Exhibit 10.5

 

OPTION AND PUT AGREEMENT

 

This OPTION AND PUT AGREEMENT (this “Agreement”), dated as of April 3, 2008, is
by and among VIVUS, Inc., a Delaware corporation (the “Company”), Deerfield ED
Corporation, a Delaware corporation (“ED”), and the entities listed on Exhibit 1
hereto (each a “Stockholder” and together the “Stockholders”).

 

W I T N E S S E T H:

 

WHEREAS, the Stockholders own all of the issued and outstanding capital stock of
ED;

 

WHEREAS, concurrently with the execution of this Agreement, the Company and ED
are entering into a Funding and Royalty Agreement (the “Funding and Royalty
Agreement”) pursuant to which ED has agreed to provide the Company with funding
for the development of certain products and the Company has granted ED the right
to receive a Royalty with respect to sales of MUSE and Avanafil; and

 

WHEREAS, the Stockholders have agreed to grant the Company an option to purchase
from the Stockholders all of the outstanding shares of common stock of ED on the
terms and conditions set forth herein, and the Company has agreed to grant to
the Stockholders an option to require the Company to purchase from the
Stockholders all of the outstanding shares of common stock of ED on the terms
and conditions set forth herein.

 

NOW, THEREFORE, in consideration of mutual agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1                                 DEFINITIONS.

 

“Avanafil” has the meaning set forth in the Funding and Royalty Agreement.

 

“Arrangement Fee” shall have the meaning set forth in Section 4.8.

 

“Base Option Price” means $25,000,000 if the Option Closing Date occurs on or
prior to the third anniversary of the date hereof and $28,000,000 if the Option
Closing Date occurs subsequent to the third anniversary of the date hereof.

 

“Base Put Price” means (x) $23,000,000 in the case of a Put Closing that occurs
on or prior to the third anniversary of the date hereof pursuant to a Major
Transaction Notice, (y) $26,000,000 in the case of a Put Closing that occurs
subsequent to the third anniversary of the date hereof pursuant to a Major
Transaction Notice and (z) $17,000,000 in all other cases.

 

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“Business Day” means a day other than a Saturday, Sunday or day on which banks
in the City of New York are authorized or required to be closed.

 

“Cash” and “Cash Equivalents” means (a) unrestricted funds in bank accounts;
(b) marketable direct obligations issued by, or unconditionally guaranteed by,
the United States Government or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within one
year from the date of acquisition; (c) certificates of deposit, time deposits,
eurodollar time deposits or overnight bank deposits; (d) securities with
maturities of one year or less issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by Standard & Poor’s Rating Service (“S&P”) or A by Moody’s
Investors Service, Inc. (“Moody’s”); (e) money market mutual or similar funds
that invest exclusively in assets satisfying the requirements of clauses
(a) through (d) of this definition; (f) money market funds that (i) comply with
the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of
1940, as amended, and (ii) are rated AAA by S&P and Aaa by Moody’s or
(g) available for sale securities which are rated AAA by S&P and Aaa by Moody’s.

 

“Cash Adjustment” means the amount of Cash and Cash Equivalents held by ED as of
the Option Closing Date or the Put Closing Date, as the case may be.

 

“Cash and Cash Equivalent Notice” has the meaning set forth in Section 3.3(b).

 

“Closing” shall have the meaning set forth in Section 8.2.

 

“Company Documents” has the meaning set forth in Section 6.2.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Contract” means any note, bond, mortgage, indenture, contract, agreement,
guaranty, lien, pledge, lease, purchase order, sales order, arrangement or other
commitment, obligation or understanding, written or oral, to which a Person is a
party or by which a Person or its assets or properties are bound.

 

“Damages” means any loss, liability, claim, damage or expense (including
reasonable attorneys’ fees).

 

“Encumbrance” means any security interest, mortgage, lien, pledge, charging
order, warrant, option, conversion right, purchase right or other encumbrance of
any sort.

 

“Funding Adjustment” means the amount of any Funding Payments that have not been
made under the Funding and Royalty Agreement.

 

“Funding and Royalty Agreement” has the meaning set forth in the Recitals to
this Agreement.

 

“Funding Payment” has the meaning set forth in the Funding and Royalty
Agreement.

 

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“GAAP” means generally accepted accounting principles as recognized by the
American Institute of Certified Public Accountants.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, any municipal, local, city or county government,
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

 

“Governmental Authorization” means any approval, consent, license, permit,
waiver or other authorization issued, granted or given by or under the authority
of any Governmental Authority.

 

“Indemnified Party” has the meaning set forth in Section 9.4(a).

 

“Indemnifying Party” has the meaning set forth in Section 9.4(a).

 

“Law” means any foreign, federal, national, supranational, state, provincial,
local or similar statute, law, ordinance, regulation, rule, code, Order,
requirement or rule of law (including common law), as amended and in effect from
time to time.

 

“Legal Requirement” means any federal, state, local or foreign statute, law,
treaty, rule, regulation, Order, decree, writ, injunction or determination of
any arbitrator, court or Governmental Authority and, with respect to any Person,
includes all such Legal Requirements applicable or binding upon such Person, its
business or the ownership or use of any of its assets.

 

“Liabilities” means any and all debts, liabilities and obligations of any sort,
whether accrued or fixed, absolute or contingent, matured or unmatured,
determined or determinable, including those arising under any Legal Requirement
or Contract or otherwise.

 

“Major Transaction” means (A) a consolidation, merger, exchange of shares,
recapitalization, reorganization, business combination or similar event
(1) following which the holders of common stock of the Company immediately
preceding a consolidation, merger, exchange of shares, recapitalization,
reorganization, business combination or similar event either (a) no longer hold
a majority of the shares of the common stock of the Company or (b) no longer
have the ability to elect a majority of the board of directors of the Company or
(2) as a result of which shares of common stock of the Company are changed into
(or the shares of common stock become entitled to receive) the same or a
different number of shares of the same or another class or classes of stock or
securities of the Company or another entity (collectively, a “Change in Control
Transaction”), (B) a sale or transfer of assets of the Company in one
transaction or a series of related transactions where the consideration to be
payable at and within thirty (30) days of closing of such transaction or
transactions has a value of more than $350,000,000, or a sale, transfer or
license of all or substantially all assets or proprietary rights of the Company
that relate specifically to MUSE or Avanafil, or (C) a purchase, tender or
exchange offer made to the holders of outstanding shares of the Company’s common
stock, such that following such purchase, tender or exchange offer a Change in
Control Transaction shall have occurred; or (D) an issuance or series of
issuances by the Company in related transactions of an aggregate number of
shares of common stock in excess of 20% of the Company’s outstanding common
stock on the

 

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date hereof if, immediately prior to such issuance or series of issuances, the
Market Capitalization of the Company is less than $300,000,000.

 

“Major Transaction Notice” has the meaning set forth in Section 3.3.

 

“Market Capitalization of the Company” means the aggregate of the value of all
of the Company’s outstanding shares of common stock based on the volume weighted
average price of such shares on the NASDAQ Global Market as reported by
Bloomberg Financial Markets or an equivalent reliable reporting source
(“Bloomberg”) or if NASDAQ is not the principal trading market for such shares,
the volume weighted average price of such shares on the principal securities
exchange or the trading market whose such shares are listed or traded as
reported by Bloomberg.

 

“MUSE” has the meaning set forth in the Funding and Royalty Agreement.

 

“Net Sales” shall have the meaning ascribed to that term in the Funding and
Royalty Agreement.

 

“Option” has the meaning set forth in Section 2.1.

 

“Option Closing” has the meaning set forth in Section 2.5.

 

“Option Closing Date” has the meaning set forth in Section 2.4.

 

“Option Period” has the meaning set forth in Section 2.4.

 

“Option Premium” has the meaning set forth in Section 2.2.

 

“Option Purchase Price” has the meaning set forth in Section 2.3.

 

“Order” means any binding order, judgment, ruling, subpoena or verdict rendered
by any Governmental Authority or by any arbitrator.

 

“Party” means the Company, ED and the Stockholders, and “Parties” means all such
Persons.

 

“Permitted Encumbrances” means (i) all Encumbrances approved in writing by the
Company; (ii) mechanics’, materialmen’s, carriers’, workmen’s, warehousemen’s,
repairmen’s and landlords’ liens or other like Encumbrances arising or incurred
in the ordinary course of business for amounts which are not material and not
yet due and payable; (iii) Encumbrances for Taxes and other governmental charges
that are not due and payable or delinquent or which are being contested in good
faith through appropriate Proceedings and (iv) Encumbrances arising under
Contracts with third parties entered into in the ordinary course of business in
respect of amounts still owing.

 

“Person” means any corporation, association, joint venture, partnership, limited
liability company, organization, business, individual, trust, Governmental
Authority or other legal entity.

 

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“Proceeding” means any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal or administrative) commenced,
conducted, or heard by or before any Governmental Authority or arbitrator.

 

“Put Closing” has the meaning set forth in Section 3.6.

 

“Put Closing Date” means the date on which the Shares are sold to the Company
pursuant to the Put Right.

 

“Put Exercise Notice” has the meaning set forth in Section 3.5.

 

“Put Period” has the meaning set forth in Section 3.2.

 

“Put Purchase Price” has the meaning set forth in Section 3.4.

 

“Put Right” has the meaning set forth in Section 3.1.

 

“Royalty” has the meaning set forth in the Funding and Royalty Agreement.

 

“Royalty Adjustment” means the amount of accrued and unpaid Royalties for all
periods of time ending on the Option Closing Date or the Put Closing Date, as
the case may be.  For purposes of determining the amount of Royalties payable
with respect to the quarterly period during which an Option Closing or Put
Closing occurs, it shall be assumed that Net Sales of MUSE were made at the same
rate as Net Sales in the comparable period of the prior year and that Net Sales
of PDE-5I were made at the same rate as Net Sales in the immediately preceding
quarter.

 

“Royalty Default Notice” shall have the meaning set forth in Section 3.2.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Security Agreement” has the meaning set forth in Section 3.1A.

 

“Shares” shall have the meaning set forth in Section 4.2.

 

“Stockholder Documents” has the meaning set forth in Section 5.2.

 

“Stockholders” has the meaning set forth in the first paragraph of the
Agreement.

 

“Straddle Period” means any Taxable Period that begins on or before, and ends
after, the Option Closing Date or the Put Closing Date, as applicable.

 

“Subscription Agreements” has the meaning set forth in Section 4.2.

 

“Tax Adjustment” means the amount of accrued Taxes of ED for all periods up to
the Option Closing or the Put Closing, as the case may be, to the extent such
Taxes have not been paid by ED as of the applicable Closing.

 

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“Taxable Period” shall mean any taxable year or any other period that is treated
as a taxable year (or other period, or portion thereof, in the case of a Tax
imposed with respect to such other period; e.g., a quarter) with respect to
which any Tax may be imposed under any applicable statute, rule, or regulation.

 

“Taxes” means any and all U.S. federal, state and local taxes, assessments and
other governmental charges, duties, impositions, levies and liabilities,
including, without limitation, taxes based upon or measured by gross receipts,
income profits, sales, use and occupation, and value added, goods and services,
ad valorem, transfer, gains, franchise, withholding, payroll, recapture,
employment, excise, unemployment, insurance, social security, business license,
occupation, business organization, stamp, environmental and property taxes,
together with any interest, penalties and additions imposed with respect to such
amounts.  For purposes of this Agreement, “Taxes” also includes any obligations
under any agreements or arrangements with any Person with respect to the
liability for, or sharing of, Taxes.

 

“Tax Return” means any return, statement, declaration, report, estimate, notice,
form, schedule or other document (including estimated Tax returns and reports,
withholding Tax returns and reports, any schedule or attachment, information
returns and reports and any amendment to any of the foregoing) relating to
Taxes.

 

ARTICLE II

OPTION

 

2.1                                 Option.  On the terms and subject to the
conditions of this Agreement, the Stockholders hereby grant the Company an
option (the “Option”) which, when exercised, shall obligate each of the
Stockholders to sell the Shares to the Company, and the Company to purchase the
Shares from each of the Stockholders.

 

2.2                                 Option Premium.  In consideration of the
grant by the Stockholders to the Company of the Option, the Company shall
simultaneously with the payment of the first Funding Payment under the Funding
and Royalty Agreement pay to the Stockholders Two Million Dollars ($2,000,000)
(the “Option Premium”) by wire transfer of immediately available funds to the
account listed in Exhibit 2 hereto.  Such amount shall be allocated between the
Stockholders as provided in Exhibit 2 hereto.  If the Option is exercised by the
Company, upon closing of the sale of the Shares the Option Premium shall be
applied against the Option Purchase Price in accordance with Section 2.3 below.
 In all other circumstances, including but not limited to the sale of the Shares
pursuant to the Put Right, the Stockholders shall be entitled to retain the
Option Premium.

 

2.3                                 Option Purchase Price.  If the Company
exercises the Option, the aggregate consideration to be paid by the Company (the
“Option Purchase Price”) to the Stockholders for the Shares shall be equal to
the sum of the Base Option Price plus the Cash Adjustment plus the Royalty
Adjustment, and minus the Option Premium, the Tax Adjustment, the Funding
Adjustment and any other outstanding liabilities of ED.  The Stockholders shall
provide written notice of the amount of the Cash Adjustment, the Tax Adjustment
and any other outstanding

 

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liabilities of ED, and the Company shall provide written notice of the amount of
the Royalty Adjustment, no later than five (5) Business Days prior to the Option
Closing Date.  At the Option Closing, the Company shall pay the Option Purchase
Price to the Stockholders by wire transfer of immediately available funds to an
account or accounts designated in writing by the Stockholders.  The Option
Purchase Price shall be allocated between the Stockholders pro rata in
accordance with the percentage of the Shares held by the Stockholders.

 

2.4                                 Term and Method of Exercise of Option.  The
Option shall commence on the date of this Agreement and terminate at 5:00 p.m.
Eastern time on the fourth anniversary of the date of this Agreement (the
“Option Period”).  Except as hereafter provided, at any time prior to the
expiration of the Option Period, the Company may exercise the Option by delivery
to the Stockholders of a written notice (the “Option Exercise Notice”)
substantially in the form of Exhibit 3 hereto.  The Option Exercise Notice shall
constitute a binding obligation of the Company to purchase, and the Stockholders
to sell, all of the Shares pursuant to the terms and conditions of this
Agreement.  The Option Exercise Notice may be delivered on any Business Day
during the Option Period that is at least twenty (20) days prior to the
expiration of the Option Period and shall specify a closing date (the “Option
Closing Date”) for the sale of the Shares pursuant to the Option, which shall be
a Business Day not earlier than ten (10) nor later than twenty (20) days, after
the date of the Option Exercise Notice.

 

2.5                                 Option Closing.  The closing of the sale of
Shares pursuant to the Option (the “Option Closing”) shall take place at the
offices of Katten Muchin Rosenman LLP, in New York, New York, commencing at
10:00 a.m., local time, on a Business Day within the Option Period.  The Option
Closing shall be effective as of 5:00 p.m., local time, on the Option Closing
Date, and all actions scheduled in this Agreement for the Option Closing Date
shall be deemed to occur simultaneously at that time, except as otherwise
contemplated hereby or as expressly agreed in writing by the Parties.  At the
Option Closing the Stockholders shall deliver to the Company certificates
representing the Shares, duly endorsed in blank (or accompanied by duly executed
stock powers in blank), and the Company shall deliver to the Stockholders the
Option Purchase Price by wire transfer of immediately available funds to an
account or accounts specified by the Stockholders.

 

ARTICLE III

PUT RIGHT

 

3.1                                 Put Right.  On the terms and subject to the
conditions of this Agreement, the Company hereby grants the Stockholders an
option (the “Put Right”) which, when exercised, shall obligate the Company to
purchase the Shares from each of the Stockholders, and obligate each of the
Stockholders to sell the Shares to the Company.

 

3.2                                 The Put Period.  The Put Right shall
commence on the earliest of (a) the third anniversary of the date of this
Agreement, (b) any date on which (i) the Market Capitalization of the Company
falls below $50,000,000 or (ii) the amount of Cash and Cash Equivalents held by
the Company falls below $15,000,000, (c) the fifteenth day following the
delivery of written notice to the Company (a “Royalty Default Notice”) that the
Company has failed to pay

 

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Royalties in accordance with the provisions of the Funding and Royalty Agreement
which failure constitutes a breach of the Funding and Royalty Agreement, unless
the Company shall have paid such Royalties prior to such fifteenth day and
(d) the closing of a Major Transaction.  The Put Right shall terminate on the
tenth anniversary of the date hereof.  The period during which the Shares may be
sold pursuant to the Put Right is referred to as the “Put Period.”

 

3.3                                 Major Transaction Notice and Cash and Cash
Equivalent Notice.  (a) At least twenty (20) days prior to the consummation of
any Major Transaction, but, in any event, not later than the date of the public
announcement of such Major Transaction, the Company shall deliver to the
Stockholders a written notice setting forth the terms of such Major Transaction
(a “Major Transaction Notice”).  If, subsequent to the delivery of the Major
Transaction Notice, the Stockholders shall have delivered a Put Exercise Notice
(as defined below) then, not less than three (3) Business Days prior to the
consummation of such Major Transaction, the Company shall deliver to the
Stockholders a dated written notice specifying the anticipated closing date for
such Major Transaction.

 

(b)                                 Not less than two (2) Business Days after
any date on which the amount of Cash and Cash Equivalents of the Company falls
below $15,000,000, the Company shall deliver written notice (a “Cash and Cash
Equivalent Notice”) thereof to the Stockholders.

 

3.4                                 Put Purchase Price.  If the Stockholders
exercise the Put Right, the aggregate consideration to be paid by the Company
(the “Put Purchase Price”) to the Stockholders for the Shares shall be equal to
the Base Put Price plus the Cash Adjustment and the Royalty Adjustment and minus
the Tax Adjustment, the Funding Adjustment and any other outstanding liabilities
of ED.  The Stockholders shall provide written notice of the amount of the Cash
Adjustment, the Tax Adjustment and any other outstanding liabilities of ED, and
the Company shall provide written notice of the amount of the Royalty
Adjustment, no later than five (5) Business Days prior to the Put Closing Date. 
At the Put Closing, the Company shall pay the Put Purchase Price to the
Stockholders by wire transfer of immediately available funds to an account or
accounts designated in writing by the Stockholders.  The Put Purchase Price
shall be allocated among the Stockholders pro rata in accordance with the number
of the Shares held respectively by the Stockholders.

 

3.5                                 Method of Exercise.  Except as hereinafter
provided, at any time during the Put Period, all, but not less than all, of the
Stockholders may exercise the Put Right by delivery to the Company of a written
notice executed by each of the Stockholders (the “Put Exercise Notice”)
substantially in the form of Exhibit 3 hereto.  The Put Exercise Notice shall
constitute a binding obligation of the Company to purchase, and the Stockholders
to sell, all of the Shares pursuant to the terms and conditions of this
Agreement.  The Put Exercise Notice may be delivered on any Business Day during
the Put Period that is at least twenty (20) days prior to the expiration of the
Put Period.  In addition, the Put Exercise Notice given in respect of (a) the
Put Right provided for in Section 3.2(a) may also be given on any date that is
no more than twenty (20) days prior to the third anniversary of the date hereof,
(b) the Put Right provided for in Section 3.2(b)(ii) and 3.2(d) may also be
given at any time after the delivery of a Cash and Cash Equivalent Notice or a
Major Transaction Notice, as the case may be, and (c) the Put Right provided for
in Section 3.2(c) may be given simultaneously with or at any time after the
delivery of a Royalty Default Notice.  The Put Exercise Notice in respect of all
Put Rights other than the Put Right provided for in Section 3.2(d) shall specify
a closing date

 

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for the sale of Shares pursuant to the Put Right, which shall be a Business Day
not earlier than ten (10), nor later than twenty (20), days after the date of
the Put Exercise Notice.  The Put Exercise Notice in respect of the Put Right
provided for in Section 3.2(d) shall specify that the closing date for the sale
of the Shares shall take place simultaneously with the closing of the Major
Transaction or on a date that is mutually agreeable to the Stockholders and the
Company that is prior to the closing of the Major Transaction.

 

3.6                                 Put Closing.  The closing of the purchase of
the Shares pursuant to the Put Right (the “Put Closing”) shall take place at the
offices of Katten Muchin Rosenman LLP, in New York, New York, commencing at
10:00 a.m., local time on a Business Day within the Put Period.  The Put Closing
shall be effective as of 5:00 P.M., local time, on the Put Closing Date, and all
actions scheduled in this Agreement for the Put Closing Date shall be deemed to
occur simultaneously at that time, except as otherwise contemplated hereby or as
expressly agreed in writing by the Parties.  At the Put Closing the Stockholders
shall deliver to the Company certificates representing the Shares, duly endorsed
in blank (or accompanied by duly executed stock powers in blank), and the
Company shall deliver to the Stockholders the Put Purchase Price, by wire
transfer of immediately available funds to an account or accounts specified by
the Stockholders in writing to the Company.

 

3.7                                 Major Transaction Closing.  Notwithstanding
anything to the contrary contained herein, the Company shall not consummate a
Major Transaction if the Stockholders have previously delivered a Put Exercise
Notice unless the Put Purchase Price is paid to the Stockholders in full prior
to or simultaneously with the consummation of such Major Transaction.

 

ARTICLE IIIA

 

SECURITY AGREEMENT

 

3.1A                       Security Agreement.  As security for the performance
of its obligations with respect to the Put Right, simultaneously with the
execution of this Agreement the Company has entered into the Security Agreement
(the “Security Agreement”) annexed hereto as Exhibit 4.

 

ARTICLE IV

REPRESENTATIONS RELATING TO ED

 

The Stockholders and ED jointly and severally represent to the Company that:

 

4.1                                 ED is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.  ED has
the requisite corporate power and authority to own the assets that it owns and
to conduct its business. The current officers of ED are as follows: Peter
Steelman, President; Alexander Karnal, Secretary and Jeffrey Kaplan, Treasurer.
The Stockholders shall notify the Company as soon as practicable following any
change in the

 

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officers of ED that occurs prior to the earlier of (x) the exercise of the
Option or the Put Right and (y) the expiration of the Option and the Put Right.

 

4.2                                 The authorized capital stock of ED consists
of 21,000 shares of common stock having a par value of $0.001 per share.  As of
the date of this Agreement, none of such authorized shares are outstanding.  All
of the foregoing shares have been duly authorized and validly issued and are
fully paid and nonassessable and free of preemptive and similar rights.  Except
as expressly contemplated by this Agreement and except for shares of common
stock which are the subject of the Subscription Agreements (the “Subscription
Agreements”), dated on or about the date hereof, between ED and the respective
Stockholders, there are no outstanding (i) shares of capital stock, debt
securities or other voting securities of ED; (ii) securities of ED which are or
may become convertible into or exchangeable for shares of capital stock, debt
securities or voting securities or ownership interests in ED; (iii) Contracts
that grant or may grant the right to acquire from ED, or obligations of ED to
issue any capital stock, debt securities, voting securities or other ownership
interests in, or any securities convertible into or exchangeable or exercisable
for any capital stock, voting securities, debt securities or ownership interests
in, ED, or obligations of ED to grant, extend or enter into any such agreement
or commitment; or (iv) obligations of ED to repurchase, redeem or otherwise
acquire any outstanding securities of ED, or to vote or to dispose of any shares
of the capital stock of ED.  All of the outstanding equity securities of ED have
been offered and issued in compliance with all applicable federal and state
securities laws, including “blue sky” laws.  Any outstanding shares of capital
stock of ED, including the shares of common stock issuable pursuant to the
Subscription Agreements, are referred to as the “Shares.”

 

4.3                                 There are no agreements, arrangements,
proxies or understandings that restrict or otherwise affect the transfer of any
of the Shares except as set forth in this Agreement.

 

4.4                                 ED has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
and the execution and delivery of this Agreement and the performance of all of
its obligations hereunder have been duly authorized by ED and the Stockholders. 
This Agreement has been duly executed and delivered by ED and constitutes the
legal, valid and binding obligation of ED, enforceable against ED in accordance
with its terms, except as enforceability may be limited or affected by
applicable bankruptcy, insolvency, moratorium, reorganization or other laws of
general application relating to or affecting creditors’ rights generally.

 

4.5                                 The signing, delivery and performance of
this Agreement by ED is not prohibited or limited by, and will not result in the
breach of or a default under, any provision of the certificate of incorporation
or bylaws of ED, or of any applicable Law, Order, writ, injunction or decree of
any Governmental Authority, except for such prohibition, limitation or default
as would not prevent consummation by ED of the transactions contemplated hereby.

 

4.6                                 There is no Proceeding pending or
threatened, directly or indirectly, involving ED or the transactions
contemplated hereby or ED’s ability to perform its obligations hereunder.  ED is
not a party or subject to or in default under any Order applicable to ED

 

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4.7                                 No insolvency Proceeding of any character,
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, has been
commenced by or against ED or any of its assets, nor is any such Proceeding
threatened.  Neither the Stockholders nor ED contemplates, nor has ED or either
Stockholder taken any action in contemplation of, the institution of any such
insolvency Proceedings.

 

4.8                                 No broker, investment banker, agent, finder
or other intermediary acting on behalf of ED or under the authority of ED is or
will be entitled to any broker’s or finder’s fee or any other commission or
similar fee directly or indirectly in connection with any of the transactions
contemplated hereby, except for the arrangement fee payable to Deerfield
Management Company, L.P. pursuant to Section 6(a) of the Securities Purchase
Agreement of even date herewith among VIVUS, the Stockholders and Deerfield
Management Company, L.P. (the “Arrangement Fee”).

 

4.9                                 As of the date of this Agreement, ED’s sole
assets consist of Cash and Cash Equivalents and its rights under the
Subscription Agreements and the Funding and Royalty Agreement.  ED has no
Liabilities, other than those Liabilities that are incidental to the permitted
activities of ED or are otherwise created by the Funding and Royalty Agreement
or this Agreement or relate to the payment of Taxes.  ED has timely filed all
material Tax Returns required to be filed by it and has timely paid all material
Taxes required to be paid by it.  ED does not own any interest in any other
Person.

 

4.10                           There are no Encumbrances upon any of the Shares
other than those created by this Agreement.

 

4.11                           None of the Shares has been issued in violation
of any Legal Requirement or the certificate of incorporation or bylaws of ED or
in violation of any preemptive, subscription or similar rights.

 

4.12                           ED was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement and the Funding and Royalty
Agreement.  ED has not owned, operated or conducted and, other than its receipt
of Royalties and subscription payments under the Subscription Agreements, will
not own any assets other than Cash and Cash Equivalents or operate or conduct
any assets, businesses or activities other than in connection with its
organization, the negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereby and by the Funding and
Royalty Agreement.

 

4.13                           No Governmental Authorization is required by ED
in connection with the execution or delivery by ED of this Agreement or the
performance by ED of ED’s obligations under this Agreement.  Neither the
execution and delivery of this Agreement by ED nor the performance of ED’s
obligations hereunder shall (with or without notice or lapse of time) (i) result
in the creation of any Encumbrance upon the Shares or (ii) conflict with or
violate any Legal Requirement applicable to ED.

 

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4.14                           The Board of Directors of ED and the Stockholders
have approved this Agreement and the Funding and Royalty Agreement and the
transactions contemplated hereby and thereby.

 

4.15                           ED is not, and does not intend to conduct its
business in a manner in which it would be, required to be registered as an
“investment company” as defined in Section 3(a) of the Investment Company Act of
1940, as amended.

 

4.16                           EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE IV
AND IN ARTICLE V, NEITHER THE STOCKHOLDERS NOR ED MAKES, AND NO PARTY SHALL BE
ENTITLED TO RELY UPON, ANY REPRESENTATION OR WARRANTY AS TO ANY FACT OR MATTER
ABOUT ED UNDER THIS AGREEMENT.

 

ARTICLE V

REPRESENTATIONS RELATING TO THE STOCKHOLDERS

 

Each Stockholder represents to the Company, solely with respect to itself, that:

 

5.1                                 Organization.  Such Stockholder is a limited
partnership and is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization.

 

5.2                                 Authority; Enforceability.  Such Stockholder
has the requisite legal power and authority to (i) execute and deliver this
Agreement and each certificate, document and agreement to be executed by such
Stockholder in connection herewith (collectively, the “Stockholder Documents”)
and (ii) perform its obligations hereunder and thereunder, and such execution,
delivery and performance have been duly and validly authorized by such
Stockholder.  This Agreement has been duly and validly executed and delivered by
such Stockholder and constitutes, and upon execution and delivery by such
Stockholder of each Stockholder Document to which such Stockholder is a party,
each such Stockholder Document will constitute, a legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, except as the enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws relating to or limiting creditors’ rights generally or by general
principles of equity.

 

5.3                                 No Violation; Enforceability.  The signing,
delivery and performance of this Agreement by such Stockholder is not prohibited
or limited by, and will not result in the breach of or a default under, any
provision of the limited partnership agreement or other formation documents of
such Stockholder, or of any material agreement or instrument binding on such
Stockholder, or of any applicable law or Order, except for such prohibition,
limitation or default as would not prevent consummation by such Stockholder of
the transactions contemplated hereby.  The execution, delivery and performance
of this Agreement by such Stockholder and such Stockholder’s compliance with the
terms and provisions hereof do not and will not conflict with or result in a
breach of any of the terms and provisions of or constitute a default, with or
without the passage of time and the giving of notice, under any material
Contract binding or affecting such Stockholder or such Stockholder’s property.

 

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5.4                                 No Proceedings.  There is no Proceeding
pending or threatened involving such Stockholder that would materially affect
such Stockholder’s ability to perform its obligations hereunder.

 

5.5                                 Financial Condition.  No insolvency
Proceeding of any character, including, without limitation, bankruptcy,
receivership, reorganization, composition or arrangement with creditors,
voluntary or involuntary, has been commenced by or against such Stockholder or
any of its assets or properties, nor is any such Proceeding threatened.  Such
Stockholder does not contemplate, and has not taken any action in contemplation
of, the institution of any such insolvency Proceedings.

 

5.6                                 Sufficient Funds.  Such Stockholder has
sufficient capital commitments to be capable of funding its subscription
obligations on the terms and conditions set forth in the Subscription Agreement
to which such Stockholder is a party.

 

5.7                                 Consents and Approvals; No Violation.

 

(a)                                  No Governmental Authorization is required
by such Stockholder in connection with the execution or delivery by such
Stockholder of this Agreement or the Stockholder Documents to which such
Stockholder is a party, or the performance by such Stockholder of the
Stockholder’s obligations under this Agreement or the Stockholder Documents to
which such Stockholder is a party, except for any Governmental Authorizations
that are not material.

 

(b)                                 Neither the execution and delivery of this
Agreement and the Stockholder Documents by such Stockholder nor the performance
of such Stockholder’s obligations hereunder or thereunder shall (with or without
notice or lapse of time) conflict with or violate any Legal Requirement
applicable to such Stockholder, except for any Legal Requirements that are not
material.

 

5.8                                 Capital Stock.  As of the date of this
Agreement, such Stockholder has subscribed for the number of Shares pursuant to
the Subscription Agreement to which such Stockholder is a party, and upon
issuance of such Shares such Stockholder shall be the sole record and beneficial
owner thereof, free and clear of any Encumbrances (other than restrictions on
transfer under applicable Legal Requirements).

 

5.9                                 Brokers, Etc.  No broker, investment banker,
agent, finder or other intermediary acting on behalf of such Stockholder or
under the authority of such Stockholder is or will be entitled to any broker’s
or finder’s fee or any other commission or similar fee directly or indirectly in
connection with any of the transactions contemplated hereby, except for the
Arrangement Fee.

 

5.10                           Investment Company Act of 1940.  Such Stockholder
is not, and does not intend to conduct its business in a manner in which it
would be, required to be registered as an “investment company” as defined in
Section 3(a) of the Investment Company Act of 1940, as amended.

 

5.11                           No Other Representations or Warranties.  EXCEPT
AS EXPRESSLY SET FORTH IN ARTICLE IV AND THIS ARTICLE V, NEITHER THE
STOCKHOLDERS NOR

 

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ED MAKES, AND NO PARTY SHALL BE ENTITLED TO RELY UPON, ANY REPRESENTATION OR
WARRANTY AS TO ANY FACT OR MATTER ABOUT THE STOCKHOLDERS UNDER THIS AGREEMENT.

 

ARTICLE VI

REPRESENTATIONS RELATING TO THE COMPANY

 

The Company represents to the Stockholders and ED:

 

6.1                                 Organization.  The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its organization.  The Company has the requisite power and authority to
own, lease and use the properties and assets that it owns, leases and uses and
to conduct its business as presently conducted.

 

6.2                                 Authority; Enforceability.  The Company has
the requisite power and authority to (i) execute and deliver this Agreement, the
Security Agreement, the Funding and Royalty Agreement and each certificate,
document and agreement to be executed by the Company in connection herewith and
therewith (collectively, the “Company Documents”) and (ii) perform its
obligations hereunder and thereunder.  The execution and delivery of this
Agreement, the Security Agreement, the Funding and Royalty Agreement and the
Company Documents and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action on the part of the Company, and no other Proceedings on the part of the
Company are necessary to authorize this Agreement, the Security Agreement, the
Funding and Royalty Agreement or any of the Company Documents or to consummate
the transactions contemplated hereby or thereby.  This Agreement, the Security
Agreement and the Funding and Royalty Agreement have been duly and validly
executed and delivered by the Company and constitute, and upon execution and
delivery by the Company of each Company Document, each Company Document will
constitute, a legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws relating to or limiting creditors’ rights generally or by
general principles of equity.

 

6.3                                 Consents and Approvals; No Violation.

 

(a)                                  No Governmental Authorization is required
by the Company in connection with the execution or delivery by the Company of
this Agreement, the Security Agreement the Funding and Royalty Agreement or the
Company Documents, or the performance of the Company’s obligations under this
Agreement, the Security Agreement, the Funding and Royalty Agreement or the
Company Documents.

 

(b)                                 Neither the execution and delivery of this
Agreement, the Security Agreement, the Funding and Royalty Agreement and the
Company Documents by the Company nor the performance of the Company’s
obligations hereunder or thereunder shall (with or without notice or lapse of
time):  (i) conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company or any resolution adopted by the board of
directors or stockholders of the

 

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Company, (ii) conflict with or breach any of the terms or provisions of, or give
any Person a right to declare a default or exercise any remedy under, any
material Contract binding on the Company or (iii) conflict with or violate any
Legal Requirement applicable to the Company, but excluding from the foregoing
clauses (ii) and (iii) conflicts, breaches, defaults, remedies and violations
that would not be reasonably likely, either individually or in the aggregate, to
adversely affect the Company’s ability to consummate the transactions
contemplated by this Agreement.

 

6.4                                 Compliance With Laws.  The Company is in
compliance with all material Legal Requirements applicable to the Company.  The
Company has not received any written notice from any Governmental Authority
regarding any violation of, or failure to comply with, any material Legal
Requirement.

 

6.5                                 Litigation.  There are no Proceedings that
are pending against or threatened against the Company that would adversely
affect its ability to consummate the transactions contemplated by this
Agreement.  The Company is not subject to any Order that could affect the
enforceability of this Agreement against the Company or that would adversely
affect the Company’s ability to consummate the transactions contemplated by this
Agreement.

 

6.6                                 Investment Interest.  The Company is an
“accredited investor” within the meaning of Regulation D promulgated under the
Securities Act and will be acquiring the Shares for its own account for
investment purposes only and not with a view to, or for sale or resale in
connection with, any distribution within the meaning of Section 2(11) of the
Securities Act.  The Company understands that the Shares are characterized as
“restricted securities” under the federal securities laws inasmuch as they are
being acquired from the Stockholders in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act only in certain limited
circumstances.

 

6.7                                 Brokers.  No broker, investment banker,
agent, finder or other intermediary acting on behalf of the Company or under the
authority of the Company is or will be entitled to any broker’s or finder’s fee
or any other commission or similar fee directly or indirectly in connection with
any of the transactions contemplated hereby, except for the Arrangement Fee.

 

6.8                                 No Other Representations.  EXCEPT AS
EXPRESSLY SET FORTH IN THIS ARTICLE VI, THE COMPANY DOES NOT MAKE, AND NO PARTY
SHALL BE ENTITLED TO RELY UPON, ANY REPRESENTATION AS TO ANY FACT OR MATTER
ABOUT THE COMPANY.

 

ARTICLE VII

COVENANTS

 

7.1                                 Tax.

 

(a)                                  From the date that the Option or Put Right
is exercised to the Option Closing Date or Put Closing Date, as the case may be,
ED will not:

 

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(1)                                  make any new Tax election except as
described in Section 7.1(a)(3) below;

 

(2)                                  consent to any claim or assessment relating
to any material Taxes or any waiver of the statute of limitations for any such
claim or assessment; and

 

(3)                                  make any material change in a Tax
accounting method (except as required below) without the Company’s prior written
consent (which consent may not be unreasonably withheld, conditioned or
delayed).

 

(b)                                 From the date the Option or Put Right is
exercised to the Option Closing Date or Put Closing Date, as the case may be:

 

(1)                                  ED will promptly notify the Company of any
Tax Proceeding initiated against ED where an adverse determination could result
in a material Tax Liability or materially and adversely affect the Tax
attributes of ED; and

 

(2)                                  for purposes of apportioning a Tax to any
pre-Closing portion of a Straddle Period, the Parties shall treat such Straddle
Period as if it were two Tax Periods, one ending with the Option Closing or the
Put Closing, as the case may be, and the other beginning immediately following
such Option Closing or Put Closing; the Parties shall elect to do so if
permitted by applicable law.

 

(c)                                  From the date hereof to the Option Closing
Date or Put Closing Date, as the case may be, ED will timely file all Tax
Returns required to be filed by it during such period and will pay when due all
Taxes due and payable by ED during such period.

 

7.2                                 Operations During Purchase Period.  From the
date of this Agreement through the first to occur of (a) the expiration or
termination of the Option and the Put Right or (b) the Option Closing Date or
the Put Closing Date, ED shall, and the Stockholders shall cause ED to, engage
in no other business other than the payment of the Funding Payments pursuant to
the Funding and Royalty Agreement, the receipt of the Royalties, the investment
of Royalties in Cash and the distribution of Cash to the Stockholders.  Without
limiting the foregoing, ED shall not, and the Stockholders shall not cause ED
to, do any of the following without the prior written consent of the Company:

 

(a)                                  amend its Certificate of Incorporation or
By-laws;

 

(b)                                 issue any capital stock or any option,
warrant or right relating thereto or any securities convertible into or
exchangeable for any shares of capital stock, equity securities or other equity
interests other than pursuant to this Agreement or the Subscription Agreements.

 

(c)                                  permit, allow or suffer any of its assets
to be subject to any Encumbrance other than Permitted Encumbrances;

 

(d)                                 sell, transfer or lease rights to the
Royalties;

 

(e)                                  acquire or agree to acquire any assets
other than (A) Royalties and (B) Cash and Cash Equivalents;

 

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(f)                                    agree to any of the foregoing.

 

7.3                                 Preservation of Shares.  No Stockholder
shall (a) sell, lease or otherwise dispose of any Shares or (b) permit, allow or
suffer any Shares to be subject to any Encumbrance, in each case until the
expiration or termination of the Option and the Put Right.

 

7.4                                 Further Assurances.  Upon the terms and
subject to the conditions of this Agreement, each Party shall use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
Legal Requirements to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, including, without
limitation, the prompt preparation and filing of all forms, registrations and
notices required to be filed to consummate the transactions contemplated by this
Agreement and the taking of such commercially reasonable actions as are
necessary to obtain any requisite consents, Orders, exemptions or waivers by any
Governmental Authority or any other Person.  Each Party shall promptly consult
with the other Parties with respect to, provide the other Parties any necessary
information with respect to and provide the other Parties (or their respective
counsel) copies of, all filings made by such Party with any Governmental
Authority or any other Person or any other information supplied by such Party to
a Governmental Authority or any other Person in connection with this Agreement
and the transactions contemplated by this Agreement.  From time to time after
the Option Closing or Put Closing, without additional consideration, each Party
will execute and deliver such further instruments and take such other action as
may be necessary or reasonably requested by each other Party to make effective
the transactions contemplated by this Agreement and to provide each other Party
with the benefits of this Agreement.

 

ARTICLE VIII

CLOSING CONDITIONS

 

8.1                                 Mutual Condition.  The obligation of the
Parties to consummate the Option Closing or the Put Closing, as applicable,
shall be subject to the satisfaction (or waiver, if permissible under applicable
Legal Requirements) of the following conditions:

 

(a)                                  No Legal Requirement, temporary restraining
Order, preliminary injunction or permanent injunction, judgment or ruling
enacted, promulgated, issued, entered, amended or enforced by any Governmental
Authority shall be in effect enjoining, restraining, preventing or prohibiting
the consummation of such Option Closing or Put Closing, as applicable.

 

(b)                                 The Company shall have delivered to the
Stockholders the Option Exercise Notice or the Stockholders shall have delivered
to the Company the Put Exercise Notice, as applicable.

 

8.2                                 The Company’s Conditions.  The obligation of
the Company to consummate the Option Closing or the Put Closing (each, a
“Closing”), as applicable, shall be subject to the satisfaction (or waiver, if
permissible under applicable Legal Requirements) of the following conditions:

 

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(a)                                  Each of the representations and warranties
of ED and each Stockholder set forth in this Agreement, shall be true and
correct in all material respects, in each case as of (i) the date of this
Agreement; and (ii) the Closing, as though made on and as of the Closing, except
for representations and warranties that are made as of the date of this
Agreement (which shall be true and correct as of the date of this Agreement) and
except where the failure or failures to be true and correct would not in the
aggregate reasonably be expected to materially and adversely affect the Company.

 

(b)                                 ED and each Stockholder shall have performed
in all material respects all obligations and complied with all covenants
required to be performed by it under this Agreement at or prior to the Closing.

 

(c)                                  The Stockholders shall have delivered to
the Company a certificate certifying the matters set forth in Sections
8.2(a) and (b).

 

8.3                                 Stockholders’ Conditions.  The obligation of
ED and the Stockholders to consummate any Closing shall be subject to the
satisfaction (or waiver, if permissible under applicable Legal Requirements) of
the following conditions:

 

(a)                                  Each of the representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects, in each case as of (i) the date of this Agreement and
(ii) the Closing, as though made on and as of the Closing, except for
representations and warranties that are made as of the date of this Agreement
(which shall be true and correct as of the date of this Agreement) and except
where the failure or failures to be true and correct would not in the aggregate
reasonably be expected to materially and adversely affect the Stockholders.

 

(b)                                 The Company shall have performed in all
material respects all obligations and complied with all covenants required to be
performed by it under this Agreement at or prior to the Closing.

 

(c)                                  The Company shall have delivered to the
Stockholders a certificate certifying the matters set forth in Sections
8.3(a) and (b) executed by a duly authorized officer of the Company.

 

ARTICLE IX

INDEMNIFICATION

 

9.1                                 Survival.  All representations and
warranties made by the Stockholders, ED and the Company in this Agreement and
the documents to be executed in connection with this Agreement shall survive the
Closing until the earlier of the expiration of the applicable statute of
limitations with respect to such matters or the payment of all Royalty
obligations by the Company under the Funding and Royalty Agreement.  All
covenants and agreements contained in this Agreement and the documents to be
executed in connection with this Agreement shall survive the Closing in
accordance with their respective terms.

 

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9.2                                 Indemnification by the Stockholders. 
Subject to the limitations set forth in this Article IX, after the Closing the
Stockholders shall jointly and severally indemnify and hold harmless the Company
from, and shall pay to the Company, any and all Damages arising, directly or
indirectly, from or in connection with:

 

(a)                                  the breach of any of the representations,
warranties, covenants or agreements of any Stockholder or ED contained in this
Agreement;

 

(b)                                 any Liability of ED arising prior to the
Closing Date other than (i) obligations arising solely from ED’s right to
receive the Royalties, (ii) Liabilities that have been reflected in the
computation of the Option Purchase Price or the Put Purchase Price, as the case
may be, and (iii) Liabilities caused by the acts or omissions of the Company,
but only to the extent such Liabilities are caused by the acts or omissions of
the Company; and

 

(c)                                  the violation by ED or any Stockholder of
any Legal Requirement, or any gross negligence or willful misconduct of ED or
any Stockholder, or the performance by ED or any Stockholder of its obligations
under this Agreement.

 

9.3                                 Indemnification by the Company.  Subject to
the limitations set forth in this Article IX, after the Closing the Company
shall indemnify and hold harmless the Stockholders from, and shall pay to the
Stockholders, any and all Damages arising, directly or indirectly, from or in
connection with:

 

(a)                                  the breach of any of the representations,
warranties, covenants or agreements of the Company contained in this Agreement;
and

 

(b)                                 the violation by the Company of any Legal
Requirement, or any gross negligence or willful misconduct of the Company, or
the failure by the Company of its obligations under this Agreement.

 

9.4                                 Procedure for Indemnification – Third Party
Claims.

 

(a)                                  If any Person shall claim indemnification
hereunder arising from any claim or demand of a third party, the Party seeking
indemnification (the “Indemnified Party”) shall notify the Party from whom
indemnification is sought (the “Indemnifying Party”) in writing of the basis for
such claim or demand and such notice shall set forth the nature of the claim or
demand in reasonable detail.  The failure of the Indemnified Party to so notify
the Indemnifying Party shall not relieve the Indemnifying Party of any
indemnification obligation hereunder except to the extent that the defense of
such claim or demand is prejudiced by the failure to give such notice.

 

(b)                                 If any Proceeding is brought by a third
party against an Indemnified Party and the Indemnified Party gives notice to the
Indemnifying Party pursuant to Section 9.4(a), the Indemnifying Party may assume
the defense and control the settlement of such Proceeding.  The Indemnified
Party shall, in its sole discretion, have the right to employ separate counsel
(who may be selected by the Indemnified Party in its sole discretion) in any
such Proceeding and to participate in the defense thereof, and the fees and
expenses of such counsel shall be paid by such Indemnified Party.  If the
Indemnified Party assumes the defense of such Proceeding pursuant to
Section 9.4(c) because of the failure of the Indemnifying Party to conduct such

 

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defense in good faith, the fees and expenses of such counsel shall be paid by
the Indemnifying Party.  The Indemnified Party shall cooperate fully with the
Indemnifying Party and its counsel in the defense or settlement of such
Proceeding.  If the Indemnifying Party assumes the defense of a Proceeding, no
compromise or settlement of such claims may be effected by the Indemnifying
Party without the Indemnified Party’s consent unless (i) there is no finding or
admission of any violation of Legal Requirements or the rights of any Person by
the Indemnified Party and no material adverse effect on the Indemnified Party
with respect to any other claims that may be made against it, and (ii) the sole
relief provided is monetary damages that are paid in full by the Indemnifying
Party.

 

(c)                                  If (i) notice is given to the Indemnifying
Party of the commencement of any third party Proceeding and the Indemnifying
Party does not, within ten (10) days after the Indemnified Party’s notice is
given, give notice to the Indemnified Party of its election to assume the
defense of such Proceeding, or (ii) having assumed the defense of such
Proceeding, the Indemnifying Party fails to conduct such defense in good faith,
then the Indemnified Party shall (upon notice to the Indemnifying Party) have
the right to undertake the defense, compromise or settlement of such Proceeding;
provided that no compromise or settlement of such Proceeding may be affected by
the Indemnified Party without the Indemnifying Party’s consent, if (A) the
Indemnifying Party will be liable for any amounts to be paid to compromise or
settle the Proceeding, (B) there is a finding or admission of any violation by
the Indemnifying Party of any Legal Requirement or the rights of any Person, or
(C) the compromise or settlement would have a material adverse effect on the
Indemnifying Party with respect to any other claims that may be made against
it.  The Indemnifying Party shall reimburse the Indemnified Party for the costs
and expenses of defending against the third party Proceeding (including
reasonable attorneys’ fees and expenses) and the Indemnifying Party shall remain
responsible for any Damages arising from or related to such third party
Proceeding to the extent provided in this Article IX.  The Indemnifying Party
may elect to participate in such Proceedings, negotiations or defense at any
time at its own expense.

 

9.5                                 Limitation on Damages.

 

(a)                                  The Stockholders’ aggregate liability for
Damages under this Agreement shall be limited to the amount of the Option
Purchase Price or the Put Purchase Price, as the case may be.

 

(b)                                 The Company’s aggregate liability for
Damages under this Agreement shall be limited to the amount of the Option
Purchase Price or the Put Purchase Price, as the case may be.

 

(c)                                  Upon any payment of Damages to or on behalf
of an Indemnified Party, the Indemnifying Party shall be subrogated to all
rights of the Indemnified Party with respect to the Damages to which such
indemnification relates to the extent of the amount of such payment.

 

(c)                                  The Indemnified Party shall have no right
to recover consequential, punitive or multiplied damages pursuant to this
Article IX except to the extent the Indemnified Party is liable to a third party
for such damages.

 

9.6                                 Tax Treatment of Indemnity.  Notwithstanding
anything to the contrary in this Article IX, any Tax or other amount for which
indemnification is provided under this Agreement

 

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shall be treated as an adjustment to the Option Purchase Price or the Put
Purchase Price, as the case may be.

 

ARTICLE X

MISCELLANEOUS PROVISIONS

 

10.1                           No Joint Venture.  The relationship between the
Parties is that of independent contractors.  The Parties are not joint
venturers, partners, principal and agent, master and servant, employer or
employee, and have no relationship other than as independent contracting
parties.  No Party shall have the power to bind or obligate any other in any
manner.

 

10.2                           Expenses.  Each Party shall pay all costs and
expenses incurred by such Party in connection with this Agreement and the
transactions contemplated hereby, including in each case all fees and expenses
of investment bankers, finders, brokers, agents, representatives, consultants,
counsel and accountants.

 

10.3                           Amendment and Modification.  This Agreement may
be amended, modified or supplemented only by an agreement in writing signed by
the Party against whom such amendment, modification or supplement is sought to
be enforced.

 

10.4                           Waiver of Compliance; Consents.  The rights and
remedies of the Parties are cumulative and not alternative and may be exercised
concurrently or separately.  No failure or delay by any Party in exercising any
right, power or privilege under this Agreement shall operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege shall preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege.  To
the maximum extent permitted by applicable law, (i) no claim or right arising
out of this Agreement can be discharged by one Party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other Parties; (ii) no waiver that may be given by a Party shall be applicable
except in the specific instance for which it is given; and (iii) no notice to or
demand on one Party shall be deemed to be a waiver of any obligation of such
Party or of the right of the Party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.  Any consent
required or permitted by this Agreement is binding only if in writing.

 

10.5                           Notices.  All notices, consents, waivers and
other communications hereunder shall be in writing and shall be (i) delivered by
hand, (ii) sent by facsimile transmission, or (iii) sent by certified mail or by
a nationally recognized overnight delivery service, charges prepaid, to the
address set forth below (or such other address for a Party as shall be specified
by like notice):

 

If to the Stockholders or ED, to:

 

c/o Deerfield Capital, L.P.

780 Third Avenue, 37th Floor

New York, New York  10017

Attention:  James E. Flynn

Facsimile:  (212) 573-8111

 

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Copies to:

Katten Muchin Rosenman LLP

 

575 Madison Avenue

 

New York, New York 10022

 

Attention: Mark I. Fisher

 

Facsimile: (212) 894-5877

 

 

If to the Company, to:

VIVUS, Inc.

 

1172 Castro Street

 

Mountain View, California  94040

 

Attention:  Leland F. Wilson

 

Facsimile:  (650) 934-5389

 

Copy to:

Wilson Sonsini Goodrich & Rosati

 

650 Page Mill Road

 

Palo Alto, CA 94304

 

Attn: Mark Reinstra, Esq.

 

Facsimile: 650-493-6811

 

Each such notice or other communication shall be deemed to have been duly given
and to be effective (x) if delivered by hand, immediately upon delivery if
delivered on a Business Day during normal business hours and, if otherwise, on
the next Business Day; (y) if sent by facsimile transmission, immediately upon
confirmation that such transmission has been successfully transmitted on a
Business Day before or during normal business hours and, if otherwise, on the
Business Day following such confirmation; or (z) if sent by a nationally
recognized overnight delivery service, on the day of delivery by such service
or, if not a Business Day, on the first Business Day after delivery.  Notices
and other communications sent via facsimile must be followed by notice delivered
by hand or by overnight delivery service as set forth herein within five
(5) Business Days.

 

10.6                           Publicity.  No Party shall issue any press
release or any other form of public disclosure regarding the existence of this
Agreement or the terms hereof, or use the name of any other Party hereto in any
press release or other public disclosure without the prior written consent of
the other Parties, except (i) for those disclosures and notifications
contemplated by this Agreement and (ii) as required by any Legal Requirement and
solely to the extent necessary to satisfy such Legal Requirement.

 

10.7                           Assignment; No Third-Party Rights.  This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any Party hereto without the prior
written consent of each other Party.  Notwithstanding the foregoing, and subject
to compliance with Section 3.7, in the event the Option Closing or Put Closing
has not occurred prior to or simultaneously with the closing of a Major
Transaction,  the Company shall assign this Agreement to the surviving or
acquiring entity in such Major Transaction, and shall cause the successor entity
resulting from such Major Transaction to assume all of the obligations of the
Company under this Agreement

 

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pursuant to an assumption agreement in form and substance reasonably
satisfactory to the Stockholders. This Agreement and its provisions are for the
sole benefit of the Parties to this Agreement and their successors and permitted
assigns and shall not give any other Person any legal or equitable right, remedy
or claim.

 

10.8                           CONFIDENTIALITY.  EACH STOCKHOLDER AND ED HEREBY
AGREES, AND SHALL CAUSE ITS RESPECTIVE EMPLOYEES AND AGENTS, NOT TO DISCLOSE TO
ANY THIRD PARTY ANY MATERIAL NON-PUBLIC INFORMATION RECEIVED FROM OR ON BEHALF
OF THE COMPANY IN CONNECTION WITH THIS AGREEMENT, OR TO USE SUCH MATERIAL
NON-PUBLIC INFORMATION FOR ANY PURPOSE EXCEPT AS EXPRESSLY PERMITTED UNDER THIS
AGREEMENT.  EACH STOCKHOLDER AND ED FURTHER AGREES THAT IT AND ITS RESPECTIVE
EMPLOYEES AND AGENTS HAVE NOT AND WILL NOT ENGAGE IN ANY TRADES, TRANSFERS OR
OTHER SIMILAR TRANSACTIONS INVOLVING THE COMPANY’S COMMON STOCK IN VIOLATION OF
FEDERAL SECURITIES LAWS WHILE IN RECEIPT OF SUCH NON-PUBLIC INFORMATION OF THE
COMPANY.  NOTWITHSTANDING THE FOREGOING, THE PARTIES SHALL BE PERMITTED TO MAKE
SUCH PUBLIC AND OTHER STATEMENTS AS ARE NECESSARY FOR IT TO COMPLY WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR RULES.

 

10.9                           Governing Law.  The execution, interpretation and
performance of this Agreement, and any disputes with respect to the transactions
contemplated by this Agreement, including any fraud claims, shall be governed by
the internal laws and judicial decisions of the State of Delaware, without
regard to principles of conflicts of laws.

 

10.10                     Severability.  If any provision contained in this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein, unless the invalidity of any such provision substantially deprives any
Party of the practical benefits intended to be conferred by this Agreement. 
Notwithstanding the foregoing, any provision of this Agreement held invalid,
illegal or unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable, and the determination
that any provision of this Agreement is invalid, illegal or unenforceable as
applied to particular circumstances shall not affect the application of such
provision to circumstances other than those as to which it is held invalid,
illegal or unenforceable.

 

10.11                     Construction.  Each Party acknowledges that it and its
attorneys have been given an equal opportunity to negotiate the terms and
conditions of this Agreement and that any rule of construction to the effect
that ambiguities are to be resolved against the drafting Party or any similar
rule operating against the drafter of an agreement shall not be applicable to
the construction or interpretation of this Agreement.

 

10.12                     Counterparts.  This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.  This Agreement may
be executed on signature pages exchanged by facsimile, in which event each Party
shall promptly deliver to the others such number of original executed copies as
the other Parties may reasonably request.

 

10.13                     Entire Agreement.  This Agreement constitutes the
entire agreement and understanding of the Parties hereto in respect of the
subject matter hereof.  This Agreement

 

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supersedes all prior agreements, understandings, promises, representations and
statements between the Parties and their representatives with respect to the
transactions contemplated by this Agreement.

 

[The remainder of this page is left blank intentionally.]

 

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IN WITNESS WHEREOF, the Parties have executed this Option and Put Agreement as
of the date first written above.

 

 

VIVUS, INC.

 

 

 

 

 

 

By:

/s/ Timothy E. Morris

 

 

Name:

Timothy E. Morris

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

DEERFIELD ED CORPORATION

 

 

 

 

 

 

 

By:

/s/ Jeff Kaplan

 

 

Name:

Jeff Kaplan

 

 

Title:

Treasurer

 

 

 

 

 

 

DEERFIELD PRIVATE DESIGN FUND, L.P.

 

 

 

 

 

 

 

By:

/s/ James Flynn

 

 

Name:

James Flynn

 

 

Title:

General Partner

 

 

 

 

 

 

DEERFIELD PRIVATE DESIGN
INTERNATIONAL, L.P.

 

 

 

 

 

 

 

By:

/s/ James Flynn

 

 

Name:

James Flynn

 

 

Title:

General Partner

 

Signature Page to Option and Put Agreement

 

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EXHIBIT 1

 

Stockholders

 

Stockholders

 

Deerfield Private Design International, L.P., a British Virgin Islands limited
partnership

 

Deerfield Private Design Fund, L.P., a Delaware limited partnership

 

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EXHIBIT 2

 

WIRING INSTRUCTIONS

 

Name

 

Amount

 

 

 

 

 

Deerfield Private Design International, L.P.

 

$

1,234,000

 

 

 

 

 

Deerfield Private Design Fund, L.P.

 

$

766,000

 

 

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EXHIBIT 3

 

OPTION EXERCISE NOTICE

 

 

Deerfield ED Corporation

c/o Deerfield Capital, L.P.

780 Third Avenue

New York, New York  10017

Attention:  James E. Flynn

 

Dear Mr. Flynn:

 

Reference is made to that certain Option and Put Agreement dated as of         ,
2008 (the “Agreement”), between VIVUS, Inc., a Delaware corporation (the
“Company”), Deerfield ED Corporation, a Delaware corporation (“ED”), and the
Stockholders of ED.  Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Agreement. 

 

Pursuant to Section 2.4 of the Agreement, the Company hereby provides notice of
its exercise of the Option.  The Company will purchase all of the Shares from
the Stockholderse on         , 20     in accordance with and subject to the
terms and conditions set forth in the Agreement. 

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Company has caused this Option Exercise Notice to be
given by its duly authorized representative as of the date written above:

 

 

VIVUS INC.

 

 

 

 

 

By:

 

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

--------------------------------------------------------------------------------

 

PUT EXERCISE NOTICE

 

VIVUS, Inc.

1172 Castro Street

Mountain View, California  94040

Attention:  Leland F. Wilson

 

Dear Mr. Wilson:

 

Reference is made to that certain Option and Put Agreement dated as
of             , 2008 (the “Agreement”), between VIVUS, Inc., a Delaware
corporation (the “Company”), Deerfield ED Corporation, a Delaware corporation
(“ED”), and the Stockholders of ED. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement.

 

[FOR EXERCISE IN RESPECT OF PUT RIGHTS OTHER THAN PURSUANT TO SECTION 3.2(d) OF
THE AGREEMENT]  Pursuant to Section 3.5 of the Agreement, the Stockholders
hereby provide notice of their exercise of the Put Right. The Stockholders will
sell all of the Shares to the Company on             , 20    in accordance with
and subject to the terms and conditions set forth in the Agreement.

 

[FOR EXERCISE IN RESPECT OF PUT RIGHT SPECIFIED IN SECTION 3.2(D) OF THE
AGREEMENT]  Pursuant to Section 3.5 of the Agreement, the Stockholders hereby
provide notice of their exercise of the Put Right. The Stockholders will sell
all of the Shares to the Company simultaneously with the closing of the Major
Transaction specified in the Major Transaction Notice of the Company
dated                      , 200   , or on a date that is mutually agreeable to
the Company and the Stockholders that is prior to the closing of the Major
Transaction. Such sale and purchase will be subject to and will be made in
accordance with the terms and conditions set forth in the Agreement.

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Stockholders have caused this Put Exercise Notice to be
given by its duly authorized representative as of the date written above:

 

 

DEERFIELD PRIVATE DESIGN FUND, L.P.

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

DEERFIELD PRIVATE DESIGN
INTERNATIONAL, L.P.

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 4

 

Security Agreement

 

See Exhibit 10.7 to the 8-K.

 

3

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