Exhibit 10.1

 

Execution Copy

 

FIRST AMENDMENT TO FACILITY AGREEMENT

 

 

FIRST AMENDMENT TO FACILITY AGREEMENT (this “Amendment”), dated as of June 1,
2017, by and among NEOS THERAPEUTICS, INC., a Delaware corporation (“Borrower”),
NEOS THERAPEUTICS COMMERCIAL, LLC, NEOS THERAPEUTICS BRANDS, LLC, NEOS
THERAPEUTICS, LP, PHARMAFAB TEXAS, LLC (COLLECTIVELY, THE “Guarantors”)
DEERFIELD PRIVATE DESIGN FUND III, L.P. (“DPDF”) and DEERFIELD SPECIAL
SITUATIONS FUND, L.P. (“DSSF”, and together with DPDF collectively referred to
as the “Lenders” and together with the Borrower and the Guarantors, the
“Parties”).

 

RECITALS:

 

A.            Borrower and Lenders have entered into that certain Facility
Agreement dated as of May 11, 2016 (together with all exhibits and schedules
thereto and as the same has been and may from time to time hereafter, be
amended, modified, restated or otherwise supplemented, the “Facility
Agreement”).

 

B.            As of the date hereof the Accrued Interest Amount is equal to
$6,586,461.72 (the “Amendment Date Accrued Interest Amount”).

 

C.            Borrower and Guarantors (i) have requested that Lenders extend the
maturity of the Accrued Interest Amount, (ii) agreed to issue new promissory
notes to evidence the Amendment Date Accrued Interest Amount and to permit,
subject to certain conditions, Lenders to convert the Accrued Interest Amount to
common stock of Borrower, and (iii) have agreed with Lenders to make certain
other modifications to the Facility Agreement.

 

D.            Lenders are willing to amend the Facility Agreement to provide for
such extension of the maturity of the Accrued Interest Amount and the other
modifications set forth herein, all on the terms and conditions set forth
herein.

 

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
Parties agree as follows:

 

1.             Defined Terms.  Capitalized terms used herein which are defined
in the Facility Agreement, unless otherwise defined herein, shall have the
meanings ascribed to them in the Facility Agreement.  The Recitals to this
Amendment are incorporated herein in their entirety by this reference thereto.

 

2.             Amendments to Facility Agreement.  Subject to the satisfaction of
the Conditions Precedent set forth in Section 3 of this Amendment, the Facility
Agreement is hereby amended as follows:

 

a.             Section 1.1 of the Facility Agreement is hereby amended to add
the following additional defined terms:

 

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“Amendment Date Accrued Interest Amount” shall have the meaning provided
therefor in the First Amendment.

 

“Common Stock” shall have the meaning provided therefor in the Senior Secured
Convertible Notes.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934.

 

“First Amendment” shall mean the First Amendment to Facility Agreement dated as
of June 1, 2017 between Borrower and Lenders.

 

“Net Product Sales” means the net product sales of the Company’s products
(representing the gross product sales, less gross to net sales adjustments) as
disclosed in the Company’s financial statements included in its periodic reports
filed with the SEC.

 

“Registration Rights Agreement” has the meaning provided therefor in the Senior
Secured Convertible Notes.

 

“Securities” shall mean, collectively the Senior Secured Convertible Notes and
the Conversion Shares.

 

“Senior Secured Convertible Notes” means the senior secured convertible
promissory notes, each in the form attached to the First Amendment as Exhibit B
thereto, which, for the avoidance of doubt, shall have an aggregate principal
amount equal to the Amendment Date Accrued Interest Amount.  For the avoidance
of doubt any Principal (as therein define) of a Senior Secured Convertible Note
that is converted in accordance with the terms thereof, shall be, and be deemed
to be, paid in full and not outstanding for purposes of the Facility Agreement
and otherwise.

 

b.             The definition of Notes in Section 1.1 of the Facility Agreement
is hereby deleted in its entirety and the following is inserted in substitution
therefor:

 

“Notes” means the Notes issued to the Lenders evidencing the Loan in the form of
Exhibit A attached hereto, and the Senior Secured Convertible Notes evidencing
the Amendment Date Accrued Interest Amount, in each case, as amended, restated,
supplemented or otherwise modified from time to time.

 

c.             The definition of Loan Documents in Section 1.1 of the Facility
Agreement is hereby amended (i) to include this Amendment, the Registration
Rights Agreement and the Senior Secured Convertible Notes as additional Loan
Documents and (ii) to exclude Common Stock and Conversion Shares, each as
defined in the Senior Secured Convertible Note.

 

The definition of Obligations in Section 1.1 of the Facility Agreement is hereby
amended and restated to read as follows:

 

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““Obligations” means all obligations for the payment of the Loans, the Amendment
Date Accrued Interest Amount, interest, fees, premiums and all other amounts due
with respect thereto or otherwise arising under or in connection with this
Agreement or the other Loan Documents.”

 

d.             Notwithstanding anything contained in Section 2.7 of the Facility
Agreement to the contrary, effective as of the date of this Amendment,  the
maturity of the Amendment Date Accrued Interest Amount as evidenced by the
Senior Secured Convertible Notes is hereby extended to June 1, 2018, which shall
be the initial stated maturity date for the Senior Secured Convertible Notes. 
The outstanding principal amount of the Senior Secured Convertible Notes shall
bear interest at the Interest Rate, payable quarterly, in arrears, together with
interest on the outstanding principal amount of the Loan.

 

(i)            The Borrower shall prepay the outstanding principal amount of the
Senior Secured Convertible Notes and all accrued and unpaid interest thereon
(A) if Required Convertible Note Holders (as defined in the Senior Secured
Convertible Note) shall deliver a written notice stating that one of the
conditions described in the following clause (B) has occurred and demanding
prepayment of the Senior Secured Convertible Notes (such notice, a “Convertible
Notes Prepayment Notice”), and (B) if either of the following events (each, a
“Convertible Notes Prepayment Trigger”) a shall occur: (i) in the event that
Borrower’s Net Product Sales for any calendar quarter commencing with the
calendar quarter ending June 30, 2017 to and including  the calendar quarter
ending March 31, 2018 (or, if the maturity of the Senior Secured Convertible
Notes has been extended to June 1, 2019 pursuant to paragraph 2(d)(ii) below,
commencing with the calendar quarter ending June 30, 2018 and to and including
the calendar quarter ending December 31, 2018), as set forth in Borrower’s
financial statements delivered to Lenders and/or filed with the SEC pursuant to
Section 5.1(v) of the Facility Agreement are less than eighty percent (80%) of
the Product Revenue (as defined below) for such quarter; or (ii) Borrower has
not received and publicly announced its receipt from the FDA of the approval of
the new drug applications listed and described on Schedule
2(d)(i)(B)(ii) attached to this Amendment by the Prescription Drug User Fee Act
goal date corresponding to such new drug application on said schedule. 
Prepayment under this paragraph 2(d)(i) shall be paid within three Business Days
of the Borrower’s receipt of the Convertible Note Prepayment Notice.

 

(ii)           The Borrower may, at its election, extend the maturity of the
Senior Secured Convertible Notes to June 1, 2019, upon written notice by
Borrower to Lenders given not more than thirty (30) days and not less than ten
(10) days prior to June 1, 2018 and so long as each of the following conditions
are met: (A) at the time of such election, no Event of Default shall have
occurred and be continuing; (B) no Convertible Notes Prepayment Trigger shall
have occurred; and (C) Net Product Sales for the four consecutive quarter period
ending March 31, 2018, as set forth in Borrower’s financial statements delivered
to Lenders and/or filed with the SEC pursuant to Section 5.1(v) of the Facility
Agreement, is not less than ninety five

 

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percent (95%) of the Product Revenue set forth on Schedule
2(d)(i)(B)(i) attached hereto for such calendar period.

 

(iii)          The term “Product Revenue” means the estimated product revenues
identified on Schedule 2(d)(i)(B)(i) to this Amendment, which estimated revenue
levels are estimates reported by Bloomberg Financial Services.  The Lenders
acknowledge that such estimates have not been prepared by the Company and the
Company’s agreement herein to include such estimates as the “Product Revenue”
for purposes of this Amendment does not constitute the Company’s adoption or
endorsement of such estimates.

 

e.             On the date hereof, Borrower shall issue to each Lender, a Senior
Secured Convertible Note in the form of Exhibit B attached hereto (each, a
“Senior Secured Convertible Note”) in the principal amount set forth opposite
such Lender’s name on Schedule I hereto, to evidence the Amendment Date Accrued
Interest Amount owed to such Lender with respect to the original Notes issued on
the date of execution of the Facility Agreement (the “Existing Notes”).  In
consideration of the amendments set forth herein, Borrower agrees to permit
Lenders to convert all or any part of the Accrued Interest Amount reflected as
principal of the Senior Secured Convertible Notes into shares of common stock of
Borrower on the terms set forth in the Senior Secured Convertible Notes.  The
Lenders agree that the terms and conditions of the Accrued Interest Amount have
been amended and restated as set forth in this Amendment and in the Senior
Secured Convertible Notes.  Each Lender agrees to annotate any Existing Note to
record that any Amendment Date Accrued Interest Amount recorded as principal on
such Existing Note has been so amended and restated and does not constitute
principal under such Existing Note, as of the date of issuance of the related
Senior Secured Convertible Note.

 

f.             Sections 2.3(b) and 2.3(c) of the Facility Agreement are hereby
deleted in their entirety and the following are inserted in substitution
therefor:

 

“(b)         The Borrower shall, subject to the provisions of this
Section 2.3(b), prepay all of the outstanding Obligations upon the occurrence of
a Change of Control.  Such prepayment shall be accompanied by all accrued and
unpaid interest on the principal amount of the Notes prepaid, plus a prepayment
fee in the amount of (i) 12.25% of the amount of principal prepaid if such
prepayment occurs on or after the first anniversary of the Agreement Date, but
prior to the second anniversary of the Agreement Date, (ii) 9.0% of the amount
of the principal prepaid if such prepayment occurs on or after the second
anniversary of the Agreement Date but prior to the third anniversary of the
Agreement Date; (iii) 5.75% of the amount of the principal prepaid if such
prepayment occurs on or after the third anniversary of the Agreement Date but
prior to the fourth anniversary of the Agreement Date, and (iv) 2.0% of the
amount of the principal prepaid on or after the fourth anniversary of the
Agreement Date.

 

(c)           Any other prepayment of the Obligations whether voluntary or as a
result of acceleration of the Obligations upon the occurrence of an Event of
Default shall be accompanied by all accrued and unpaid interest on the principal
amount of the Notes prepaid, plus a prepayment fee in the amount of (i) 12.75%
of the amount of principal prepaid, plus all interest which, absent such

 

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prepayment, would have accrued on the principal amount of the Notes prepaid
through the third anniversary of the Agreement Date, if such prepayment occurs
prior to the third anniversary of the Agreement Date, (ii) 12.75% of the amount
of principal prepaid if such prepayment occurs on or after the third anniversary
of the Agreement Date, but prior to the fourth anniversary of the Agreement
Date, (iii) 6.5% of the amount of the principal prepaid if such prepayment
occurs on or after the fourth anniversary of the Agreement Date but prior to the
fifth anniversary of the Agreement Date; and (iv) 3.25% the amount of the
principal prepaid if such prepayment occurs on or after the fifth anniversary of
the Agreement Date.  Borrowers shall provide Lenders thirty (30) days prior
written notice of any voluntary prepayment of the Obligations.”

 

3.             Conditions Precedent.

 

The effectiveness of this Amendment shall be subject to the fulfillment or
waiver of the following conditions (“Conditions Precedent”):

 

(i)            Delivery of Documents.  Lenders shall have received the
agreements, instruments, documents and agreements listed and described on the
closing checklist attached hereto as Exhibit A, duly executed where appropriate
by an authorized representative of each Person a party thereto, in each case in
form and substance satisfactory to Lender.

 

(ii)           Performance; No Default.  The Borrower shall have performed and
complied with all agreements and conditions contained in the Facility Agreement
and the other Loan Documents to be performed by or complied with by the Borrower
prior to the date hereof.

 

(iii)          Legal Fees and Expenses.  The Borrower shall have reimbursed
Lenders for all reasonable out-of-pocket costs, fees and expenses, including
reasonable attorneys’ fees and expenses, incurred by Lenders in connection with
the negotiation, documentation and closing of this Amendment.

 

(iv)          Delivery of Secured Convertible Notes.  The Borrower shall have
delivered to each Lender a Senior Secured Convertible Note in the aggregate
principal amount set forth opposite such Lender’s name on Schedule I hereto.

 

(v)           Registration Rights Agreement.  The Borrower shall have delivered
to Lender an executed Registration Rights Agreement in the form of Exhibit C
attached hereto.

 

4.             Representations and Warranties of the Borrower.  The Borrower and
the Guarantors, jointly and severally, each hereby represent and warrant to the
Lenders as of the date of this Agreement as follows, which representations and
warrants as set forth in Sections 4(f), (g), (h), (i) and (j), shall survive the
execution and delivery of this Amendment and continue in full force and effect
until the earlier of all of the Senior Secured Convertible Notes have been
repaid in full:

 

a.             Organization and Good Standing. Each of the Borrower and the
Guarantors is an entity duly incorporated or otherwise organized, validly
existing and in good

 

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standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.

 

b.             Authority.  Each of the Borrower and Guarantors has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Amendment and the other Loan Documents as amended hereby
and otherwise to carry out its obligations hereunder and thereunder.  The
execution and delivery of this Amendment by each of the Borrower and Guarantors
and the consummation by it of the transactions contemplated hereby and by the
other Loan Documents as amended hereby have been duly authorized by all
necessary action on its part, and no further action of its board of directors,
managers, partners, stockholders or members is required in connection herewith
or therewith.

 

c.             Consents.  Each of the Borrower and Guarantors is not required to
obtain any consent from, authorization or order of, or make any filing or
registration with (other than the filing with the SEC of one or more
registration statements in accordance with the requirements of the Registration
Rights Agreement, one or more Exchange Act filings disclosing the entry into
this Amendment and the transactions contemplated herby, one or more
notifications to NASDAQ related to the Common Stock underlying the Senior
Secured Convertible Notes, a Form D with the SEC and any other filings as may be
required by any state securities agencies), any Governmental Authority or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its respective obligations under or
contemplated by this Amendment, the Facility Agreement, the Registration Rights
Agreement or the other Loan Documents (as amended hereby), to which it is a
party, in each case, in accordance with the terms hereof or thereof.  Each of
the Borrower and the Guarantors shall obtain or make (as applicable) all
consents, authorizations, orders, filings and registrations which it is required
to obtain pursuant to the preceding sentence on a timely basis, and it is not
aware of any facts or circumstances that would reasonably be expected to prevent
it from obtaining or effecting any of the registration, application or filings
contemplated by this Amendment, the Registration Rights Agreement or the other
Loan Documents (as amended hereby).  The Borrower is not in violation of the
requirements of NASDAQ and has no knowledge of any facts or circumstances which
would reasonably be expected to lead to delisting or suspension of the common
stock of the Borrower in the foreseeable future.  The Borrower is not, and never
has been, a “shell company” (as defined in Rule 12b-2 under the Exchange Act). 
The Borrower is eligible to register the Conversion Shares for resale by the
holders thereof on a registration statement on Form S-3 under the Securities
Act.  The common stock of the Borrower is eligible for clearing through The
Depository Trust Company (“DTC”), through its Deposit/Withdrawal At Custodian
(DWAC) system, and the Borrower is eligible for and participating in the Direct
Registration System (DRS) of DTC with respect to the its common stock.  The
transfer agent for the common stock of the Borrower is a participant in, and the
common stock of the Borrower is eligible for transfer pursuant to, DTC’s Fast
Automated Securities Transfer Program.  The Common Stock of the Borrower is not,
and has not at any time been, subject to any DTC “chill,” “freeze” or similar
restriction with respect to any DTC services, including the clearing of
transactions in shares of the common stock of the Borrower through DTC.

 

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d.             Valid and Binding Agreement.  This Amendment has been duly
executed and delivered by each of the Borrower and the Guarantors and
constitutes its valid and binding obligations, enforceable against it in
accordance with their respective terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.

 

e.             Non-Contravention.  The execution and delivery of this Amendment
and the performance by each of the Borrower and the Guarantors of its
obligations hereunder and under the other Loan Documents as amended hereby does
not and will not (i) violate any provision of its certificate of incorporation
or formation, operating agreement, partnership agreement, bylaws or other
organizational documents, as applicable (ii) conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which it is subject,
or by which any of its property or assets is bound or affected, (iii) require
any permit, authorization, consent, approval, exemption or other action by,
notice to or filing with, any court or other federal, state, local or other
governmental authority or other Person, (iv) violate, conflict with, result in a
material breach of, or constitute (with or without notice or lapse of time or
both) a material default under, or an event which would give rise to any right
of notice, modification, acceleration, payment, cancellation or termination
under, or in any manner release any party thereto from any obligation under any
permit or contract to which it is a party or by which any of its properties or
assets are bound, or (v) result in the creation or imposition of any Lien on any
part of its properties or assets.  No Event of Default exists.

 

f.             Issuance of Conversion Shares.  The Conversion Shares (as defined
in the Notes) issuable upon a conversion of the Notes are duly authorized and
when issued upon any such conversion, will be duly and validly issued, fully
paid and non-assessable, free and clear of all Liens imposed by the Borrower. 
The Borrower has reserved from its duly authorized capital stock the Conversion
Shares issuable pursuant to the Notes.

 

g.             SEC Reports.  The Borrower has filed all reports, schedules,
forms, statements and other documents required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Borrower was subject to such requirements) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the “SEC Reports”). 
As of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act, as applicable,
and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

h.             Certain Fees.  No brokerage or finder’s fees or commissions are
or will be payable by the Borrower or any of its affiliates or representatives
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Amendment.  The Lenders shall have no obligation with

 

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respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section 4(h) that may be due in
connection with the transactions contemplated hereby.

 

i.              Exemption from Registration.  Neither the Borrower, nor any of
its affiliates, nor any Person acting on its or their behalf, has offered or
issued any of the Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D promulgated under the
Securities Act).  Assuming the accuracy of the Lenders’ representations and
warranties set forth in Section 5, no registration under the Securities Act is
required for the offer and issuance of the Securities by the Borrower to the
Lenders as contemplated hereby.

 

j.              No Integrated Offering.  Neither the Borrower, nor any of its
affiliates, nor any Person acting on its behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would cause this offering and issuance of the
Securities to be integrated with prior offerings by the Borrower (i) for
purposes of the Securities Act and which would require the registration of any
such securities under the Securities Act, or (ii) for purposes any applicable
stockholder approval provisions of NASDAQ.

 

k.             Protective Plans.  The Borrower and the Borrower’s board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Borrower’s certificate of
incorporation, bylaws or the laws of the State of Delaware that is or could
become applicable to any of the Lenders as a result of the transactions
contemplated hereby or by the Senior Secured Convertible Notes and the other
Loan Documents (as amended hereby) and the Borrower’s fulfilling its obligations
with respect thereto, including the Borrower’s issuance of the Conversion
Shares.  The Borrower has not adopted a stockholders rights plan (or “poison
pill”) or similar arrangement relating to accumulations of beneficial ownership
of Common Stock or a change in control of the Borrower (an such plan or
arrangement, a “Rights Plan”), and after the date of this Amendment, the
Borrower will not adopt any Rights Plan that in any way limits or restricts any
Lender’s (or any permitted transferee’s) exercise in full of its rights under
the Senior Secured Convertible Notes.

 

5.             Representations and Warranties of the Lenders.  Each Lender
hereby severally represents and warrants to as follows:

 

a.             Organization and Good Standing.  Such Lender is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with the requisite power and authority to own
and use its properties and assets and to carry on its business as currently
conducted.

 

b.             Authority.  Such Lender has the requisite power and authority to
enter into and to consummate the transactions contemplated by this Amendment and
the Registration Rights Agreement and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of this Amendment
and the Registration Rights Agreement by such Lender and the consummation by it
of the transactions contemplated hereby and thereby

 

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have been duly authorized by all necessary action on the part of such Lender and
no further action is required in connection herewith or therewith.

 

c.             Valid and Binding Agreement.  This Amendment and the Registration
Rights Agreement have been duly executed by such Lender and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligations of such Lender, enforceable against such Lender in
accordance with their respective terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

 

d.             Non-Contravention.  The execution and delivery of this Amendment
and the Registration Rights Agreement by such Lender and the performance by such
Lender of its obligations hereunder and thereunder does not and will not
(i) violate any provision of such Lender’s organizational or charter documents,
(ii) conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which such Lender is subject, or by which any property or asset of
such Lender is bound or affected, (iii) violate or result in a material breach
of contract to which such Lender is a party or by which any of its properties or
assets are bound.

 

e.             Exemption.  Such Lender understands that the Securities being
offered, sold, issued and delivered to it in reliance upon specific provisions
of federal and applicable state securities laws, and that the Borrower is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Lenders set forth herein
for purposes of qualifying for exemptions from registration under the Securities
Act and applicable state securities laws.

 

f.             Knowledge; Sophistication.  Such Lender has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the investment in the Securities,
and has so evaluated the merits and risks of such investment.

 

g.             No Distribution. Such Lender is acquiring the Securities for its
own account for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act, except
pursuant to sales registered or exempted under the Securities Act; provided,
however, that by making the representations herein, such Lender does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act.

 

h.             Accredited Investor Status.  Such Lender is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D.

 

i.              Transfer or Resale.  Such Lender understands that the Securities
will be subject to restrictions on transfer, and bear restrictive legends, as
and to the extent set forth in the Senior Secured Convertible Notes.

 

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6.             Additional Covenants.  Borrower covenants and agrees that:

 

a.             Reservation of the Common Stock.  On and after the date hereof,
the Borrower shall at all times reserve and keep available, free of preemptive
rights, a sufficient number of shares of Common Stock for the purpose of
enabling the Borrower to issue Conversion Shares pursuant to the Notes.

 

b.             Blue Sky Filings.  The Borrower shall take such action as is
reasonably necessary in order to obtain an exemption for, or to qualify the
Conversion Shares for, issuance and sale to the Lenders under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of any Purchaser.

 

c.             Listing. The Borrower has submitted a notification of listing of
additional shares for the listing of the Conversion Shares on The Nasdaq Global
Market and will use its reasonable best efforts to secure such listing.  The
Borrower shall pay all fees and expenses in connection with satisfying its
obligations under this Section 5(c).

 

d.             Disclosure.  The Borrower shall within four (4) Business Days of
the  effectiveness of this Amendment in accordance with the terms of Section 3
above, file a Current Report on Form 8-K that, inter alia, attaches a copy of
this Amendment, including the exhibits and schedules hereto.

 

e.             Reporting. From the date of this Amendment until the first
Business Day on which no Senior Secured Convertible Notes are convertible into
shares of Commons Stock of the Borrower, other than by virtue of the 9.985% Cap
thereunder (the “Reporting Period”), (i) the Borrower shall (A) timely (without
giving effect to any extensions pursuant to Rule 12b-25 of the Exchange Act)
file all reports required to be filed with the SEC pursuant to the Exchange Act,
and (B) publicly disclose (by a widely disseminated press release or filing of a
Form 8-K with the SEC) (1) its receipt of the approval from the FDA or other
relevant Governmental Authority of any new drug application listed on Schedule
2(d)(ii) within two (2) Business Days of the approval being obtained, or (2) the
Borrower’s receipt of written demand by the Required Convertible Note Holders
(as defined in the Senior Secured Convertible Notes) of mandatory prepayment of
the Senior Secured Convertible Notes pursuant to Section 2(d)(i) of this
Amendment, and (ii) the Borrower shall not take any action that would reasonably
be expected to result in the termination of the registration of its Common Stock
under the Exchange Act or otherwise terminate its status as an issuer required
to file reports under the Exchange Act, even if the securities laws would
otherwise permits any such termination.  The Borrower shall take all actions
necessary to cause its Common Stock to remain listed on the NASDAQ Global market
during the Reporting Period.  The Borrower shall not take any action that would
reasonably be expected to result in the delisting or suspension or termination
of trading of the Common Stock of the Borrower on the NASDAQ Global Market.

 

7.             Acknowledgements: Borrower and the Guarantors, jointly and
severally, irrevocably and unconditionally acknowledges, affirms and covenants
to each Lender that:

 

a.             such Lender is not in default under any of the Loan Documents and
has not otherwise breached any obligations to Borrower or Guarantors; and

 

10

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b.             there are no offsets, counterclaims or defenses to the
Obligations, including the liabilities and obligations of the Borrower or any
Guarantor under the Notes and other Loan Documents (as amended hereby), or to
the rights, remedies or powers of such Lender in respect of any of the
Obligations or any of the Loan Documents, and the Borrower and each Guarantor
agrees not to interpose (and each does hereby waive and release) any such
defense, set-off or counterclaim in any action brought by such Lender with
respect thereto.

 

8.             This Amendment is an amendment contemplated under Section 6.6 of
the Facility Agreement. For the avoidance of doubt, this Amendment is governed
by and subject to the provisions of Article 6 of the Facility Agreement, which
provisions are incorporated herein in their entirety by this reference thereto.

 

9.             Effect of Amendment; Reservation of Rights.  The parties hereto
hereby agree that (a) the term “Notes” as used in the Loan Documents shall mean
the Existing Notes and the Senior Secured Convertible Notes and (b) the term
“Obligations” as used in the Loan Documents, as amended hereby, shall include
all liabilities and obligations of the Borrower and Guarantors under this
Amendment, under the Facility Agreement (as amended hereby) under the Notes (as
amended hereby) and under the other Loan Documents, and each of the parties
hereto agrees not to take any contrary positions. Except as expressly set forth
herein, none of the Lenders has agreed to any modification of the Facility
Agreement or any other Loan Document, nor waived (nor hereby waives), any
obligation of Borrower or any Guarantor, or any breach, default or Event of
Default that may be exist, under any of the Loan Documents, nor any of its
rights or remedies thereunder, including any rights or remedies arising from any
breach, default or Event of Default, and each of the Lenders expressly reserves
all such rights and remedies.

 

10.          Reaffirmation.  Each of the Borrower and the Guarantors, as issuer,
debtor, grantor, pledgor, mortgagor, guarantor or assignor, or in other any
other similar capacity in which such Person grants Liens or security interests
in its property or otherwise acts as accommodation party or guarantor, as the
case may be, hereby (i) acknowledges and agrees that it has reviewed this
Amendment, (ii) ratifies and reaffirms all of its obligations, contingent or
otherwise, under each of the Loan Documents (as amended hereby) to which it is a
party (after giving effect hereto), and (iii) to the extent such Person granted
Liens on or security interests in any of its property pursuant to any such Loan
Document as security for or otherwise guaranteed the Obligations under or with
respect to the Loan Documents, ratifies and reaffirms such guarantee and grant
of security interests and Liens and confirms and agrees that such security
interests and Liens hereafter secure all of the Obligations (as amended
hereby).  Each of the Borrower and the Guarantors hereby consents to this
Amendment and acknowledges that this Amendment is a Loan Document and that each
of the Loan Documents (as amended hereby) remains in full force and effect and
is hereby ratified and reaffirmed.

 

[Remainder of Page Intentionally Left Blank, signature page follows]

 

11

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IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date
first set forth above.

 

 

BORROWER:

 

 

 

NEOS THERAPEUTICS, INC.

 

 

 

 

By:

/s/ Vipin K. Garg

 

Name:

Vipin K. Garg

 

Title:

President & CEO

 

 

 

 

 

 

 

GUARANTORS:

 

 

 

NEOS THERAPEUTICS COMMERCIAL, LLC

 

 

 

 

By:

/s/ Vipin K. Garg

 

Name:

Vipin K. Garg

 

Title:

President & CEO

 

 

 

 

 

 

NEOS THERAPEUTICS BRANDS, LLC

 

 

 

 

By:

/s/ Vipin K. Garg

 

Name:

Vipin K. Garg

 

Title:

President & CEO

 

 

 

 

 

 

NEOS THERAPEUTICS, LP

 

 

 

 

By:

PharmaFab Texas, LLC, its general partner

 

 

 

 

By:

/s/ Vipin K. Garg

 

Name:

Vipin K. Garg

 

Title:

Sole Manager

 

 

 

 

 

 

 

PHARMAFAB TEXAS, LLC

 

 

 

 

By:

/s/ Vipin K. Garg

 

Name:

Vipin K. Garg

 

Title:

Sole Manager

 

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

 

 

LENDERS:

 

 

 

DEERFIELD PRIVATE DESIGN FUND III, L.P.

 

 

 

 

By:

Deerfield Mgmt III, L.P., its General Partner

 

By:

J.E. Flynn Capital III, LLC, its General Partner

 

 

 

 

 

 

 

By:

/s/ David J. Clark

 

Name:

David J. Clark

 

Title:

Authorized Signatory

 

 

 

 

DEERFIELD SPECIAL SITUATIONS FUND, L.P.

 

 

 

 

By:

Deerfield Mgmt., L.P., its General Partner

 

By:

J.E. Flynn Capital, LLC, its General Partner

 

 

 

 

 

 

 

By:

/s/ David J. Clark

 

Name:

David J. Clark

 

Title:

Authorized Signatory

 

13

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EXHIBIT A

 

Closing Document Checklist

 

14

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

 

DEERFIELD / NEOS THERAPEUTICS FIRST AMENDMENT TO FACILITY AGREEMENT

 

CLOSING CHECKLIST

 

Borrower

 

Neo Therapeutics, Inc., a Delaware corporation

Deerfield

 

Deerfield Private Design Fund III, L.P. and Deerfield Special Situations fund,
L.P.

Agent

 

Deerfield Mgmt, L.P.

Goodwin

 

Goodwin Procter LLP, Borrower counsel

Katten

 

Katten Muchin Rosenman LLP

Guarantors

 

Neos Therapeutics Commercial, LLC (DE) (NTC)
Neos Therapeutics Brands, LLC (DE) (NTB)
Neos Therapeutics, LP (TX) (NTLP)
PharmaFab Texas, LLC (TX) (PFT)

 

 

 

Document

 

Responsible
Party

 

Signatures

 

Status

1.

 

First Amendment to Facility Agreement

 

Katten/Goodwin

 

¨ Borrower
¨ NTC
¨ NTB
¨ NTLP
¨ PFT
¨ Deerfield

 

Complete

2.

 

Exhibits to First Amendment to Facility Agreement

 

 

 

N/A

 

 

 

 

Exhibit A—Closing Checklist

 

Katten/Goodwin

 

N/A

 

 

 

 

Exhibit B—Amended and Restated Senior Secured Convertible Note

 

Katten/Goodwin

 

N/A

 

 

3.

 

Schedules

 

Borrower

 

N/A

 

 

4.

 

Amended and Restated Senior Secured Convertible Notes in favor of Deerfield

 

Katten

 

¨ Borrower

 

Complete

5.

 

Registration Rights Agreement

 

Borrower/Goodwin

 

¨ Borrower
¨ Deerfield

 

Complete

A.

 

CERTIFICATES AND MISCELLANEOUS

6.

 

Officer’s Certificate of Borrower, attaching organizational documents,
resolutions and incumbency

 

Goodwin

 

¨ Rich
¨ Vipin

 

Complete

 

 

A. Certificate of Incorporation

 

Goodwin

 

N/A

 

 

 

 

B. Bylaws

 

Goodwin

 

N/A

 

 

 

 

C. Resolutions

 

Goodwin

 

N/A

 

 

 

 

D. Incumbency

 

Goodwin

 

¨ Rich
¨ Vipin

 

 

 

 

E. Good Standing (DE)

 

Goodwin

 

N/A

 

 

 

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

 

 

 

Document

 

Responsible
Party

 

Signatures

 

Status

7.

 

Officer’s /Manager’s Certificate of NTC, attaching organizational documents,
operating agreement, resolutions and incumbency

 

Goodwin

 

¨ Rich
¨ Vipin

 

Complete

 

 

A. Certificate of Formation

 

Goodwin

 

N/A

 

 

 

 

B. Operating Agreement

 

Goodwin

 

N/A

 

 

 

 

C. Resolutions

 

Goodwin

 

¨ Rich

 

 

 

 

D. Incumbency

 

Goodwin

 

¨ Rich
¨ Vipin

 

 

 

 

E. Good Standing (DE)

 

Goodwin

 

N/A

 

 

8.

 

Officer’s/Manager’s Certificate of NTB, attaching organizational documents,
operating agreement, resolutions and incumbency

 

Goodwin

 

¨ Rich
¨ Vipin

 

Complete

 

 

A. Certificate of Formation

 

Goodwin

 

N/A

 

 

 

 

B. Operating Agreement

 

Goodwin

 

N/A

 

 

 

 

C. Resolutions

 

Goodwin

 

¨ Rich

 

 

 

 

D. Incumbency

 

Goodwin

 

¨ Rich
¨ Vipin

 

 

 

 

E. Good Standing (DE)

 

Goodwin

 

N/A

 

 

9.

 

General Partner’s Certificate of NTLP, attaching organizational documents,
partnership agreement, resolutions and incumbency

 

Goodwin

 

¨ Vipin

 

Complete

 

 

A. Certificate of Formation

 

Goodwin

 

N/A

 

 

 

 

B. Partnership Agreement

 

Goodwin

 

N/A

 

 

 

 

C. Resolutions

 

Goodwin

 

¨ Vipin

 

 

 

 

D. Incumbency

 

Goodwin

 

 

 

 

 

 

E. Good Standing (TX)

 

Goodwin

 

N/A

 

 

10.

 

Officer’s/Manager’s Certificate of PFT, attaching organizational documents,
operating agreement, resolutions and incumbency

 

Goodwin

 

¨ Vipin

 

Complete

 

 

A. Certificate of Formation

 

Goodwin

 

N/A

 

 

 

 

B. Operating Agreement

 

Goodwin

 

N/A

 

 

 

 

C. Resolutions

 

Goodwin

 

¨ Vipin

 

 

 

 

D. Incumbency

 

Goodwin

 

 

 

 

 

 

E. Good Standing (TX)

 

Goodwin

 

N/A

 

 

 

2

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

 

EXHIBIT B

 

Form of Senior Secured Convertible Note

 

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

 

SENIOR SECURED CONVERTIBLE NOTE

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, INCLUDING PURSUANT TO RULE 144 OR 144A UNDER THE SECURITIES ACT
OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER SECTION 4(a)(7) OF THE SECURITIES
ACT OR APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A
SO-CALLED “4[(a)](1) AND A HALF SALE.”  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Issuance Date: June 1, 2017

Principal:

 

U.S. $[                 ]

 

FOR VALUE RECEIVED, NEOS THERAPEUTICS, INC., a Delaware corporation (the
“Company”), hereby promises to pay to [         ] , or its registered assigns
(the “Holder”) the principal amount of [        ]  ($[      ])] (the
“Principal”), which is the Accrued Interest Amount (as such term is defined in
the Facility Agreement, dated as of May 11, 2016, as amended by the a First
Amendment to Facility Agreement, dated as of June 1, 2017,  by and among the
Company and the Lenders party thereto (as so amended, together with all exhibits
and schedules thereto and as may be amended, restated, modified and supplemented
from time to time, the “Facility Agreement”)) with respect to the Existing Note
(as defined in the  Facility Agreement) held by the Holder as of the date
hereof.  The Company hereby promises to pay accrued and unpaid Interest (as
defined below) and premium, if any, on the Principal on the dates, at the rates
and in the manner provided for in the Facility Agreement.  This Senior Secured
Convertible Note (including all Senior Secured Convertible Notes issued in
exchange, transfer or replacement hereof, and as any of the foregoing may be
amended, restated, supplemented or otherwise modified from time, this “Note”) is
one of the Senior Secured Convertible Notes issued pursuant to the Facility
Agreement as amended pursuant to the Amendment (collectively, including all
Notes issued in exchange, transfer or replacement thereof, as well as any of the
foregoing may be amended, restated, supplemented or otherwise modified from time
to time, the “Notes”).  All capitalized terms used and not otherwise defined
herein shall have the respective meanings set forth in the Facility Agreement.

 

The Principal of this Note may be prepaid prior to the Maturity Date, and shall
be mandatorily prepayable, as provided in the Facility Agreement.  At any time
an Event of Default exists, the Principal of this Note, together with all
accrued and unpaid Interest and any applicable premium due, if any, may be
declared, or shall otherwise become, due and payable in the manner, at the price
and with the effect provided in the Facility Agreement.

 

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

 

1.                                      Definitions.

 

(a)                                 Certain Defined Terms.  For purposes of this
Note, the following terms shall have the following meanings:

 

(i)                                     “Affiliate” means any person or entity
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act. With respect
to a Holder, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Holder will be deemed
to be an Affiliate of such Holder.  As used in this definition of “Affiliate,”
the term “control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities or partnership or other ownership
interest, by contract, or otherwise.

 

(ii)                                  “Common Stock” means the common stock of
the Company.

 

(iii)                               “Conversion Amount” means the portion of the
Principal to be converted.

 

(iv)                              “Conversion Date” means the date of delivery
via facsimile or electronic mail of a Conversion Notice.

 

(v)                                 “Conversion Price” means, as of any
Conversion Date, the greater of (A) ninety five percent (95%) of the average of
the Volume Weighted Average Prices per Share for the three (3) Trading Day
period immediately preceding the Conversion Date (the “Measurement Period”);
provided, that in the event that a stock split, stock combination,
reclassification, payment of stock dividend, recapitalization or other similar
transaction of such character that the Shares shall be changed into or become
exchangeable for a larger or small number of shares (a “Stock Event”) is
consummated during the Measurement Period, the Volume Weighted Average Price for
all Trading Days during the Measurement Period prior to the effectiveness of the
Stock Event shall be appropriately adjusted to reflect such Stock Event, and
(B) $7.00, subject to appropriate adjustment for any Stock Event that occurs
after the Issuance Date.

 

(vi)                              “Conversion Shares” means fully paid and
nonassessable shares of Common Stock.

 

(vii)                           “Delisting Event” means an event which shall be
deemed to have occurred if the Shares cease to be listed, traded or publicly
quoted on the Principal Market on which Shares are listed as of such date, and
shall continue until such shares are relisted or requoted on either the New York
Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global
Market or the NASDAQ Capital Market (each, a “Principal Market”).

 

(viii)                        “Interest” means any interest (including any
default interest) accrued on the Principal pursuant to the terms of this Note
and the Facility Agreement.

 

2

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

 

(ix)                              “Issuance Date” means the date listed as the
Issuance Date on the cover page hereof, regardless of any exchange or
replacement hereof.

 

(x)                                 “Market Disruption Event” means, with
respect to any trading day and any security, (a) a failure by the Principal
Market to open for trading during its entire regular trading session, (b) the
occurrence or existence prior to 1:00 p.m., New York City time, on such day for
such securities for more than one half-hour period in the aggregate during
regular trading hours of any suspension or limitation imposed on trading (by
reason of movements in price exceeding limits permitted by the relevant
securities exchange or otherwise) in such securities or in any options,
contracts or future contracts relating to such securities, or (c) to the extent
“Volume Weighted Average Price” is determined in accordance with clause (b) of
the definition thereof, the suspension of trading for the one-half hour period
ending on the scheduled close of trading on such day (by reason of movements in
price exceeding limits permitted by the stock exchange or otherwise) in such
securities.

 

(xi)                              “Maturity Date” means June 1, 2018, subject to
extension upon the terms, and subject to the conditions, set forth in the
Facility Agreement.

 

(xii)                           “Principal” means the outstanding principal
amount of this Note as of any date of determination.

 

(xiii)                        “Principal Market” shall have the meaning set
forth in the definition of Delisting Event above.

 

(xiv)                       “Registration Failure” means that (A) the Company
fails to file with the SEC on or before the Filing Deadline (as defined in the
Registration Rights Agreement) any Registration Statement required to be filed
pursuant to Section 2(a) of the Registration Rights Agreement registering
Conversion Shares, (B) the Company fails to use its best efforts to obtain
effectiveness with the SEC, prior to the Registration Deadline (as defined in
the Registration Rights Agreement), of any Registration Statement (as defined in
the Registration Rights Agreement) that is required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement registering Conversion Shares,
or fails to use its best efforts to keep such Registration Statement current and
effective as required in Section 3 of the Registration Rights Agreement, (C) the
Company fails to file any additional Registration Statements required to be
filed pursuant to Section 2(a)(ii) of the Registration Rights Agreement
registering Conversion Shares on or before the Additional Filing Deadline or
fails to use its best efforts to cause such new Registration Statement to become
effective on or before the Additional Registration Deadline, (D) any
Registration Statement required to be filed under the Registration Rights
Agreement registering Conversion Shares, after its initial effectiveness and
during the Registration Period (as defined in the Registration Rights
Agreement), lapses in effect or sales of any Conversion Shares constituting
Registrable Securities (as defined in the Registration Rights Agreement) cannot
otherwise be made thereunder (whether by reason of the Company’s failure to
amend or supplement the prospectus included therein in accordance with the
Registration Rights Agreement, the Company’s failure to file and to obtain
effectiveness with the SEC of an additional Registration Statement registering
Conversion Shares or amended Registration Statement required pursuant to
Sections 2(a)(ii) or 3(b) of the Registration Rights Agreement, as

 

3

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

 

applicable, or otherwise), other than in each case as permitted pursuant to
Section 3(q) of the Registration Rights Agreement.

 

(xv)                          “Registration Rights Agreement” means that certain
Registration Rights Agreement dated as of June 1,  2017 by and among the
Company, the Holder and the other investors party thereto (together with all
schedules and exhibits thereto and as may be amended, restated, modified and
supplemented from time to time).

 

(xvi)                       “Required Convertible Note Holders” means Holders of
at least 51% in interest of the Notes.

 

(xvii)                    “SEC” means the United States Securities and Exchange
Commission.

 

(xviii)                 “Securities Act’ means the Securities Act of 1933, as
amended, and the rules and regulations promulgated by the SEC thereunder.

 

(xix)                       “Shares” means shares of Common Stock, $0.001 par
value of the Company.

 

(xx)                          “Trading Day” means any day on which the Common
Stock is traded for any period on the Principal Market; provided, that for
purposes of the definition of “Conversion Shares,” Trading Day shall not include
any Trading Day on which there is a Market Disruption Event.

 

(xxi)                       “Volume Weighted Average Price” for any security as
of any Trading Day means (a) the volume weighted average sale price of such
security on the principal U.S. national or regional securities exchange on which
such security is traded as reported by Bloomberg Financial Markets or an
equivalent, reliable reporting service mutually acceptable to and hereinafter
designated by the Required Convertible Note Holders and the Company
(“Bloomberg”) or (b), if no volume weighted average sale price is reported for
such security, then the closing price per share of such security, or, if no
closing price per share is reported for such security by Bloomberg, the average
of the last bid and last ask price (or if more than one in either case, the
average of the average last bid and average last ask prices) on such Trading Day
as reported in the composite transactions for the principal U.S. national or
regional securities exchange on which such security is traded.  If the security
is not listed for trading on a U.S. national or regional securities exchange on
the relevant Trading Day, then the Volume Weighted Average Price will be the
average of the mid-point of the last bid and last ask prices of the security in
the over-the-counter market on the relevant Trading Day as  reported  by the OTC
Markets Group, Inc. or similar organization. If the Volume Weighted Average
Price cannot be calculated for such security on such date in the manner provided
above, the Volume Weighted Average Price shall be the fair market value as
mutually determined by the Company and the Holders of a majority in interest of
the Notes being converted for which the calculation of the Volume Weighted
Average Price is required in order to determine the Conversion Price of such
Notes.  Volume Weighted Average Price will be determine without regard to
after-hours trading or any other trading outside of the regular trading hours.

 

4

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2.                                      Conversion Rights.  The Principal may be
converted into Shares on the terms and conditions set forth in this Section 2
(subject to Section 2.3(a) of the Facility Agreement.

 

(a)                                 Conversion at Option of the Holder.  At any
time prior to the close of business on the fifth Business Day immediately prior
to the Maturity Date, subject to the 9.985% Cap (as defined below) and the
Exchange Cap (as defined below), the Holder shall be entitled to convert all or
any part of the Principal, as of the date of the Conversion Notice (as defined
below) therefor delivered in accordance with this Section 2, into Conversion
Shares in accordance with this Section 2 at the Conversion Rate (as defined in
Section 2(b)).  The Company shall not issue any fraction of a Share upon any
conversion.  If the issuance would result in the issuance of a fraction of a
Share, then the Company shall round such fraction of a Share up or down to the
nearest whole share (with 0.5 rounded up).

 

(b)                                 Conversion Rate.  The number of Conversion
Shares issuable upon a conversion of any portion of this Note pursuant to
Section 2 shall be determined according to the following formula (the
“Conversion Rate”):

 

 

Conversion Amount

 

 

Conversion Price

 

 

(c)                                  Mechanics of Conversion.  The conversion of
the Principal (“Conversion”) shall be conducted in the following manner:

 

(i)                                     Holder’s Delivery Requirements.  To
convert a Conversion Amount into Conversion Shares pursuant to
Section 2(a) above on any date, the Holder shall (A) (A) transmit by facsimile
or electronic mail (or otherwise deliver), for receipt on or prior to 5:00
p.m. New York City time on such date, a copy of an executed conversion notice in
the form attached hereto as Exhibit A (the “Conversion Notice”) to the Company
(Attention: Richard Eisenstadt, Fax:  (972) 408-1143, Email:
reisenstadt@neostx.com), and (B) if required by Section 2(c)(vi), surrender to a
common carrier for delivery to the Company, no later than three (3) Business
Days after the Conversion Date, of the original Note being converted (or an
indemnification undertaking in customary form with respect to this Note in the
case of its loss, theft or destruction).

 

(ii)                                  Company’s Response.  Upon receipt or
deemed receipt by the Company of a copy of a Conversion Notice, the Company
(I) shall promptly send, via facsimile, a confirmation of receipt of such
Conversion Notice to the Holder and the Company’s designated transfer agent (the
“Transfer Agent”), which confirmation shall constitute an instruction to the
Transfer Agent to process such Conversion Notice in accordance with the terms
herein, and (II) on or before the third (3rd) Business Day following the date of
receipt or deemed receipt by the Company of such Conversion Notice (or, if
earlier, the end of the standard settlement period for U.S. broker-dealer
securities transactions) (the “Share Delivery Date”), credit such aggregate
number of Conversion Shares to which the Holder shall be entitled to the
Holder’s or its designee’s balance account with The Depository Trust Company
(“DTC”) through its Deposit/Withdrawal at Custodian (“DWAC”) system, for the
number of Conversion Shares to which the Holder shall be entitled.  If
notwithstanding the provisions of Section 2(c)(vi), the Holder elects to
physically surrender this Note for conversion and the Principal represented by

 

5

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

 

this Note is greater than the Principal being converted, then the Company shall,
as soon as practicable and in no event later than three (3) Business Days after
receipt of this Note (the “Note Delivery Date”) and at its own expense, issue
and deliver to the Holder a new Note representing the Principal not converted
and cancel this Note.

 

(iii)                               Dispute Resolution.  In the case of a
dispute as to the determination of the Conversion Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the Transfer
Agent to issue to the Holder the number of Conversion Shares that is not
disputed and shall transmit an explanation of the disputed determinations or
arithmetic calculations to the Holder via facsimile within two (2) Business Days
of receipt or deemed receipt of the Holder’s Conversion Notice or other date of
determination.  If the Holder and the Company are unable to agree upon the
determination of the Conversion Price or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed determination or
arithmetic calculation being transmitted to the Holder, then the Company shall
promptly (and in any event within two (2) Business Days) submit via facsimile
(A) the disputed determination of the Conversion Price to an independent,
reputable investment banking firm agreed to by the Company and the Required
Convertible Note Holders, or (B) the disputed arithmetic calculation of the
Conversion Rate to the Company’s independent registered public accounting firm,
as the case may be.  The Company shall direct the investment bank or the
accounting firm, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
two (2) Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accounting firm’s determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.  Notwithstanding the existence of a dispute contemplated by this
paragraph, if requested by the Holder, the Company shall issue to the Holder the
Conversion Shares not in dispute in accordance with the terms hereof.

 

(iv)                              Record Holder.  The person or persons entitled
to receive the Conversion Shares issuable upon a Conversion shall be treated for
all purposes as the legal and record holder or holders of such Shares upon
delivery by the Holder of the Conversion Notice, or in the case of Conversion
Shares the issuance of which is subject to a bona fide dispute that is subject
to and being resolved pursuant to, and in compliance with the time periods and
other provisions of, the dispute resolution provisions of Section 2(c)(iii), the
first Business Day after the resolution of such bona fide dispute and the fees
and expenses of such investment bank or accountant shall be paid by the Company.

 

(v)                                 Company’s Failure to Timely Convert.

 

(A)                               Cash Damages.  If by the Share Delivery Date,
the Company shall fail to issue the Conversion Shares and deliver a certificate
to the Holder for, or credit the Holder’s or its designee’s balance account with
DTC with, the number of Conversion Shares (provided any of the Unrestricted
Conditions are satisfied, free of any restrictive legend) (a “Delivery
Failure”), then, in addition to all other available remedies that the Holder may
pursue hereunder and under the Facility Agreement, the Company shall pay
additional damages to the Holder for each day after the Share Delivery Date such
conversion is not timely effected in an amount equal to two percent (2%) of the
product of (I) the number of Conversion Shares not issued to the Holder or its
designee on or prior to the Share Delivery Date and to which the

 

6

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Holder is entitled and (II) the Volume Weighted Average Price of the Common
Stock on the Share Delivery Date (such product is referred to herein as the
“Share Product Amount”).  Alternatively in lieu of the foregoing damages,
subject to Section 2(c)(iii), at the written election of the Holder made in the
Holder’s sole discretion, if, on or after the applicable Conversion Date, the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of Conversion Shares
that such Holder anticipated receiving from the Company (such purchased shares,
“Buy-In Shares”), the Company shall be obligated to promptly pay to such Holder
(in addition to all other available remedies that the Holder may otherwise
have), 110% of the amount by which (A) such Holder’s total purchase price
(including brokerage commissions, if any) for such Buy-In Shares exceeds (B) the
net proceeds received by such Holder from the sale of the number of shares equal
to up to the number of Conversion Shares such Holder was entitled to receive but
had not received on the Share Delivery Date. If the Company fails to pay the
additional damages set forth in this Section 2(c)(v)(A) within five (5) Business
Days of the date incurred, then the Holder entitled to such payments shall have
the right at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately issue, in
lieu of such cash damages, the number of Shares equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by (Y) the
Conversion Price specified by the Holder in the Conversion Notice.

 

(B)                               Void Conversion Notice.  If for any reason the
Holder has not received all of the Conversion Shares prior to the tenth (10th)
Business Day after the Share Delivery Date with respect to a Conversion (a
“Conversion Failure”), then the Holder, upon written notice to the Company (a
“Void Conversion Notice”), may void its Conversion with respect to, and retain
or have returned, as the case may be, any portion of Principal that has not been
converted pursuant to the Holder’s Conversion Notice; provided, that the voiding
of the Holder’s Conversion Notice shall not affect the Company’s obligations to
make any payments that have accrued prior to the date of such notice pursuant to
Section 2(c)(v)(A) or otherwise.

 

(vi)                              Book-Entry.  Notwithstanding anything to the
contrary set forth herein, upon Conversion or repayment of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless all of the Principal is being repaid. 
The Holder and the Company shall maintain records showing the Principal
converted or repaid and the dates of such conversions or repayments or shall use
such other method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Note upon any such partial conversion
or repayment.  Notwithstanding the foregoing, if this Note is repaid as
aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder may request, representing in the aggregate the
remaining Principal represented by this Note.  The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion or repayment of any portion of this
Note, the Principal of this Note may be less than the principal amount stated on
the face hereof.

 

(d)                                 Taxes.  The Company shall pay any and all
taxes (excluding income taxes, franchise taxes or other taxes levied on gross
earnings, profits or the like of the Holder) that may

 

7

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be payable with respect to the issuance and delivery of Conversion Shares upon
the conversion of this Note, unless the tax is due because the Holder requests
any Conversion Shares to be issued in a name other than the Holder’s name, in
which case the Holder will pay that tax.

 

(e)                                  Legends.

 

(i)                                     Restrictive Legend. The Holder
understands that this Note and until such time as the Conversion Shares have
been registered under the Securities Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 under the
Securities Act or an exemption from registration under the Securities Act
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares, as applicable, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order consistent therewith may be placed against transfer of the
certificates for such securities):

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, INCLUDING PURSUANT TO RULE 144 OR 144A UNDER THE SECURITIES ACT
OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER SECTION 4(a)(7) OF THE SECURITIES
ACT OR APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A
SO-CALLED “4[(a)](1) AND A HALF SALE.”  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

(ii)                                  Removal of Restrictive Legends. The
certificates evidencing the Conversion Shares shall not contain any legend
restricting the transfer thereof (including the legend set forth above in
subsection 2(e)(i)): (A) while a registration statement (including a
Registration Statement, as defined in the Registration Rights Agreement)
covering the resale of such security by the Holder is effective under the
Securities Act, (B) following any sale of such Conversion Shares pursuant to
Rule 144, or (C) if such Conversion Shares are eligible for sale under
rule 144(b)(1) and the Holder thereof is not, and has not been during the
preceding three months, an affiliate (as such term is defined for purposes of
Rule 144 under the Securities Act) (the “Unrestricted Conditions”).  Promptly
following the Effective Date (as defined below) or such other time as any of the
Unrestricted Conditions have been satisfied, the Company shall cause its counsel
to issue a legal opinion or other instruction to the Transfer Agent (if required
by the Transfer Agent) to effect the issuance of the Conversion Shares without a
restrictive legend or, in the case of Conversion Shares that have previously
been issued, the removal of the legend thereunder.  If any of the Unrestricted
Conditions are met at the time of issuance of the Conversion Shares, then the
Conversion Shares shall be issued free of all legends.  The Company agrees that
following the Effective Date or at such time as any of the Unrestricted
Conditions are met or such legend is otherwise no longer required under this
Section 2(e), it will, no later than

 

8

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three (3) Trading Days (or if earlier, the number of Trading Days comprising the
standard settlement period for U.S. broker-dealer securities transactions)
following the delivery (the “Unlegended Shares Delivery Deadline”) by the Holder
to the Company or the Transfer Agent of any certificate representing Conversion
Shares, as applicable, issued with a restrictive legend (such fourth Trading
Day, the “Legend Removal Date”), deliver or cause to be delivered to such Holder
a certificate (or electronic transfer) representing such shares that is free
from all restrictive and other legends.  For purposes hereof, “Effective Date”
shall mean the date that the first Registration Statement that the Company is
required to file pursuant to the Registration Rights Agreement has been declared
effective by the SEC.

 

(iii)                               Sale of Unlegended Shares.  Holder agrees
that the removal of the restrictive legend from any certificates representing
securities as set forth in Section 2(e)(i) above is predicated upon the
Company’s reliance that the Holder will sell any Conversion Shares pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if such securities are sold pursuant to a Registration Statement, they will be
sold in compliance with the plan of distribution set forth therein.

 

(f)                                   Reservation of Shares.  The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting Conversions of this
Note, such number of Shares as shall from time to time be sufficient to effect
the conversion of the Note; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of the entire Principal of this Note, the Company will use its best efforts to
take such corporate action as may, in the opinion of counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.  The Company covenants and
agrees that, upon any Conversion of this Note, all Shares issuable upon such
Conversion shall be duly and validly issued, fully paid and nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any Person.

 

(g)                                  Limitations on Conversion.

 

(i)                                     Beneficial Ownership Limitation. 
Notwithstanding anything herein to the contrary, the Company shall not be
required to issue to the Holder, and the Holder may not acquire, a number of
Shares upon Conversion or otherwise issue any Shares of Common Stock pursuant
hereto or the Facility Agreement to the extent that, upon such Conversion, the
number of Shares then beneficially owned by the Holder and its Affiliates and
any other persons or entities whose beneficial ownership of Common Stock would
be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange
Act (including shares held by any “group” of which the Holder is a member, but
excluding shares beneficially owned by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) would exceed
9.985% of the total number of shares of common stock then issued and outstanding
(the “9.985% Cap”); provided, however, that the 9.985% Cap shall only apply to
the extent that the Common Stock is deemed to constitute an “equity security”
pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes
hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act
and applicable regulations of the SEC, and the percentage held by the Holder
shall be determined in a

 

9

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manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon
the written request of the Holder, the Company shall, within two (2) Trading
Days, confirm orally and in writing to the Holder the number of Shares then
outstanding.

 

(ii)                                  Principal Market Regulation.  The Company
shall not be required to issue any Shares upon Conversion if the issuance of
such Shares together with any previous issuances of Shares under the Notes from
and after the Issuance Date would exceed 4,489,566  shares of Common Stock,
subject to appropriate adjustment for any Stock Event that occurs after the
Issuance Date (the “Exchange Cap”), except that such limitation shall not apply
in the event that the Company obtains the approval of its stockholders as
required by the applicable rules of The Nasdaq Stock Market and any other
Principal Market for issuances of Shares in excess of such amount; it being
acknowledged, for the avoidance of doubt, that the Company has no obligation to
seek such  approval.

 

3.                                      Registration Failure.  Upon any
Registration Failure, in addition to all other available remedies that the
Holder may pursue hereunder and under the Facility Agreement and the
Registration Rights Agreement, the Company shall pay additional damages to the
Holder for each 30-day period (prorated for any partial period) after the date
of such Registration Failure in an amount in cash equal to two percent (2%) of
the original principal amount of this Note.  Such payments shall accrue until
the earlier of (i) such time as the Registration Failure has been cured and
(ii) the date on which all of the Conversion Shares may be disposed of for the
Holder’s own account without restriction under Rule 144 (including, without
limitation, volume restrictions and without the need for the availability of
current public information under Rule 144).  All such payments that accrue under
this Section 3 shall be payable no later than five business days following such
date of accrual.

 

4.                                      Voting Rights.  Except as required by
law, the Holder shall have no voting rights with respect to any of the
Conversion Shares until the Conversion Date relating to the conversion of this
Note upon which such Conversion Shares are issuable (or in the case of
Conversion Shares the issuance of which is subject to a bona fide dispute that
is subject to and being resolved pursuant to, and in compliance with the time
periods and other provisions of, the dispute resolution provisions of
Section 2(c)(iii), the first Business Day after the resolution of such bona fide
dispute).

 

5.                                      Amendment; Waiver.  The terms and
provisions of this Note shall not be amended or waived except in a writing
signed by the Company and the Holder.

 

6.                                      Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief.  The remedies provided in this Note
shall be cumulative and in addition to all other remedies available under this
Note, the Facility Agreement, at law or in equity (including a decree of
specific performance and/or other injunctive relief). No remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy, and nothing herein shall limit the Holder’s right to pursue actual
damages for any failure by the Company to comply with the terms of this Note. 
The Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein.  Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the Holder
thereof and shall not,

 

10

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

 

 

except as expressly provided herein, be subject to any other obligation of the
Company (or the performance thereof).  The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

 

7.                                      Specific Shall Not Limit General;
Construction.  No specific provision contained in this Note shall limit or
modify any more general provision contained herein.  This Note shall be deemed
to be jointly drafted by the Company and all purchasers of Notes pursuant to the
Facility Agreement and shall not be construed against any Person as the drafter
hereof.

 

8.                                      Failure or Indulgence Not Waiver.  No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

 

9.                                      Notices.  Whenever notice is required to
be given under this Note, unless otherwise provided herein, such notice shall be
given in accordance with Section 6.1 of the Facility Agreement.

 

10.                               Restrictions on Transfer.

 

(a)                                 Registration or Exemption Required.  This
Note has been issued in a transaction exempt from the registration requirements
of the Securities Act.  None of the Note or the Conversion Shares may be
transferred, sold, assigned, hypothecated or otherwise disposed of except
pursuant to an effective registration statement or an exemption to the
registration requirements of the Securities Act and applicable state securities
laws including, without limitation, pursuant to Section 4(a)(7) of the
Securities Act, or Rule 144 under the Securities Act or a so-called
“4[(a)](i) and a half” transaction.

 

(b)                                 Assignment. The Holder may sell, transfer,
assign, pledge, hypothecate or otherwise dispose of this Note, in whole or in
part; provided that (i) the Holder shall deliver a written notice to the
Company, substantially in the form of the Assignment attached hereto as
Exhibit B, indicating the Person or Persons to whom the Note shall be assigned
and the respective principal amount of the Note to be assigned to each assignee,
and (ii) the transferee shall have complied with Section 2.5(d) of the Facility
Agreement.  The Company shall effect the assignment within three (3) business
days (the “Transfer Delivery Period”), and shall deliver to the
assignee(s) designated by Holder a Note or Notes of like tenor and terms for the
appropriate principal amount.  This Note and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors and assigns of the
Holder. The provisions of this Note are intended to be for the benefit of all
Holders from time to time of this Note, and shall be enforceable by any such
Holder.

 

11.                               Payment of Collection, Enforcement and Other
Costs.  If (a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any

 

11

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legal proceeding; or (b) an attorney is retained to represent the Holder in any
bankruptcy, reorganization, receivership of the Company or other proceedings
affecting Company creditors’ rights and involving a claim under this Note, then
the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action, including reasonable attorneys’ fees and disbursements.

 

12.                               Cancellation.  After all Principal, Interest
and other amounts at any time owed under, or on account of, this Note have been
paid in full or converted into Shares in accordance with the terms hereof, this
Note shall automatically be deemed cancelled, shall be surrendered to the
Company for cancellation and shall not be reissued.

 

13.                               Registered Note.  This Note may be transferred
only upon notation of such transfer on the Register, and no assignment thereof
shall be effective until recorded therein.

 

14.                               Waiver of Notice.  To the extent permitted by
law, the Company hereby waives demand, notice, presentment, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Facility Agreement.

 

15.                               Governing Law.  This Note shall be governed by
the laws of the State of New York applicable to contracts made and to be
performed in such State. All legal proceedings concerning the interpretation and
enforcement of this Note shall be commenced exclusively in the state and federal
courts sitting in The City of New York, Borough of Manhattan.  The Company
hereby and each Holder (by its acceptance of this Note) irrevocably submits to
the exclusive jurisdiction of such courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby,
and hereby irrevocably waives, and agrees not to assert in any suit, action or
other proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or other proceeding is
improper or is an inconvenient venue for such proceeding.  The Company hereby
and each Holder (by its acceptance of this Note) irrevocably waives personal
service of process and consents to process being served in any such suit, action
or other proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such person at the address
in effect for notices to it under Section 6.1 of the Facility Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof.  Nothing contained herein shall be deemed to limit in any
way any right to serve process in any other manner permitted by law.  EACH OF
THE COMPANY AND THE HOLDER (BY ACCEPTANCE HEREOF) IRREVOCABLY WAIVES THE RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE ANY PROVISION
OF THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT.

 

16.                               Interpretative Matters.  Unless the context
otherwise requires, (a) all references to Sections or Exhibits are to Sections
or Exhibits contained in or attached to this Note, (b) each accounting term not
otherwise defined in this Note has the meaning assigned to it in accordance with
GAAP, (c) words in the singular or plural include the singular and plural and
pronouns stated in either the masculine, the feminine or neuter gender shall
include the masculine, feminine and neuter and (d) the use of the word
“including” in this Note shall be by way of example rather than limitation.  If
a stock split, stock dividend, stock combination or other

 

12

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similar event occurs during any period over which an average price is being
determined, then an appropriate adjustment will be made to such average to
reflect such event.

 

17.                               Execution.  A facsimile, telecopy, PDF or
other reproduction of this Note may be delivered by the Company, and an executed
copy of this Note may be delivered by the Company by facsimile, e-mail or other
similar electronic transmission device pursuant to which the signature of or on
behalf of the Company can be seen, and such execution and delivery shall be
considered valid, binding and effective for all purposes.  The Company hereby
agrees that it shall not raise the execution of facsimile, PDF or other
reproduction of this Note, or the fact that any signature was transmitted by
facsimile, e-mail or other similar electronic transmission device, as a defense
to the Company’s execution of this Note.  Notwithstanding the foregoing, the
Company shall be required to deliver an originally executed Note to the Holder.

 

[Signature page follows]

 

13

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the date first set forth above.

 

 

COMPANY:

 

 

 

NEOS THERAPEUTICS, INC.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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

 

Exhibit A

 

CONVERSION NOTICE

 

Reference is made to the Senior Secured Convertible Note (the “Note”) of NEOS
THERAPEUTICS, INC., a Delaware corporation (the “Company”), in the original
principal amount of $[          ].  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into Shares of Common Stock, par value
$0.001 per share (the “Common Stock”), of the Company, as of the date specified
below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted at the Conversion Price (as defined
in the Note):

 

 

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

 

Issue to:

 

Facsimile Number:

 

Authorization:

By:

Title:

 

Dated:

 

DTC Participant Number and Name:

Account Number:

 

Dated:

 

 

 

 

Signature

 

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

 

Exhibit B

 

ASSIGNMENT

 

(To be executed by the registered holder
desiring to transfer the Note)

 

FOR VALUE RECEIVED, the undersigned holder of the attached Senior Secured
Convertible Note (the “Note”) hereby sells, assigns and transfers unto the
person or persons below named the right to receive the principal amount of
$           from Neos Therapeutics, Inc., a Delaware corporation (the
“Company”), evidenced by the attached Note and does hereby irrevocably
constitute and appoint            attorney to transfer the said Note on the
books of the Company, with full power of substitution in the premises.

 

Dated:

 

 

 

 

Signature

 

 

Fill in for new registration of Note:

 

 

 

 

 

 

Name

 

 

 

 

 

 

 

Address

 

 

 

 

 

 

Please print name and address of assignee

 

(including zip code number)

 

 

NOTICE

 

The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Note in every particular, without alteration or
enlargement or any change whatsoever.

 

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

 

 

 

EXHIBIT C

 

Form of Registration Rights Agreement

 

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

 

Execution Copy

 

REGISTRATION RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of June 1, 2017, by
and among Neos Therapeutics, Inc., a Delaware corporation (the “Company”),
Deerfield Private Design Fund III, L.P. (“DPDF”) and Deerfield Special
Situations Fund, L.P. (“DSSF” and, together with DPDF, the “Original Investors”
and each individually, an “Original Investor”).

 

WHEREAS:

 

A. In connection with the amendment of the Facility Agreement, dated as of
May 11, 2016, by and among the Company and the Original Investors (the “Original
Facility Agreement”) pursuant to that certain First Amendment to Facility
Agreement, dated as of the date hereof, by and among the Company, the Original
Investors and the other parties thereto (the “First Amendment”), the Company is
issuing Convertible Notes (as defined below) which permit each holder to convert
the principal of the Convertible Note (as defined below) held thereby into
shares of the Company’s common stock (“Common Stock”), in each case, upon the
terms and conditions, and subject to the limitations, set forth in the
Convertible Notes; and

 

B. To induce the Original Investors to execute and deliver the First Amendment,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the “Securities Act”), and
applicable state securities laws.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Investors hereby agree as follows:

 

1. DEFINITIONS.

 

a. As used in this Agreement, the following terms shall have the following
meanings:

 

(i) “Additional Filing Deadline” means, with respect to any Registration
Statement that may be required pursuant to Section 2(a)(ii), (A) the first date
or time that such Registrable Securities may then be included in a Registration
Statement if such Registration Statement is required because the SEC shall have
notified the Company in writing that certain Registrable Securities were not
eligible for inclusion on a previously filed Registration Statement, or (B) if
such additional Registration Statement is required for a reason other than as
described in (A) above, the twentieth (20th) day following the date on which the
Company first knows that such additional Registration Statement is required;
provided, however, if the Additional Filing Deadline would otherwise fall more
than 45 days, but less than 76 days, after the end of the Company’s most recent
fiscal year and the Company is unable to comply with the Additional Filing
Deadline solely as a result of the unavailability of audited financial
statements for such fiscal year, the Additional Filing Deadline shall be
extended until the first business day following the earlier to occur of (a) the
deadline (without regard to any extensions that may be permitted by

 

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

 

Rule 12b-25 under the Exchange Act) for filing by the Company of an annual
report on Form 10-K containing such financial statements with the SEC and
(b) the date on which the Company files an annual report on Form 10-K containing
such financial statements with the SEC.

 

(ii) “Additional Registration Deadline” means, with respect to any additional
Registration Statement(s) that may be required to be filed pursuant to
Section 2(a)(ii), the thirtieth (30th) day following (A) the first date or time
that such Registrable Securities may then be included in a Registration
Statement if such Registration Statement is required because the SEC shall have
notified the Company in writing that certain Registrable Securities were not
eligible for inclusion on a previously filed Registration Statement, or (B) if
such additional Registration Statement is required for a reason other than as
described in (A) above, the fortieth (40th) day following the date on which the
Company first knows that such additional Registration Statement(s) is required;
provided, however, if the applicable Additional Filing deadline is extended due
to the proviso contained in Section 1(a)(i) above, then such Additional
Registration Deadline shall be extended until the thirtieth (30th) or fortieth
(40th) day, as the case may be, following the Additional Filing Deadline, as so
extended, and provided, further, that if, following the filing date but before
the date that the Additional Registration Statement is declared effective by the
SEC, the Company is unable to file a pre-effective amendment to the Additional
Registration Statement that is required in order to cause such Additional
Registration Statement to become effective because such amendment would
otherwise be filed more than 45 days, but less than 76 days, after the end of
the Company’s last fiscal year and the audited financial statement for such year
are unavailable, the Additional Registration Deadline shall be the date that is
the later of (a) thirty (30) days after the earlier of (1) the deadline (without
regard to any extensions that may be permitted by Rule 12b-25 under the Exchange
Act) for filing by the Company of an annual report on Form 10-K containing such
financial statements with the SEC and (2) the date on which the Company files an
annual report on Form 10-K containing such financial statements with the SEC,
and (b) forty-five (45) days after the Registration Statement is filed.

 

(iii)  “Convertible Notes” means the Senior Secured Convertible Note(s) issued
by the Company pursuant to the Facility Agreement evidencing the Accrued
Interest Amount (as defined in the Facility Agreement).

 

(iv) “Exchange Act” means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder, and any
successor statute.

 

(v) “Facility Agreement” means the Original Facility Agreement, as amended by
the First Amendment and as may otherwise be amended, restated or modified and in
effect from time to time.

 

(vi) “Filing Deadline,” for the Registration Statement required pursuant to
Section 2(a)(i), shall mean the date that is thirty (30) calendar days following
the date hereof, and, for each Registration Statement required pursuant to
Section 2(a)(ii) shall mean the Additional Filing Deadline.

 

(vii) “FINRA” means the Financial Industry Regulatory Authority (or successor
thereto).

 

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(viii) “Investor” means any Original Investor and any transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 10 hereof.

 

(ix) “Person” means and includes any natural person, partnership, joint venture,
corporation, trust, limited liability company, limited company, joint stock
company, unincorporated organization, government entity or any political
subdivision or agency thereof, or any other entity.

 

(x) “Prospectus” means (i) any prospectus (preliminary or final) included in any
Registration Statement, as may be amended or supplemented by any prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference in such prospectus, and
(ii) any “free writing prospectus” as defined in Rule 405 under the Securities
Act relating to any offering of Registrable Securities pursuant to a
Registration Statement.

 

(xi) “Register,” “Registered,” and “Registration” refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415, and the declaration
or ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the “SEC”).

 

(xii) “Registrable Securities,” for a given Registration, means (a) any shares
of Common Stock (the “Conversion Shares”) issued or issuable upon conversion of
the Convertible Notes (without giving effect to any limitations on conversion
set forth in the Convertible Notes), and (b) any securities issued or issuable
upon any stock split, dividend or other distribution, recapitalization or
similar event with respect to any of the foregoing; provided, however, that any
Registrable Securities shall cease to be Registrable Securities when (x) a
Registration Statement with respect to the sale of such securities has become
effective under the Securities Act and such securities have been disposed of in
accordance with such Registration Statement, (y) such securities are sold in
accordance with Rule 144 under the Securities Act or any successor
rule (“Rule 144”), or (z) all of such securities may be immediately sold to the
public without registration or restriction (including without limitation as to
volume by each holder thereof), and without compliance with any “current public
information” requirement, pursuant to Rule 144.

 

(xiii) “Registration Deadline” shall mean, for purposes of the Registration
Statement required pursuant to Section 2(a)(i), the earlier of (i) the date that
is seventy-five (75) days after the date that the applicable Registration
Statement is actually filed or (ii) the date that is seventy-five (75) days
after the applicable Filing Deadline and, with respect to any Registration
Statement required pursuant to Section 2(a)(ii), the Additional Registration
Deadline.

 

(xiv) “Registration Statement(s)” means any registration statement(s) of the
Company filed under the Securities Act that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement, all
amendments and supplements to such Registration Statement, including
post-effective amendments, and all exhibits to, and all material incorporated by
reference in, such Registration Statement.

 

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(xv)  Rule 415” means Rule 415 under the Securities Act or any successor
rule providing for the offering of securities on a continuous basis.

 

2. REGISTRATION.

 

a. MANDATORY REGISTRATION.  (i) Following the date hereof, the Company shall
prepare, and, on or prior to the applicable Filing Deadline, file with the SEC a
Registration Statement (the “Mandatory Registration Statement”) on Form S-3 (or,
if Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Investors, which consent shall not be unreasonably
withheld) covering the resale of the Registrable Securities, which Registration
Statement, to the extent allowable under the Securities Act and the rules and
regulations promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of, or otherwise
pursuant to, the Convertible Notes or the Conversion Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The number
of shares of Common Stock initially included in such Registration Statement
shall be no less than 940,924 shares.  Each Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and shall be subject to the
approval, which shall not be unreasonably withheld or delayed, of) the Investors
and their counsel prior to its filing or other submission.

 

(ii) If for any reason, despite the Company’s use of its best efforts to include
all of the Registrable Securities in the Registration Statement filed pursuant
to Section 2 (a)(i) above, the Company is not permitted to include all of the
Registrable Securities in, or for any other reason any Registrable Securities
are not then included in, such Registration Statement, then the Company shall
prepare, and, as soon as practicable but in no event later than the Additional
Filing Deadline, file with the SEC an additional Registration Statement covering
the resale of all Registrable Securities not already covered by an existing and
effective Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415.

 

b. RESERVED.

 

3.  OBLIGATIONS OF THE COMPANY. In connection with any registration of the
Registrable Securities hereunder, the Company shall have the following
obligations:

 

a. The Company shall prepare promptly, and file with the SEC as soon as
practicable after such registration obligation arises hereunder (but in no event
later than the applicable Filing Deadline), a Registration Statement with
respect to the number of Registrable Securities provided in Section 2(a), as
applicable, and thereafter use its best efforts to cause each such Registration
Statement relating to Registrable Securities to become effective as soon as
possible after such filing, but in any event shall cause each such Registration
Statement relating to Registrable Securities to become effective no later than
the Registration Deadline, and shall thereafter keep the Registration Statement
current and effective pursuant to Rule 415 at all times until such date as is
the earlier of (i) the date on which all of the Registrable Securities included
in such Registration Statement have been sold and (ii) the date on which no
Investor holds any

 

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Registrable Securities (the “Registration Period”), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), except for information provided in writing by an Investor pursuant to
Section 4(a), shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.  In the event that Form S-3 is not available
for the registration of the resale of any Registrable Securities hereunder (but,
for the avoidance of doubt, without in any way affecting the Company’s
obligation to register the resale of the Registrable Securities on such other
form as is available, as provided in Section 2(a)), (i) the Company shall
undertake to file, within twenty-five (25) days of such time as such form is
available for such registration, a post-effective amendment to the Registration
Statement then in effect, or otherwise file a Registration Statement on
Form S-3, registering such Registrable Securities on Form S-3; provided that the
Company shall maintain the effectiveness of the Registration Statement then in
effect until such time as a Registration Statement (or post-effective amendment)
on Form S-3 covering such Registrable Securities has been declared effective by
the SEC, and (ii) the Company shall provide that any Registration Statement on
Form S-1 filed hereunder shall incorporate documents by reference (including by
way of forward incorporation by reference) to the maximum extent possible.

 

b. Subject to Section 3(q) hereof, the Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to
each Registration Statement and the prospectus used in connection with each
Registration Statement as may be necessary to keep each Registration Statement
current and effective at all times during the Registration Period, and, during
the Registration Period, shall comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all Registrable
Securities covered by each Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in such
Registration Statement.  In the event that on any Trading Day (as defined below)
(the “Registration Trigger Date”) the number of shares available under the
Registration Statements filed pursuant to this Agreement is insufficient to
cover all of the Registrable Securities issued or issuable upon conversion of,
or otherwise pursuant to, the Convertible Notes, without giving effect to any
limitations on the Investors’ ability to convert the Convertible Notes, then the
Company shall as soon as practicable, but in any event within twenty (20) days
after the Registration Trigger Date, amend the Registration Statements, or file
a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover the total number of Registrable Securities
so issued or issuable (assuming a Conversion Price (as defined in the
Convertible Notes) of Seven Dollar ($7.00) (subject to appropriate adjustment
for any Stock Event (as defined in the Convertible Notes) that occurs after the
date of this Agreement) and without giving effect to any limitations on
conversion contained in the Convertible Notes) as of the second Trading Day
immediately preceding the date of the filing of such amendment or new
Registration Statement with the SEC.  The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof, but in any event the Company
shall cause such amendment and/or new Registration Statement to become effective
within sixty (60) days of the Registration Trigger Date or as promptly as
practicable in the event the Company is required to increase its authorized
shares.  “Trading Day” shall mean any day on which the Common Stock is traded
for any period on the NASDAQ Global Market (the “NasdaqGM”), or if not the

 

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NasdaqGM, the principal securities exchange or other securities market on which
the Common Stock is then being traded.  For purposes of the foregoing provision,
the number of shares available under a Registration Statement shall be deemed
“insufficient to cover all Registrable Securities” specified above if as of any
date of determination (A) the number of shares of Common Stock equal to the sum
of (x) the total number of Conversion Shares so issued or issuable (assuming a
Conversion Price of Seven Dollar ($7.00) (subject to appropriate adjustment for
any Stock Event that occurs after the date of this Agreement) and without giving
effect to any limitations on conversion contained in the Convertible Notes) plus
(y) the number of shares of Common Stock otherwise beneficially owned by the
Investors that remain Registrable Securities as of such date of determination is
greater than (B) the number of shares of Common Stock available for resale under
such Registration Statement.  The foregoing calculations shall be made without
regard to any limitations on conversion of the Convertible Notes.

 

c. The Company shall furnish or otherwise make available to each Investor and
its legal counsel (i) promptly after the same is prepared and publicly
distributed, filed with the SEC or received by the Company, one copy of each
Registration Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto, and, in the case of a
Registration Statement referred to in Section 2(a), each letter written by or on
behalf of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought or intends to seek
confidential treatment); and provided that the Company may excise any
information contained therein which would constitute material non-public
information as to any Investor which has not executed a confidentiality
agreement with the Company, and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto
and such other documents as an Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor;
provided that the Company may determine in its reasonable judgment to provide
any such copies in electronic form only.  The Company will promptly notify each
of the Investors by electronic mail of the effectiveness of each Registration
Statement or any post-effective amendment. The Company will respond to any and
all comments received from the SEC as soon as reasonably practicable, with a
view towards causing each Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as practicable and, as soon as
practicable, but in no event later than three (3) business days, following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review, shall file a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
two (2) business days after the submission of such request; provided, however,
that if during such period, the Company is unable to file such acceleration
request because such acceleration request would otherwise be filed more than 45,
but less than 76 days, after the end of the Company’s most recent fiscal year
and the audited financial statements for such fiscal year are unavailable at
such time, such obligation to file an acceleration request shall be extended
until the first business day following the earlier of (a) the deadline (without
regard to any extensions that may be permitted by Rule 12b-25 under the Exchange
Act) for filing by the Company of an annual report on Form 10-K containing such
financial statements with the SEC and (b) the date on which the Company files

 

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an annual report on Form 10-K containing such financial statements with the
SEC.  After such Registration Statement becomes effective, the Company will file
with the SEC the final prospectus included therein pursuant to Rule 424 (or
successor thereto) under the Securities Act within the time period required by
the Securities Act.

 

d. The Company shall use its best efforts to (i) register and qualify, in any
jurisdiction where registration and/or qualification is required, the
Registrable Securities covered by the Registration Statements under such other
securities or “blue sky” laws of such jurisdictions in the United States as the
Investors shall reasonably request in writing, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be reasonably
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be reasonably necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d),
(y) subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.

 

e. Subject to Section 3(q) hereof, as promptly as practicable after becoming
aware of such event, the Company shall notify each Investor that holds
Registrable Securities of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, and promptly prepare a supplement or amendment to any
Registration Statement to correct such untrue statement or omission, and deliver
such number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request.

 

f. The Company shall use its best efforts to prevent the issuance of any stop
order or other suspension of effectiveness of any Registration Statement, and,
if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable moment and to notify each Investor that holds Registrable
Securities (and, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof.

 

g. The Company shall permit a single firm of counsel designated by the Investors
(“Legal Counsel”) to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof), a reasonable period of time prior to their filing with the SEC (not
less than five (5) business days but not more than eight (8) business days) and
use commercially reasonable efforts to reflect in such documents any comments as
such counsel may reasonably propose (so long as such comments are provided to
the Company at least two (2) business days prior to the expected filing date)
(provided that the Company shall make the final decision as to the form and
content of each such document) and will not request acceleration of such
Registration Statement without prior notice to Legal Counsel.  Any fees incurred
by Legal Counsel shall be governed by Section 6 of this Agreement.

 

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h. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning any Investor is sought
in or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Investor prior to making such disclosure, and
allow such Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.

 

i. The Company shall use its best efforts to cause all the Registrable
Securities covered by each Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange.

 

j. The Company shall provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the initial Registration Statement.

 

k. The Company shall cooperate with each Investor that holds Registrable
Securities being offered and the managing underwriter or underwriters as
reasonably requested by them with respect to an applicable Registration
Statement, if any, to facilitate the timely (i) preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement, and enable
such certificates to be registered in such names and in such denominations or
amounts, as the case may be, or (ii) crediting of the Registrable Securities to
be offered pursuant to a Registration Statement to the applicable account (or
accounts) with The Depository Trust Company through its Deposit/Withdrawal At
Custodian (DWAC) system, in any such case as such Investor or the managing
underwriter or underwriters, if any, may reasonably request.  Within three
(3) business days after a Registration Statement which includes Registrable
Securities becomes effective, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to each Investor) an appropriate instruction
and an opinion of such counsel in the form required by the transfer agent in
order to issue the Registrable Securities free of restrictive legends.

 

l. At the reasonable request of an Investor, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in connection
with the Registration Statement as may be necessary in order to make changes to
the plan of distribution set forth in such Registration Statement.

 

m. The Company shall not, and shall not agree to, allow the holders of any
securities of the Company to include any of their securities (other than
Registrable Securities) in any Registration Statement filed pursuant to
Section 2(a) hereof or any amendment or supplement thereto under

 

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Section 3(b) hereof without the consent of Investors holding a
majority-in-interest of the then outstanding Registrable Securities.  In
addition, the Company shall not include any securities for its own account or
the account of others in any Registration Statement filed pursuant to
Section 2(a) hereof or any amendment or supplement thereto filed pursuant to
Section 3(b) hereof without the consent of Investors holding a
majority-in-interest of the then outstanding Registrable Securities.

 

n. Reserved.

 

o. The Company shall comply with all applicable laws related to a Registration
Statement and offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection therewith (including the
Securities Act and the Exchange Act and the rules and regulations promulgated by
the SEC).

 

p.  If required by the FINRA Corporate Financing Department, the Company shall
promptly effect a filing with FINRA pursuant to FINRA Rule 5110 (or successor
thereto) with respect to the public offering contemplated by resales of
securities under the Registration Statement (an “Issuer Filing”), and pay the
filing fee required by such Issuer Filing. The Company shall use its best
efforts to pursue the Issuer Filing until FINRA issues a letter confirming that
it does not object to the terms of the offering contemplated by the Registration
Statement.

 

q.  Notwithstanding anything to the contrary in Section 3(e), at any time after
the effective date of the applicable Registration Statement, the Company may
delay the effectiveness of any Registration Statement, other than the
Registration Statement filed pursuant to Section 2(a)(i) hereof, or suspend the
use of any prospectus forming a part of any Registration Statement, in its
reasonable, good faith discretion, due to the non-disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and not, in the opinion of
counsel to the Company, otherwise required (a “Grace Period”); provided, that
the Company shall (i) promptly notify the Investors in writing of the existence
of a Grace Period (provided that in each notice the Company shall not be
required to disclose the content of such material non-public information to any
Investor) and the date on which the Grace Period will begin, and (ii) as soon as
practicable after such date may be determined, notify the Investors in writing
of the date on which the Grace Period ends; and, provided, further, that (A) no
Grace Period shall exceed forty-five (45) consecutive days, (B) during any three
hundred sixty five (365) day period, such Grace Periods shall not exceed an
aggregate of seventy-five (75) days, and (C) the first day of any Grace Period
must be at least ten (10) Trading Days after the last day of any prior Grace
Period (each Grace Period that satisfies all of the requirements of this
Section 3(q) being referred to as an “Allowable Grace Period”).  For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause
(i) and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice.  The
provisions of Section 3(e) hereof shall not be applicable during the period of
any Allowable Grace Period, damages pursuant to Section 3 of the Convertible
Notes shall not accrue on any day during an Allowable Grace Period, and the
unavailability of a Registration Statement for resales of the Registrable
Securities on any day during an Allowable Grace Period shall not

 

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constitute a “Registration Failure” (as defined in the Convertible Notes).  Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 3(e) with respect to the information giving rise thereto
unless such material non-public information is no longer applicable.

 

4. OBLIGATIONS OF THE INVESTOR. In connection with the registration of the
Registrable Securities, each Investor shall have the following obligations:

 

a. It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of an Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least seven (7) business days prior to
the first anticipated filing date of a Registration Statement, the Company shall
notify each Investor of the information the Company requires from such
Investor.  Any such information shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.  An Investor must
provide such information to the Company at least two (2) business days prior to
the first anticipated filing date of such Registration Statement if such
Investor elects to have any Registrable Securities included in the Registration
Statement.

 

b. Each Investor, by such Investor’s acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of a Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor’s election to exclude all of the Investor’s Registrable Securities from
such Registration Statement.

 

c. In the event of an underwritten offering pursuant to Section 2(b) in which
any Registrable Securities of any Investor are to be included, such Investor
agrees to enter into and perform the Investor’s obligations under an
underwriting agreement, in usual and customary form, including customary
indemnification and contribution obligations (as applicable to selling security
holders generally), with the managing underwriter of such offering and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of such Investor Registrable Securities.

 

d. Each Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(e) or 3(f), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f).

 

e.  Each Investor agrees that it will not effect any disposition or other
transfer of the Registrable Securities that would constitute a sale within the
meaning of the Securities Act other than transactions exempt from the
registration requirements of the Securities Act or pursuant to, and

 

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as contemplated in, a Registration Statement, and that it will promptly notify
the Company of any material changes in the information set forth in a
Registration Statement furnished by or regarding such Investor or its plan of
distribution other than changes in the number of shares beneficially owned.

 

5. REGISTRATION FAILURE.  In the event of a Registration Failure (as defined in
the Convertible Notes), the Investors shall be entitled to such rights as set
forth in the Convertible Notes.

 

6. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, and
the fees and disbursements of counsel for the Company shall be borne by the
Company.  The Company shall also reimburse the Investors for the reasonable fees
and disbursements of Legal Counsel in the aggregate amount up to $25,000 per
registration in connection with registrations pursuant to Section 2 or 3 of this
Agreement.

 

7. INDEMNIFICATION. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:

 

a. The Company will indemnify, hold harmless and defend (i) each Investor,
(ii) the directors, officers, partners, managers, members, employees, agents of
each Investor, and each Person who controls any Investor within the meaning of
the Securities Act or the Exchange Act, if any, (iii) any underwriter (as
defined in the Securities Act) for each Investor in connection with an
underwritten offering pursuant to Section 2(b) hereof, and (iv) the directors,
officers, partners, employees and each Person who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act, if any (each, an
“Indemnified Person”), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, “Claims”) to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in any Registration
Statement, or any amendment as supplement thereto, or any filing made under
state securities laws as required hereby, or the omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus, or any amendment or
supplement thereto, or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in the light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other law, including any state securities law, or any
rule or regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”). The Company shall reimburse the Indemnified Person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees and other reasonable expenses incurred by them in
connection with investigating or defending any such Claim.  Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 7(a) (A) shall not apply to a Claim arising out of or
based

 

11

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upon a Violation to the extent that such Violation occurs in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of such Registration Statement or any such amendment thereof or
supplement thereto; and (B) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld, conditioned or
delayed.  Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by any of the Investors pursuant to
Section 10.

 

b. Promptly after receipt by an Indemnified Person under this Section 7 of
notice of the commencement of any action (including any governmental action),
such Indemnified Person shall, if a Claim in respect thereof is to be made
against the Company under this Section 7, deliver to the Company a written
notice of the commencement thereof, and the Company shall have the right to
participate in, and, to the extent the Company so desires, to assume control of
the defense thereof with counsel mutually satisfactory to the Company and the
Indemnified Person, as the case may be;

 

provided, however, that an Indemnified Person shall have the right to retain its
own counsel with the reasonable fees and expenses to be paid by the Company, if,
in the reasonable opinion of counsel for such Indemnified Person, the
representation by such counsel of the Indemnified Person and the Company would
be inappropriate due to actual or potential differing interests between such
Indemnified Person and any other party represented by such counsel in such
proceeding. The Company shall pay for only one separate legal counsel for the
Indemnified Persons, and such legal counsel shall be selected by the Investors.
The failure to deliver written notice to the Company within a reasonable time of
the commencement of any such action shall not relieve the Company of any
liability to the Indemnified Person under this Section 7, except to the extent
that the Company is actually prejudiced in its ability to defend such action. 
The Company shall not, without the prior written consent of the Indemnified
Persons, consent to entry of any judgment or enter into any settlement or other
compromise with respect to any Claim in respect of which indemnification or
contribution may be or has been sought hereunder (whether or not any such
Indemnified Party is an actual or potential party to such action or claim) which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Persons of a full release from all liability with
respect to such Claim or which includes any admission as to fault or culpability
on the part of any Indemnified Person.

 

c.  Each Investor will indemnify, hold harmless and defend (i) the Company, and
(ii) the directors, officers, partners, managers, members, employees, or agents
of the Company, if any (each, a “Company Indemnified Person”), against any
Claims to which any of them may become subject insofar as such Claims arise out
of or are based upon any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any other law, including any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities, which occurs due to the inclusion by the Company in a
Registration Statement of false or misleading information about an Investor,
where such information was furnished in writing to the Company by or on behalf
of such Investor expressly for the purpose of inclusion in such Registration
Statement.  Such Investor shall reimburse the Company Indemnified Person,

 

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promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything herein to the contrary, the indemnity agreement contained in this
Section 7(c) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Investors, which
consent shall not be unreasonably withheld or delayed; and provided, further,
however, that an Investor shall be liable under this Section 7(c) for only that
amount of a Claim as does not exceed the net amount of proceeds received by such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company Indemnified
Person.

 

d.  Promptly after receipt by a Company Indemnified Person under this Section 7
of notice of the commencement of any action (including any governmental action),
such Company Indemnified Person shall, if a Claim in respect thereof is to be
made against any Investor under this Section 7, deliver to such Investor a
written notice of the commencement thereof, and such Investor shall have the
right to participate in, and, to the extent such Investor so desires, to assume
control of the defense thereof with counsel mutually satisfactory to such
Investor and such Company Indemnified Person.

 

PROVIDED, HOWEVER, that a Company Indemnified Person shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
applicable Investor, if, in the reasonable opinion of counsel for the Company,
the representation by such counsel of the Company Indemnified Person and the
Investor would be inappropriate due to actual or potential material differing
interests between the Company Indemnified Person and any other party represented
by such counsel in such proceeding. An Investor shall pay for only one separate
legal counsel for the Company Indemnified Persons, and such legal counsel shall
be selected by the Company. The failure to deliver written notice to the
Investor within a reasonable time of the commencement of any such action shall
not relieve the Investor of any liability to the Company Indemnified Person
under this Section 7, except to the extent that the Investor is actually
prejudiced in its ability to defend such action.  No Investor shall, without the
prior written consent of the Company Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise with respect to any
Claim in respect of which indemnification or contribution may be or has been
sought hereunder (whether or not any such Company Indemnified Person is an
actual or potential party to such action or claim) which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
Company Indemnified Person of a full release from all liability with respect to
such Claim or which includes any admission as to fault or culpability on the
part of any Company Indemnified Person.

 

8.  CONTRIBUTION.  If for any reason the indemnification provided for in
Section 7(a) or 7(c) (as applicable) is unavailable to an Indemnified Person or
Company Indemnified Person (as applicable) or insufficient to hold it harmless,
other than as expressly specified therein, then the indemnifying party shall
contribute to the amount paid or payable by the Indemnified Person or Company
Indemnified Person (as applicable) as a result of the Claim in such proportion
as is appropriate to reflect the relative fault of the Indemnified Person or
Company Indemnified Person (as applicable) and the indemnifying party (provided
that the relative fault of any Company Indemnified Person shall be deemed to
include the fault of all other Company

 

13

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Indemnified Persons), as well as any other relevant equitable considerations. 
No Person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the Securities Act shall be entitled to contribution from any
Person not guilty of such fraudulent misrepresentation.  In no event shall the
contribution obligation of an Investor be greater in amount than the net amount
of proceeds received by such Investor as a result of the sale of Registrable
Securities giving rise to such contribution obligation pursuant to the
applicable Registration Statement (net of the aggregate amount of any damages or
other amounts such Investor has otherwise been required to pay (pursuant to
Section 7(c) or otherwise) by reason of such Investor’s untrue or alleged untrue
statement or omission or alleged omission).

 

9.  REPORTS UNDER THE 1934 ACT.  During the Reporting Period (as defined in the
First Amendment), with a view to making available to the Investors the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration, the Company agrees
to:

 

a.  make and keep public information available, as those terms are understood
and defined in Rule 144;

 

b.  file with the SEC in a timely manner all reports and other documents
required of the Company under the Exchange Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

 

c.  so long as any of the Investors owns Registrable Securities, promptly upon
request, furnish to such Investor (i) a written statement by the Company that it
has complied with the reporting requirements of the Exchange Act as required for
applicable provisions of Rule 144, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit such Investor to sell such Registrable Securities pursuant to Rule 144
without registration.

 

10.  ASSIGNMENT OF REGISTRATION RIGHTS.  The rights under this Agreement shall
be automatically assignable by each Investor to any transferee of all or any
portion of the Registrable Securities (provided such transfer is permitted under
the Convertible Notes) if:  (i) such Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment,
(ii) the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, and (iii) the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein as applicable to the Investors.  In the event that an Investor transfers
all or any portion of its Registrable Securities pursuant to this Section, the
Company shall have up to ten (10) days to file any amendments or supplements
necessary to keep a Registration Statement current and effective pursuant to
Rule 415, and the commencement date of any Registration Failure (as defined in
the Convertible Notes) caused thereby will be extended by ten (10) days.

 

14

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11.  AMENDMENT OF REGISTRATION RIGHTS.  Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
written consent of the Company and the holders of a majority in interest of
then-outstanding Registrable Securities.  Any amendment or waiver effected in
accordance with this Section 11 shall be binding upon each of the Investors and
the Company.

 

12.  MISCELLANEOUS.

 

a.  A Person is deemed to hold, and be a holder of, shares of Common Stock or
other Registrable Securities whenever such Person owns of record or beneficially
through a “street name” holder such shares of Common Stock or other Registrable
Securities (or the Convertible Notes, Conversion Shares or other securities upon
exercise, conversion or exchange of which such Registrable Securities are
directly or indirectly issuable, without giving effect to any limitations on
exercise, conversion or exchange of the Convertible Notes, Conversion Shares or
other securities), and solely for purposes hereof, Registrable Securities shall
be deemed outstanding to the extent they are directly or indirectly issuable
upon exercise, conversion or exchange (as applicable) of the Convertible Notes,
Conversion Shares or other outstanding securities, Registrable Securities,
without giving effect to any limits on exercise, conversion or exchange of the
Convertible Notes, Conversion Shares or other securities.  If the Company
receives conflicting instructions, notices or elections from two or more Persons
with respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from the registered owner of
such Registrable Securities (or the Convertible Notes or Conversion Shares or
other securities upon exercise, conversion, redemption or exchange of which such
Registrable Securities are directly or indirectly issuable).

 

b.  Any notices required or permitted to be given under the terms hereof shall
be sent by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service) or
by electronic mail and shall be effective five days after being placed in the
mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by electronic mail, in each case addressed to a party.  The addresses for such
communications shall be:

 

If to the Company:

 

Neos Therapeutics, Inc.

 

2940 N. Hwy 360, Suite 400

Grand Prairie, TX 75050

Facsimile: (972) 408-1143

E-mail: reisenstadt@neostx.com

Attn: Richard Eisenstadt

 

With copy to:

 

Goodwin Procter LLP

100 Northern Avenue

 

15

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Boston, MA 02210

Facsimile: (617) 801-8864

Email: jtheis@goodwinlaw.com

Attn: Joseph C. Theis, Jr., Esq.

 

If to an Investor:

 

c/o Deerfield Mgmt, L.P.
780 Third Avenue, 37th Floor
New York, NY 10017
Fax:  (212) 599-3075
Email:  dclark@deerfield.com

Attn:  David J. Clark, Esq.

 

With a copy to:

 

Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
Fax:  (212) 940-8776

 

Email: mark.fisher@kattenlaw.com and mark.wood@kattenlaw.com
Attn:  Mark I. Fisher, Esq.

Mark D. Wood, Esq.

 

Each party shall provide notice to the other party of any change in address.

 

c.  Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof.

 

d.  Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York, borough of Manhattan.  Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof.  Nothing contained herein

 

16

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shall be deemed to limit in any way any right to serve process in any other
manner permitted by law.  The parties hereby waive all rights to a trial by
jury.  If either party shall commence an action or proceeding to enforce any
provision of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

 

e.  This Agreement, the Convertible Notes and the Facility Agreement (including
all schedules and exhibits thereto), including the First Amendment, constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof.  This Agreement, the Convertible Notes and the Facility Agreement
(including all schedules and exhibits thereto), including the First Amendment,
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.

 

f.  Subject to the requirements of Section 10 hereof, this Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto, and the provisions of Sections 7 and 8 hereof shall inure to the
benefit of, and be enforceable by, each Indemnified Person and Company
Indemnified Person (as applicable).

 

g.  The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

 

h.  This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement.  This Agreement, once executed by a party, may be delivered to the
other party hereto by electronic transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

 

i.  Each party shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other parties may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

 

j.  The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Investors by vitiating the intent and purpose
of the transactions contemplated hereby.  Accordingly, the Company acknowledges
that the remedy at law for breach of its obligations hereunder will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of any of the provisions hereunder, that the Investors shall be
entitled, in addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, without
the necessity of showing economic loss and without any bond or other security
being required.

 

k.  The language used in this Agreement will be deemed to be the language chosen
by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

 

17

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l.  In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.  Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.

 

m.  In the event an Investor shall sell or otherwise transfer any of such
holder’s Registrable Securities, each transferee shall be allocated a pro rata
portion of the number of Registrable Securities included in a Registration
Statement for such transferor.

 

n.  There shall be no oral modifications or amendments to this Agreement.  This
Agreement may be modified or amended only in writing.

 

o.  The Company shall not grant any Person any registration rights with respect
to shares of Common Stock or any other securities of the Company to the extent
such registration rights limit in any way the number of Registrable Securities
that could be included in any Registration Statement pursuant to Rule 415 and
shall not otherwise enter into any agreement that is inconsistent with the
rights granted to the Investors hereunder.

 

p.  The obligations of each Investor hereunder are several and not joint with
the obligations of any other Investor, and no provision of this Agreement is
intended to confer any obligations on any Investor vis-à-vis any other
Investor.  Nothing contained herein, and no action taken by any Investor
pursuant hereto, shall be deemed to constitute the Investors as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.

 

q.  Unless the context otherwise requires, (i) all references to Sections,
Schedules or Exhibits are to Sections, Schedules or Exhibits contained in or
attached to this Agreement, (ii) words in the singular or plural include the
singular and plural, and pronouns stated in either the masculine, the feminine
or neuter gender shall include the masculine, feminine and neuter, and (ii) the
use of the word “including” in this Agreement shall be by way of example rather
than limitation.

 

[Remainder of page left intentionally blank]

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

 

COMPANY:

 

 

 

NEOS THERAPEUTICS, INC., a Delaware corporation

 

 

 

By:

 

 

Name:

Richard Eisenstadt

 

Title:

Chief Financial Officer, Secretary and Treasurer

 

[Signature Page to Registration Rights Agreement]

 

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

 

IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

 

INVESTORS:

 

 

 

DEERFIELD PRIVATE DESIGN FUND III, L.P.

 

 

 

By: Deerfield Mgmt, L.P., its General Partner

 

By: J.E. Flynn Capital, LLC, its General Partner

 

 

 

By:

 

 

Name:

David J. Clark

 

Title:

Authorized Signatory

 

 

 

DEERFIELD SPECIAL SITUATIONS FUND, L.P.

 

 

 

By: Deerfield Mgmt, L.P., its General Partner

 

By: J.E. Flynn Capital, LLC, its General Partner

 

 

 

By:

 

 

Name:

David J. Clark

 

Title:

Authorized Signatory

 

20

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Schedule I

 

Lender

 

Principal Amount of Senior Secured Convertible
Note at Issuance

 

DEERFIELD PRIVATE DESIGN FUND III, L.P.

 

$

4,390,974.48

 

DEERFIELD SPECIAL SITUATIONS FUND, L.P.

 

$

2,195,487.24 

 

 

15

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Schedule   2(d)(i)(B)(i)

 

[g146851la07i001.jpg]

 

Cite:                      Bloomberg L.P. (2017) Earnings Matrix for Neos
Therapeutics Inc. Q1March 2014 to Q4 December 2018.  Retrieved May 26, 2017 from
Bloomberg database.

 

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Schedule   2(d)(i)(B)(ii)

 

New Drug Application # 205,489 for Cotempla XR-ODT — PDUFA date of June 19, 2017

 

New Drug Application #204325 for NT-0201 — PDUFA date of September 15, 2017

 

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