hydrocortisone Cream, USP) 1% sufficient to meet reasonably anticipated market demand for said product for a one year period of time. 9.10 REGISTRATION OF TRADEMARK. The Borrower shall diligently pursue all steps necessary to register the trademark PROCTOCORT(TM) with the United States Patent and Trademark Office, which steps shall include but not be limited to the preparation of an application for registration of said trademark (the "Application"). Within four weeks from the closing Date, the Borrower shall file the Application with the United States Patent and Trademark Office. The Borrower shall provide the Bank with a copy of the Application as filed. 10

SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR. The Guarantor covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Guarantor will: 10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 10.2 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 10.3 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "D" attached hereto. 10.4 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 10.5 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. SECTION 11: JOINT AFFIRMATIVE COVENANTS. The Borrower and Guarantor, jointly and severally, covenant and agree that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower and Guarantor will: 11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Guarantor, an unqualified audit of the Guarantor's and its wholly owned subsidiaries' consolidated financial statements as of the close of such fiscal year of the Guarantor, which financial statements shall including a consolidated balance sheet and consolidated statement of income and surplus of the Guarantor and its subsidiaries, together with the unqualified audit report and opinion of an independent Certified Public Accountant reasonably acceptable to the Bank, showing the financial condition of the Guarantor and its subsidiaries at the close of such year and the results of operations during such year: (b) within forty-five (45) days after the end of each fiscal quarter, except the last fiscal quarter of the year, financial statements similar to those described above for the Guarantor and its subsidiaries, not audited but certified as to accuracy and content by the Chief Financial Officer or President or Controller of the Guarantor (the "Certifying Officer"), such consolidated balance sheets to be as of the end of such quarter and such consolidated statements of income and surplus to be for the period from the beginning of said year to the end of such quarter, in each case subject only to audit and year-end adjustment. 11.2 ADDITIONAL INFORMATION. Furnish such other relevant information regarding the operations, business affairs and financial condition of the Guarantor and its subsidiaries as the Bank may reasonably request, including but not limited to true and exact copies of 11

Guarantor's and its subsidiaries' books of account and tax returns, and all information furnished to shareholders or any governmental authority, and permit the copying of the same. 11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the Bank's expense, to visit and inspect any of the properties, books and financial reports of the Guarantor and its subsidiaries and to discuss its affairs, finances and accounts with the principal officers of the Guarantor and its subsidiaries, at all such reasonable times during regular business hours of the Bank and on reasonable advance notice and as often as the Bank may reasonably request. This right of inspection shall include, but not be limited to, the right to inspect all premises, properties, books, records, contracts, and documents related to all or any portion of the PROCTOCORT(TM) Product Line (including, without limitation, access to raw data in support of product lost approvals and stability reports) and such other information concerning all or a portion of the PROCTOCORT(TM) Product Line as may be relevant to the protection of the Bank's rights and interests in and to the PROCTOCORT(TM) Product Line. The Bank shall keep confidential any information it or its agents obtain as a result of this right of inspection. However, if the Bank enforces it security interest under the Security Agreement it shall be free to share any such information that is related to its Collateral with such persons it deems necessary for purposes of liquidating or selling the Collateral. Furthermore, the Bank and its agents may disclose any such information as required by a subpoena or order of any court of law. 11.4 MINIMUM NET WORTH. The Guarantor and its wholly owned subsidiaries shall maintain a minimum consolidated net worth of Fourteen Million Eight Hundred Thousand and No/100 Dollars ($14,800,000.00), as determined by generally accepted accounting principles including intangible assets, with assets valued at historical costs less allowances taken for depreciation and depletion. The minimum consolidated net worth to be maintained the Guarantor and its wholly owned subsidiaries shall increase at the end of each fiscal quarter, beginning with the quarter ending December 31, 1996, by an amount equal to Fifty Percent (50%) of the consolidated net profit for that fiscal quarter. There shall, however, be no adjustment to the minimum consolidated net worth requirement in the event of a net loss for a fiscal quarter. 11.5 DEBT TO EQUITY RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a maximum consolidated debt to equity ratio (total debt divided by total equity) as established by this section. The maximum debt to equity ratio as of the Closing Date shall be 1.75. Thereafter, the maximum debt to equity ratio shall be redetermined at the end of each of Guarantor's fiscal quarters based on the following formula: (a) In the event the Guarantor's and its wholly owned subsidiaries' consolidated net worth is less than Eighteen Million Five Hundred Thousand No/100 Dollars ($18,500,000.00), the maximum debt to equity ratio shall be 1.75; (b) In the event the Guarantor's and its wholly owned subsidiaries' consolidated net worth is equal to or greater than Eighteen Million Five Hundred Thousand and No/100 Dollars ($18,500,000.00), but is less than Twenty Million and No/100 Dollars ($20,000,000.00), the maximum debt to equity ratio shall be 1.65; and (c) In the event the Guarantor's and its wholly owned subsidiaries' consolidated net worth is equal to or greater than Twenty Million and No/100 Dollars ($20,000,000.00), the maximum debt to equity ratio shall be 1.55. 11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a consolidated ratio of cash flow-to-debt service of not less than 12

1.25 (total cash flow divided by total debt service) to be measured quarterly based on the consolidated audited financial statements required by Section 11.1(a). For purposes of this requirement, "Cash Flow" shall be defined as Guarantor's and its wholly owned subsidiaries' consolidated net profits plus consolidated allowances for depreciation, interest and equity injections consisting of cash for the past 365 calendar days; and "Debt Service" shall be defined as all scheduled payments of principal, interest and equipment lease financing payable by the Guarantor and its wholly owned subsidiaries within the next 365 calendar days. 11.7 CURRENT RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a consolidated current ratio of 1.50. For purposes of this Section, "Current Ratio" shall be defined as the Guarantor's and its wholly owned subsidiaries' consolidated current assets divided by their consolidated current liabilities. SECTION 12: NEGATIVE COVENANTS OF BORROWER. 12.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 12.2 The Borrower covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Borrower's assets. Borrower shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, which may include the acquisition of product lines (any such lien shall not extend to the Collateral). Furthermore, this provision shall not impair the ability of the Borrower to acquire property after the Closing Date by means of leases, or sale and lease back transactions. SECTION 13: NEGATIVE COVENANTS OF GUARANTOR. 13.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 13.2 The Guarantor covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Guarantor's assets. Guarantor shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, which may include the acquisition of product lines (any such lien shall not extend to the Collateral). Furthermore, this provision shall not impair the ability of the Guarantor to acquire property after the Closing Date by means of leases, or sale and lease back transactions. SECTION 14: EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following shall occur: 14.1 PAYMENT OF PRINCIPAL, INTEREST. The Borrower defaults in the prompt payment as and when due of principal or interest on the Term Note or any fees due under said note, this Loan Agreement or the Security Agreement; or in the prompt payment when due of any other indebtedness, liabilities, or obligations to the Bank, whether now existing or hereafter created or arising; direct or indirect, absolute or contingent; or 13

14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with respect to any other material agreement to which it is a party or with respect to any other material indebtedness when due or the performance of any other obligation incurred in connection with any material indebtedness for borrowed money ("material" as used herein meaning indebtedness or obligations in excess of $50,000.00) if the effect of such default is to accelerate the maturity of such indebtedness, or if the effect of such default is to permit the holder thereof to cause such indebtedness to become due prior to its stated maturity and the holder has not waived its right to accelerate payment of such indebtedness; or 14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by the Borrower and/or Guarantor herein, or in any report, certificate, financial statement or other writing furnished in connection with or pursuant to this Loan Agreement shall prove to be false, misleading or incomplete in any material respect on the date as of which made; or 14.4 BANKRUPTCY, ETC. The Borrower and/or Guarantor shall make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Borrower and/or Guarantor, in which an order for relief is entered or which remains undismissed for a period of sixty (60) days or more; or the Borrower and/or Guarantor by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties, or shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; or Borrower and/or Guarantor shall generally not pay its debts as such debts become due; or 14.5 CONCEALMENT OF PROPERTY, ETC. The Borrower and/or Guarantor shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings or distraint which is not vacated within sixty (60) days from the date thereof; or 14.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership that results in John M. Gregory, Joseph R. Gregory and Jefferson J. Gregory owning a combined fifty percent (50%) or less of the capital stock of the Guarantor, or fifty percent (50%) or less of the voting power related to the capital stock. 14.7 COVENANTS. The Borrower and/or Guarantor defaults in the performance or observance of any other covenant, agreement or undertaking on its or their part to be performed or observed, contained herein, or in any other instrument or document which now or hereafter evidences or secures all or any part, of the Term Loan. 14.8 WITHDRAWAL OR SUSPENSION. The total withdrawal of the PROCTOCORT(TM) Product Line from the market, or the suspension of said product's registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, the approval or consent of any governmental regulatory agency with respect to the PROCTOCORT(TM) Product Line. 14

14.9 REMEDY. Upon the occurrence of any Event of Default, as specified herein, and the expiration of any applicable cure period, the Bank shall, at its option, thereupon declare the entire unpaid principal balance of the Term Note, all interest accrued and unpaid thereon and all other amounts payable under this Loan Agreement to be immediately due and payable for all purposes, and may exercise all rights and remedies available to it under any other instrument or document which evidences, secures or guaranties the Term Note, or available at law or in equity, including the right to the appointment of a receiver to take possession of the Borrower's and/or Guarantor's property. SECTION 15: MISCELLANEOUS 15.1 AMENDMENTS. The provisions of this Loan Agreement, the Term Note, or any instrument or document executed pursuant hereto or securing or guarantying the indebtednesses, may be amended or modified only by an instrument in writing signed by the parties to said document or instrument. Guarantor need only be a party to an amendment of the Guaranty, and waives notice of any amendment, modification or renewal of the Term Note, this Loan Agreement, or any other instrument or document executed pursuant hereto other than the Guaranty. 15.2 NOTICES. All notices and other communications provided for hereunder shall be in writing and shall be mailed, certified mail, return receipt requested, or delivered by hand. Any such notices and other communications to the Borrower shall be addressed as follows: John M. Gregory Chairman of the Board & CEO Monarch Pharmaceuticals, Inc. 355 Beecham Street Bristol, TN 37620 WITH A COPY TO: John A. A. Bellamy Executive Vice President and General Counsel King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 All such notices and other communications to the Guarantor shall be addressed as follows: John M. Gregory Chairman of the Board & CEO King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 With a copy to: John A. A. Bellamy Executive Vice President and General Counsel King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 15

All such notices and other communications to the Bank shall be addressed as follows: Kevin L. Jessee Community Bank President First Tennessee Bank National Association P. O. Box 3189 1155 Volunteer Parkway, Suite 201 Bristol, TN 37625, or as to any such person at such other address as shall be designated by such person in a written notice to the other parties hereto complying as to the delivery with the terms of this Section 15.2. All such notices and other communications shall be effective (i) if mailed when received or three (3) business days after mailing, whichever is earlier; or (ii) if delivered by hand, upon delivery. 15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege, preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 15.4 INDEMNIFICATION. The Borrower and Guarantor agree to indemnify the Bank from and against any and all claims, losses and liabilities, including, without limitation, reasonable attorneys' fees and expenses, growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Bank's negligence or willful misconduct. The indemdification provided for in this Section shall survive the payment in full of the Term Note. 15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties made herein shall survive the delivery of the Term Note. This Loan Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest therein. 15.6 GOVERNING LAW. This Loan Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 15.7 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 15.8 TERMINOLOGY: SECTION HEADINGS. All personal pronouns used in this Loan Agreement, whether used in the masculine, feminine, or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Section headings are for convenience only and neither limit nor amplify the provisions of this Loan Agreement. 15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions of this Loan Agreement be determined to be illegal or unenforceable, all other provisions, nevertheless, shall remain effective and binding on the parties hereto. 15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be deemed to indicate that the Bank is in control of the business, management or properties of the Borrower and/or Guarantor or has power over the daily management functions and operating decisions made by the Borrower and/or Guarantor. 16

15.11 FEES AND EXPENSES. Except as otherwise expressly provided herein, the Borrower agrees to reimburse the Bank for all legal fees and expenses, and recording fees and taxes incurred by the Bank in connection with the loan contemplated by this Loan Agreement. Furthermore, the Borrower agrees to pay, or reimburse the Bank for, the actual out-of-pocket expenses, including but not limited to counsel fees and expenses, court costs, accountants fees and expenses, and fees and expenses of similar experts as deemed necessary by the Bank, incurred by the Bank in connection with the enforcement of, or the preservation of any rights under this Loan Agreement, the Term Note, and any instrument or document now or hereafter securing or guarantying said note. The Guaranty shall guaranty the obligations of the Borrower set forth in this section, in addition to the other obligations that may be owing under the terms of this Loan Agreement, the Term Note and the Security Agreement. 15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement the Term Note, and the other instruments and documents executed and delivered in connection herewith. 15.13 LIENS: SETOFF OF BANK. Upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured) and other credits of the Borrower against any and all indebtednesses of the Borrower to the Bank. The Borrower acknowledges the Bank's legal and equitable rights to setoff, appropriate. Furthermore, upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured) and other credits of the Guarantor against any and all indebtednesses of the Borrower to the Bank covered by the Guaranty. The Guarantor acknowledges the Bank's legal and equitable rights to setoff, appropriate. 15.14 VENUE OF ACTIONS. As an integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Borrower, or by any successor, personal representative or assignee with respect to the Term Note, or this Loan Agreement or any other document or instrument which now or hereafter evidences, secures or guaranties all or any part of the Term Loan, other than in a state court of competent jurisdiction in Sullivan County, Tennessee, or in the United States District Court for the Eastern District of Tennessee, and not elsewhere. As a further integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Guarantor, or by any successor, personal representative or assignee with respect to the this Loan Agreement, or any other document or instrument which now or hereafter evidences, secures or guaranties all or any part of the Term Loan, other than in a state court of competent jurisdiction in Sullivan County, Tennessee, or in the United States District Court for the Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph contained shall prohibit the Bank from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or in any other document or instrument which evidences, secures or guaranties the obligations of Borrower and/or Guarantor contemplated by this Loan Agreement. 15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE 17

WHETHER NOW EXISTING OR HEREAFTER ARISING 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 AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 15.16 ENTIRE AGREEMENT. This written agreement, the related written documents referred to herein, and any other agreements executed contemporaneously herewith set forth the complete and exclusive statement of the terms of the agreement between the Borrower, Guarantor and the Bank with respect to the loans contemplated by this Loan Agreement. Therefore, no prior written agreements or contemporaneous or prior oral agreements between the parties shall be of any effect with respect to the loan contemplated by this Loan Agreement. IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this Loan Agreement to be executed by their duly authorized officers, all as of the day and year first above written. MONARCH PHARMACEUTICALS, INC.
By /s/ John M. Gregory --------------------------------------John M. Gregory Chairman of the Board & CEO

KING PHARMACEUTICALS, INC.
By /s/ John M. Gregory --------------------------------------John M. Gregory Chairman of the Board & CEO

FIRST TENNESSEE BANK, NATIONAL ASSOCIATION
By /s/ Kevin L. Jessee --------------------------------------Kevin L. Jessee Community Bank President

18

PROMISSORY NOTE (Business or Commercial Loan)
/s/ Kevin L. Jessee -----------------------------------Approval $1,750,000.00 --------------------BRISTOL , Tennessee ------------------------JANUARY 29 , 19 97 -------------------------------

FOR VALUE RECIEVED, the undersigned (jointly and severally, if more than one) promise(s) to pay to the order of First Tennessee Bank National Association (hereinafter referred to as the "Bank") at any lending office in the state mentioned above or at such other place as the holder hereof may designate in writing, in current local funds, the sum of: ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100*********************************************Dollars [ ] DISCOUNTED: Including interest, due on __________, 19 ____. [X] INTEREST BEARING: Plus interest from date until maturity on the unpaid principal balance of this Note at the rate of: [ ] FIXED RATE: ____% per annum [X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lesser of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (b) a rate which is ___% per annum higher than the base commercial rate of interest ("Base Rate") established from time to time by Bank. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the Base Rate shall become effective, without notice to the undersigned, on [ ] the same date that the Base Rate changes; [ ] the first day of the calendar month following any chagne in the Base Rate; [ ] the first day of the calendar quarter following any change in the Base Rate; [ ] other The Base Rate is one of several interst rate indices employed by the Bank. The undersigned acknowledge(s) that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. Such principal and interst shall be payable as shown below: [ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance, due on ____________________________________, 19_____ plus interest payable [ ] at maturity. [ ] at beginning _____________, 19 __ an dcontinuing on the same day of each successive [ ] monthly or [ ] quarterly calendar period, except that the final interest installment shall be payable on the date the principal is due. [X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $48,611.11 each, plus a final payment for the balance then owing, beginning LAST DAY OF FEBRUARY, 1997, and continuing on the same day of each successive [X] monthly or [ ] quarterly calendar period. Accrued interest is [ ] included in each of the above payments; or X payable in addition to such payments on the above payment dates. [ ] OTHER: SECURITY: Except as otherwise provided herein, as of the date hereof, [ ] This Note is secured by a mortgage(s) or deed(s) of trust dated

[X] This Note is secured by security agreements(s) dated JANUARY 29, 1997 Other Terms and Conditions: Unless otherwise provided herein, all payments shall be applied first to pay the accrued interest to date on the unpaid balance and next to the unpaid principal of the Indebtedness. Any payment not made when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the maximum effective contract rate of Interest which the Bank may lawfully charge on the date such payment became due. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect any security given for its payment, or to enforce its collection, the undersigned will pay all the costs of collection and litigation, together with a reasonable attorney's fee, all of which shall be secured by any collateral pledged as security herefor. The undersigned also agrees to pay any and all actual expenses including reasonable attorney's fees incurred by Bank in (i) successfully defending any action or inaction in connection with any aspect of the transaction evidenced by this instrument, or (ii) any action, whether or not successful, taken to protect or enforce Bank's rights in any collateral related to the transaction evidenced by this instrument. The maker(s) and any endorsers or guarantors hereof waive protest, demand, presentment, and notice of dishonor, and agree that this Note may be extended, in whole or in part, without limit as to the number of such extensions, or the period or periods thereof, and without notice to or further assent from them or any other party liable hereon, all of whom will remain bound upon this Note notwithstanding any such extension(s); and further agree that all or any collateral given, now or hereafter, as security herefor may be released (with or without

substitution) without notice and without affecting their liability hereon; and that additional makers, endorsers, guarantors, or sureties may become parties hereto, and that any present or figure party may be released from liability hereunder, without notice, and without affecting the liability hereon; and that additional maker, endorser, or guarantor. In the event of any default in the prompt and punctual payment, when due, of this Note (or any installment hereof) whether of principal, interest, or principal and interest), or if the undersigned, or any other party libale hereon, should become insolvent,(as defined in the Uniform Commercial Code), or if a petition in bankruptcy be filed by or against any of the undersigned or any other party liable hereon, or if a reciver be appointed for any part of the property or assets of the undersigned or any other party liable hereon, or if any assignment for the benefit of creditor(s) be made by the undersigned or any other party liable hereon, however defined, or make an assignment for the benefit of creditors, or if a judgment be entered against the undersigned or other parties liable hereon, or upon the issuance of any writ, levy or process, valid or invalid which purports to restrict the undersigned or other parties liable hereon, with respect to any of his/her or their funds of property on deposit with or in the possession or custody or under the control of the Bank, or upon the death or dissolution of any party liable hereon, or in the event of any default in the prompt and punctual payment when due, or any other indebtedness or obligation to the Bank owed, now or hereafter, by any party liable hereon, or upon any default in any deed of trust, mortgage, security agreement, assignment or other security document given, now or hereafter, to secure the indebtedness evidenced hereby, or if any representation or warranty made by the undersigned or other parties pertaining to this credit shall prove to be false, untrue, or materially misleading, or in the event of termination or any or in the event that the Bank shall deem itself insecure, then and in any of such events, this Note shall, at Bank's option, without notice or demand for payment (the same being expressly waived), be and become immediately due, payable and enforceable for all purposes, of the option of the Bank. Any money or other property at any time in the possession of the Bank belonging to parties liable hereon, and any deposits or other sums at any time credited by or due from the Bank to the undersigned or any other parties liable hereon, may at all times, at the option of the Bank, be held and treated as collateral security for the payment of this Note or any other liability of any of the undersigned, or any other party in any manner liable hereon to the Bank, whether due or not due. The Bank may, at any time, at its option, and without notice, set off the amount due or to become due hereon against the claim of any of said parties against the Bank. To effect these rights, the undersigned and all other parties liable heron agree, upon request by the Bank, immediately to endorse, sign, and execute all necessary instruments, and do hereby appoint the Bank (acting through any then officer thereof) as attorney-in-fact for them with authority to endorse any instrument requiring endorsement and to effect any transfer, and this appointment shall be irrevocable as long as the undersigned, or any other party liable hereon, shall be indebted to the Bank. The undersigned agrees to furnish a current financial statement upon the request of Bank from time to time, and further agrees to execute and deliver all other instruments and take such other actions as Bank may from time to time reasonably request in order to carry out the provision and intent hereof. In the event of any renewal or extension of the loan indebtedness evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank shall have the right to charge interest at the highest of the following rates: (i) the maximum rate permissible at the time the contract to make the loan was executed; or (ii) the maximum rate permissible at the time the loan was made; or (iii) the maximum rate permissible at the time of such renewal or extension; or (iv) the maximum rate permitted by applicable federal law; it being intended that those statutes and laws, state or federal, from time to time in effect, which permit the charging of the higher rate of interest shall govern the maximum rate which may be charged hereunder. In the event that for any reason the foregoing provisions hereof shall not contain a valid, enforceable designation for a rate of interest prior to maturity or method of determining the same, then (unless this Note is a discounted, single-payment note) the indebtedness hereby evidenced shall bear interest prior to maturity at the maximum effective rate which may be lawfully charged by the Bank under applicable law. Regardless of any provision herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect, or apply, as interest hereon, any amount in excess of the maximum contract rate which may be lawfully charged by the holder hereof under applicable law; and in the event the holder hereof ever receives, collect, or applies as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to the undersigned. In determining whether or not the interest paid of payable, under any specific contingency, exceeds the maximum lawful contract rate, the undersigned and the holder hereof shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as a reasonable loan charge, rather than as interest; (b) exclude voluntary repayments and the effects thereof; and (c) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire contemplated term hereof, so that the Interest accrue throughout the entire term contemplated hereby shall at no time exceed the maximum lawful contract rate. The undersigned jointly and severally waive(s) any right to a trial by jury in any action or proceeding to enforce or defend any rights under this agreement or under any amendment, instrument, document or agreement delivered (or which may in the future be delivered) in connection herewith or arising from any banking relationship existing in connection with this agreement. The undersigned agree(s) that any such action or proceeding shall be tried before a court and not before a jury. KING PHARMACEUTICALS, INC.
BY: /s/ John M. Gregory ---------------------------------Chairman and CEO ----------------------------------

ALLONGE TO PROMISSORY NOTE DATED JANUARY 29, 1997 IN THE AMOUNT OF $1,750,000.00 (THE "NOTE") EXECUTED BY THE UNDERSIGNED TO THE ORDER OF FIRST TENNESSEE BANK NATIONAL ASSOCIATION ("BANK") (FOR USE WITH BLUE, GREEN AND WHITE NOTES ONLY - NEW LOAN) 1. The undersigned understands and agrees that the terms of the Note relating to the interest rate shall be modified by deleting the paragraph of the Note entitled Variable Rate in its entirety and replacing it with the following: [X] Variable Rate: A variable rate per annum ("Variable Rate") based on a [ ] three hundred and sixty (360) [X] three hundred and sixty-five (365) day year which shall be equal to the lesser of (i) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (ii) a rate which is 1.75 percent (1.75%) per annum higher than the LIBOR Rate (as hereinafter defined), adjusted and determined as of the opening of business on January 29, 1997 (the "Initial Pricing Date") and on the 29 day of every third month hereafter (each an "Interest Rate Change Date"). The LIBOR Rate shall mean the London Interbank Offered Rate of interest for an interest period of three (3) months, as reported in The Wall Street Journal published on each Interest Rate Change Date. Each change in the Variable Rate which results from a change in the LIBOR Rate shall become effective, without notice to the undersigned, on each Interest Rate Change Date; provided, however, that if The Wall Street Journal is not published on such date, the LIBOR Rate shall be determined by reference to The Wall Street Journal last published immediately preceding such date. In the event that at any time prior to maturity the rate of interest specified in clause (ii) above (determined as of the dates when changes become effective above) shall exceed the Maximum Rate, Bank may, at its option and without notice to the undersigned, charge interest at the Maximum Rate for the entire term of the loan and all unpaid interest then accrued at said Maximum Rate shall be due and payable ten (10) days following the date upon which Bank notifies the undersigned of the amount of such accrued but unpaid interest. (The three (3) month LIBOR Rate quoted in The Wall Street Journal published on the Initial Pricing Date is 5.5625 percent ( __%) per annum.) The privilege is reserved to prepay this Note in whole or in part, prior to maturity, without premium or penalty. Notwithstanding any other provisions herein, if any Change in Law (as hereinafter defined) shall make it unlawful for the Bank to make or maintain a LIBOR Rate loan as contemplated by this Note, the principal outstanding hereunder shall, if required by law and if the Bank so requests, be converted on the date required to make the loan evidenced by this Note legal to a loan accruing interest at the lesser of the Maximum Rate or the base commercial rate of interest ("Base Rate") established from time to time by the Bank. Each change in the Base Rate shall become effective, without notice to the undersigned, on the same date that the Base Rate changes. The undersigned hereby agrees promptly to pay the Bank, upon demand, any costs incurred by the Bank in making any conversion in accordance with this paragraph, including any interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain its LIBOR Rate loans. The undersigned acknowledges that the Base Rate is one of several interest rate indices employed by the Bank and that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. The undersigned hereby indemnifies the Bank and holds the Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of (i) a default by the undersigned in payment of the principal amount of or interest on the loan evidenced hereby, including any such loss or expense arising from interest or fees payable by the Bank to lenders of funds obtained by it in order to make or maintain its LIBOR Rate loans, or (ii) a Change in Law that results in the imposition on the Bank of reserve requirements in connection with LIBOR Rate loans made by the Bank. The undersigned will make any payments under this indemnity to Bank, upon demand. The undersigned further agrees to enter into a modification of this Note, at the request of the Bank, to bring this Note into compliance with any Change in Law. "Change in Law" shall mean the adoption of any law, rule, regulation, policy, guideline or directive (whether or not having the force of law) or any change therein or in the interpretation or application thereof, in all cases by any Governmental Authority having jurisdiction over the Bank, in each case after the date hereof.

"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising regulatory functions of or pertaining to government. 2. The provisions hereof shall be binding upon the undersigned, his/her heirs, executors, administrators, personal representatives, successors and assigns, and shall inure to the benefit of the Bank, its successors and assigns.

INDIVIDUAL BORROWER MONARCH PHARMACEUTICAL, INC.
By: /s/ John M. Gregory ------------------------------------Title: CHAIRMAN & CEO ---------------------------------BUSINESS ENTITY BORROWER

EXHIBIT 10.7 SIGNET(R) BANK PROMISSORY NOTE
------------------------------------------------------------------------------------------------------------------PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $1,500,000.00 03-19-1997 04-01-2000 300 KPI 11641 ------------------------------------------------------------------------------------------------------------------References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. ------------------------------------------------------------------------------------------------------------------BORROWER: KING PHARMACEUTICALS, INC. 501 FIFTH STREET BRISTOL, TN 37620 LENDER: SIGNET BANK MAIN STREET (CAPITAL) 7 NORTH 8TH STREET RICHMOND, VA 23219

================================================================================ IMPORTANT NOTICE Funded 3/20/97

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
PRINCIPAL AMOUNT: $1,500,000.00 INITIAL RATE: 8.250% DATE OF NOTE: MARCH 19, 1997

PROMISE TO PAY. KING PHARMACEUTICALS, INC. ("BORROWER") PROMISES TO PAY TO SIGNET BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION FIVE HUNDRED THOUSAND & 00/100 DOLLARS ($1,500,000.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM MARCH 19, 1997, UNTIL PAID IN FULL. PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX, BORROWER WILL PAY THIS LOAN IN 35 PRINCIPAL PAYMENTS OF $41,667.00 EACH AND ONE FINAL PRINCIPAL AND INTEREST PAYMENT OF $41,950.92. BORROWER'S FIRST PRINCIPAL PAYMENT IS DUE MAY 1, 1997, AND ALL SUBSEQUENT PRINCIPAL PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ALL ACCRUED UNPAID INTEREST DUE AS OF EACH PAYMENT DATE. BORROWER'S FIRST INTEREST PAYMENT IS DUE MAY 1, 1997, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. BORROWER'S FINAL PAYMENT DUE APRIL 1, 2000, WILL BE FOR ALL PRINCIPAL, ACCRUED INTEREST, AND ALL OTHER APPLICABLE FEES, COSTS AND CHARGES, IF ANY, NOT YET PAID. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender's Prime Rate (the "Index"). This is the rate of interest announced from time to time by Lender as its "Prime Rate." Borrower and each other party liable under this Note in any capacity, whether as maker, endorser, surety, guarantor or otherwise, acknowledge and agree that the Prime Rate is a reference used by Lender in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit to any customer. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 8.250% PER ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. DEFAULT. Borrower will be in default if any of the following happens: (a) the failure of any "Party" (which term shall mean and include each Borrower, endorser, surety and guarantor of this Note) to make any payment on this Note or on any other indebtedness due Lender when due; (b) if any asset(s) of a Party are attached, levied upon, seized or repossessed or if any asset(s) of a Party should come into the possession of a receiver, trustee, custodian or assignee for the benefit of creditors, or if a Party makes an assignment for the benefit of creditors; (c) the failure of a Party to observe or perform any obligation or covenant contained in any agreement, document or instrument furnished in connection

herewith or in any other agreement between a Party and Lender; (d) any representation or warranty at any time made by a Party to Lender in connection herewith or in any other agreement between a Party and Lender, or in any document or instrument delivered to Lender in connection herewith or pursuant to such other agreement, shall have been materially false at the time it was made; (e) the termination or withdrawal of a Party's guaranty with respect to any indebtedness due Lender; (f) any Party files a petition in bankruptcy, petitions or applies to any tribunal for any receiver or any trustee of a Party or any substantial part of its property, or commences any proceeding relating to such party under any insolvency, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; (g) if, within 30 days after the filing of a petition in bankruptcy against a Party or the commencement of any proceeding against a Party seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such petition or proceeding shall not have dismissed, or, if, within 30 days after the appointment, without the consent or acquiescence of a Party, or any trustee, receiver or liquidator of such Party or of all or any substantial part of the properties of the such Party, such appointment shall not have been vacated; (h) the application for the appointment of a receiver for a party or for property of a Party; (i) the making or sending of a notice of an intended bulk sale by a Party; (j) commencement of any foreclosure, levy, seizure or forfeiture proceeding, whether by judicial, self-help, repossession, or any other method, by any creditor of a Party, any creditor of the owner of any collateral securing this Note, or by any governmental agency with respect to a Party or such collateral; (k) if any event occurs which is or, with the passage of time and/or the giving of notice, could be a default under or breach of the terms of any instrument or document evidencing a debt or obligation of a Party to any third party and is not cured within five (5) days after the occurrence thereof; (l) any judgment against a Party or any attachment against it or its property remains unpaid, undischarged, unbonded or undismissed for a period of 30 days, unless and to the extent that such judgment is appealed in good faith in a court of higher jurisdiction and such appeal remains pending; (m) if any proceeding is filed for the dissolution or liquidation of a Party; (n) if any Party shall be enjoined or restrained in any manner from conducting its business in whole or in part, and such injunction shall not be dismissed or dissolved within thirty (30) days after the filing thereof; (o) if any tax lien or notice thereof is filed against a Party or any of the assets of a Party and remains undismissed, unpaid or unbonded for a period of thirty (30) days; (p) if, without Lender's prior written consent, any Party which is not a natural person enters into or becomes a party to any merger, consolidation or share exchange or if any Party sells, transfers, conveys or leases, except in the ordinary course of business, substantially all of its assets or properties or (if not a natural person) significantly alters its capital structure, business activities or scope of operations; (q) if, without Lender's prior written consent, there is a sale, exchange or transfer of the voting control or any significant portion of the stock or ownership interests of any Party which is not a natural person; (r) if any Party who is a natural person shall die or become incompetent; or (s) the good faith determination by Lender that a material adverse change in the financial condition of a Party has occurred since the date hereof or that Lender's prospect of payment hereunder has been materially impaired. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest, together with

PROMISSORY NOTE (CONTINUED)

all other applicable fees, costs and charges, if any, immediately due and payable, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 3,000 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. Furthermore, subject to any limits under applicable law, upon default, Borrower also agrees to pay Lender's attorney fees equal to 25.000% of the principal balance due on the Note, and all of Lender's other collection expenses, whether or not there is a lawsuit and including without limitation legal expenses for bankruptcy proceedings. This Note shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either party against the other. CONFESSION OF JUDGMENT. Upon a default in payment of the Indebtedness at maturity, whether by acceleration or otherwise, Borrower hereby irrevocably authorizes and empowers Thomas L. Hotchkiss or Donald E. Miles as Borrower's attorney-in-fact to appear in the City of Richmond clerk's office and to confess judgment against Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, plus attorneys' fees as provided in this Note, plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Note, verified by an affidavit, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney. Borrower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void; but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Note have been paid in full. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Borrower given to Lender by law, Lender shall have, with respect to Borrower's obligations to Lender under this Note and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Borrower hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Borrower's right, title, and interest in and to all deposits, moneys, securities, and other property of Borrower now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Borrower. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. LATE CHARGE. Borrower agrees to pay to Lender or demand a late charge not to exceed 5% of the amount of any payment of principal or interest, or both, that is more than ten (10) days past due. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER: KING PHARMACEUTICALS, INC. BY: John M. Gregory (SEAL) John M. Gregory - CEO

EXHIBIT 10.8 PROMISSORY NOTE $1,750,000.00 Bristol, Tennessee March 17, 1997 FOR VALUE RECEIVED, the undersigned, KING PHARMACEUTICALS, INC. a Tennessee corporation (the "Maker"), promises to pay to the order of THE UNITED COMPANY, a Virginia corporation (the "Holder"), the principal sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($1,750,000.00), together with interest from date until maturity, upon the unpaid principal balance, at the rate hereinafter specified, said principal and interest being payable as follows: Interest only on the unpaid principal balance hereof shall be paid quarterly commencing on July 1, 1997, and the unpaid principal balance hereof and any accrued and unpaid interest thereon shall be payable on April 1, 1999. Subject to the limitations hereinafter set forth, the unpaid principal balance of the indebtedness hereby evidenced shall bear interest prior to maturity at a fixed rate per annum equal to ten percent (10%) per annum. Any amounts not paid when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the lesser of (a) twenty percent (20%) per annum or (b) the maximum effective variable contract rate which may be charged by the Holder under applicable law from time to time in effect. All installments of interest, and the principal hereof, are payable at the office of The United Company, P.O. Box 1280, Bristol, Virginia 24203-1280, Attention: Finance Department, or at such other place as the holder may designate in writing, in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment. If the Maker shall fail to make payment of any installment of interest or the principal balance and unpaid accrued interest, as above provided, then and in any such event, the entire unpaid principal balance of the indebtedness evidenced hereby, together with all interest then accrued, shall, at the absolute option of the holder hereof, at once become due and payable, without demand or notice, said demand or notice being expressly waived. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect the security for its payment, or to enforce its collection, or to represent the

rights of the Holder in connection with any loan documentation executed in connection herewith, or to defend successfully against any claim, cause of action or suit brought by the Maker against the Holder, the Maker shall pay on demand all costs of collection and litigation (including court costs), together with a reasonable attorney's fee. The Maker and any endorsers or guarantors hereof waive protest, demand, presentment, and notice of dishonor, and agree that this Note may be extended, in whole or in part, without limit as to the number of such extensions or the period or periods thereof, without notice to them and without affecting their liability thereon. This Note shall be governed and construed according to the statutes and laws of the Commonwealth of Virginia from time to time in effect. Upon three (3) business days' prior written notice to Holder, Maker shall have the right to prepay the indebtedness evidenced hereby in whole, but not in part, by paying one hundred percent (100%) of the principal amount plus accrued interest without any prepayment penalty. This Note is secured by a Deed of Trust, dated March 17, 1997. KING PHARMACEUTICALS, INC.
By: /s/ John M. Gregory ------------------------------Title: CEO ----------------------------

2

EXHIBIT 10.9 LOAN AGREEMENT THIS LOAN AGREEMENT ("Loan Agreement") is made this 20th day of March, 1997, by and between MONARCH PHARMACEUTICALS INC., a Tennessee corporation whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the "Borrower") KING PHARMACEUTICALS, INC., a Tennessee corporation whose address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the statutes of the United States of America, whose address P. O. Box 3189, Bristol, Tennessee 37625 (the "Bank"). RECITALS OF FACT The Borrower has requested that the Bank commit to loan the Borrower the principal sum of Five Million No/100 Dollars ($5,000,000.00), with said extension of credit to be structured as a term loan. The proceeds of the term loan shall be used by the Borrower to finance the acquisition, of the Cortisporin(R) and Pediotic(R) Product Lines. Furthermore, the Guarantor desires that the Bank commit to loan the Borrower the principal sum of Five Million and No/100 Dollars ($5,000,000.00) for the purposes recited hereinabove. In consideration of Bank's commitment, the Guarantor has agreed to guarantee repayment of the loan contemplated by this Loan Agreement NOW, THEREFORE, incorporating the Recitals of Fact set forth above and consideration of the mutual agreements herein contained, the parties agree as follows: AGREEMENTS SECTION 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following terms shall have the following meanings (such meanings to be applicable equally to both the singular and plural forms of such terms) unless the context otherwise requires: "AADA" shall mean an Abbreviated Antibiotic Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "Agreement for Purchase and Sale of Assets" shall mean that certain contract by and between GW and Borrower whereby Borrow acquired GW's interest in the Cortisporin(R) Product Line and the Pediotic(R) Product Line. "ANDA" shall mean an Abbreviated New Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "Closing Date" means the date set out in the first paragraph of this Loan Agreement. "Collateral" means the tangible and/or intangible personal property of the Borrower that is intended to secure the loan contemplated under this Loan Agreement, said personal property being specifically described in Section 3.1 of this Loan Agreement. "Conditional Assignment" means the Conditional Assignment of Registered Trademarks pursuant to 37 C.F.R. Section 3.56, which conditional assignment shall be in a form substantially similar to that which is attached hereto as Exhibit "A".

"Cortisporin(R) Product Line" shall refer to the following:
PRODUCT NAME -----------Cortisporin Otic Solution 1% 10ml Cortisporin Otic Suspension 1% 10 ml Cortisporin Ophthalmic Suspension 7.5 ml Cortisporin Ophthalmic Ointment 1/8 oz Cortisporin Cream 7.5 gm tube Cortisporin Ointment 1/2 oz. Tube NDA/AADA -------NDA 50-479 AADA 60-613 NDA 50-169 NDA 50-416 NDA 50-218 NDA 50-168 NDC --0173-0199-92 0173-0198-92 0173-0193-02 0173-0197-86 0173-0185-98 0173-0196-88

and all other presentations and dosage forms, along with all product codes and strengths associated with NDA Nos. 50-479, 50-169, 50-416, 50-218, and 50-168 and AADA No. 60-613, and any and all changes, amendments, periodic reports, supplements, authorizations, documentation, or permits relative thereto. "Event of Default" has the meaning assigned to that phrase in Section 14 of this Loan Agreement. "Existing Loan Agreements" shall refer to the following agreements collectively. (a) Loan Agreement dated April 30, 1996, by and between Guarantor and the Bank, covering a $3,500,000 revolving line of credit and a $2,500,000 term loan used to finance bioequivalence studies; (b) Loan Agreement dated January 21, 1997, by and between Borrower, Guarantor and the Bank, pertaining to the acquisition of the Thalitone(R) Product Line (the "Thalitone Loan Agreement"); and (c) Loan Agreement dated January 29, 1997, by and between Borrower, Guarantor and the Bank, pertaining to the acquisition of the Proctocort(R) Product Line (the "Proctocort Loan Agreement"). "FDA" means the Food and Drug Administration an agency of the government of the United States of America. "Guaranty" means the guaranty agreement described in Section 4 2 of this Loan Agreement. "GW" means Glaxo Wellcome, Inc., a corporation existing under the laws of the State of North Carolina, having a principle place of business at Five Moore Drive, Research Triangle Park, North Carolina 27709. "King Loan Agreement" shall refer to that certain Loan Agreement dated April 30, 1996, by and between Guarantor and the Bank, covering a $3,500,000 revolving line of credit and a $2,500,000 term loan used to finance bioequivalence studies. "Loan Agreement" means this Loan Agreement between the Borrower and the Bank. "NDA" shall mean a New Drug Application as described in the Federal Food, Drug and Cosmetic Act, as amended, and regulations promulgated thereunder. "NDC" means National Drug Control number. All NDCs used in this Loan Agreement shall refer to NDCs used by GW. "Pediotic(R) Product Line" shall refer to the following: 2

PRODUCT NAME -----------Pediotic 1% 7.5ml

AADA ---AADA 62-822

NDC --0173-0199-92

and all other presentations and dosage forms, along with all product codes and strengths associated with AADA No. 62-822, and any and all changes, amendments, periodic reports, supplements, authorizations, documentation, or permits relative thereto. "Registered Trademarks" shall refer to the Cortisportin(R) and Pediotic(R) trademarks that are specifically described in Section 3.1(a) of this Loan Agreement. "Security Agreement" means the Security Agreement described in Section 3.2 of this Loan Agreement. "Term Loan" means the Borrower's term indebtedness to the Bank pursuant to Section 2 of this Loan Agreement. "Term Note" means the promissory note as described in Section 2.2 of this Loan Agreement. "Third Party Financing Arrangements" shall refer to all agreements and related documents pertaining to financing being provided by parties other than the Bank in connection with the Borrower's acquisition of the Cortisporin(R) Product Line and the Pediotic(R) Product Line. The Third Party Financing Arrangements may involve either or both the Borrower and the Guarantor. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent to those applied in the preparation of the financial statements required to be delivered time to time pursuant to Section 11.1 of this Loan Agreement. SECTION 2: COMMITMENT, FUNDING AND TERMS OF TERM LOAN. 2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the Bank agrees and commits to loan the Borrower the principal sum of Five Million and No/100 Dollars ($5,000,000.00), to be used for the purpose of financing the borrower's acquisition of the Cortisporin(R) Product Line and the Pediotic(R) Product Line. 2.2 THE TERM NOTE AND INTEREST. The Term Loan shall be evidence by the Term Note of Borrower, payable to the order of the Bank, in the principal amount of Five Million and No/100 Dollars ($5,000,000.00). The unpaid principal balance of the Term Note shall bear interest at the rate specified in the Term Note and shall be payable as provided in the Term Note. 2.3 TERM NOTE PROCEEDS. The proceeds of the Term Note shall be applied directly toward the payment of the purchase price set forth in Section 1.02 of the Agreement for Purchase and Sale of Assets. SECTION 3. COLLATERAL. 3.1 DESCRIPTION OF COLLATERAL. The Term Note shall be secured by a first lien on the following: (a) All right, title and interest in the United States of America, its territories and possessions (the "Territory") in and to the Cortisporin(R) Product Line and the Pediotic(R) Product Line, and the goodwill associated therewith, as well as any registered patents, trademarks or service marks (or applications 3

therefor) or any tradenames, trade dress, trade secrets, service marks, proprietary data, or other intellectual property rights of any nature associated or used therewith, along with all presentations, product codes, strengths, and formulations associated with the Cortisporin(R) Product Line and the Pediotic(R) Product Line and NDA Nos. 50-479, 50-169, 50-416, 50-218 and 50-168, and AADA Nos. 60-613 and 62-822, as well as any future ANDA's, AADA's or NDA's, supplements, records, and reports that are required to be kept under 21 C.F.R. Section 314.81, whether issued, pending or in draft form, together with any correspondence to or from the FDA related to the Cortisporin(R) Product Line and the Pediotic(R) Product Line, and any other present or future regulatory filing wheresoever occurring and pertaining to the manufacture, sale, and use of said products in the Territory, whether issued or pending, and any and all changes, amendments, periodic reports, supplements, authorizations, documentation, or permits relative thereto, for the production of the Cortisporin(R) Product Line and the Pediotic(R) Product Line, including without limitation, ANDA's, AADA's and NDA's, formulations, annual product reviews, copies of completed batch records, copies of all manufacturing and packaging control procedures and specifications, all validation and protocol reports, stability protocols and reports, dose ranging study reports and protocols, product complaint files and protocols, adverse drug experience reports and protocols, supplier audit reports and protocols, and field alert reports. Registered trademarks include, but are not limited to, the following trademarks:
TRADEMARK --------Cortisporin Pediotic REGISTRATION NUMBER -------------------0,616,775 1,498,288 REGISTRATION DATE ----------------November 29, 1955 August 2, 1988

together with any improvements or change reflected in continuations or separate filings; (b) (i) Any and all customer lists, marketing information, documentation, data, clinical data, research and development, or other information, from any source whatsoever owned or in the possession of Monarch, related to the Cortisporin(R) Product Line and the Pediotic(R) Product Line; (ii) any and all production technology or know-how including batch records, protocols, validation and analytical methods and methodology, stability protocol and procedures, technical data, Standard Operating Procedures related to the production, manufacturing, packaging, release, sale or distribution of the Cortisporin(R) Product Line and the Pediotic(R) Product Line owned or in the possession of Monarch, including but not limited to the specifications, manufacturing and quality control data, test methods, validation data, and the know-how set forth on Schedule 1.01(b) of the Agreement for Purchase and Sale of Assets; (iii) any and all ANDA, AADA and NDA documentation for all product codes and strengths and all other regulatory filings related to the manufacture, sale and use of Cortisporin(R) Product Line and the Pediotic(R) Product Line in the Territory, and (iv) any and all data, documents, charts, information and records (whether written or electronically or magnetically archived) owned or in the possession of Monarch that is related to any of the foregoing in subsections (i) through (iii) inclusive; (c) Borrower's contract rights under me Agreement for Purchase and Sale of Assets; (d) The right to use names, logos, and trademarks used by Borrower on the Cortisporin(R) Product Line and the Pediotic(R) Product Line and the 4

packaging thereof, and in connection with the sale and distribution of the Cortisporin(R) Product Line and the Pediotic(R) Product Line to wholesale and retail distributors; provided that the Cortisporin(R) Product Line and the Pediotic(R) Product Line shall not be manufactured bearing any such name and logos after eighteen months from the date this interest is sold to enforce the security interest created under the Security Agreement; and all products and proceeds of the foregoing. 3.2 GRANTING AND PERFECTION OF SECURITY INTERESTS. In order to provide the Bank with the security contemplated by Section 3.1 of this Loan Agreement, the Borrower shall execute a security agreement granting the Bank a security interest in the Collateral and Borrower shall execute such financing statements as the Bank deems necessary to perfect said security interest. The Security Agreement and the financing statements shall be in a form acceptable to the Bank. For the purpose of further perfecting the Bank's security interest in the Collateral, the Borrower shall execute the Conditional Assignment. Furthermore, the Borrower shall execute such other documents as the Bank may from time to time deem necessary to perfect and maintain the perfection of its security interest in and lien against the Collateral under the laws of the United States of America, State of Tennessee, and any other state or locality the bank deems necessary. SECTION 4. GUARANTY. 4.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment of all sums at any time owing to the Bank under this Loan Agreement, the Term Note, and/or Security Agreement. 4.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty contemplated by Section 4.1 of this Loan Agreement, the Guarantor shall execute the guaranty agreement that is attached hereto as Exhibit "B". 4.3 SECURITY FOR GUARANTY. The Guarantor acknowledges that the security interest created by means of that certain Security Agreement dated April 30, 1996, whereby Guarantor granted the Bank a security interest securing the payment of certain promissory notes of even date therewith and any other indebtedness then existing or thereafter arising, due or to become due, absolute or contingent, and whether several, joint, or joint and several, of the Guarantor to the Bank secures, and was intended to secure the Term Loan and the obligations of the Guarantor under this Loan Agreement SECTION 5. CONDITIONS OF LENDING. 5.1 DOCUMENTS. The obligation of the Bank to fund the Term Note is subject to the following conditions precedent that the Bank shall have received in a form and substance satisfactory to and with such signatures as may be required by the Bank: (a) This Loan Agreement. (b) The Term Note. (c) The Security Agreement, together with the Conditional Assignment, and such financing statements and other documents as the Bank deems necessary to perfect its security interest in and lien against the Collateral. (d) Lien searches from such recording offices as the Bank shall specify, evidencing the priority of the Bank's lien under the Security Agreement. 5

(e) Opinion letter from Jon L. Roberts, Roberts & Brownell, L.L.C. in the form attached hereto as Exhibit "C" (f) The Guaranty. (g) Certified corporate resolutions of the Borrower, authorizing this Loan Agreement, the Term Note, and the Security Agreement. (h) Certified corporate resolutions of the Guarantor, authorizing this Loan Agreement and the Guaranty. (i) Certificate(s) of good standing for the Borrower from the state of its incorporation and such other states as the Bank shall require (j) Certificate(s) of good standing for the Guarantor from the state of its incorporation and such other states as the Bask shall require (k) The opinion of the Borrower's counsel that (i) the Borrower is a corporation duly organized validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary; (ii) the transactions herein contemplated have been duly authorized by all requisite corporate authority, (iii) this Loan Agreement and the other instruments and documents herein referred to have been duly authorized, validly executed and are in full force and effect, (iv) the execution, delivery and performance of this Loan Agreement, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Borrower is a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such other matters as the Bank may reasonably require. (1) The opinion of the Guarantor's counsel that (i) the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary; (ii) the guaranty herein contemplated has been duly authorized by all requisite corporate authority and is fully enforceable against the Guarantor under the laws of the State of Tennessee, (iii) this Loan Agreement, the Guaranty and any other instrument and document herein referred to have been duly authorized, validly executed and are in full force and effect, (iv) the execution, delivery and performance of this Loan Agreement and the Guaranty have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or results in the creation or 6

imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Borrower is a wholly owned subsidiary of the Guarantor, and (vi) pertaining to such other matters as the Bank may reasonably require (m) A copy of the fully executed Agreement for Purchase and Sale of Assets. (n) A copy of the fully executed Bill of Sale that is attached as Exhibit "A" to the Agreement for Purchase and Sale of Assets (o) A copy of the fully executed Assignment of Trademarks that attached as Exhibit "B" to the Agreement for Purchase and Sale of Assets. (p) Proof that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has been fully complied with as required by Section 1.11 of the Agreement for Purchase and Sale of Assets. (q) Such other information and documentation as the Bank shall reasonably require in connection with the funding of the Term Note. 5.2 GENERAL CONDITIONS PRECEDENT. The obligation of the Bank to fund the Term Note is further subject to the following conditions precedent: (a) Each of the warranties and representations of Borrower and Guarantor set out in Sections 6, 7 and 8 of this Loan Agreement being and remaining true and correct in all material respects. (b) The Bank's review and approval of the terms and conditions of all Third Party Financing Arrangements. SECTION 6: BORROWER'S REPRESENTATION AND WARRANTIES. Borrower represents and warrants that: 6.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 6.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement, the Term Note, and the Security Agreement have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower. 6.3 LITIGATION. There is no suit, claim, action, cause or proceeding now pending or, to the knowledge of Borrower, threatened before any court, administrative, or regulatory body, arbitrator, or any governmental agency, or any grounds therefor which may result in any judgment, order, decree, liability, or other determination which will, or 7

could, have a materially adverse effect upon the Cortisporin(R) Product Line the Pediotic(R) Product Line, or Borrower's compliance with and performance under the terms of this Loan Agreement, the Term Note or the Security Agreement. No such judgment, order, or decree has been entered or any such liability incurred which has or could have such effect. No party has tendered to Borrower, nor has Borrower accepted the tender of the defense of any claim, action, or proceeding which has or could have such effect. 6.4 TAXES. Borrower has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes due and owing to all such taxing authorities. 6.5 CONTRACTS OR RESTRICTIONS AFFECTING BORROWER. Borrower is not a party to any agreement or instrument or subject to any charter or other corporate restrictions materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 6.6 NO DEFAULT. Borrower is not in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect financial condition, property or operations of the Borrower. 6.7 WITHDRAWAL. There exists no set of facts which could reasonably be expected to furnish a basis for the total withdrawal of the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line from the market or the suspension of said products registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, approval or consent of any governmental regulatory agency with respect to the Cortisporin(R) Product Line and the Pediotic(R) Product Line. 6.8 NO VIOLATION OF LAW. Neither the Borrower or any of is employees with respect to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line is or has been in violation of or in default with respect to any applicable law, rule, regulation, order, writ, or decree of any court or any governmental commission, board, bureau, agency, or instrumentally, which violation or default might have a materially adverse effect on the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line, the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line business, or Borrower's compliance with and performance under the terms of this Loan Agreement, the Term Note, or Security Agreement. 6.9 TITLE TO COLLATERAL. Borrower has good and marketable title to all of the Collateral, free and clear of all mortgages, liens, security interests, charges, claims, restrictions, and other encumbrances of every kind, wheresoever situated other than the liens and security interests contemplated by this loan agreement to secure the obligations of Borrower to the Bank. 6.10 PATENTS AND TRADEMARKS. The Registered Trademarks are presently in full force and effect. Furthermore, the Registered Trademarks are subject to the sole use and control of Borrower and its licensees, unless otherwise provided in the Agreement for Purchase and Sale of Assets. Borrower is not aware of any state of facts that indicate a possible present infringement of the Registered Trademarks. 8

SECTION 7: GUARANTOR'S REPRESENTATIONS AND WARRANTIES Guarantor represents and warrants that: 7.1 INCORPORATION. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and as sets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary. 7.2 POWER AND AUTHORITY. The execution, delivery and performance of this Loan Agreement and the Guaranty have been duly authorized by all requisite action and will not violate any provision of law, any order of any court or other agency of government, the Charter and By-Laws of the Guarantor, any provision of any indenture, agreement or other instrument to which the Guarantor is a party, or by which the Guarantor's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Guarantor. 7.3 LITIGATION. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor, or any properties or rights of the Guarantor, which, if adversely determined, would materially adversely affect the financial or any other condition of the Guarantor 7.4 TAXES. Guarantor has filed or caused to be filed all federal, state or local tax returns which are required to be filed, and has paid all taxes due and owing to all such taxing authorities. 7.5 CONTRACTS OR RESTRICTIONS AFFECTING GUARANTOR. Guarantor is not a party to any agreement or instrument or subject to any charter or other corporate restrictions materially adversely affecting its business, properties or assets, operations or conditions (financial or otherwise) taken as a whole. 7.6 NO DEFAULT. Guarantor is not in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default if not cured would materially and substantially affect the financial condition, property or operations of the Guarantor. 7.7 BEST INTEREST OF GUARANTOR. Considering that the Bank would not extend the Term Loan to the Borrower but for the Guaranty, Guarantor's execution of the Guaranty is in the best interest of the Guarantor. SECTION 8: JOINT REPRESENTATIONS AND WARRANTIES Borrower and Guarantor represent and warrant that: 8.1 FINANCIAL CONDITION. The consolidated financial statements of the Guarantor and its wholly owned subsidiaries, copies of which are attached hereto as Exhibit "D", are correct and complete and fairly present the financial condition of the Guarantor and its subsidiaries as of the date of said financial statements and the results of their operations for said periods and as of the Closing Date in all material respects. All such financial statements have been prepared in accordance with generally accepted accounting principles, applied on a consistent basis, maintained through the period involved. 9

8.2 TITLE TO ASSETS. Guarantor and its subsidiaries, have good and marketable title to all their properties and assets as reflected on the balance sheet which is a part of the financial statements referred to in Section 8.1 of this Loan Agreement. 8.3 THIRD PARTY FINANCING DOCUMENTS. Attached hereto as Exhibit "E" is a complete list of all agreements pertaining to Third Party Financing Arrangements (the "Third Party Documents"). Complete copies of the Third Party Documents have been provided to the Bank and its legal counsel, the law firm of Green & Hale. Pursuant to the Third Party Documents, the Borrower and/or Guarantor grants certain liens. Pursuant to the Existing Loan Agreements, the Borrower and Guarantor cannot grant said liens without the consent of the Bank. The Bank has reviewed the Third Party Documents and hereby consents to all liens granted pursuant to said documents and no others. 8.4 BORROWER SUBSIDIARY OF GUARANTOR. The Borrower is a wholly owned subsidiary of the Guarantor. 8.5 NO FALSE OR MISLEADING STATEMENTS OF FACT. To the knowledge of Borrower and Guarantor, neither this Loan Agreement nor any schedule or exhibit hereto (including without limitation the Term Note, Security Agreement and Guaranty), nor any written statement or certificate furnished in connection herewith or any of the transactions contemplated hereby, contain or will contain an untrue statement of a fact or omits or will omit to state a fact that is necessary in order to mane the statements contained herein and therein, in the light of the circumstances under which they are made, not materially misleading. SECTION 9: AFFIRMATIVE COVENANTS OF BORROWER. The Borrower covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower will: 9.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 9.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all material leases, franchises, patents, trademarks, trade names, and copyrights, and preserve all the remainder of its properties used or useful in the conduct of its business substantially as conducted and operated during the present and preceding fiscal year. As part of this obligation, Borrower shall take all action necessary to respond to and satisfy any issues raised by any FDA Form 483 or other notice of a governmental agency so as to prevent any action which could result in the withdrawal of the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line, or the suspension of said product's registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, approval or consent of any governmental regulatory agency with respect to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line or any facility manufacturing said product. Furthermore, Borrower shall comply with all reporting requirements of any governmental agency related to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line. 9.3 INSURANCE. At all times maintain with insurance companies rated "A" or better or otherwise acceptable to the Borrower and the Bank, hazard insurance and such other insurance, for such amounts as is customarily maintained by companies in the same or substantially similar business. The Bank shall be named as loss payee on the Borrower's principle hazard insurance policies and any policy covering the Collateral. 10

9.4 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 9.5 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "F" attached hereto. 9.6 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 9.7 LIENS AGAINST PERSONAL PROPERTY. Only the Bank shall have liens against the Collateral. If any other such liens exist that have not been released of record, Borrower will obtain the immediate release of any such liens. 9.8 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. 9.9 PRODUCTION AND MARKETING. Borrower shall use its reasonable best efforts to produce and market the Cortisporin(R) Product Line and the Pediotic(R) Product Line. 9.10 COMPLIANCE WITH 21 C.F.R. 314.72. All requirements of 21 CFR 314.72(a)(1) that relate to the transfer of assets to Borrower by GW under the Agreement for Purchase and Sale of Assets shall be satisfied within forty-five (45) days of the closing date. Furthermore, any and all filing requirements of the FDA that arise as a result of or are necessary to effectuate the transfer to the Borrower of all information pertaining to the transfer of AADA's and NDA's related to the Cortisporin(R) Product Line and the Pediotic(R) Product Line shall be complied with. Documentary evidence of compliance with 21 C.F.R. 314.72(a)(1) and any other filing requirements of the FDA shall be provided to the Bank and its counsel, the law firm of Green & Hale. SECTION 10: AFFIRMATIVE COVENANTS OF GUARANTOR. The Guarantor covenants and agrees that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidence by the Term Note, unless the Bank shall otherwise its sole discretion consent in writing, the Guarantor will: 10.1 BUSINESS AND EXISTENCE. Perform all things reasonably necessary to preserve and keep in full force and effect its existence, rights and franchises, comply with all laws applicable to it and continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar years. 10.2 OBLIGATIONS, TAXES AND LIENS. Pay all of its indebtednesses and obligations promptly in accordance with normal terms and practices of its business and pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon any of its income and profits, or upon any of its properties, real, personal or mixed, or upon any part thereof, before the same shall become in default. 10.3 COMPLIANCE CERTIFICATE. Furnish within thirty (30) days from the end of each calendar quarter a Compliance Certificate, in the form of Exhibit "G" attached hereto. 11

10.4 NOTICE OF DEFAULT. At the time of the Borrower's first knowledge or notice, furnish the Bank with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Loan Agreement. 10.5 DEPOSIT ACCOUNTS. Maintain its primary deposit relationship with the Bank. SECTION 11: JOINT AFFIRMATIVE COVENANTS. The Borrower and Guarantor, jointly and severally, covenant and agree that from the date hereof and until payment in full of the principal of and interest on the indebtedness evidenced by the Term Note, unless the Bank shall otherwise in its sole discretion consent in writing, the Borrower and Guarantor will: 11.1 FINANCIAL REPORTS AND OTHER DATA. Furnish to the Bank: (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Guarantor, an unqualified audit of the Guarantor's and its wholly owned subsidiaries' consolidated financial statements as of the close of such fiscal year of the Guarantor, which financial statements shall include a consolidated balance sheet and consolidated statement of income and surplus of the Guarantor and its subsidiaries, together with the unqualified audit report and opinion of an independent Certified Public Accountant reasonably acceptable to the Bank showing the financial condition of the Guarantor and its subsidiaries at the close of such year and the results of operations during such year; (b) within forty-five (45) days after the end of each fiscal quarter, except the last fiscal quarter of the year, financial statements similar to those described above for the Guarantor and its subsidiaries, not audited but certified as to accuracy and content by the Chief Financial Officer or President or Controller of the Guarantor (the "Certifying Officer"), such consolidated balance sheets to be as of the end of such quarter and such consolidated statements of income and surplus to be for the period from the beginning of said year to the end of such quarter, in each case subject only to audit and year end adjustment. 11.2 ADDITIONAL INFORMATION. Furnish such other relevant information regarding the operations, business affairs and financial condition of the Guarantor and its subsidiaries as the Bank may reasonably request, including but not limited to true and exact copies of Guarantor's and its subsidiaries' books of account and tax returns, and all information furnished to shareholders or any governmental authority, and permit the copying of the same. 11.3 RIGHT OF INSPECTION. Permit any person designated by the Bank, at the Bank's expense, to visit and inspect any of the properties, books and financial reports of the Guarantor and its subsidiaries and to discuss its affairs, finances and accounts with the principal officers of the Guarantor and its subsidiaries, at all such reasonable times during regular business hours of the Bank and on reasonable advance notice and as often as the Bank may reasonably request. This right of inspection shall include, but not be limited to, the right to inspect all premises, properties, books, records, contracts, and documents related to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line (including, without limitation, access to raw data in support of production lot approvals and stability reports) and such other information concerning the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line as may be relevant to the protection of the Bank's rights and interests in and to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line. The Bank shall keep confidential any information it or its agents obtain as a result of this right of inspection. However, if the Bank enforces its security interest under the Security Agreement it shall be free to share any such information that is related to its Collateral with such persons it deems necessary for purposes of liquidating or selling the Collateral. Furthermore the Bank and its agents may disclose any such information as required by a subpoena or order of any court of law. 12

11.4 MINIMUM NET WORTH. The Guarantor and its wholly owned subsidiaries shall maintain a minimum consolidated net worth of Twenty-five Million and No/100 Dollars ($25,000,000.00), as determined by generally accepted accounting principles including intangible assets, with assets valued at historical costs less allowances taken for depreciation, amortization and depletion. The minimum consolidated net worth to be maintained by the Guarantor and its wholly owned subsidiaries shall increase at the end of each fiscal quarter, beginning with the quarter ending June 30, 1997, by an amount equal to Fifty Percent (50%) of the consolidated net profit for that fiscal quarter. There shall, however, be no adjustment to the minimum consolidated net worth requirement in the event of a net loss for a fiscal quarter. 11.5 DEBT TO EQUITY RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a maximum consolidated debt to equity ratio (total debt divided by total equity) of 1.55. 11.6 CASH FLOW-TO-DEBT SERVICE RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a consolidated ratio of cash flow-to-date service of not less than 1.25 (total cash flow divided by total debt service) to be measured quarterly based on the consolidated financial statements required by Section 11.1(a) For purposes of this requirement, "Cash Flow" shall be defined as Guarantor's and its wholly owned subsidiaries' consolidated net profits plus consolidated allowances for depreciation, interest and equity injections consisting of cash for the past 365 calendar days; and "Debt Service" shall be defined as all scheduled payments of principal, interest and equipment lease financing payable by the Guarantor and its wholly owned subsidiaries within the next 365 calendar days. 11.7 CURRENT RATIO. The Guarantor and its wholly owned subsidiaries shall maintain a consolidated current ratio of 1.25. For purposes of this Section, "Current Ratio" shall be defined as the Guarantor's and its wholly owned subsidiaries' consolidated current assets divided by their consolidated current liabilities. 11.8 AMENDMENT OF EXISTING LOAN AGREEMENTS. The Borrower and the Guarantor shall execute the documents necessary to effectuate the following amendments to the Existing Loan Agreements: (a) The Minimum Net Worth, Debt to Equity Ratio, Cash Flow-to-Debt Service Ratio, and Current Ratio financial covenants set forth in the Existing Loan Agreements shall be amended so as to income the same terms set forth in each of the Sections 11.4, 11.5, 11.6 and 11.7 of this Loan Agreement; (b) The King Loan Agreement shall be amended to reflect that the financial statements required under Section 7.5 of that agreement are the consolidated financial statements of the Guarantor and its wholly owned subsidiaries; and (c) The King Loan Agreements shall be amended so as to require Borrower to execute a security agreement, plus any documents the bank deems necessary to perfect the security interest granted, pledging as collateral its inventory, accounts, contract rights, and general intangibles. Said security agreement shall contain the same terms as the security agreement executed by Guarantor pursuant to the King Loan Agreement. (d) The King Loan Agreement shall be amended to reflect that the Borrowing Base Certificate required by Section 2.7 of said loan agreement shall be completed using the consolidated accounts receivable and inventory of the Borrower and the Guarantor. 13

(e) Section 9.6 of the King Loan Agreement, Section 14.6 of the Thalitone Loan Agreement and Section 14.6 of the Proctocort Loan Agreement shall be amended so that the terms of each of those sections is identical to the terms set forth in Section 14.6 of this Loan Agreement. (f) Paragraph no. 9 of the security agreement referred to in the Thalitone Loan Agreement and the security agreement referred to in the Proctocort Loan Agreement shall be amended by deleting the second sentence. These amendments shall be effectuated by such documentation as the Bank may reasonably require. 11.9 THE AMENDED KING LOAN AGREEMENT. The King Loan Agreement as amended shall be executed by the Borrower and Guarantor. Borrower shall execute the security agreement that it will be required to provide under the terms of the King Loan Agreement as amended. SECTION 12: NEGATIVE COVENANTS OF BORROWER. 12.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 12.2 The Borrower covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Borrower's assets. Borrower shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, including security interests arising from any Lease Line of Credit, which may include the acquisition of product lines (any such lien shall not extend to the Collateral). Furthermore, this provision shall not impair the ability of the Borrower to acquire property after the Closing Date by means of leases, or sale and lease back transactions. SECTION 13: NEGATIVE COVENANTS OF GUARANTOR. 13.1 The Borrower covenants and agrees that at all times from and after the closing date, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, it will not, either directly or indirectly, sell, lease, transfer, (except within the Borrower's own organization) or dispose (other than in the normal course of business) of all or a substantial part of its business or assets. 13.2 The Guarantor covenants and agrees that at all times from and after the Closing Date, it will not grant anyone other than the Bank a lien against any of Guarantor's assets. Guarantor shall be permitted, however, to grant purchase money liens for the purpose of financing assets acquired after the Closing Date, including security interests arising from any Lease Line of Credit, which may include the acquisition of product lines (any such lien shall not extend to the Collateral). Furthermore, this provision shall not impair the ability of the Guarantor to acquire property after the Closing Date by means of leases, or sale and lease back transactions. SECTION 14: EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following shall occur: 14.1 PAYMENT OF PRINCIPAL INTEREST. The Borrower defaults in the prompt payment as and when due of principal or interest on the Term Note or any fees due under 14

said note, this Loan Agreement or the Agreement; or in the prompt payment when due of any other indebtedness, liabilities, or obligations to the Bank, whether now existing or hereafter created or arising; direct or indirect, absolute or contingent (including but not limited to Borrower's obligations under the Existing Loan Agreements and any amendments thereto); or 14.2 OTHER OBLIGATIONS. The Borrower or Guarantor defaults with respect to any other material agreement to which it is a party or with respect to any other material indebtedness when due or the performance of any other obligation incurred in connection with any material indebtedness for borrowed money ("material" as used herein meaning indebtedness or obligations in excess of $50,000.00) if the effect of such default is to accelerate the maturity of such indebtedness, or if the effect of such default is to permit the holder thereof to cause such indebtedness to become due prior to its stated maturity and the holder has not waived its right to accelerate payment of such indebtedness; or 14.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by the Borrower and/or Guarantor herein, or in any report, certificate, financial statement or other writing furnished in connection with or pursuant to this Loan Agreement shall prove to be false, misleading or incomplete in any material respect on the date as of which made; or 14.4 BANKRUPTCY, ETC. The Borrower and/or Guarantor shall make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application or any such proceeding shall have been commenced against the Borrower and/or Guarantor, in which an order for relief is entered or which remains undismissed for a period of sixty (60) days or more; or the Borrower and/or Guarantor by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties or shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; or Borrower and/or Guarantor shall generally not pay its debts as such debts become due; or 14.5 CONCEALMENT OF PROPERTY, ETC. The Borrower and/or Guarantor shall have concealed, removed, or permitted to be concealed or removed, any part of its property with intent to hinder, delay or defraud its creditors or any of them, or made any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings or distraint which is not vacated within sixty (60) days from the date thereof; or 14.6 CHANGE IN OWNERSHIP. There shall occur any change in the ownership that results in the Gregory Family owning a combined fifty percent (50%) or less of the capital stock of the Guarantor, or fifty percent (50%) or less of the voting power related to the capital stock. For purposes of this section the Gregory Family shall consist of John M. Gregory, Joan P. Gregory, Jefferson J. Gregory, Tern D. White-Gregory, Joseph R. Gregory, Herschel P. Blessing, Mary Ann Blessing, James E. Gregory, Dr. R. Henry Richards, Jeanie Richards, Fred Jarvis, Mary Gregory-Jarvis, S.J. L.L.C., and Kingsway L.L.C., their spouses, lineal descendants (including legally adopted children), heirs, and any trust, foundation or not-for-profit corporation organized and existing for the benefit of any of the foregoing. 15

14.7 COVENANTS. Borrower and/or Guarantor defaults in the performance or observance of any other covenant, agreement or undertaking on its or their part to be performed or observed, contained herein, or in any other instrument or document which now or hereafter evidences or secures all or any part of the Term Loan. 14.8 WITHDRAWAL OR SUSPENSION. The total withdrawal of the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line from the market, or the suspension of said product's registration, product license, manufacturing license, wholesale dealers license, export license or other governmental license, the approval or consent of any governmental regulatory agency with respect to the Cortisporin(R) Product Line and/or the Pediotic(R) Product Line. 14.9 REMEDY. Upon the occurrence of any Event of Default, as specified herein, and the expiration of any applicable cure period, the Bank shall, at its option, thereupon declare the entire unpaid principal balance of the Term Note, all interest accrued and unpaid thereon and all other amounts payable under this Loan Agreement to be immediately due and payable for all purposes, and may exercise all rights and remedies available to it under any other instrument or document which evidences, secures or guaranties the Term Note, or available at law or in equity, including the right to the appointment of a receiver to take possession of the Borrower's and/or Guarantor's property. SECTION 15: MISCELLANEOUS 15.1 AMENDMENTS. The provisions of this Loan Agreement, the Term Note, or any instrument or document executed pursuant hereto or securing or guarantying the indebtednesses, may be amended or modified only by an instrument in writing signed by the parties to said document or instrument. Guarantor need only be a party to an amendment of the Guaranty, and waives notice of any amendment, modification or renewal of the Term Note, this Loan Agreement, or any other instrument or document executed pursuant hereto other than the Guaranty. 15.2 NOTICES. All notices and other communications provided for hereunder shall be in writing and shall be mailed, certified mail, return receipt requested, or delivered by hand. Any such notices and other communications to the Borrower shall be addressed as follows: John M. Gregory Chairman of the Board & CEO Monarch Pharmaceuticals, Inc. 355 Beecham Street Bristol, TN 37620 WITH A COPY TO: John A. A. Bellamy Executive Vice President and General Counsel King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 All such notices and other communications to the Guarantor shall be addressed as follows: John M. Gregory Chairman of the Board & CEO King Pharmaceuticals, Inc. 501 Fifth Street Bristol. TN 37620 16

WITH A COPY TO: John A. A. Bellamy Executive Vice President and General Counsel King Pharmaceuticals, Inc. 501 Fifth Street Bristol, TN 37620 All such notices and other communications to the Bank shall be addressed as follows: Kevin L. Jessee Community Bank President First Tennessee Bank National Association P. O. Box 3189 1155 Volunteer Parkway, Suite 201 Bristol, TN 37625, or as to any such person at such other address as shall be designated by such person in a written notice to the other parties hereto complying as to the delivery with the terms of this Section 10.2. All such notices and other communications shall be effective (i) if mailed, when received or three (3) business days after mailing, whichever is earlier; or (ii) if delivered by hand, upon delivery. 15.3 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege, preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 15.4 INDEMNIFICATION. The Borrower and Guarantor agree to indemnify the Bank from and against any and all claims, losses and liabilities, including, without limitation, reasonable attorneys' fees and expenses, growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Bank's negligence or willful misconduct. The indemnification provided for in this Section shall survive the payment in full of the Term Note. 15.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties made herein shall survive the delivery of the Term Note. This Loan Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest therein. 15.6 GOVERNING LAW. This Loan Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. 15.7 EXECUTION IN COUNTERPARTS. This Loan agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 15.8 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this Loan Agreement, whether used in the masculine, feminine, or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Section headings are for convenience only and neither limit nor amplify the provisions of this Loan Agreement. 17

15.9 ENFORCEABILITY OF AGREEMENT. Should any one or more of the provisions of this Loan Agreement be determined to be illegal or unenforceable, all other provisions, nevertheless, shall remain effective and binding on the parties hereto. 15.10 NON-CONTROL. In no event shall the Bank's rights hereunder be deemed to indicate that the Bank is in control of the business, management or properties of the Borrower and/or Guarantor or has power over the daily management functions and operating decisions made by the Borrower and/or Guarantor. 15.11 FEES AND EXPENSES. Except as otherwise expressly provided herein, the Borrower agrees to reimburse the Bank for all legal fees and expenses, and recording fees and taxes incurred by the Bank in connection with the loan contemplated by this Loan Agreement, including but not limited to such fees and expenses incurred in connection with preparation of amendments to the Existing Loan Agreements and related documentation. Furthermore, the Borrower agrees to pay, or reimburse the Bank for, the actual out-of-pocket expenses, including but not limited to counsel fees and expenses, court costs, accountants fees and expenses, and fees and expenses of similar experts as deemed necessary by the Bank, incurred by the Bank in connection with the enforcement of, or the preservation of any rights under this Loan Agreement, the Term Note, and any instrument or document now or hereafter securing or guarantying said note. The Guaranty shall guaranty the obligations of the Borrower set forth in this section, in addition to the other obligations that may be owing under the terms of this Loan Agreement, the Term Note and the Security Agreement. 15.12 TIME OF ESSENCE. Time is of the essence in this Loan Agreement, the Term Note, and the other instruments and documents executed and delivered in connection herewith. 15.13 LIENS; SETOFF OF BANK. Upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured) and other credits of the Borrower against any and all indebtednesses of the Borrower to the Bank. The Borrower acknowledges the Bank's legal and equitable rights to setoff, appropriate. Furthermore, upon the occurrence of any Event of Default as specified above, the Bank may apply any and all deposits (general or special, matured or unmatured and other credits of the Guarantor against any and all indebtednesses of the Borrower to the Bank covered by the Guaranty. The Guarantor acknowledges the Bank's legal and equitable rights to setoff, appropriate. 15.14 VENUE OF ACTIONS. As an integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Borrower, or by any successor, personal representative or assignee with respect to the Term Note, or this Loan Agreement or any other document or instrument which now or hereafter evidences, secures or guaranties all or any part of the Term Loan, other than in a state court of competent jurisdiction in Sullivan County, Tennessee, or the United States District Court for the Eastern District of Tennessee, and not elsewhere. As a further integral part of the consideration for the making of this Loan Agreement, it is expressly understood and agreed that no suit or action shall be commenced by the Guarantor, or by any successor, personal representative or assignee with respect to the this Loan Agreement, or any other document or instrument which now or hereafter evidences, secures or guaranties all or any part of the Term Loan, other than in a state court of competent jurisdiction in Sullivan County, Tennessee, or in the United States District Court for the Eastern District of Tennessee, and not elsewhere. Nothing in this paragraph contained shall prohibit the Bank from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or in any other comment or instrument which evidences, secures or guaranties the obligations of borrower and/or Guarantor contemplated by this Loan Agreement. 18

15.15 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING 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 AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 15.16 ENTIRE AGREEMENT. This written agreement, the related written documents referred to herein, and any other agreements executed contemporaneously herewith set forth the complete and exclusive statement of the terms of the agreement between the Borrower, Guarantor and the Bank with respect to the loans contemplated by this Loan Agreement. Therefore, no prior written agreements or contemporaneous or prior oral agreements between the parties shall be of any effect with respect to the loan contemplated by this Loan Agreement. IN WITNESS WHEREOF, the Borrower, Guarantor and the Bank have caused this Loan Agreement to be executed by their duly authorized officers, all as of the day and year first above written. MONARCH PHARMACEUTICALS INC.
By:/s/ John M. Gregory ------------------------------John M. Gregory Chairman of the Board & CEO

KING PHARMACEUTICALS, INC.
By:/s/ John M. Gregory ------------------------------John M. Gregory Chairman of the Board & CEO

FIRST TENNESSEE BANK, NATIONAL ASSOCIATION
By:/s/ Kevin L. Jessee ------------------------------Kevin L. Jessee Community Bank President

19

STATE OF TENNESSEE COUNTY OF SULLIVAN Before me, Jane Cartwright, of the state and county mentioned, personally appeared John M. Gregory, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Chairman of the Board & CEO of Monarch Pharmaceuticals Inc. the within named bargainor, a corporation, and that as such Chairman of the Board & CEO, executed the foregoing instrument for the purpose therein contained, by personally signing the name of Monarch Pharmaceuticals, Inc.. Witness my hand and seal, at office in this 20th day of March, 1997.
/s/ Jane Cartwright ---------------------------------Notary Public My commission expires 1-12-99 -------------

STATE OF TENNESSEE COUNTY OF SULLIVAN

Before me, Jane Cartwright, of the state and county mentioned, personally appeared John M. Gregory, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Chairman of the Board & CEO of King Pharmaceuticals, Inc. the within named bargainor, a corporation, and that as such Chairman of the Board & CEO, executed the foregoing instrument for the purpose therein contained, by personally signing the name of King Pharmaceuticals Inc.. Witness my hand and seal, at office in this 20th day of March, 1997.
/s/ Jane Cartwright ---------------------------------Notary Public My commission expires 1-12-99 -------------

STATE 0F TENNESSEE COUNTY OF SULLIVAN Before me, Jane Cartwright, of the state and county mentioned, personally appeared Kevin L. Jessee, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged such person to be the Community Bank President of First Tennessee Bank National Association, the within named bargainor, and that as such Community Bank President, executed the foregoing instrument for the purpose therein contained, by personally signing the name of First Tennessee Bank National Association. Witness my hand and seal, at office in this 20th day of March, 1997.
/s/ Jane Cartwright ---------------------------------Notary Public My commission expires 1-12-99 -------------

20

PROMISSORY NOTE (Business or Commercial Loan)
-----------------------Approval $5,000,000.00 Bristol, Tennessee March 20, 1997

FOR VALUE RECEIVED, the undersigned (jointly and severally, if more than one) promise(s) to pay to the order of First Tennessee Bank National Association (hereinafter referred to as the "Bank") at any lending office in the state mentioned above or at such other place as the holder hereof may designate in writing, in current local funds, the sum of: Five Million and no/00****Dollars [ ] DISCOUNTED: Including interest, due on __________, 19 ____. [X] INTEREST BEARING: Plus interest from date until maturity on the unpaid principal balance of this Note at the rate of: [ ] FIXED RATE: __% per annum, [X] VARIABLE RATE: A variable rate per annum ("Variable Rate") which shall be equal to the lesser of (a) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (b) a rate which is ___% per annum higher than the base commercial rate of interest ("Base Rate") established from time to time by Bank. Each change in the Variable Rate which results from a change in the Maximum Rate shall become effective, without notice to the undersigned, on the same date that the Maximum Rate changes. Each change in the Variable Rate which results from a change in the Base Rate shall become effective, without notice to the undersigned, on [ ] the same date that the Base Rate changes; [ ] the first day of the calendar month following any change in the Base Rate; [ ] the first day of the calendar quarter following any change in the Base Rate; [ ] other __________________. The Base Rate is one of several interest rate indices employed by the Bank. The undersigned acknowledge(s) that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. Such principal and interest shall be payable as shown below: [ ] SINGLE PRINCIPAL PAYMENT: One single principal payment of the balance, due on _____, 19__ plus interest payable [ ] at maturity. [ ] beginning _____, 19 __ and continuing on the same day of each successive [ ] monthly or [ ] quarterly calendar period, except that the final interest installment shall be payable on the date the principal is due. [X] MULTIPLE PRINCIPAL PAYMENTS: 35 payments of $138,888.89 each, plus a final payment for the balance then owing, beginning last day of April, 1997, and continuing on the same day of each successive [x] monthly or [ ] quarterly calendar period. Accrued interest is [ ] included in each of the above payments; or [X] payable in addition to such payments on the above payment dates. [ ] OTHER:

SECURITY: Except as otherwise provided herein, as of the date hereof, [ ] This Note is secured by a mortgage(s) or deed(s) of trust dated

[X] This Note is secured by security agreements(s) dated March 20, 1997 OTHER TERMS AND CONDITIONS: Unless otherwise provided herein, all payments shall be applied first to pay the accrued interest to date on the unpaid balance and next to the unpaid principal of the indebtedness. Any payment not made when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the maximum effective contract rate of interest which the Bank may lawfully charge on the date such payment became due. If this Note is placed in the hands of an attorney for collection, but suit or otherwise, or to protect any security given for its payment, or to enforce its collection, the undersigned will pay all the costs of collection and litigation, together with a reasonable attorney's fee, all of which shall be secured by any collateral pledged as security herefor. The undersigned also agrees to pay any and all actual expenses including reasonable attorney's fees incurred by Bank in (i) successfully defending any action or inaction in connection with any aspect of the transaction evidenced by this instrument, or (ii) any action, whether or not successful, taken to protect or enforce Bank's rights in any collateral related to the transaction evidenced by this instrument. The maker(s) and any endorsers or guarantors hereof waive protest, demand, presentment, and notice of dishonor, and agree that this Note may be extended, in whole or in part, without limit as to the number of such extensions, or the period or periods thereof, and without notice to or further assent from them or any other party liable hereon, all of whom will remain bound upon this Note notwithstanding any such extension(s); and further agree that all or any collateral given, now or hereafter, as security herefor may be released (with or without

substitution) without notice and without affecting their liability hereon; and that additional makers, endorsers, guarantors, or sureties may become parties hereto, and that any present or future party may be released from liability hereunder, without notice, and without affecting the liability of any other maker, endorser, or guarantor. In the event of any default in the prompt and punctual payment, when due, of this Note (or any installment hereof, whether of principal, interest, or principal and interest), or if the undersigned, or any other party liable hereon, should become insolvent (as defined in the Uniform Commercial Code), or if a petition in bankruptcy be filed by or against any of the undersigned or any other party liable hereon, or if a receiver be appointed for any part of the property or assets of the undersigned or any party liable hereon, or if any assignment for the benefit of creditors be made by the undersigned, or any other party liable hereon, or if a judgment be entered against the undersigned, or any other party liable hereon, or upon the issuance of any writ, levy or process, valid or invalid which purports to restrict the undersigned or any other party liable hereon, with respect to any of his/her or their funds of property on deposit with or in the possession or custody or under the control of the Bank, or upon the death or dissolution of any party liable hereon, or in the event of any default in the prompt and punctual payment when due, or any other indebtedness or obligation to the Bank owed, now or hereafter, by parties liable hereon, or upon any default in any deed of trust, mortgage, security agreement, assignment of other security document given, now or hereafter, to secure the indebtedness evidenced hereby, or if any representation or warranty made by the undersigned pertaining to this credit shall prove to be false, untrue, or materially misleading, or in the event that the Bank shall deem itself insecure, then and in any of such events, this Note shall, without notice or demand for payment (the same being expressly waived), be and become immediately due and payable for all purposes, at the option of the Bank. Any money or other property at any time in the possession of the Bank belonging to any party liable hereon, and any deposits or other sums at any time credited by or due from the Bank to any other party liable hereon, may at all times, at the option of the Bank, be held and treated as collateral security for the payment of this Note or any other liability of any of the undersigned, or any other party in any manner liable hereon to the Bank, whether due or not due. The Bank may, at any time, at its option, and without notice, set off the amount due or to become due hereon against the claim of any of said parties against the Bank. To effect these rights, the undersigned and all other parties liable hereon agree, upon request by the Bank, immediately to endorse, sign, and execute all necessary instruments, and do hereby appoint the Bank (acting through any then officer thereof) as attorney-in-fact for them with authority to endorse any instrument requiring endorsement and to effect any transfer, and this appointment shall be irrevocable as long as the undersigned, or any other party liable hereon, shall be indebted to the Bank. The undersigned agrees to furnish a current financial statement upon the request of Bank from time to time, and further agrees to execute and deliver all other instruments and take such other actions as Bank may from time to time reasonably request in order to carry out the provisions and intent hereof. In the event of any renewal or extension of the loan indebtedness evidenced hereby, unless the parties otherwise agree to a lower rate, the Bank shall have the right to charge interest at the highest of the following rates: (i) the maximum rate permissible at the time the contract to make the loan was executed; or (ii) the maximum rate permissible at the time the loan was made; or (iii) the maximum rate permissible at the time of such renewal or extension; or (iv) the maximum rate permitted by applicable federal law; it being intended that those statutes and laws, state or federal, from time to time in effect, which permit the charging of the higher rate of interest shall govern the maximum rate which may be charged hereunder. In the event that for any reason the foregoing provisions hereof shall not contain a valid, enforceable designation of a rate of interest prior to maturity or method of determining the same, then (unless this Note is a discounted, single-payment note) the indebtedness hereby evidenced shall bear interest prior to maturity at the maximum effective rate which may be lawfully charged by the Bank under applicable law. Regardless of any provision herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect, or apply, as interest hereon, any amount in excess of the maximum contract rate which may be lawfully charged by the holder hereof under applicable law; and in the event the holder hereof ever receives, collects, or applies as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to the undersigned. In determining whether or not the interest paid of payable, under any specific contingency, exceeds the maximum lawful contract rate, the undersigned and the holder hereof shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as a reasonable loan charge, rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire contemplated term hereof, so that the interest accrued or to accrue throughout the entire term contemplated hereby shall at no time exceed the maximum lawful contract rate. The undersigned jointly and severally waive(s) any right to a trial by jury in any action or proceeding to enforce or defend any rights under this agreement or under any amendment, instrument, document or agreement delivered (or which may in the future be delivered) in connection herewith or arising from any banking relationship existing in connection with this agreement. The undersigned agree(s) that any such action or proceeding shall be tried before a court and not before a jury. Monarch Pharmaceuticals, Inc.
By: /s/ John M. Gregory ----------------------------Chairman & CEO -----------------------------

ALLONGE TO PROMISSORY NOTE DATED MARCH 20, 1997 IN THE AMOUNT OF $5,000,000.00 (THE "NOTE") EXECUTED BY THE UNDERSIGNED TO THE ORDER OF FIRST TENNESSEE BANK NATIONAL ASSOCIATION ("BANK") (FOR USE WITH BLUE, GREEN AND WHITE NOTES ONLY - NEW LOAN) 1. The undersigned understands and agrees that the terms of the Note relating to the interest rate shall be modified by deleting the paragraph of the Note entitled Variable Rate in its entirety and replacing it with the following: [X] Variable Rate: A variable rate per annum ("Variable Rate") based on a [ ] three hundred and sixty (360) [X] three hundred and sixty-five (365) day year which shall be equal to the lesser of (i) the maximum rate of interest ("Maximum Rate") which Bank may lawfully charge, or (ii) a rate which is 1.75 percent (1.75%) per annum higher than the LIBOR Rate (as hereinafter defined), adjusted and determined as of the opening of business on March 20, 1997 (the "Initial Pricing Date") and on the 20th day of every third month hereafter (each an "Interest Rate Change Date"). The LIBOR Rate shall mean the London Interbank Offered Rate of interest for an interest period of three (3) months, as reported in The Wall Street Journal published on each Interest Rate Change Date. Each change in the Variable Rate which results from a change in the LIBOR Rate shall become effective, without notice to the undersigned, on each Interest Rate Change Date; provided, however, that if The Wall Street Journal is not published on such date, the LIBOR Rate shall be determined by reference to The Wall Street Journal last published immediately preceding such date. In the event that at any time prior to maturity the rate of interest specified in clause (ii) above (determined as of the dates when changes become effective above) shall exceed the Maximum Rate, Bank may, at its option and without notice to the undersigned, charge interest at the Maximum Rate for the entire term of the loan and all unpaid interest then accrued at said Maximum Rate shall be due and payable ten (10) days following the date upon which Bank notifies the undersigned of the amount of such accrued but unpaid interest. (The three (3) month LIBOR Rate quoted in The Wall Street Journal published on the Initial Pricing Date is 5.64 percent (__%) per annum.) The privilege is reserved to prepay this Note in whole or in part, prior to maturity, without premium or penalty. Notwithstanding any other provisions herein, if any Change in Law (as hereinafter defined) shall make it unlawful for the Bank to make or maintain a LIBOR Rate loan as contemplated by this Note, the principal outstanding hereunder shall, if required by law and if the Bank so requests, be converted on the date required to make the loan evidenced by this Note legal to a loan accruing interest at the lesser of the Maximum Rate or the base commercial rate of interest ("Base Rate") established from time to time by the Bank. Each change in the Base Rate shall become effective, without notice to the undersigned, on the same date that the Base Rate changes. The undersigned hereby agrees promptly to pay the Bank, upon demand, any costs incurred by the Bank in making any conversion in accordance with this paragraph, including any interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain its LIBOR Rate loans. The undersigned acknowledges that the Base Rate is one of several interest rate indices employed by the Bank and that the Bank has made, and may hereafter make, loans bearing interest at rates which are higher or lower than the Base Rate. The undersigned hereby indemnifies the Bank and holds the Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of (i) a default by the undersigned in payment of the principal amount of or interest on the loan evidenced hereby, including any such loss or expense arising from interest or fees payable by the Bank to lenders of funds obtained by it in order to make or maintain its LIBOR Rate loans, or (ii) a Change in Law that results in the imposition on the Bank of reserve requirements in connection with LIBOR Rate loans made by the Bank. The undersigned will make any payments under this indemnity to Bank, upon demand. The undersigned further agrees to enter into a modification of this Note, at the request of the Bank, to bring this Note into compliance with any Change in Law. "Change in Law" shall mean the adoption of any law, rule, regulation, policy, guideline or directive (whether or not having the force of law) or any change therein or in the interpretation or application thereof, in all cases by any Governmental Authority having jurisdiction over the Bank, in each case after the date hereof.

"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising regulatory functions of or pertaining to government. 2. The provisions hereof shall be binding upon the undersigned, his/her heirs, executors, administrators, personal representatives, successors and assigns, and shall inure to the benefit of the Bank, its successors and assigns.

INDIVIDUAL BORROWER MONARCH PHARMACEUTICALS, INC.
By: /s/ John M. Gregory ------------------------------------Title: CHAIRMAN AND CEO ---------------------------------BUSINESS ENTITY BORROWER

EXHIBIT 10.10 LOAN AND SECURITY AGREEMENT BY AND BETWEEN KING PHARMACEUTICALS, INC., AS BORROWER AND FIRST AMERICAN NATIONAL BANK, AS LENDER $4,000,000 AUGUST 21, 1997

TABLE OF CONTENTS LOAN AND SECURITY AGREEMENT
ARTICLE I - DEFINITION OF TERMS Section 1.01. Definitions ........................................... 1 Section 1.02. Other Definitional Provisions ......................... 6 ARTICLE II - CREDIT FACILITIES Section 2.01 Revolving Commitments.................................. Section 2.02 Manner of Borrowing.................................... (a) Authorization to make Advances......................... (b) Notice Irrevocable..................................... (c) Funding................................................ Section 2.03 Fees................................................... Section 2.04 Extension of Commitment Period......................... Section 2.05 Term Loan.............................................. Section 2.06 Use of Proceeds........................................ ARTICLE III - NOTES AND Section 3.01 Section 3.02 Section 3.03 Section 3.04 Section 3.05 NOTE PAYMENTS Revolving Credit Notes................................. Interest Rates......................................... Calculation of Interest Rates.......................... Manner and Application of Payments..................... Term Promissory Note................................... 7 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 9 9 9 10 10 10 10 10 10 10 10 11 11 11 11 11 11

ARTICLE IV - CONDITIONS PRECEDENT Section 4.01 Initial Advances....................................... (a) Revolving Credit Note..................................... (b) Term Promissory Note...................................... (c) Opinion of Borrower's Counsel............................. (d) Officers' Certificate..................................... (e) Resolutions of Borrower................................... (f) Incumbency Certificate of Borrower........................ (g) Certificates.............................................. (h) Charter and Bylaws........................................ (i) Operating Budget.......................................... (j) Financial Information..................................... (k) Collateral Documents...................................... (l) Litigation................................................ (m) Insurance................................................. (n) Additional Information.................................... Section 4.02 (a) (b) (c) (d) All Advances No Defaults............................................... Compliance with Agreement................................. No Material Adverse Change................................ Representations and Warranties............................

i

(e) (f)

Financial Statements.......................................... 11 Bankruptcy Proceedings........................................ 11

ARTICLE V - SECURITY INTERESTS Section 5.01 Grant of Security Interests................................ 12 Section 5.02 Filings.................................................... 12 ARTICLE VI - REPRESENTATIONS AND WARRANTIES Section 6.01 Organization and Good Standing............................. Section 6.02 Authorization and Power.................................... Section 6.03 No Conflicts or Consents................................... Section 6.04 Enforceable Obligations.................................... Section 6.05 No Liens................................................... Section 6.06 Financial Condition........................................ Section 6.07 Full Disclosure............................................ Section 6.08 No Default................................................. Section 6.09 Material Agreements........................................ Section 6.10 No Litigation.............................................. Section 6.11 Burdensome Contracts....................................... Section 6.12 Regulatory Defects......................................... Section 6.13 Use of Proceeds; Margin Stock.............................. Section 6.14 No Financing of Corporate Takeovers........................ Section 6.15 Taxes...................................................... Section 6.16 Principal Office, Etc...................................... Section 6.17 ERISA...................................................... Section 6.18 Compliance with Law........................................ Section 6.19 Government Regulation...................................... Section 6.20 Insider.................................................... Section 6.21 Subsidiaries............................................... Section 6.22 Fair Labor Standards Act................................... Section 6.23 Casualties................................................. Section 6.24 Investment Company Act..................................... Section 6.25 Sufficiency of Capital..................................... Section 6.26 Hazardous Substances....................................... Section 6.27 Collateral Documents; Description of Assets................ Section 6.28 Corporate Name............................................. Section 6.29 Representations and Warranties............................. Section 6.30 Survival of Representations and Warranties................. ARTICLE VII - AFFIRMATIVE COVENANTS Section 7.01 Financial Statements, Reports and Documents................ (a) Quarterly Statements.......................................... (b) Annual Statements............................................. (c) Audit Reports................................................. (d) Other Reports................................................. (e) Compliance Certificate........................................ (f) Accountants Certificates...................................... (g) Other Information............................................. Section 7.02 Section 7.03 13 13 13 13 13 13 14 14 14 14 14 14 14 14 15 15 15 15 15 15 15 16 16 16 16 16 16 16 16 17 17 17 17 17 18 18 18 18

Payment of Taxes and Other Indebtedness.................... 18 Maintenance of Existence and Rights; Conduct of Business... 18

ii

Section Section Section Section Section Section Section Section Section Section Section Section Section

7.04 7.05 7.06 7.07 7.08 7.09 7.10 7.11 7.12 7.13 7.14 7.17 7.18

Notice of Default.............................................................. Other Notices ................................................................. Compliance with Loan Documents................................................. Compliance with Material Agreements............................................ Operations and Properties...................................................... Books and Records; Access...................................................... Compliance with Law............................................................ Insurance...................................................................... Authorizations and Approvals................................................... ERISA Compliance............................................................... Further Assurances............................................................. Minimum Net Worth.............................................................. Indemnity by Borrower..........................................................

19 19 19 19 19 19 19 19 19 19 20 20 20

ARTICLE VIII - NEGATIVE COVENANT Section 8.01 Limitation on Indebtedness..................................................... 21 Section 8.02 Negative Pledge................................................................ 21 Section 8.03 Restrictions on Dividends...................................................... 21 Section 8.04 Limitation on Investments...................................................... 21 Section 8.05 Limitation on Sale of Properties............................................... 22 Section 8.06 Name, Fiscal Year and Accounting Method........................................ 22 Section 8.07 Current Ratio.................................................................. 22 Section 8.08 Debt to Net Worth Ratio........................................................ 22 Section 8.09 Cash Flow Coverage............................................................. 22 Section 8.10 Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets............................................................. 22 Section 8.11 Lines of Business.............................................................. 22 Section 8.12 No Amendments.................................................................. 22 Section 8.13 Purchase of Substantial Assets................................................. 22 ARTICLE IX - EVENTS OF DEFAULT Section 9.01 Events of Default.............................................................. 22 Section 9.02 Remedies Upon Event of Default................................................. 24 Section 9.03 Performance by Lender.......................................................... 24 ARTICLE IX - MISCELLANEOUS Section 10.01 Modification................................................................... Section 10.02 Accounting Terms and Reports................................................... Section 10.03 Waiver......................................................................... Section 10.04 Payment of Expenses............................................................ Section 10.05 Notices........................................................................ Section 10.06 Governing Law.................................................................. Section 10.07 Waiver of Jury Trial; Choice of Forum; Consent to Service of Process and Jurisdiction....................................................... Section 10.08 Invalid Provisions............................................................. Section 10.09 Maximum Interest Rate.......................................................... Section 10.10 Confidentiality................................................................ Section 10.11 Nonliability of Lender......................................................... Section 10.12 Offset......................................................................... Section 10.13 Binding Effect................................................................. Section 10.14 Entirety....................................................................... 25 25 25 25 25 26 27 27 27 27 28 28 28 28

iii

Section Section Section Section Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit

10.15 10.16 10.17 10.18

Headings................................................................. Survival................................................................. No Third Party Beneficiary............................................... Multiple Counterparts....................................................

28 28 28 28 31 34 36 38 39 40 41 42 43

A................................................................................. A2................................................................................ B................................................................................. C................................................................................. D................................................................................. E................................................................................. F................................................................................. G................................................................................. H.................................................................................

iv

LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is hereby made and entered into on this the 21st day of August, 1997 by and between KING PHARMACEUTICALS, INC., a Tennessee corporation (hereinafter called "Borrower"), and FIRST AMERICAN NATIONAL BANK (hereinafter called "Lender"). WITNESSETH: WHEREAS, Borrower has requested that Lender enter into certain financing arrangements with Borrower pursuant to which Lender may make loans to Borrower; and WHEREAS, Lender is willing to make such loans to Borrower upon the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITION OF TERMS SECTION 1.01. Definitions. For the purposes of this Agreement, unless the context otherwise requires, the following terms shall have the respective meanings assigned to them in this ARTICLE I or in the Section or recital referred to below: "Accounts" shall have the meaning assigned to such term in Section 9-106 of the Uniform Commercial Code. "Advance" shall mean a loan (except the Term Loan made hereunder) made from time to time by Lender to Borrower pursuant to the Loan Documents; "Advances" shall mean all of such loans. "Affiliate" of any Person shall mean any other Person directly or indirectly, controlling, controlled by, or under common control with, such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Shares or by contract or otherwise. "Agreement" shall have the meaning assigned to such term in the preamble hereof. "Borrower" shall mean King Pharmaceuticals, Inc., a Tennessee corporation and any permitted successors and assigns. "Business Day" shall mean any day except a Saturday, Sunday or other day on which Lender is normally and customarily closed. "Code" shall mean the Internal Revenue Code of 1986, as amended.

"Collateral" shall mean all of the property which is subject or is to be subject to the Liens as provided in ARTICLE V, of this Agreement. "Collateral Documents" shall mean all mortgages, deeds of trust, security agreements, pledge agreements, guaranty agreements, notes, financing statements, fixture filings and any other agreements, documents or instruments executed or delivered to evidence and/or secure repayment of the Obligation or any part thereof. "Commitment" shall mean the obligation of Lender to extend credit to Borrower under this Agreement in an aggregate principal amount not to exceed Lender's Committed Sum. "Commitment Period" shall mean the period beginning on the date hereof and ending on the earlier of (i) the Commitment Termination Date, or (ii) the date on which Lender terminates its Commitments after the occurrence of an Event of Default. "Committed Sum" shall mean the sum of exactly Two Million Nine Hundred Seventy Five Thousand Dollars ($2,975,000). "Commitment Termination Date" shall mean August 20, 2000 or, if such date is not a Business Day, the Business Day next preceding such date. "Current Assets" shall mean, as of any date, the current assets which would be reflected on the balance sheet of Borrower prepared as of such date in accordance with Generally Accepted Accounting Principles, but excluding (i) all Accounts in respect of products, goods and/or services which were delivered or performed by Borrower more than one hundred and twenty (120) days prior to such date, and (ii) intangible assets. "Current Liabilities" shall mean, as of any date, the current liabilities which would be reflected on the balance sheet of Borrower prepared as of such date in accordance with Generally Accepted Accounting Principles. "Controlled Group" shall mean (i) the controlled group of corporations as defined in Code Section 1563, or (ii) the group of trades or businesses under common control as defined in Code Section 414(c) of which Borrower is a part or may become a part. "Debtor Laws" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or similar laws from time to time in effect affecting the rights of creditors generally. "Default" shall mean any of the events specified in ARTICLE IX of this Agreement, regardless of whether there shall have occurred any passage of time or giving of notice or both that would be necessary in order to constitute such event an Event of Default. "Dividends" shall mean (i) cash distributions or any other distributions on, or in respect of, any class of capital stock of Borrower, except for distributions made solely in shares of stock of the same class, and (ii) any and all funds, cash or other payments made in respect of the redemption, repurchase or acquisition of such stock, unless such stock shall be redeemed or acquired through the exchange of such stock with stock of the same class. "Dollars" and the sign "$" shall refer to currency of the United States of America. 2

"Earnings Before Interest Taxes Depreciation and Amortization" shall mean for any period, the sum of (i) the income (or deficit) of Borrower before provision for income taxes for such period, plus (ii) interest expense for such period, plus (iii) all amounts in respect of depreciation and amortization for such period. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, together with all regulations issued pursuant thereto. "Event of Default" shall have the meaning assigned to such term in SECTION 9.01 of this Agreement "Generally Accepted Accounting Principles" shall mean those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the date hereof so as to properly reflect the financial condition, and the results of operations and changes in financial position, of Borrower, except that any accounting principle or practice required to be changed by the said Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of the said Boards) in order to continue as a generally accepted accounting principle or practice may so be changed. In the event of a change in Generally Accepted Accounting Principles, Lender and Borrower will thereafter negotiate in good faith to revise any covenants of this Agreement affected thereby in order to make such covenants consistent with Generally Accepted Accounting Principles then in effect. "Governmental Authority" shall mean any government (or any political subdivision or jurisdiction thereof), court, bureau, agency or other governmental authority having jurisdiction over Borrower or any of its business, operations or properties. "Indebtedness" shall mean all indebtedness, obligations and liabilities of Borrower, including without limitation (i) all "liabilities" which would be reflected on a balance sheet of Borrower, prepared in accordance with Generally Accepted Accounting Principles, (ii) all obligations of Borrower in respect of any guaranty, (iii) all obligations of Borrower in respect of any capital lease, (iv) all obligations, indebtedness and liabilities secured by any lien or any security interest on any property or assets of such Person, and (v) all redeemable preferred stock of Borrower valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends. "Lender" shall mean First American National Bank. "LIBOR" shall mean, for each interest period, the rate per annum offered to the Lender (at approximately 11:00 A.M. London time, on the date two Business Days in London prior to the first day of such interest period) by prime banks in the London Interbank Market for deposits of Dollars for a period equal to the length of such interest period and in an amount of the Advances which have been made (or will be made) by Lender to Borrower hereunder and are scheduled to be outstanding during such interest period. Each determination of the LIBOR by Lender shall, in the absence of manifest error, be conclusive and binding. "Lien" shall mean any lien, mortgage, deed of trust, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other interest in property 3

designed to secure the repayment of Indebtedness, whether arising by agreement or under any statute or law, or otherwise "Loan Documents" shall mean this Agreement, the Revolving Credit Note (including any renewals, extensions and refundings thereof), the Term Promissory Note, the Collateral Documents and any agreements or documents (and with respect to this Agreement, and such other agreements and documents, any amendments or supplements thereto or modifications thereof) executed or delivered pursuant to the terms of this Agreement. "Material Adverse Effect" means any (i) material adverse effect whatsoever upon the validity, performance or enforceability of any Loan Documents, (ii) material adverse effect upon the financial condition or business operations of Borrower, (iii) material adverse effect upon the ability of Borrower to fulfill its obligations under the Loan Documents, or (iv) causes an Event of Default or any event which, with notice or lapse of time or both, could become an Event of Default. "Maximum Rate" shall mean, on any day, the highest nonusurious rate of interest (if any) permitted by applicable law on such day that at any time, or from time to time, may be contracted for, taken, reserved, charged or received on the Indebtedness evidenced by the Revolving Credit Note and/or Term Promissory Note under the laws which are presently in effect of the United States of America and the State of Tennessee applicable to the holders of the Revolving Credit Note and/or Term Promissory Note and such Indebtedness or, to the extent permitted by law, under such applicable laws of the United States of America and the State of Tennessee which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Net Worth" shall mean, as of any date, the total shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock) which would appear on the balance sheet of Borrower and prepared as of such date in accordance with Generally Accepted Accounting Principles. "Notice of Borrowing" shall mean any telephonic or other instructions received from any person purporting to an officer of Borrower or other authorized person. "Obligation" shall mean (i) all present and future indebtedness, obligations and liabilities of Borrower to Lender arising pursuant to this Agreement, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, joint, several, or joint and several; (ii) all present and future indebtedness, obligations and liabilities of Borrower to Lender arising pursuant to or represented by the Revolving Credit Note and/or Term Promissory Note and all interest accruing thereon, and attorneys' fees incurred in the enforcement or collection thereof; (iii) all present and future indebtedness, obligations and liabilities of Borrower evidenced by or arising pursuant to any of the Loan Documents' (iv) all costs incurred by Lender to obtain, preserve, perfect and enforce the liens and security interests securing payment of such indebtedness, liabilities and obligations, and to maintain, preserve and collect the property in which Lender have been granted a Lien to secure 4

payment of the Loans, or any part thereof, including but not limited to, taxes, assessments, insurance premiums, repairs, reasonable attorneys' fees and legal expenses, rent, storage charges, advertising costs, brokerage fees and expenses of sale; and (v) all renewals, extensions and modifications of the indebtedness referred to in the foregoing clauses, or any part thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation, and any successor to all or any of the Pension Benefit Guaranty Corporation's functions under ERISA. "Permitted Liens" shall mean: (i) Liens (if any) granted to Lender to secure the Obligation, (ii) Liens described on EXHIBIT H attached hereto, (iii) pledges or deposits made to secure payment of worker's compensation insurance (or to participate in any fund in connection with worker's compensation insurance), unemployment insurance, pensions or social security programs, (iv) Liens imposed by mandatory provisions of law such as for materialmen's, mechanics', warehousemen's and other like Liens arising in the ordinary course of business, securing Indebtedness whose payment is not yet due, (v) Liens for taxes, assessments and governmental charges or levies imposed upon a Person or upon such Person's income or profits or property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate cash reserves have been provided, (vi) Liens arising from good faith deposits in connection with tenders, leases, real estate bids or contracts (other than contracts involving the borrowing of money), pledges or deposits to secure public or statutory obligations and deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to secure the payment of taxes, assessments, customs duties or other similar charges, or (vii) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such items do not impair the use of such property for the purposes intended, and none of which is violated by existing or proposed structures or land use. "Person" shall include an individual, a corporation (including without limitation Borrower), a joint venture, a general or limited partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. "Plan" shall mean an employee benefit plan or other plan maintained by Borrower for employees of Borrower and covered by Title IV of ERISA, or subject to the minimum funding standards under Section 412 of the Code of 1954, as amended "Process Agent" shall mean John A. Bellamy whose address is 501 Fifth Street, Bristol, Tennessee 37620. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System 12 C.F.R. Part 204, or any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 207, or any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" shall mean Regulation U promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any successor or other regulation hereafter 5

promulgated by said Board to replace the prior Regulation U and having substantially the same function. "Regulation X" shall mean Regulation X promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any successor or other regulation hereafter promulgated by said Board to replace the prior Regulation X and having substantially the same function. "Reportable Event" shall have the meaning assigned to such term in Title IV of ERISA. "Revolving Credit Note" shall mean the note executed by Borrower and delivered pursuant to the terms of this Agreement, together with any renewals, extensions or modifications thereof. "Solvent" means, with respect to any Person on a particular date, that on such date (i) 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, (ii) 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, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) 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, and (v) such Person is not engaged in business or a transaction, and is not about to engage in 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. 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. "Term Loan" shall mean the loans now or hereafter made by Lender to or for the benefit of Borrower as provided in SECTION 2.05 hereof. "Term Promissory Note" shall mean that certain Term Promissory Note dated of even date herewith by Borrower in favor of Lender in the original principal amount of One Million Twenty Five Thousand Dollars ($1,025,000). "Voting Shares" of any corporation shall mean shares of any class or classes (however designated) having ordinary voting power for the election of at least a majority of the members of the Board of Directors (or other governing bodies) of such corporation, other than shares having such power only by reason of the happening of a contingency. SECTION 1.02. Other Definitional Provisions. (a) All terms defined in this Agreement shall have the above-defined meanings when used in the Revolving Credit Note, Term Promissory Note or any Loan Documents, certificate, report or other document made or delivered pursuant to this Loan Agreement, unless the context therein shall otherwise require. (b) Defined terms used herein in the singular shall import the plural ant vice-versa. 6

(c) The words "hereof," "herein," "hereunder" and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement ARTICLE II CREDIT FACILITIES SECTION 2.01. Revolving Commitments. Subject to the terms and conditions of this Agreement (and on reliance upon the representations and warranties made hereunder), Lender agrees to lend to Borrower on a revolving basis in one or more Advances from time to time during the Commitment Period an aggregate principal amount not to exceed the Committed Sum. In the event that the outstanding principal of Advances shall at any time exceed the limitations herein, all such Advances shall nonetheless be secured by the Collateral and shall be entitled to all the benefits of this Agreement. Within the limits of this Section 2.01 and subject to the other terms and conditions of this Agreement, during the Commitment Period Borrower may borrow, repay and reborrow in accordance with the terms and conditions of this Agreement. SECTION 2.02. Manner of Borrowing. (a) Authorization to make Advances. Lender is authorized to make the Advances based upon any Notice of Borrowing or, at the discretion of Lender, if such Advances are necessary to satisfy any Obligation. All Notice of Borrowing hereunder shall specify the date on which the requested Advance is to be made (which day shall be a Business Day) and the amount of the requested Advances. Any Notice of Borrowing received after 11:00 A.M. Kingsport, Tennessee time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Advances under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrower when deposited to the credit of Borrower or otherwise disbursed or established in accordance with the instructions of Borrower or in accordance with the terms and conditions of this Agreement. (b) Notice Irrevocable. Each Notice of Borrowing shall be irrevocable and binding on Borrower, and Borrower shall indemnify Lender against any cost, loss or expense incurred by Lender as a result of any failure to fulfill, on or before the date specified for an Advance, the conditions to such Advance set forth herein, including without limitation, any cost, loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Lender to fund the Advance to be made by Lender. (c) Funding. After receiving a Notice of Borrowing in the manner provided herein, Lender shall, before 7:00 p.m. Kingsport, Tennessee time on the date an Advance is requested as specified in a Notice of Borrowing, deposit in the account(s) designated by Borrower, pursuant to the terms and conditions of this Agreement, such Advance in immediately available funds. SECTION 2.03. Fees. Borrower shall pay an unused credit fee for the Commitment Period computed at a rate per annum (based on a year of 365 or 366 days, as the case may be) equal to (a) one quarter percent (.25%) on the average daily unborrowed amount of Lender's Committed Sum in effect during the period for which payment is made. Such commitment fees 7

shall be payable quarterly in arrears on the last day of each March, June, September and December during the Commitment Period, on the date of termination of the Commitment of Lender hereunder, and on the Commitment Termination Date. SECTION 2.04. Extension of Commitment Period. The Commitment Period shall expire automatically unless Borrower makes a written request to Lender not later than thirty (30) days prior to the expiration of the Commitment Period and such request is approved in writing by Lender prior to the expiration of the Commitment Period. The right of Lender not to extend the Commitment Period shall be unconditional and within its sole discretion, notwithstanding that no Event of Default exists under this Agreement and the Loan Documents and regardless of the adequacy of the Collateral for Borrower's performance of its obligations hereunder and thereunder. SECTION 2.05. Term Loan. Lender is making a Term Loan to Borrower in the original principal amount of One Million Twenty Five Thousand Dollars ($1,025,000). The Term Loan is (i) evidenced by a Term Promissory Note in such original principal amount duly executed and delivered by Borrower to Lender concurrently herewith; (ii) to be repaid, together with interest and other amounts, in accordance with this Agreement, the Term Promissory Note, and the other Collateral Documents and (iii) secured by a deed of trust on the collateral subordinate only to the deed of trust securing the Advances made pursuant to this Agreement. Notwithstanding anything herein to the contrary, the Term Loan, together with all interest thereon, shall become immediately due and payable from the proceeds of any public offering made by Borrower. , SECTION 2.06. Use of Proceeds. Subject to this Agreement and the Loan Documents, the proceeds of each Advance and the Term Loan shall be used to assist in the acquisition of the "Cortisporin" product line and for the general corporate purposes of Borrower. ARTICLE III NOTES AND NOTE PAYMENTS SECTION 3.01. Revolving Credit Note. The Advances made under SECTION 2.01 hereof by Lender shall be evidenced by a promissory note ("Revolving Credit Note") executed by Borrower, which Revolving Credit Note shall (i) be dated the date hereof, (ii) be in the amount of Lender's Committed Sum, (iii) be payable to the order of Lender at its office in Kingsport, Tennessee, (iv) bear interest in accordance with SECTION 3.02 hereof, and (v) be in the form of EXHIBIT A attached hereto, and which is incorporated fully herein by this reference, with blanks appropriately completed in conformity herewith. Notwithstanding the principal amount of the Revolving Credit Note as stated on the face thereof, the amount of principal actually owing on such Revolving Credit Note at any given time shall be the aggregate of the principal amount of all Advances theretofore made to Borrower hereunder, less all payments of principal theretofore actually received hereunder by Lender. SECTION 3.02. Interest Rates. Interest shall accrue on average daily outstanding principal balance of Advances at a rate per annum equal to the sum of ninety (90) days LIBOR plus one and three quarters percent (1.75%) for such day. Interest shall be paid by Borrower monthly in arrears on the first day of each month and shall be paid by Lender charging Borrower's Advance account. The final payment of all accrued and unpaid interest shall be due and payable on the date the outstanding principal amount of the Advances is paid or due and payable in full. In the event of a Default, the Advances shall bear interest on the 8

outstanding principal amount thereof, for each day from the date of the Default until the Advances are paid, at a rate equal to the Maximum Rate. SECTION 3.03. Calculation of Interest Rates. Interest for Advances hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 3.04. Manner and Application of Payments. Absent a Default or an Event of Default, the outstanding principal amount of the Advances (together with accrued and unpaid interest and expenses and any other obligations that may be due to the Lender under this Agreement or the Loan Documents) shall be due and payable by Borrower to Lender on the earlier of (i) the Commitment Termination Date; or (ii) the termination of this Agreement by Lender or Borrower in accordance with terms of this Agreement. All payments by Borrower shall be made to Lender at its address set forth herein in lawful money of the United States of America and in immediately available funds. Whenever any payment to be made hereunder shall be due on a day which is not a Business Day, such payment shall be made on the first Business Day thereafter, and such extension of time shall in such case be included in the computation of interest hereunder. As payments become due and payable, Lender may and is hereby authorized by Borrower, as set forth in SECTION 2.02 (a), to charge Borrower's account in a manner to effect any such payments that are due. SECTION 3.05. Term Promissory Note. The Term Loan made under SECTION 2.05 hereof by Lender shall be evidenced by a the Term Promissory Note {substantially in form presented in EXHIBIT A2 attached hereto and incorporated fully herein by this reference) executed by Borrower, which Term Promissory Note shall (i) be dated the date hereof, (ii) be in the original principal amount of One Million Twenty Five Thousand Dollars ($1,025,000) (iii) be payable to the order of Lender at its office in Kingsport, Tennessee, and (iv) bear interest equal per annum to the sum of ninety (90) days LIBOR plus one and three quarters percent (1.75%). CONDITIONS PRECEDENT SECTION 4.01. Initial Advances. The obligation of Lender to make its initial Advance and Term Loan hereunder is subject to the condition precedent that, on or before the date of such Advance and Term Loan, Lender shall have received from Borrower the following in form and substance satisfactory to Lender: (a) Revolving Credit Note. A duly executed Revolving Credit Note, payable to the order of Lender, in the form of EXHIBIT A attached hereto and incorporated herein fully by this reference with appropriate insertions. (b) Term Promissory Note. A duly executed Term Promissory Note payable to the order of Lender, in the form of EXHIBIT A2 with appropriate insertions. (c) Opinion of Borrower's Counsel. A favorable opinion of corporate counsel for Borrower. (d) Officers Certificate. A certificate signed by a duly authorized officer of Borrower, stating that (to the best knowledge and belief of such officer, after reasonable and due 9

investigation and review of matters pertinent to the subject matter of such certificate): (i) all of the representations and warranties contained in ARTICLE VI hereof and the Loan Documents are true and correct as of the date of the Advance and Term Loan; and (ii) no event has occurred and is continuing, or would result from the Advance and Term Loan, which constitutes a Default or an Event of Default. (e) Resolutions of Borrower. Resolutions of Borrower approving the execution, delivery and performance of this Agreement, the Revolving Credit Note, the Term Promissory Note, the Loan Documents and the transactions contemplated herein and therein, duly adopted by Borrower's Board of Directors and accompanied by a certificate of the Secretary or Assistant Secretary of Borrower stating that such resolutions are true and correct, have not been altered or repealed and are in full force and effect. (f) Incumbency Certificate of Borrower. A signed certificate of the Secretary or Assistant Secretary of Borrower which shall certify the names of the officers of Borrower authorized to sign each of the Loan Documents to be executed by such Person and the other documents or certificates to be delivered by such Person pursuant to the Loan Documents. Lender may conclusively rely on the certificate of Borrower until Lender shall receive a further certificate of the Secretary or Assistant Secretary of Borrower canceling or amending the prior certificate, provided such certificate does not retroactively void the prior certificate. (g) Certificates. Certificates of good standing (or other similar instruments) for Borrower by the Secretary of State of the state of incorporation of Borrower, and certificates of qualification and good standing (or other similar instruments) for Borrower issued by the Secretary of State of each of the states wherein Borrower is qualified to do business as a foreign corporation, each dated no more than thirty (30) days prior to the execution of this Agreement. (h) Charter and Bylaws. A copy of the charter/articles of incorporation of Borrower, and all amendments thereto, certified by the Secretary or Assistant Secretary of Borrower, and dated as of the date of the execution of this Agreement and a copy of the bylaws of Borrower and, and all amendments thereto, certified by the Secretary or Assistant Secretary of Borrower, as being true, correct and complete as of the date of such certification. (i) Operating Budget. Projections of the cash flow and the operating budget for Borrower for the fiscal year ending December 31, 1997. (j) Financial Information. Copies of the financial statements referred to in SECTION 7.01. (k) Collateral Documents. Each of the Collateral Documents duly executed by the parties thereto. Each document (including, without limitation, any UCC financing statement, fixture filing and deed of trust) required by the Collateral Documents or under law or requested by Lender to be filed, registered or recorded in order to create, in favor of Lender for the benefit of Lender, a perfected first Lien on the collateral described therein shall have been properly filed, registered or recorded in each jurisdiction in which the filing registration or recordation thereof is so required or requested, and Lender shall have received an acknowledgement copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (1) Litigation. A certificate signed by a duly authorized officer of Borrower stating that no litigation, investigation or proceeding before or by an abitrator or Governmental Authority 10

is continuing or threatened against Borrower or any of its officers, directors or affiliates (i) with respect to this Agreement, the Revolving Credit Note, the Term Promissory Note, the Collateral Documents, any other Loan Documents or any of the transactions contemplated hereby or thereby, or (ii) which could have a Material Adverse Effect. Lender shall also receive either a summary and analysis of all litigation in which Borrower or any of its officers, directors or affiliates is involved or an opinion of counsel, in form and substance acceptable to Lender, to the effect that no litigation in which Borrower or any of its officers, directors or affiliates is involved would, in the event of an adverse determination, have a Material Adverse Effect. (m) Insurance. Evidence satisfactory to Lender that Borrower has obtained and have in full force the insurance policies required by this Agreement or the Collateral Documents. (n) Additional Information. Such other information and documents as may reasonably be required by Lender and Lender's legal counsel. SECTION 4.02. Advances and Term Loan. The obligation of Lender to make any Advance or Term Loan under this Agreement (including the initial Advance) shall be subject to the following conditions precedent: (a) No Defaults. As of the date of the making of such Advance or Term Loan there exists no Default or Event of Default. (b) Compliance with Agreement. Borrower shall have performed and complied with all agreements and conditions contained herein and in each of the Loan Documents which are required to be performed or complied with by Borrower before or on the date of such Advance or Term Loan. (c) No Material Adverse Change. As of the date of making such Advance or Term Loan, no change that would cause a Material Adverse Effect has occurred since the date of the financial statements referenced in SECTION 6.06. (d) Representations and Warranties. The representations and warranties contained in ARTICLE VI hereof and in each of the Loan Documents shall be true in all respects on the date of making of such Advance or Term Loan, with the same force and effect as though made on and as of that date. (e) Financial Statements. The most recent financial statements of Borrower delivered to Lender pursuant to SECTION 7.01 are true and correct, fairly represent the financial condition of Borrower and have been prepared in accordance with Generally Accepted Accounting Principles applied on a basis consistent with that of prior periods; as of the date of such Advance and Term Loan, there are no obligations, liabilities or Indebtedness (including contingent and indirect liabilities and obligations or unusual forward or long-term commitments) of Borrower which are (separately or in the aggregate) material and are not reflected in such financial statements. (f) Bankruptcy Proceedings. No proceeding or case under the United States Bankruptcy Code shall have been commenced by or against Borrower. 11

ARTICLE V SECURITY INTERESTS SECTION 5.01 Grant of Security Interests. To secure the due and punctual payment of all Obligations, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing or due or to become due, in accordance with the terms hereof and to secure the due and punctual performance of all of the obligations of Borrower contained in the other Loan Documents and in any other documents or instruments to which Borrower and Lender are parties and in order to induce Lender to enter into this Agreement and to make Advances and Term Loan Borrower does hereby mortgage, pledge and assign to Lender (all of which are herein collectively called the "Collateral"): (a) All of the land in the county of Sullivan, State of Tennessee, described more particularly in the attached EXHIBIT B, which is by this reference fully incorporated herein (referred to hereinafter sometimes as the "Property"), to have and to hold the same, together with all the improvements now or hereafter erected on such Property and all fixtures now or hereafter attached thereto, together with each and every tenements, hereditaments, easements, rights, powers, privileges, immunities and appurtenances thereunto belonging or in anywise appertaining and the reversion and reversions, remainder and remainders, and also all the estate, right, title, interest, homestead, property, possession and claim whatsoever in law as well as in equity of Borrower of, in and to the same in every part and parcel thereof unto Lender in fee simple. (b) Together with a security interest in all fixtures affixed to or located on the Property. (c) Together with all rents, issues, profits, revenue, income and other benefits from the Property to be applied to the Obligation secured by the Loan Documents provided however, that permission is hereby given to Borrower so long as no default has occurred hereunder, to collect, receive, and use such benefits from the Property as they become due and payable, but not in advance thereof. Provided always, that if Borrower shall pay to Lender the Obligations at the times and in the manner stipulated by this Agreement, the Revolving Credit Note, the Term Promissory Note and in all other instruments securing the Obligation, including renewals, extension or modification thereof, and in this Agreement and in all other instruments securing the Obligations, to be kept, performed or observed by Borrower, then the herein described security interest in the Collateral, shall cease and be void, but shall otherwise remain in full force and effect. SECTION 5.02 Filings. To further evidence the security interests of Lender in the Collateral, Borrower shall executed and deliver to Lender, in a form satisfactory to Lender, a deed of trust(s), and any other documents or instruments reasonably deemed necessary or advisable (including any modifications or extensions thereof), at any time by Lender. 12

ARTICLE VI REPRESENTATIONS AND WARRANTIES To induce Lender to make Advances and the Term Loan hereunder, Borrower represents and warrants to Lender that: SECTION 6.01. Organization and Good Standing. Borrower is a corporation duly organized and existing in good standing under the laws of the state of its incorporation, is duly qualified as a foreign corporation and in good standing in all states in which it is doing business and has the corporate power and authority to own its properties and assets and to transact the business in which it is engaged and is or will be qualified in those states wherein it proposes to transact business in the future. SECTION 6.02. Authorization and Power. Borrower has the corporate power and requisite authority to execute, deliver and perform the Loan Documents to be executed by it. Borrower is duly authorized to, and has taken all corporate action necessary to authorize it to, execute, deliver and perform the Loan Documents executed by it. Borrower is and will continue to be duly authorized to perform the Loan Documents executed by it. SECTION 6.03. No Conflicts or Consents. Neither the execution and delivery of the Loan Documents, nor the consummation of any of the transactions therein contemplated, nor compliance with the terms and provisions thereof, will contravene or materially conflict with any provision of law, statute or regulation to which Borrower is subject or any judgment, license, order or permit applicable to Borrower, or any indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which Borrower is a party or by which Borrower may be bound, or to which Borrower may be subject, or violate any provision of the charter or bylaws of Borrower. No consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of the Loan Documents or to consummate the transactions contemplated hereby or thereby. SECTION 6.04. Enforceable Obligations. The Loan Documents have been duly executed and delivered by Borrower and are the legal and binding obligations of Borrower, enforceable in accordance with their respective terms, except as limited by Debtor Laws. SECTION 6.05. No Liens. Except for Permitted Liens, the Collateral is free and clear of all Liens and other adverse claims of any nature, and Borrower has good and marketable title to the Collateral. SECTION 6.06. Financial Condition. Borrower has delivered to Lender copies of the consolidated and consolidating balance sheet of Borrower as of December 31, 1996, and the related consolidated and consolidating statements of income, stockholders' equity and changes in financial position for the year ended such date, certified by independent certified public accountants; such financial statements are true and correct, fairly represent the financial condition of Borrower as of such date and have been prepared in accordance with Generally Accepted Accounting Principles applied on a basis consistent with that of prior periods; as of the date hereof, there are no obligations, liabilities or Indebtedness (including contingent and indirect liabilities and obligations) of Borrower which are (separately or in the aggregate) material and are not reflected in such financial statements; no changes having a Material Adverse Effect have occurred since the date of such financial statements. 13

SECTION 6.07. Full Disclosure. There is no material fact that Borrower has not disclosed to Lender which could have a Material Adverse Effect on the properties, business, prospects or condition (financial or otherwise) of Borrower. Neither the financial statements referenced in SECTION 6.06 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower to Lender in connection with negotiations of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein from being misleading. SECTION 6.08. No Default. No event has occurred and is continuing which constitutes a Default or an Event of Default. SECTION 6.09. Material Agreements. Borrower is not in default in any material respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other material agreement or obligation to which it is a party or by which any of its properties is bound. SECTION 6.10. No Litigation. Except as disclosed on EXHIBIT C, there are no actions, suits or legal, equitable, arbitration or administrative proceedings pending, or to the knowledge of Borrower threatened, against Borrower that could, if adversely determined, have a Material Adverse Effect. There has been no change since the date of this Agreement in the status of any of the actions, suits, investigations, litigation or proceedings referred to in the litigation disclosed to Lender pursuant to EXHIBIT C that is materially adverse to Borrower or to any transactions contemplated by any Loan Document. SECTION 6.11. Burdensome Contracts. Borrower is not a party to, or bound by, any contract which is a burdensome contract having a Material Adverse Effect. SECTION 6.12. Regulatory Defects. As of the date hereof, Borrower has advised Lender, in writing, of all regulatory defects which could cause a Material Adverse Effect of which Borrower has been advised or has actual knowledge. SECTION 6.13. Use of Proceeds; Margin Stock. The proceeds of the Advances and the Term Loan hereunder will be used by Borrower solely for the purposes herein specified. None of such proceeds will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U, Regulation X, or Regulation G or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry a "margin stock" or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U, Regulation X, or Regulation G. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither Borrower nor any Person acting on behalf of Borrower has taken or will take any action which might cause the Advances, Term Loan, or any of the other Loan Documents, including this Agreement, to violate Regulation U, Regulation X, or Regulation G or any other regulations of the Board of Governors of the Federal Reserve System or to violate Section 8 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Borrower owns no "margin stock." SECTION 6.14. No Financing of Corporate Takeovers. No proceeds of the Advances and Term Loan hereunder will be used to acquire any security in any transaction which is subject to Sections 13 or 14 of the Securities Exchange Act of 1934, including particularly (but without limitation) Sections 13(d) and 14 (d)thereof. 14

SECTION 6.15. Taxes. All tax returns required to be filed by Borrower in any jurisdiction have been filed and all taxes (including mortgage recording taxes), assessments, fees and other governmental charges upon Borrower or upon any of its properties, income or franchises have been paid prior to the time that such taxes could give rise to a lien thereon. There is no proposed tax assessment against Borrower and there is no basis for such assessment. SECTION 6.16. Principal Office, Etc. The principal office, chief executive office and principal place of business of Borrower is at 501 Fifth Street, Bristol, Tennessee. Borrower maintains its principal records and books at such address SECTION 6.17. ERISA. (a) No Reportable Event has occurred and is continuing with respect to any Plan; (b) PBGC has not instituted proceedings to terminate any Plan; (c) neither the Borrower, any member of the Controlled Group, nor any duly-appointed administrator of a Plan (i) has incurred any liability to PBGC with respect to any Plan other than for premiums not yet due or payable, or (ii) has instituted or intends to institute proceedings to terminate any Plan under Sections 4041 or 4041A of ERISA or withdraw from any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA); (d) each Plan of Borrower has been maintained and funded in all material respects in accordance with its terms and with all provisions of ERISA and the Code applicable thereto; (e) Borrower and all members of any Controlled Group have complied with all applicable minimum funding requirements of ERISA and the Code with respect to each Plan; (f) no member of any Controlled Group has been required to contribute to a Multi-Employer Pension Plan since September 2, 1974 except as set forth on EXHIBIT D; (g) there are no unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) with respect to any Plan of Borrower or any member of the Controlled Group which pose a risk of causing a lien to be created in in the of of Borrower, and (h) no material prohibited transaction under the Code or ERISA has occurred with respect to any Plan of Borrower or a member of the Controlled Group. SECTION 6.18. Compliance with Law. Borrower is in compliance with all laws, rules, regulations, orders and decrees which are applicable to Borrower or its properties. SECTION 6.19. Government Regulation. Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as any of the preceding acts have been amended), or any other law (other than Regulation X) which regulates the incurring by Borrower of Indebtedness, including but not limited to laws relating to common contract carriers or the sale of electricity, gas, steam, water, or other public utility services. SECTION 6.20. Insider. Borrower is not, and no Person having "control" (as that term is defined in 12 U.S.C. Section 375(b)(5) or in regulations promulgated pursuant thereto) of Borrower is, an "executive officer", "director", or "principal shareholder" (as those terms are defined in 12 U.S.C. Section 375(b) or in regulations promulgated pursuant thereto) of Lender, of a bank holding company of which Lender may be a subsidiary, or of any subsidiary of a bank holding company of which Lender may be a subsidiary, or of any bank at which Lender maintains a "correspondent account" (as such term is defined in such statute or regulations), or of any bank which maintains a correspondent account with Lender. SECTION 6.21. Subsidiaries. Set forth on EXHIBIT E hereto is a complete and accurate list of all subsidiaries as of the date hereof, showing as of such date (as to each such 15

subsidiary) the jurisdiction of its incorporation. All of the outstanding capital stock of all subsidiaries has been validly issued, is fully paid and non-assessable and is owned by Borrower free and clear of all Liens other than the security interests under the Collateral Documents. SECTION 6.22. Fair Labor Standards Act. Borrower has complied with, and will continue to comply with, the provisions of the Fair Labor Standards Act of 1938, 29 U.S.C. Section 200, et seq., as amended from time to time (the "FSLA"), including specifically, but without limitation 29 U.S.C. Section 215(a). This representation and warranty, and each re-confirmation hereof, shall constitute written assurance from Borrower, given as of the date hereof and as of the date of each re-confirmation that Borrower has complied with the requirements of the FSLA, in general, and SECTION 15(a)(1), 29 U.S.C. Section 15(a)(1), thereof, in particular. SECTION 6.23. Casualties. Neither the business nor the properties of Borrower are affected by any environmental hazard, fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty (whether or not covered by insurance), which could have a Material Adverse Effect. SECTION 6.24. Investment Company Act. Borrower is not an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company. SECTION 6.25. Sufficiency of Capital. Borrower is, and after consummation of this Agreement and after giving effect to all Indebtedness incurred and Liens created by Borrower in connection herewith will be, Solvent. SECTION 6.26. Hazardous Substances. Except as disclosed on EXHIBIT F the land described in the Loan Documents, including, but not limited to, the deed of trust, is free from "hazardous substances" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended, and the regulations promulgated pursuant thereto, and no portion of such land is subject to federal, state or local regulation or liability because of the presence of stored, leaked or spilled petroleum products, waste materials or debris, "PCB's" or PCB items (as defined in 40 C.F.R. Section 761.3), underground storage tanks, "asbestos" (as defined in 40 C.F.R. Section 763.63) or the past or present accumulation, spillage or leakage of any such substance. SECTION 6.27. Collateral Documents; Description of Assets. The Collateral Documents contain a description of all of the assets and properties Borrower, sufficient to grant to Lender perfected Liens therein pursuant to applicable law. Upon the filing by Lender of the required documents and instruments, including, but not limited to, deeds of trust and fixture filings. Lender will have a perfected first priority Lien in the Collateral and the properties and assets described in the Collateral Documents. Lender has obtained an independent survey of the Collateral described in EXHIBIT B hereof and is relying in part, on such survey. SECTION 6.28 Corporate Name. Borrower has not, during the preceding five (5) years, been known as or used any other corporate, fictitious or tradenames except as disclosed on EXHIBIT G. Except as set forth on EXHIBIT G, Borrower has not, during the preceding five (5) years, been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. SECTION 6.29. Representations and Warranties. Each Notice of Borrowing shall constitute, without the necessity of specifically containing a written statement, a representation 16

and warranty by Borrower that no Default or Event of Default exists and that all representations and warranties contained in this ARTICLE VI or in any other Loan Document are true and correct on and as of the date the requested Advance is to be made. SECTION 6.30. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties by Borrower herein shall survive delivery of the Revolving Credit Note and the Term Promissory Note, and the making of the Advance and Term Loan, respectively, and any investigation at any time made by or on behalf of Lender shall not diminish Lender's right to rely thereon. ARTICLE VII AFFIRMATIVE COVENANTS So long as Lender has any commitment to make Advances and the Term Loan hereunder, and until payment in full of the Revolving Credit Note, Term Promissory Note, and the performance of the Obligation, Borrower agrees that: SECTION 7.01. FINANCIAL STATEMENTS, Reports and Documents. Borrower shall deliver to Lender each of the following: (a) QUARTERLY STATEMENTS. As soon as available, and in any event within forty-five (45) days after the end of each quarterly fiscal period (except the last) of each fiscal year of Borrower, copies of the quarterly Form 10-Q Statements (if applicable), any and all filings with the SEC (if applicable), copies of the consolidated and consolidating balance sheet of Borrower as of the end of such quarterly fiscal period, and statements of income and retained earnings and changes in financial position of Borrower for that quarterly fiscal period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form the figures of the corresponding period of the preceding fiscal year, all in reasonable detail, and certified by the chief financial officer of Borrower as being true and correct and as having been prepared in accordance with Generally Accepted Accounting Principals, subject to year-end audit adjustments; (b) ANNUAL STATEMENTS. As soon as available and in any event within one hundred twenty days (120) days after the close of each fiscal year of Borrower, copies of the consolidated and consolidating balance sheet of Borrower as of the close of such fiscal year and statements of income and retained earnings and changes in financial position of Borrower for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and accompanied by an opinion thereon (which shall not be qualified by reason of any limitation imposed by Borrower) of Coopers & Lybrand, LLP or of other independent public accountants of recognized national standing selected by Borrower and satisfactory to Lender, to the effect that such consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles consistently maintained and applied (except for changes in which such accountants concur) and that the examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each written report submitted to Borrower by independent accountants any annual, quarterly or special audit 17

made, it being understood and agreed that all audit reports which are furnished to Lender pursuant to this ARTICLE VII shall be treated as confidential, but nothing herein contained shall limit or impair Lender's right to disclose such reports to any appropriate Governmental Authority, or to use such information to the extent pertinent to an evaluation of the Obligation, or to enforce compliance with the terms and conditions of this Agreement, or to take any lawful action which Lender deems necessary to protect its interests under this Agreement; (d) OTHER REPORTS. Promptly upon its becoming available, one copy of each financial statement and any order issued by any Governmental Authority in any proceeding to which Borrower is a party; (e) COMPLIANCE CERTIFICATE. Within thirty (30) days after the end of each fiscal quarter of Borrower hereafter, a certificate executed by the chief financial officer or chief executive officer of Borrower, stating that a review of the activities of Borrower during such fiscal quarter has been made under his supervision and that Borrower has observed, performed and fulfilled each and every obligation and covenant contained herein and is not in default under any of the same or, if any such default shall have occurred, specifying the nature and status thereof; (f) ACCOUNTANTS CERTIFICATES. Within the period provided in paragraph (b) above, a certificate of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement and stating further whether, in making their audit, such accountants have become aware of any condition or event which would constitute a Default or an Event of Default under any of the terms or provisions of this Agreement (insofar as any such terms or provisions pertain to accounting matters) and, if any such condition or event then exists, specifying the nature and period of existence thereof; and (g) OTHER INFORMATION. Such other information concerning the business, properties or financial condition of Borrower as Lender shall reasonably, from time to time request. SECTION 7.02. PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Borrower shall pay and discharge (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, before delinquent, (ii) all lawful claims (including claims for labor, materials and supplies), which, if unpaid, might give rise to a Lien upon any of its property, and (iii) all of its other Indebtedness, except as prohibited hereunder; provided, however, that Borrower shall not be required to pay any such tax, assessment, charge or levy if and so long as the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and appropriate accruals and cash reserves therefor have been established in accordance with Generally Accepted Accounting Principles. SECTION 7.03. MAINTENANCE OF EXISTENCE AND RIGHTS. Conduct of Business. Borrower shall preserve and maintain its corporate existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business, and conduct its business in an orderly and efficient manner consistent with good business practices and in accordance with all valid regulations and orders of any Governmental Authority. SECTION 7.04. NOTICE OF DEFAULT. Borrower shall furnish to Lender immediately upon becoming aware of the existence of any condition or event which constitutes a Default or would become a Default or an Event of Default, written notice specifying the nature and period of existence thereof and the action which Borrower is taking or proposes to take with respect thereto. 18

SECTION 7.05. OTHER NOTICES. Borrower shall promptly notify Lender of (i) any material adverse change in its financial condition or its business, (ii) any default under any material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of any Indebtedness owing by Borrower, (iii) any material adverse claim against or affecting Borrower or any of its properties, and (iv) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any Governmental Authority which could have a Material Adverse Effect or result in an Event of Default. SECTION 7.06. COMPLIANCE WITH LOAN DOCUMENTS. Borrower shall promptly comply with any and all covenants and provisions of the Loan Documents executed by it. SECTION 7.07. COMPLIANCE WITH MATERIAL AGREEMENTS. Borrower shall comply in all material respects with all material agreements, indentures, mortgages or documents binding on it or affecting its properties or business. SECTION 7.08. OPERATIONS AND PROPERTIES. Borrower shall act prudently and in accordance with customary industry standards in managing or operating its assets, properties, business and investments. Borrower shall keep in good working order and condition, ordinary wear and tear excepted, all of its assets and properties which are necessary to the conduct of its business. SECTION 7.09. BOOKS AND RECORDS; ACCESS. Borrower shall give any representative of Lender access during all business hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Borrower and relating to its affairs, and to inspect any of the properties of Borrower. Borrower shall maintain complete and accurate books and records of its transactions in accordance with good accounting practices. SECTION 7.10. COMPLIANCE WITH LAW. Borrower shall comply with all applicable laws, rules, regulations, and all orders of any Governmental Authority applicable to it or any of its property, business operations or transactions, a breach of which could have a Material Adverse Effect. SECTION 7.11. INSURANCE. Borrower shall maintain worker's compensation insurance, liability insurance and insurance on its properties, assets and business, now owned or hereafter acquired, against such casualties, risks and contingencies, and in such types and amounts, as are consistent with customary practices and standards of companies engaged in similar businesses. SECTION 7.12. AUTHORIZATIONS AND APPROVALS. Borrower shall promptly obtain, from time to time at its own expense, all such governmental licenses, authorizations, consents, permits and approvals as may be required to enable it to comply with its obligations hereunder and under the other Loan Documents. SECTION 7.13. ERISA COMPLIANCE. Borrower shall (i) at all times, make prompt payment of all contributions required under all Plans and required to meet the minimum funding standard set forth in ERISA with respect to its Plans, (ii) within thirty (30) days after the filing thereof, furnish to Lender copies for each Lender of each annual report/return (Form 5500 Series), as well as all schedules and attachments required to be filed with the Department 19

of Labor and/or the Internal Revenue Service pursuant to ERISA, and the regulation promulgated thereunder, in connection with each of its Plans for each Plan year, (iii) notify Lender immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any of its Plans, which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement, if requested by Lender, as to the reason therefor and the action, if any, proposed to be taken with respect thereto, and (iv) furnish to Lender, upon its request, such additional information concerning any of its Plans as may be reasonably requested. SECTION 7.14. FURTHER ASSURANCES. Borrower shall, make, execute or endorse, and acknowledge and deliver or file or cause the same to be done, all such vouchers, invoices, notices, certifications and additional agreements, undertakings, conveyances, deeds of trust, mortgages, transfers, assignments, financing statements or other assurances, and take any and all such other action, as Lender may, from time to time, deem reasonably necessary or proper in connection with any of the Loan Documents, the obligations of Borrower thereunder, or for better assuring and confirming unto Lender all or any part of the security for any of such obligations, or for granting to Lender any security for the Obligation which Lender may request from time to time. SECTION 7.15. MINIMUM NET WORTH. Borrower shall, as of August 21, 1997 and each date, determined quarterly, thereafter, maintain a minimum Net Worth of Twenty Five Million Dollars ($25,000,000) plus fifty percent (50%) of Borrower's coinciding fiscal year earnings. SECTION 7.16. INDEMNITY BY BORROWER. Borrower shall indemnify, save, and hold harmless Lender and its directors, officers, agents, attorneys, and employees (collectively, the "Indemnities" from and against: (i) any and all claims, demands, actions, or causes of action that are asserted against any Indemnitee by any Person if the claim, demand, action, or cause of action directly or indirectly relates to a claim, demand, action, or cause of action that the Person asserts or may assert against Borrower, any Affiliate of Borrower or any officer, director or shareholder of Borrower, (ii) any and all claims, demands, actions or causes of action that are asserted against any Indemnitee if the claim, demand, action or cause of action directly or indirectly relates to the Commitments, the use of proceeds of the Advances, or the relationship of Borrower and Lender under this Agreement or any transaction contemplated pursuant to this Agreement, (iii) any administrative or investigative proceeding by any Governmental Authority directly or indirectly related to a claim, demand, action or cause of action described in clauses (i) or (ii) above, and (iv) any and all liabilities, losses, costs, or expenses (including attorneys' fees and disbursements) that any Indemnitee suffers or incurs as a result of any of the foregoing; provided, however, that Borrower shall have no obligation under this Section to Lender with respect to any of the foregoing arising out of the gross negligence or willful misconduct of Lender or the breach by Lender of this Agreement or from the transfer or disposition of any the Revolving Credit Note by Lender. If any claim, demand, action or cause of action is asserted against any Indemnitee, such Indemnitee shall promptly notify Borrower, but the failure to so promptly notify Borrower shall not affect Borrower's obligations under this Section unless such failure materially prejudices Borrower's right to participate in the contest of such claim, demand, action or cause of action, as hereinafter provided. If requested by Borrower in writing and so long as no Default or Event of Default shall have occurred and be continuing, such Indemnitee shall in good faith contest the validity, applicability and amount of such claim, demand, action or cause of action and shall permit Borrower to participate in such contest. Any Indemnitee that proposes to settle or compromise any claim or proceeding for which Borrower may be liable for payment of indemnity hereunder shall give Borrower written 2O

notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain Borrower's concurrence thereto which concurrence shall not be unreasonably withheld. Each Indemnitee is authorized to employ counsel in enforcing its rights hereunder and in defending against any claim, demand, action, or cause of action covered by this Section; provided, however, that each Indemnitee shall endeavor, but shall not be obligated, in connection with any matter covered by this Section which also involves other Indemnitees, to use reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnitees. Any obligation or liability of Borrower to any Indemnitee under this Section shall survive the expiration or termination of this Agreement and the repayment of the Obligation. ARTICLE VIII NEGATIVE COVENANT So long as Lender has any commitment to make Advances and the Term Loan hereunder, and until payment in full of the Revolving Credit Note and the performance of the Obligation, Borrower agrees that: SECTION 8.01. LIMITATION ON INDEBTEDNESS. Borrower shall not incur, create, contract, waive, assume, have outstanding, guarantee or otherwise be or become, directly or indirectly, liable in respect of any Indebtedness, if such Indebtedness would cause an Event of Default or a Material Adverse Effect except (i) Indebtedness arising out of this Agreement, (ii) Indebtedness secured by the Permitted Liens, (iii) current liabilities for taxes and assessments incurred in the ordinary course of business, (iv) Indebtedness in respect of current accounts payable or accrued (other than for borrowed funds or purchase money obligations) and incurred in the ordinary course of business, provided that all such liabilities, accounts and claims shall be promptly paid and discharged when due or in conformity with customary trade terms, and (v) Indebtedness of Borrower as reflected in the audited consolidated financial statement of Borrower as of December 31,1996. SECTION 8.02. NEGATIVE PLEDGE. Borrower shall not create, incur, permit or suffer to exist any Lien upon any of the Collateral, now owned or hereafter acquired, except for Permitted Liens. SECTION 8.03. RESTRICTIONS ON DIVIDENDS. Borrower shall not directly or indirectly declare or make, or incur any liability to make, any Dividend, if such Dividend would cause a Material Adverse Effect or Event of Default, or if Borrower is in Default, without the prior written consent of Lender, which consent may not be unreasonably withheld. SECTION 8.04. LIMITATION ON INVESTMENTS. Borrower shall not make or have outstanding any investments in any Person which would result in a Material Adverse Effect or Event of Default. SECTION 8.05. LIMITATION ON SALE OF PROPERTIES. Borrower shall not (i) sell, assign, convey, exchange, lease or otherwise dispose of any of its properties, rights, assets or business, whether now owned or hereafter acquired if such sale, assignment, conveyance, exchange, lease or other disposition would result in a Material Adverse Effect or Event of Default, or (ii) sell, assign or discount any Accounts, if such sale, assignment or discount would result in a Material Adverse Effect or Event of Default. 21

SECTION 8.06. Name, fiscal year and Accounting Method. Borrower shall not change its name, fiscal year or method of accounting except in accordance with Generally Accepted Accounting Principles; provided, however, Borrower may change its name if Borrower has given Lender sixty (60) days prior written notice of such name change and taken such actions as Lender deems necessary to continue the perfection of the Liens securing payment of the Obligation. SECTION 8.07. CURRENT RATIO. Borrower shall not permit the ratio of current assets to current liabilities, as of any date, to be less than one and one quarter (1.25) (Calculation: Current assets divided by current liabilities) SECTION 8.08. DEBT TO NET WORTH RATIO. Borrower shall not permit the ratio of liabilities to Net Worth, as of any date, to be more than one and one half (1.5) (Calculation: total liabilities divided by Net Worth). SECTION 8.09. CASH FLOW COVERAGE. Borrower shall not, as of any date, permit the cash flow coverage to be less than one and one quarter (1.25) (Calculation: Earnings Before Interest, Taxes, Depreciation and Amortization divided by current maturities of long term debt plus interest expense). SECTION 8.10. LIQUIDATION, MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF SUBSTANTIAL ASSETS. Borrower shall not dissolve or liquidate, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any Person, or sell, transfer, lease or otherwise dispose of all or any substantial part of its property or assets or business without the prior written consent of Lender, which consent may not be reasonably withheld. SECTION 8.11. LINES OF BUSINESS. Borrower shall not directly or indirectly, engage in any business other than those in which it is presently engaged, or substantially alter its method of doing business. SECTION 8.12. NO AMENDMENTS. Borrower shall not amend its certificate of incorporation or bylaws. SECTION 8.13. PURCHASE OF SUBSTANTIAL ASSETS. Borrower shall not purchase, lease or otherwise acquire all or substantially all of the assets of any other Person without the prior written consent of Lender, which consent may be withheld in the sole and absolute discretion of Lender. ARTICLE EVENTS OF DEFAULT SECTION 9.01. EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or more of the following events (herein collectively called "Events of Default") shall occur and be continuing: (a) Borrower shall fail to pay when due any principal of, or interest on, the revolving Credit Note, Term Promissory Note or shall fail to pay when due any fee, expense or other payment required hereunder. 22

(b) any representation or warranty made under this Agreement, or any of the other Loan Documents, or in any certificate or statement furnished or made to Lender pursuant hereto or in connection herewith or with the Advances hereunder, shall prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made; (c) default shall occur in the performance of any of the covenants or agreements of Borrower hereunder or in any of the other Loan Documents; (d) default shall occur in the payment of any material Indebtedness of Borrower (other than the Obligation) or default shall occur in respect of any note, loan agreement or credit agreement relating to any such Indebtedness and such default shall continue for more than the period of grace, if any, specified therein; or any such Indebtedness shall become due before its stated maturity by acceleration of the maturity thereof or shall become due by its terms and shall not be promptly paid or extended; (e) any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the Borrower in accordance with the respective terms thereof or shall in any way be terminated or become or be declared ineffective or inoperative or shall in any way whatsoever cease to give or provide the respective liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; (f) Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, custodian, intervenor or liquidator of itself or of all or a substantial part of its assets, (ii) file a voluntary petition in bankruptcy, admit in writing that it is unable to pay its debts as they become due or generally not pay its debts as they become become due, (iii) make a general assignment for the benefit of creditors, (iv) file a petition or answer seeking reorganization of an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceeding, or (vi) take corporate action for the purpose of effecting any of the foregoing; (g) an involuntary petition or complaint shall be filed against Borrower seeking bankruptcy or reorganization of it or the appointment of a receiver, custodian, trustee, intervenor or liquidator of it, or all or substantially all of its assets, and such petition or complaint shall not have been dismissed within thirty (30) days of the filing thereof; or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition or complaint seeking reorganization of Borrower or appointing a receiver, custodian, trustee, intervenor or liquidator of it, or of all or substantially all of its assets; (h) any final judgment(s) for the payment of money in excess of the sum of Twenty Five Thousand Dollars ($25,000) in the aggregate shall be rendered against Borrower and such judgment or judgments shall not be satisfied or discharged at least ten (10) days prior to the date on which any of its assets could be lawfully sold to satisfy such judgment; (i) both the following events shall occur: (i) either (x) proceedings shall have been instituted to terminate, or a notice of termination shall have been filed with respect to, any Plan (other than a Multi-Employer Pension Plan as that term is defined in Section 3(37) of ERISA) by Borrower, any member of the Controlled Group, PBGC or any representative of any thereof, or any such Plan shall be terminated, in each case under Section 4041 or 4042 of ERISA, or (y) a Reportable Event, the occurrence of which would cause the imposition of a lien under Section 23

4068 of ERISA, shall have occurred with respect to any Plan (other than a Multi-Employer Pension Plan as that term is defined in Section 3(37) of ERISA) and be continuing for a period of sixty (60) days; and (ii) the sum of the estimated liability to PBGC under Section 4062 of ERISA and the currently payable obligations of Borrower to fund liabilities (in excess of amounts required to be paid to satisfy the minimum funding standard of Section 412 of the Code) under the Plan or Plans subject to such event shall exceed ten percent (10%) of Net Worth at such time; (j) any or all of the following events shall occur with respect to any Multi-Employer Pension Plan (as that term is defined in Section 3(37) of ERISA) to which Borrower contributes or contributed on behalf of its employees: (i) Borrower incurs a withdrawal liability under Section 4201 of ERISA; or (ii) any such plan is "in reorganization" as that term as that term is defined in Section 4241 of ERISA; or (iii) any such Plan is terminated under Section 4041A of ERISA and Lender determine in good faith that the aggregate liability likely to be incurred by Borrower as a result of all or any of the events specified in Subsections (i), (ii) and (iii) above occurring, shall have a Material Adverse Effect; or (k) there shall occur any change in the condition (financial or otherwise) of Borrower which, in the reasonable opinion of Lender, has a Material Adverse Effect SECTION 9.02. REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have occurred and be continuing, then Lender may exercise any one or more of the following rights and remedies, and any other remedies provided in any of the Loan Documents, as Lender in its sole discretion, may deem necessary or appropriate: (i) terminate Lender's commitment to lend hereunder, (ii) declare the principal of, and all interest then accrued on, the Revolving Credit Note, Term Promissory Note and any other liabilities hereunder to be forthwith due and payable, whereupon the same shall forthwith become due and payable without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind, all of which Borrower hereby expressly waives, anything contained herein in the Revolving Credit Note, or in the Term Promissory Note to the contrary notwithstanding, (iii) reduce any claim to judgment, and/or (iv) without notice of default or demand, pursue and enforce any of Lender's rights and remedies under the Loan Documents, or otherwise provided under or pursuant to any applicable law or agreement; provided, however, that if any Event of Default specified in SECTION 9.01 (f) and (g) shall occur, the principal of, and all interest on, the Revolving Credit Note, Term Promissory Note and other liabilities hereunder shall thereupon become due and payable concurrently therewith, and Lender's obligations to lend shall immediately terminate hereunder, without any further action by Lender and without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind, all of which Borrower hereby expressly waives. SECTION 9.03. PERFORMANCE BY LENDER. Should Borrower fail to perform any covenant, duty or agreement contained herein or in any of the Loan Documents, Lender may perform or attempt to perform such covenant, duty or agreement on behalf of Borrower. In such event, Borrower shall, at the request of Lender, promptly pay any amount expended by Lender in such performance or attempted performance to Lender at its principal office in Kingsport, Tennessee together with interest thereon at the highest lawful rate from the date of such expenditure until paid. Notwithstanding the foregoing, it is expressly understood that Lender does not assume any liability or responsibility for the performance of any duties of Borrower hereunder or under any of the Loan Documents or other control over the management and affairs of Borrower. 24

ARTICLE X MISCELLANEOUS SECTION 10.01. MODIFICATION. All modifications, consents, amendments or waivers of any provision of any Loan Document, or consent to any departure by Borrower therefrom, shall be effective only if the same shall be in writing and concurred in by Lender and then shall be effective only in the specific instance and for the purpose for which given. SECTION 10.02. ACCOUNTING TERMS AND REPORTS. All accounting terms not specifically defined in this Agreement shall be construed in accordance with Generally Accepted Accounting Principles consistently applied on the basis used by Borrower in prior years. All financial reports furnished by Borrower to Lender pursuant to this Agreement shall be prepared in such form and such detail as shall be satisfactory to Lender, shall be prepared on the same basis as those prepared by Borrower in prior years and shall be the same financial reports as those furnished to Borrower's officers and directors. SECTION 10.03. WAIVER. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder and under the Loan Documents shall be in addition to all other rights provided by law and/or equity. No modification or waiver of any provision of this Agreement, the Revolving Credit Note, the Term Promissory Note or any Loan Documents, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. SECTION 10.04. PAYMENT OF EXPENSES. Borrower agrees to pay all costs and expenses of Lender (including, without limitation, the reasonable attorneys' fees of Lender's legal counsel) incurred by Lender in connection with the preservation and enforcement of and Lender's rights under this Agreement, the Revolving Credit Note, Term Promissory Note and/or the other Loan Documents, and all reasonable costs and expenses of Lender (including without limitation the reasonable fees and expenses of Lenders' legal counsel) in connection with the negotiation, preparation, execution and delivery of this Agreement, the Revolving Credit Note, Term Promissory Note and the other Loan Documents and any and all amendments, modifications and supplements thereof or thereto. SECTION 10.05. NOTICES. Except for telephonic notices permitted herein, any notices or other communications required or permitted to be given by this Agreement or any other documents and instruments referred to herein must be (i) given in writing and personally delivered or mailed by prepaid certified or registered mail, or (ii) made by facsimile delivered or transmitted, to the party to whom such notice of communication is directed, to the address of such party as follows: (a) Borrower: King Pharmaceuticals, Inc. 501 Fifth Street Bristol, Tennessee 37620 Attention: President Facsimile No.: (423) 969-8055 25

with copy to:

King Pharmaceuticals, Inc. 501 Fifth Street Bristol, Tennessee 37620 Attn: Legal Department Facsimile No.: (423) 989-6282

(b) Lender:

First American National Bank 4105 Ft. Henry Drive, Suite 300 Kingsport, Tennessee 37663 Attention: Jerry C. Greene, Senior Vice President

Facsimile No.: 423/229-0333 Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day it is mailed or personally delivered as aforesaid or, if transmitted by facsimile, on the day that such notice is transmitted as aforesaid; provided, however, that any telephonic or other notice received by Lender after 11:00 A.M. time on any day from Borrower pursuant to SECTION 2.02 (with respect to a Notice of Borrowing) shall be deemed for the purposes of such Section to have been given by Borrower on the next succeeding Business Day. Any party may change its address for purposes of this Agreement by giving notice of such change to the other parties pursuant to this SECTION 10.05. SECTION 10.06. Governing Law. This Agreement has been prepared, is being executed and delivered, and is intended to be performed in the State of Tennessee and the substantive laws of such state (without reference to any conflict of laws provisions) and the applicable federal laws of the United States of America shall govern the validity, construction, enforcement and interpretation of this Agreement and all of the other Loan Documents. SECTION 10.07. Waiver of Jury Trial; Choice of Forum; Consent to Service of Process and Jurisdiction. Borrower hereby irrevocably and unconditionally waives all right to trial by jury in any action, proceeding, or counterclaim arising out of or related to this Agreement, the Advances or any other document or instrument to which Borrower and Lender are parties or any of the transactions contemplated hereby or thereby. Any suit, action or proceeding against Borrower with respect to this Agreement, the Revolving Credit Note or any judgment entered by any court in respect thereof, may be brought in the courts of the State of Tennessee, County of Sullivan, or in the United States District Court for the Eastern District of Tennessee, in Greeneville, Tennessee and Borrower hereby submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding. Borrower hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in the State of Tennessee may be brought upon the Process Agent, and Borrower hereby irrevocably appoints the Process Agent, as its true and lawful attorney-in-fact in the name, place and stead of Borrower to accept such service of any and all such writs, process and summonses, and agrees that the failure of Process Agent to give any notice of such service of process to it shall not impair or affect the validity of such service or of any judgment based thereon. Borrower hereby irrevocably consents to the service of process in any suit, action or proceeding in said court by the mailing thereof by Lender registered or certified mail, postage prepaid, to Borrower's address set forth in SECTION 10.06 hereof. Borrower hereby irrevocably 26

waives any objections which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any Revolving Credit Note brought in the said courts, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. SECTION 10.08. Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid unenforceable under present or future laws during the term of this Agreement, such provision shall be fully severable; such Loan Document shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of such Loan Document; and the remaining provisions of such Loan Document shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from such Loan Document. Furthermore, in lieu of each such illegal, invalid or unenforceable provision shall be added as part of such Loan Document a provision mutually agreeable to Borrower and Lender as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. In the event Borrower and Lender are unable to agree upon a provision to be added to the Loan Document within a period of ten (10) Business Days after a provision of the Loan Document is held to be illegal invalid or unenforceable, then a provision acceptable to Lender as similar in terms to the illegal, invalid or unenforceable provision as is possible and be legal, valid and enforceable shall be added automatically to such Loan Document. In either case, the effective date of the added provision shall be the date upon which the prior provision was held to be illegal, invalid or unenforceable. SECTION 10.09. Maximum Interest Rate. Regardless of any provision contained in any of the Loan Documents, Lender shall never be entitled to receive, collect or apply as interest on the Revolving Credit Note and/or Term Promissory Note any amount in excess of interest calculated at the Maximum Rate, and, in the event that Lender ever receives, collects or applies as interest any such excess, the amount which would be excessive interest shall be deemed to be a partial prepayment of principal and treated hereunder as such; and, if the principal amount of the Obligation is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds interest calculated at the Maximum Rate, Borrower and Lender shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (ii) exclude voluntary prepayments and the effects thereof; and (iii) amortize, pro rate, allocate and spread, in equal parts, the total amount of interest throughout the entire contemplated term of the Revolving Credit Note and/or Term Promissory Note; provided that, if the Revolving Credit Note and/or Term Promissory Note are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds interest calculated at the Maximum Rate, Lender shall refund to Borrower the amount of such excess or credit the amount of such excess against the principal amount of the Revolving Credit Note and/or Term Promissory Note, and in such event, Lender shall not be subject to any penalties provided by any laws for contracting for, charging, taking, reserving or receiving interest in excess of interest calculated at the Maximum Rate. SECTION 10.10. Confidentiality. Lender agrees to hold any confidential information which it may receive from Borrower pursuant to this Agreement in confidence, except for disclosure to (i) legal counsel, accountants, and other final advisors who are required by Lender to hold such confidential information in confidence, (ii) regulatory officials, (iii) as required by law or legal process or in connection with any legal proceeding, and (iv) to another financial institution in connection with a disposition or proposed disposition of a Lender's interests hereunder or under the Revolving Credit Note and/or Term Promissory Note. 27

SECTION 10.11. Nonliability of Lender. The relationship between Borrower and Lender is, and shall at all times remain, solely that of borrower and lender, and Lender does not undertake nor assume any responsibility or duty to Borrower to review, inspect, supervise, pass judgment upon, or inform Borrower of any matter in connection with any phase of Borrower's business, operations, or condition, financial or otherwise. Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment, or information supplied to Borrower by Lender in connection with any such matter is for the protection of Lender, and neither Borrower nor any third party is entitled to rely thereon. SECTION 10.12. Offset. Borrower hereby grants to Lender the right of offset, to secure repayment of the Revolving Credit Note, upon any and all moneys, securities or other property of Borrower and the proceeds therefrom, now or hereafter held or received by or in transit to Lender, or any of its agents, from or for the account of Borrower, whether for safe keeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of Borrower, and any and all claims of Borrower against Lender at any time existing. SECTION 10.13 Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors, assigns and legal representatives; provided, however, that Borrower may not, without the prior written consent of Lender, assign any rights, powers, duties or obligations thereunder. Any assignment in violation of this Section shall be void. SECTION 10.14. Entirety. The Loan Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof. SECTION 10.15. Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Agreement. SECTION 10.16. Survival. All representations and warranties made by Borrower herein shall survive delivery of the Revolving Credit Note and Term Promissory Note, the making of the Advances and Term Loan, respectively, and the closing of any transactions herein contemplated. SECTION 10.17. No Third Party Beneficiary. The parties do not intend the benefits of this Agreement to inure to any third party, nor shall this Agreement be construed to make or render Lender liable to any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Borrower, or for debts or claims accruing to any such persons against Borrower. Notwithstanding anything contained herein or in the Revolving Credit Note, Term Promissory Note or in any other Loan Document, or any conduct or course of conduct by any or all of the parties hereto, before or after signing this Agreement nor any other Loan Document shall be construed as creating any right, claim or cause of action against Lender, or any of their officers, directors, agents or employees, in favor of any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Borrower, nor to any other person or entity other than Borrower. SECTION 10.18. Multiple Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same 28

agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. IN WITNESS WHEREOF, the undersigned have executed, or caused to be executed, this Agreement as of the day and year first above written. BORROWER: KING PHARMACEUTICALS, INC.
By:/s/ John M. Gregory ------------------------------(SEAL) Name: John M. Gregory ----------------------------

Title: Chief Executive Officer ---------------------------Attest: /s/ Joseph R. Gregory --------------------------Joseph R. Gregory

LENDER: FIRST AMERICAN NATIONAL BANK
By:/s/ Jerry C. Greene ------------------------------Jerry C. Greene, Senior Vice President

29

STATE OF TENNESSEE COUNTY OF SULLIVAN On this 21st day of August 1996, before me, a Notary Public in and for said State, appeared John M. Gregory, to me personally known, who, being duly sworn, did say that he is the Chief Executive Officer of King Pharmaceuticals, Inc., a Tennessee corporation, the corporation named in and which executed the within instrument, and that said instrument was signed on behalf of said corporation; and said John M. Gregory acknowledged said instrument to be the free act and deed of said corporation.
/s/ Melissa L. Duffy ---------------------------------Name: Melissa L. Duffy Notary Public Commission expires: 7/20/99 -------------------------

[SEAL] MELISSA L. DUFFY NOTARY PUBLIC AT LARGE SULLIVAN CO. TENN. 30

EXHIBIT A Revolving Credit Note $2,975,000 August 21, 1997 Sullivan County, Tennessee FOR VALUE RECEIVED, the undersigned, KING PHARMACEUTICALS, INC., a Tennessee corporation (the "Borrower"), promises to pay to the order of FIRST AMERICAN NATIONAL BANK (the "Lender"), at its principal office at 4105 Ft. Henry Drive, Kingsport, Tennessee, or at such other place as the holder from time to time may designate in writing, the principal sum of TWO MILLION NINE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($2,975,000), or the outstanding principal balance thereof (collectively and separately referred to herein sometimes as the "Loan") in lawful money of the United States of America and to pay interest on the unpaid balance hereof in like money at such office on the first day of each calendar month of each year from the date hereof until the principal hereof shall have become due and payable on August 20, 2000, or earlier as provided herein, at the rate of ninety days (90) - plus one and three quarters percent (1.75%)(computed on the basis of the actual number of days elapsed over a year of 360 days). "LIBOR" shall mean, for each interest period, the rate per annum offered to the Lender (at approximately 11:00 A.M. London time, on the date two Business Days in London prior to the first day of such interest period) by prime banks in the London Interbank Market for deposits of the lawful money of the United States of America for a period equal to the length of such interest period and in an amount of the Loan which have been made by Lender to Borrower hereunder and are scheduled to be outstanding during such interest period. Each determination of the LIBOR by Lender shall, in the absence of manifest error, be conclusive and binding. Lender shall attempt to notify Borrower of its determination of the LIBOR as soon as practicable following such determination. In no event shall the interest hereon exceed the maximum rate permitted to be charged by applicable law or regulation. This Note and any and all extensions, modifications, renewals or amendments thereof is secured by a deed of trust executed by Borrower on even date herewith. Any default under the Loan and Security Agreement of even date herewith entered into between Borrower and First American National Bank as Lender ("Loan Agreement"), as amended from time to time, shall constitute a default under this Note, in which event, at the option of the holder of this Note, the entire principal nun evidenced hereby, together with interest thereon, without notice, except as provided in the Loan Agreement, shall immediately become due and payable. The whole of the principal sum and, to the extent permitted by law, any accrued interest shall bear, after default, interest at the highest lawful rate then in effect pursuant to applicable law, or at the rate provided herein in the event no maximum rate is prescribed by applicable law. 31

At the option of the Lender hereof, the undersigned shall pay a late charge equal to five percent (5.0%) of any installment payable hereunder not paid within fifteen (15) days of the due date thereof. LIBOR Advances may be prepaid at any time with three (3) prior Business Days' notice to Lender, provided Borrower shall compensate Lender for any and all funding losses when any LIBOR Advance is prepaid prior to the end of its respective Interest Period. If default is made in the payment of any installment due hereunder, whether principal or interest, when the same shall become due or mature, or if default is made in the payment of the indebtedness hereunder on demand or at maturity, or in the event of default in or breach of any terms, provisions or conditions of the Loan Agreement or any instrument(s) given to secure this Note, then at the election of the legal holder hereof, at any time thereafter made and without demand or notice, the owner and holder of this Note shall have the right to declare all sums unpaid hereon at once due and payable. In the event of such default, and the same is placed in the hands of any attorney for collection, or a suit is filed hereon, or if the proceedings are held in bankruptcy, receivership, through the reorganization of Borrower, or any surety of borrower, or other legal or judicial proceedings for the collection hereof, Borrower agrees to Pay to the owner and holder of this Note all costs of collection, including reasonable attorneys' fees. The Borrower and all endorsers and signers hereof, and each of them, expressly waive presentment for payment, notice of nonpayment, protest, notice of protest, bringing of suit, and diligence in taking any action to claim the amounts owing hereunder and are and shall be jointly and severally, directly and primarily, liable for the amount of all sums owing and to be owing hereon and agree that this Notice, or any payment hereunder, may be extended from time to time without affecting such liability. During the existence of any default or delinquency under the terms of this Note, the Loan Agreement, any other instrument evidencing indebtedness to Borrower to Lender, or any instrument executed or to be executed as security for the payment hereof, Lender or other owner and holder hereof is expressly authorized to apply all payments made on this Note to the payment of such part of any delinquency as it may elect. The remedies of the Lender hereof as provided herein, in the Loan Agreement, or in any instrument(s) securing this Note, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of the Lender hereof, and may be exercised as often as occasion therefor shall arise. No act or omission of the Lender, including specifically any failure to exercise any right, remedy or recourse shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by the Lender and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. Notwithstanding anything herein to the contrary, in no event shall interest payable hereunder be in excess of the maximum rate allowed by applicable law. Time is of the essence of this Note. This Note and the instruments securing it shall be governed by, and construed under, the laws of the State of Tennessee. 32

The provisions hereof shall be binding upon the parties, their successors and assigns. The provisions hereof are severable such that the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the remaining provisions. This Note has been executed, delivered and accepted at Sullivan County, Tennessee, and all funds disbursed to or for the benefit of the undersigned will be disbursed in Kingsport, Sullivan County, Tennessee. IN WITNESS WHEREOF, the undersigned have executed this Note on the day and year first above written. BORROWER: KING PHARMACEUTICALS, INC.
(SEAL) Attest: -------------------------------Joseph R. Gregory, Secretary By: --------------------------------------------------------------------------------------

Name:

Title:

33

EXHIBIT A2 Term Promissory Note $1,025,000 August 21, 1997 Sullivan County, Tennessee FOR VALUE RECEIVED, KING PHARMACEUTICALS, INC., a Tennessee corporation (the "Debtor"), hereby unconditionally promises to pay to the order of FIRST AMERICAN NATIONAL BANK (the "Payee"), at the offices of Payee at 4105 Ft. Henry Drive, Suite 300, Kingsport, Tennessee 37663, or such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ONE MILLION TWENTY FIVE THOUSAND DOLLARS ($1,025,000) in lawful money of the United States of America and in immediately available funds, in thirty five (35) consecutive monthly installments of TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY TWO DOLLARS AND TWENTY TWO CENTS ($28,472.22) and one final installment of TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY TWO DOLLARS AND THIRTY CENTS ($28,472.30) on the first day of each month commencing on September 1,1997. Debtor hereby further promises to pay interest to the order of Payee on the unpaid principal balance hereof at the Interest Rate (as hereinafter defined). Such interest shall be paid in like money at said office or place from the date hereof, commencing September 1, 1997 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and after an Event of Default or termination or non-renewal of the Loan and Security Agreement shall be payable upon demand. For purposes hereof, the term Interest Rate shall mean a rate of ninety days (90) - LIBOR plus one and three quarters percent (1.75%)(computed on the basis of the actual number of days elapsed over a year of 360 days). "LIBOR" shall mean, for each interest period, the rate per annum offered to the Lender tat approximately 11:00 A.M. London time, on the date two Business Days in London prior to the first day of such interest period) by prune banks in the London Interbank Market for deposits of the lawful money of the United States of America for a period equal to the length of such interest period and in an amount of the Loan which have been made by Lender to Borrower hereunder and are scheduled to be outstanding during such interest period. Each determination of the LIBOR by Lender shall, in the absence of manifest error, be conclusive and binding. Lender shall attempt to notify Borrower of in determination of the LIBOR as soon as practicable following such determination. In no event shall the interest hereon exceed the maximum rate permitted to be charged by applicable law or regulation. In no event shall the interest charged hereunder exceed the Maximum Interest Rate. This Note is issued pursuant to the terms and provisions of the Loan and Security Agreement to evidence the Term Loan by Payee to Debtor. This Note is secured by a deed of trust of even date herewith. Unless payment is otherwise made by Debtor, Payee may charge the amount of any payment due hereunder to any account of Debtor maintained by Payee. If any payment of principal or interest is not made when d hereunder, or if any any Event of Default shall occur for any reason, or if the Loan and Security Agreement shall be terminated or 34

not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Loan and Security Agreement, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Loan and Security Agreement, including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof, together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the Interest Rate until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of collection hereof, including, but not limited to, attorneys' fees and legal expenses. LIBOR Advances may be prepaid at any time with three (3) prior Business Days' notice to Lender, provided Borrower shall compensate Lender for any and all funding losses when any LIBOR Advance is prepaid prior to the end of its respective Interest Period. Debtor (i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for Payee to first institute; suit in order to enforce payment of this Note and (iii) consents to any one or more extension or postponements of time of payment, release surrender or substitution or collateral security; or forbearance or other indulgence, without notice or consent. The pleading of any statute of limitations as a defense to any demand against Debtor is expressly hereby waived by Debtor. Upon an Event of Default or termination or non-renewal of the Loan and Security Agreement, Payee shall have the right, but not the obligation to setoff against this Note all money owed by Payee or Debtor. Payee shall not be required to resort to any collateral for payment, but may proceed against Debtor and any guarantors or endorser hereof in such order and manner as Payee may choose. None of the rights of Payee shall be waived or diminished by any failure or delay in the exercise thereof. The validity, interpretation and enforcement of this Note and any dispute arising in connection herewith shall be governed by the internal laws of the State of Tennessee without giving effect to principles of conflicts of law. KING PHARMACEUTICALS, INC.
(SEAL) By: -------------------------------------------------------------------

Name:

Title: -------------------------------Attest: ---------------------------------Joseph R. Gregory, Secretary

35

EXHIBIT B Description of Property PARCEL 1: Situate in the 17th Civil District of Sullivan County, Tennessee, to wit: BEGINNING at an iron pin found on the west right of way of Fifth Street, p.t. of curve joining Ash Street, thence with said Fifth Street right of way N. 24 degrees, 02 minutes, 25 seconds W. 128.97 minutes to an iron pin found, thence continuing N. 30 degrees, 07 minutes, 17 seconds W. 550.38' to a P.K. Nail found on the S. right of way line of Olive Street, thence with Olive Street N. 59 degrees, 13 minutes, 43 seconds E. 376.52' to a point, thence with Olive Street N. 30 degrees, 46 minutes, 17 seconds W. 16.73' to a point, common corner with Tract 3, thence with Tract 3 - N. 50 degrees, 52 minutes, 31 seconds E. 10.39' to a point on the S. right of way line of Norfolk Southern Railroad, thence with said S. right of way line of railroad the following calls: S. 32 degrees, 19 minutes, 59 seconds E. 417.49' to an iron pin found, S. 57 degrees, 29 minutes, 42 seconds W. 22.31' to an iron pin found, S. 30 degrees, 02 minutes, 17 seconds E. 171.24' to an iron pin found S. 23 degrees, 37 minutes, 07 seconds E. 215.60' to a fence post corner on the N. right of way line of Ash Street, thence with said N. right of way line of Ash Street the following calls: S. 67 degrees, 58 minutes, 25 seconds W. 44.63' to a nail and cap found, S. 71 degrees, 28 minutes, 50 seconds W. 52.31' to a nail and cap found, thence S. 49 degrees, 37 minutes, 18 seconds W. 39.31' to an iron pin set, thence S. 76 degrees, 44 minutes, 26 seconds W. 159.19' to an iron pin found, thence S. 77 degrees, 28 minutes, 36 seconds W. 66.08' to an iron pin found at the P.C. of a curve, thence with said curve to the right having a radius of 28.78' an arc length of 36.91' to the point of BEGINNING containing 6.707, more or less, and being Parcel-1. PARCEL 2: Situate in the 17th Civil District of Sullivan County, Tennessee, to wit: BEGINNING at a point on the E. right of way line of Beecham Street, common corner with E.R. Allen, thence leaving Beecham Street N. 60 degrees, 49 minutes, 41 seconds E. 58.61' to an iron pin found on the W. right of way line of Norfolk Southern Railroad, thence with said railroad right of way S. 26 degrees, 55 minutes, 28 seconds E. 155.51' to a point, thence with railroad right of way S. 59 degrees, 52 minutes, 31 seconds W. 50.44' to a point on the eastern right of way line of Olive Street, common corner with Tract 2 as described on page 2 of these legal descriptions, thence with the E. right of way line of Olive Street as it becomes the E. right of way line of Beecham Street N. 29 degrees, 55 minutes, 58 seconds W. 156.24 to the point of BEGINNING containing .195, more or less, and being Parcel 2. PARCEL 3: Situate in the 17th Civil District of Sullivan County, Tennessee, to wit: BEGINNING at an iron pin found on the north right of way line of Ash Street at its intersection with the east right of way line of Childress Alley, thence with said east right of way line of Childress Alley the following calls: N. 23 degrees, 27 minutes, 35 seconds W., 260.00' to a point, N. 16 degrees, 30 minutes, 02 seconds W. 17.28' to a point, N. 31 degrees, 10 minutes, 25 seconds W. 406 56' to an in iron pin set on the S. right of way line of Olive Street, thence with said Olive Street N. 58 degrees, 51 minutes, 35 seconds E. 76.00 to a point, thence leaving Olive Street S. 30 degrees, 16 minutes, 25 seconds E. 81.03 to a point, thence N. 58 degrees, 50 minutes, 54 seconds E. 7.50 to a point, thence N. 30 16 minutes, 25 seconds W. 81.03 to a point on the S. right of way line of Olive Street thence with said Olive Street N. 58 degrees, 51 minutes, 35 seconds E 83.50' to an iron pin found in the W. right of way line of Fifth Street thence with said W. right of way line of Fifth Street the following calls: S. 30 degrees, 16 minutes, 25 seconds E. 411.01' to a P.K Nail found, S. 32 degrees, 24 minutes, 57 seconds E. 16.99' to a drill hole found, S. 23 degrees, 37 minutes, 57 seconds E;. 244.76' to a drill hole found, thence on a curve to the right having a radius of 27.89' an arc length of 42.89' to a drill 36

hole found on the N. right of way of Ash Street, thence said of way line of Ash Street S. 64 degrees, 33 minutes, 25 seconds W. 138.33' to the point of BEGINNING containing 2.589, more or less. PARCEL 4: Situate in the 17th Civil District of Sullivan County, Tennessee, to wit: BEGINNING at an iron pin found on the W. right of way line of Beecham Street, common corner with Floyd Whitehead thence with said Beecham Street S. 30 degrees, 17 minutes, 05 seconds E. 37.38' to an iron pin found, common corner with Roy McCurdy thence with McCurdy line S. 59 degrees, 02 minutes, 23 seconds W. 165.17 feet to an iron pin found in the line of Dudley Hagy, thence with Hagy N. 29 degrees, 52 minutes, 46 seconds W. 8.30' to an iron pin, common corner with Floyd Whitehead (2nd Tract), thence with said Floyd Whitehead (2nd Tract) N. 30 degrees, 09 minutes, 05 seconds W. 28.92' to an iron pin found common corner with Floyd Whitehead; thence with Floyd Whitehead N. 58 degrees, 58 minutes, 58 seconds E. 165.04' to the point of BEGINNING containing 0.162, more or less. PARCEL 5: Situate in the 17th Civil District of Sullivan County, Tennessee, to wit: BEGINNING at iron pin found on the W. right of way line of Beecham Street, common corner with Roy McCurdy, thence with Beecham Street the following calls: S. 30 degrees, 29 minutes 53 seconds E. 37.20' to a point, S. 30 degrees, 29 minutes, 53 seconds E. 45.00' to an iron pin found, S. 29 degrees, 03 minutes 09 seconds E. 42.12' to a point on the N. right of way line of Olive Street, thence with said Olive Street the following calls: S. 58 degrees, 25 minutes, 52 seconds W. 52.65' to a point, S. 59 degrees, 14 minutes, 42 seconds W. 36.00' to an iron pin found, S. 59 degrees, 20 minutes, 53 seconds W. 39.18' to an iron pin found, S. 59 degrees, 08 minutes, 09 seconds W. 37.04' to an iron pin found common corner with Joe Blackburn, thence with Blackburn, N. 30 degrees, 09 minutes, 16 seconds W. 87.16' to an iron pin found, thence with Blackburn and Dudley Hagy N. 29 degrees, 52 minutes, 46 seconds W. 36.83' to a point in the line of Hagy and common corner with Roy McCurdy, thence with McCurdy N. 58 degrees, 52 minutes, 30 seconds E. 165.01' to the point of BEGINNING containing 0.513, more or less. Being the same property conveyed to RSR ACQUISITIONS n/k/a KING PHARMACEUTICALS, INC., by deeds dated SEPTEMBER 20, 1996, NOVEMBER 27, 1996 and DECEMBER 23, 1993 and recorded in Deed Books 386, 390 and 343, pages 674, 185 and 270, respectively In the Register's Office for Sullivan County, at Bristol, Tennessee. THE ABOVE parcels are all shown on survey of King Pharmaceuticals, Inc. by Cross Land Surveying and Planning, Steven Gerald Cross, RLS #1429, 612 Greenfield Place, Bristol, TN 37620, dated May 23, 1997 to which reference is hereby made. 37

EXHIBIT C Litigation NONE 38

EXHIBIT D Contributions to Multi-Employer Pension Pan NONE 39

EXHIBIT E Subsidiaries 1. Monarch Pharmaceuticals, Inc. State of Incorporation: Tennessee Ownership: Borrower owns 100% 2. King Pharmaceuticals of Nevada, Inc. State of Incorporation: Nevada Ownership: Borrower owns 100% 40

EXHIBIT F Environmental Matters The following is a list of all known hazardous or toxic waste storage or dump sites on any premises owned or leased by the Company or any of its subsidiaries and a description of the nature of the substances located thereon and the type of facility: The following hazardous waste substances are temporarily stored periodically at King:
Waste ----Ignitable Liquid: Spent Analytical Solvent Flammable Liquid: Spent Analytical Solvent Waste Combustible Liquid NOS PET-NAPHTHA Components ---------Methanol, Acetonitrile, Water Methanol, Acetonitrile, Water, Acetone (Analysis in process 2/20/97)

Waste is held temporarily in a temperature controlled, concrete building. Accumulated waste is picked up for removal to a certified disposal site. The following is a list of all surveys, audits and reports initiated by or supplied to the Company or any of its subsidiaries at any time during the past five (5) years regarding environmental concerns with respect to any real or personal property owned, leased, occupied, or operated by the Company: Industrial Hygiene Audit dated 2/5/93 Tennessee Department of Environment and Conservation report dated 6/22/95 41

Exhibit G Corporate Names/Tradenames Other Corporate Names: Other Tradesnames: RSR Acquisition Corp. 1. Monarch Pharmaceuticals, Inc. 2. Royal Vet

42

Exhibit H Permitted Liens 1. UCC-1 from Borrower to General Electric Capital Corp. Recorded May 29, 1997 in Book 398, page 839, in the Register of Deeds Office for Sullivan County, at Bristol, Tennessee. 2. Deed of Trust in the amount of $1,750,000.00 from Borrower to Jack W. Hyder, Jr., Trustee, securing The United Company, recorded March 18, 1997 in Book 395, page 105, of the Register's Office for Sullivan County, at Bristol, Tennessee; provided this Deed of Trust is properly made junior and subordinate, prior to or contemporaneously with the execution of the Agreement, to all Deeds of Trust filed by Lender pursuant to the Agreement. 3. Any liens upon manufacturing equipment purchased or leased by Borrower. 43

TERM PROMISSORY NOTE August 21, 1997 $1,025,000 Sullivan County, Tennessee FOR VALUE RECEIVED, KING PHARMACEUTICALS, INC., a Tennessee corporation (the "Debtor"), hereby unconditionally promises to pay to the order of FIRST AMERICAN NATIONAL BANK (the "Payee"), at the offices of Payee at 4105 Ft. Henry Drive, Suite 300, Kingsport, Tennessee 37663, or such other place as the Payee or any holder hereof may from time to time designate, the principal sum of ONE MILLION TWENTY FIVE THOUSAND DOLLARS ($1,025,000) in lawful money of the United States of America and in immediately available funds, in thirty five (35) consecutive monthly installments of TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY TWO DOLLARS AND TWENTY TWO CENTS ($28,472.22) and one final installment of TWENTY EIGHT THOUSAND FOUR HUNDRED SEVENTY TWO DOLLARS AND THIRTY CENTS ($28,472.30) on the first day of each month commencing on September 1,1997. Debtor hereby further promises to pay interest to the order of Payee on the unpaid principal balance hereof at the Interest Rate (as hereinafter defined). Such interest shall be paid in like money at said office or place from the date hereof, commencing September 1, 1997 and on the first day of each month thereafter until the indebtedness evidenced by this Note is paid in full. Interest payable upon and after an Event of Default or termination or non-renewal of the Loan and Security Agreement shall be payable upon demand. For purposes hereof, the term Interest Rate shall mean a rate of ninety days (90) - LIBOR plus one and three quarters percent (1.75%)(computed on the basis of the actual number of days elapsed over a year of 360 days). "LIBOR" shall mean, for each interest period, the rate per annum offered to the Lender (at approximately 11:00 A.M. London time, on the date two Business Days in London prior to the first day of such interest period) by prime banks in the London Interbank Market for deposits of the lawful money of the United States of America for a period equal to the length of such interest period and in an amount of the Loan which have been made by Lender to Borrower hereunder and are scheduled to be outstanding during such interest period. Each determination of the LIBOR by Lender shall, in the absence of manifest error, be conclusive and binding. Lender shall attempt to notify Borrower of its determination of the LIBOR as soon as practicable following such determination. In no event shall the interest hereon exceed the maximum rate permitted to be charged by applicable law or regulation. In no event shall the interest charged hereunder exceed the Maximum Interest Rate.

This Note is issued pursuant to the terms and provisions of the Loan Security Agreement to evidence the Term Loan by Payee to Debtor. This Note is secured by a deed of trust of even date herewith. Unless payment is otherwise made by Debtor, Payee may charge the amount of any payment due hereunder to any account of Debtor maintained by Payee. If any payment of principal or interest is not made when due hereunder, or if any other Event of Default shall occur for any reason, or if the Loan and Security Agreement shall be terminated or not renewed for any reason whatsoever, then and in any such event, in addition to all rights and remedies of Payee under the Loan and Security Agreement, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Debtor's obligations, liabilities and indebtedness owing to Payee under the Loan and Security Agreement, including, without limitation, all amounts owing under this Note, to be due and payable, whereupon the then unpaid balance hereof, together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing thereafter at the Interest Rate until the indebtedness evidenced by this Note is paid in full, plus the costs and expenses of collection hereof, including, but not limited to, attorneys' fees and legal expenses. LIBOR Advances may be prepaid at any time with three (3) prior Business Days' notice to Lender, provided Borrower shall compensate Lender for any and all funding losses when any LIBOR Advance is prepaid prior to the end of its respective Interest Period. Debtor (i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for Payee to first institute suit in order to enforce payment of this Note and (iii) consents to any one or more extension or postponements of time of payment, release surrender or substitution or collateral security, or forbearance or other indulgence, without notice or consent. The pleading of any statute of limitations as a defense to any demand against Debtor is expressly hereby waived by Debtor. Upon an Event of Default or termination or non-renewal of the Loan and Security Agreement, Payee shall have the right, but not the obligation to setoff against this Note all money owed by Payee or Debtor. Payee shall not be required to resort to any collateral for payment, but may proceed against Debtor and any guarantors or endorser hereof in such order and manner as Payee may choose. None of the rights of Payee shall be waived or diminished by any failure or delay in the exercise thereof. 2

The validity, interpretation and enforcement of this Note and any dispute arising in connection herewith shall be governed by the internal laws of the State of Tennessee without giving effect to principles of conflicts of law. KING PHARMACEUTICALS, INC.
(SEAL) By: /s/ John M. Gregory --------------------------------John M. Gregory ------------------------------Chief Executive Officer -------------------------------

Name: Title:

Attest: /s/ Joseph R. Gregory ---------------------------------Joseph R. Gregory, Secretary

3

EXHIBIT 10.11 LOAN AGREEMENT THIS LOAN AGREEMENT ("Loan Agreement") is made this 10th day of September, 1997, by and between KING PHARMACEUTICALS, INC., a Tennessee corporation whose address is 501 Fifth Street, Bristol, Tennessee 37620 (the "Borrower"), MONARCH PHARMACEUTICALS, INC., a Tennessee corporation whose address is 355 Beecham Street, Bristol, Tennessee 37620 (the "Guarantor") and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the statutes of the United States of America, whose address is P.O. Box 3189, Bristol, Tennessee 37625 (the "Bank"). Recitals of Fact In accordance with the terms of that certain loan agreement dated April 30, 1996, by and between the Borrower and the Bank (the "1996 Loan Agreement"), Borrower obtained, among other things, a revolving credit loan from the Bank in the original principle sum of Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) (the "1996 Revolving Credit Loan"). The Borrower has requested that the Bank commit to make loans and advances to it on a revolving credit basis in an amount not to exceed at any one time outstanding the principal sum of Eight Million Five Hundred Thousand and No/100 Dollars ($8,500,000.00) (the "1997 Revolving Credit Loan"). The Borrower will use the revolving credit funds to provide working capital and the Bank has agreed to make such loan and advances on the terms and conditions herein set forth. The 1997 Revolving Credit Loan will renew, extend, increase, amend and supersede the 1996 Revolving Credit Loan. Furthermore, this Loan Agreement will amend and supersede the 1996 Loan Agreement insofar as it pertains to the revolving line of credit. NOW, THEREFORE, incorporating the Recitals of Fact set forth above and in consideration of the mutual agreements herein contained, the parties agree as follows: AGREEMENTS SECTION 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 CERTAIN DEFINED TERMS. For purposes of this Loan Agreement, the following terms shall have the following meanings (such meanings to be applicable equally to both the singular and plural forms of such terms) unless the context otherwise requires: "Borrowing Base Certificate" means that certain certificate that is attached hereto as Exhibit "A". "Borrower Collateral" means the tangible and intangible personal property of the Borrower that is intended to secure the loan contemplated under this Loan Agreement, said personal property being specifically described in Section 4.1 of this Loan Agreement. "Borrower Security Agreement" means the security agreement described in Section 4.3(a) of this Loan Agreement. "Closing Date" means the date set out in the first paragraph of this Loan Agreement.

"Contra Accounts" means the aggregate of Borrower's and Guarantor's accounts receivable from a third party that are offset by the aggregate of Borrower's and Guarantor's accounts payable owed to said third party. "Event of Default" has the meaning assigned to that phrase in Section 14 of this Loan Agreement. "Guarantor Collateral" means the tangible and intangible personal property of the Guarantor that is intended to secure the loans contemplated under this Loan Agreement, said personal property being specifically described in Section 4.2 of this Loan Agreement. "Guarantor Security Agreement" means the security agreement described in Section 4.3(b) of this Loan Agreement. "Guaranty" means the guaranty agreement described in Section 3.2 of this Loan Agreement. "Loan Agreement" means this Loan Agreement between the Borrower, Guarantor and Bank. "Revolving Credit Advances" means advances of principal on the Revolving Credit Loan by the Bank under the terms of this Loan Agreement to the Borrower during the term of the 1997 Revolving Credit Loan. "1997 Revolving Credit Loan" means the Borrower's revolving credit indebtedness to the Bank pursuant to Section 2 of this Loan Agreement. "Revolving Credit Note" means the promissory note described in Section 2.3 of this Loan Agreement. "Termination Date of the Revolving Credit Loan" shall mean May 31, 1999 or, in the event that the Bank and the Borrower shall hereafter mutually agree in writing that the 1997 Revolving Credit Loan and the Bank's commitment hereunder shall be extended to another date, and the Note shall be modified or amended to reflect such extension, such other date mutually agreed upon between the Bank and the Borrower to which Bank's commitment shall have been extended. "Working Capital," means the amount by which the Borrower's and its wholly owned subsidiaries consolidated current assets exceed the Borrower's and its wholly owned subsidiaries' consolidated current liabilities, all as determined in accordance with generally accepted accounting principles applied on a consistent basis. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent to those applied in the preparation of the financial statements required to be delivered from time to time pursuant to Section 11.1 of this Loan Agreement. SECTION 2: COMMITMENT FUNDING AND TERMS OF 1997 REVOLVING CREDIT LOAN. 2.1 THE COMMITMENT. Subject to the terms and conditions herein set out, the Bank agrees and commits to make loan advances or commitments under letters of credit to the Borrower from time to time, from the Closing Date until the Termination Date of the Revolving Credit Note, in aggregate principal amounts not to exceed at any one time outstanding Eight Million Five Hundred Thousand and No/100 Dollars ($8,500,000.00). 2

2.2 FUNDING THE LOAN. Revolving Credit Advances shall be made (i) by automated transfer, as described in that certain agreement by and between the Borrower and the Bank entitled "Automated Transfer Facility Including Automated Principal Reduction", dated April 30, 1996, or (ii) upon the oral request, followed by immediate written or fax confirmation, or the written request of the Borrower to the Bank and to the attention of: Kevin L. Jessee Community Bank President First Tennessee Bank National Association P.0. Box 3189 Bristol, TN 37625 (423) 968-5308 (423) 968-5612 FAX All Revolving Credit Advances shall be made by depositing the same to a checking account in the name of the Borrower. All written confirmations shall be sent to the address set forth in this Section 2.2. All fax confirmations shall be sent to the fax number set forth in this Section 2.2. 2.3 THE NOTE AND INTEREST. The 1997 Revolving Credit Loan shall be evidenced by the Revolving Credit Note of the Borrower, payable to the order of the Bank in the principal amount of Eight Million Five Hundred Thousand and No/100 dollars ($8,500,000.00). The entire principal amount of the loan (including outstanding commitments under letters of credit) shall be due and payable on the Termination Date of the 1997 Revolving Credit Loan. The unpaid principal balances of the Revolving Credit Note shall bear interest on disbursed and unpaid principal balances at the rates specified in the Revolving Credit Note and shall be payable as provided in the Revolving Credit Note. 2.4 PRE-PAYMENTS OR TERMINATION OF THE REVOLVING CREDIT NOTE. So long as no Event of Default exists, the Borrower may, at its option, from time to time, subject to the terms and conditions hereof, without penalty, borrow, repay, and reborrow amounts under the Revolving Credit Note. By notice to the Bank in writing, the Borrower shall be entitled to terminate the Bank's commitment to make further advances on the Revolving Credit Note. 2.5 CONDITIONS PRECEDENT TO CLOSING AND FUNDING REVOLVING CREDIT NOTE. The obligation of the Bank to fund the initial advance under the Revolving Credit Note is subject to the conditions precedent set forth in Section 5.1 of this Loan Agreement. 2.6 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT NOTE ADVANCES. The obligation of the Bank to make the Revolving Credit Advances pursuant hereto (including the initial advance on the Closing Date) shall be subject to the following additional conditions precedent: (a) The Borrower shall have furnished to the Bank each of the items referred to in Section 5.1 of this Loan Agreement, all of which shall remain in full force and effect as of the date of such Revolving Credit Advance (notwithstanding that the Bank may not have required any such item to be furnished prior to the Closing Date or previous Revolving Credit Advances). (b) An Event of Default shall not have occurred. (c) Each of the warranties and representations of Borrower, as set out in Section 6 of this Loan Agreement, shall remain true and correct in all material respects. 3

(d) Each of the warranties and representations of Guarantor, as set out in Section 7 of this Loan Agreement, shall remain true and correct in all material respects. (e) Each of the joint warranties and representations of Borrower and Guarantor, as set out in Section 8 of this Loan Agreement, shall remain true and correct in all material respects. (f) The aggregate outstanding Revolving Credit Advances will not exceed 85% of the aggregate of Borrower's and Guarantor's accounts receivable that are less than 90 days from the date of invoice, less Contra Accounts, plus 60% of the aggregate of Borrower's and Guarantor's raw materials and finished goods inventory (the "Borrowing Base"). The Borrowing Base shall be determined using the Borrowing Base Certificate, as determined once per month, beginning on the Closing Date and on the first day of each and every month thereafter until the Termination Date of the 1997 Revolving Credit Loan. 2.7 BORROWING BASE CERTIFICATE. On the closing date and on the first day of each and every month thereafter until the Termination Date of the 1997 Revolving Credit Loan, Borrower shall complete and provide to the Bank the Borrowing Base Certificate. SECTION 3: GUARANTY. 3.1 GUARANTY OF PAYMENT. The Guarantor agrees to guaranty the payment of all sums at any time owing to the Bank under this Loan Agreement, the Revolving Credit Note, and/or Borrower Security Agreement. 3.2 GUARANTY AGREEMENT. In order to provide the Bank with the guaranty contemplated by Section 3.1 of this Loan Agreement, the Guarantor shall execute the guaranty agreement that is attached hereto as Exhibit "B". SECTION 4. COLLATERAL. 4.1 DESCRIPTION OF COLLATERAL SECURING REVOLVING CREDIT NOTE. The Revolving Credit Note shall be secured by a first lien on the Borrower's inventory and accounts, and all products and proceeds of the foregoing. 4.2 DESCRIPTION OF COLLATERAL SECURING GUARANTY. The Guaranty shall be secured by a first lien on the Guarantor's inventory and accounts, and all products and proceeds of the foregoing. 4.3 GRANTING AND PERFECTION OF SECURITY INTEREST. In order to provide the Bank with the security contemplated by Sections 4.1 and 4.2 of this Loan Agreement, the following shall be done: (a) Borrower shall execute a security agreement granting the Bank a security interest in the Borrower Collateral and Borrower shall execute such financing statements and/or other documents as may be necessary to perfect said security interest. The Borrower Security Agreement, the financing statements and such other documents shall be in a form acceptable to the Bank. (b) Guarantor shall execute a security agreement granting the Bank a security interest in the Guarantor Collateral and Guarantor shall execute such financing statements and/or other documents as may be necessary to perfect 4

said security interest. The Security Agreement, the financing statements and such other documents shall be in a form acceptable to the Bank. 4.4 LOCKBOXES. On the closing date, the Borrower and the Guarantor shall each establish a lockbox to be administered by the Bank. All of the Borrower's and Guarantor's accounts receivable received on or after the Closing Date shall be deposited into their respective lockbox. In order to facilitate the deposit of all the Borrower's and Guarantor's accounts receivable into their respective lockbox the Borrower and Guarantor shall each instruct all of their respective customers, now and in the future, to mail their payments to the respective lockbox address. The Borrower and Guarantor will notify the Bank of any payment on the Borrower's and Guarantor's accounts receivable received directly by the Borrower or the Guarantor. The Borrower and Guarantor shall give the Bank such notice within one (1) business day of the receipt of any such payment. SECTION 5. CONDITIONS OF LENDING. 5.1 CONDITIONS PRECEDENT TO FUNDING THE REVOLVING CREDIT NOTE. The obligation of the Bank to fund the initial Revolving Credit Note advance is subject to the following conditions precedent that the Bank shall have received in a form and substance satisfactory to the Bank: (a) This Loan Agreement; (b) The Revolving Credit Note; (c) The Borrower Security Agreement, together with such financing statements or other documents as the Bank may require to perfect its security interest in the Borrower Collateral; (d) The Guaranty; (e) The Guarantor Security Agreement, together with such financing statements and other documents as the Bank may require to perfect its security interest in the Guarantor Collateral; (f) UCC lien searches from such recording offices as the Bank shall specify, evidencing that the Bank has a first lien under the Borrower Security Agreement and the Guarantor Security Agreement; (g) The unqualified opinion of Bank's counsel that the Bank has a first lien against the Borrower Collateral and Guarantor Collateral and that said lien has been perfected; (h) Certified corporate resolutions of the Borrower, authorizing this Loan Agreement, the Revolving Credit Note, and the Borrower Security Agreement; (i) Certified corporate resolutions of the Guarantor, authorizing this Loan Agreement, the Guaranty, and the Guarantor Security Agreement; (j) Certificate(s) of good standing for the Borrower from the state of its incorporation and such other states as the Bank shall require; (k) Certificate(s) of good standing for the Guarantor from the state of its incorporation and such other states as the Bank shall require; 5

(1) The opinion of the Borrower's counsel that (i) the Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary; (ii) the transactions herein contemplated have been duly authorized by all requisite corporate authority, (iii) this Loan Agreement and the other instruments and documents herein referred to have been duly authorized, validly executed and are in full force and effect, (iv) the execution, delivery and performance of this Loan Agreement, the Revolving Credit Note, and the Borrower Security Agreement will not violate any provision of law, any order of any court or other agency of government, the Charter or By-Laws of the Borrower, any provision of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower's respective properties or assets are bound, or be in conflict, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien (other than the lien of the Bank), charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, (v) the Guarantor is a wholly owned subsidiary of the Borrower, and (vi) pertaining to such other matters as the Bank may reasonably require. (m) The opinion of the Guarantor's counsel that (i) the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of