Exhibit
10.1


AGREEMENT


This Agreement (this “Agreement”) is made and entered into this 10th
day of December 2004, by and among Depomed, Inc., a California corporation (“Depomed”),
and the undersigned holder (the “Shareholder”), of Depomed’s Series A Preferred
Stock (the “Series A Preferred”). 
Depomed and the Shareholder are each referred to herein as a “Party” and
collectively as “the Parties.”


WITNESSETH


WHEREAS, the rights, preferences and privileges of the Series A
Preferred Stock are set forth in that certain Certificate of Determination of
Preferences and Rights of Series A Preferred Stock of Depomed, Inc., as filed
with the Secretary of State of the State of California on January 14, 2000 (the
“Certificate”);


WHEREAS, as a result of various financings since January 20, 2000,
Depomed has, from time to time since January 2000, adjusted the Series A
Conversion Price (as defined in the Certificate) pursuant to the provisions of
the Certificate;


WHEREAS, the Shareholder asserts that further adjustments to the Series
A Conversion Price are required pursuant to certain anti-dilution provisions in
the Certificate, which has led the Parties to dispute the meaning of these and
other provisions of the Certificate (the “Dispute”); and


WHEREAS, the Parties deem it in their respective best interests to
amicably resolve the Dispute and the rights, preferences and privileges of the
Series A Preferred to avoid costly and time-consuming litigation over any
potential claims that could be asserted by the Parties.


NOW, THEREFORE, for and in consideration of the mutual agreements,
covenants and the promises herein contained, the Parties, intending to be
legally bound, and to legally bind their respective successors, hereby agree as
follows.


1.             Anti-Dilution
Adjustments.  In consideration of the
mutual agreements herein and for resolution of the Dispute, the Parties agree
that the Series A Conversion Price shall be adjusted as of the date hereof to
$7.50 per share.  Such adjustment shall be
in full satisfaction of all claims that have been made or could have been made
by the Shareholder for adjustments to the Series A Conversion Price relating to
issuances of Depomed securities prior to the date hereof and no further claim
of any nature shall be made to further adjust the Series A Conversion Price as
of the date hereof with respect to such issuances.


2.             Warrant
for Common Stock.  Depomed hereby
irrevocably agrees to issue to the Shareholder, on or before December 28, 2004,
a warrant in the form attached hereto as Exhibit A, to purchase shares
of Depomed Common Stock (the “Warrant”). 
The Shareholder hereby





















 


waives any right to any anti-dilution adjustment to the Series A
Conversion Price arising from the issuance of the Warrant or the Warrant
Securities (as defined in the Warrant).


3.             Interpretation
of Certificate.  The Parties hereby
agree to the following interpretations of certain provisions of the
Certificate.  In consideration of Depomed’s
issuance of the Warrant and the Parties’ willingness to agree to the terms of
this Agreement, these interpretations shall, with respect to all issuances of
Depomed securities occurring on or after the date hereof, be binding on the
Parties, their successors and assigns, including without limitation any
subsequent transferee of the Series A Preferred or the Warrant.


3.1.          The
term “aggregate consideration received by the Company” in Section 4(a)(iii) of
the Certificate shall mean gross, not net, consideration received by the
Company in any applicable issuance of securities, such that all consideration
paid by the issuees for any issuance (excluding the principal amount of any
convertible debt or preferred stock issued by Depomed) shall be considered
received by Depomed without regard to (a) expenses (including without
limitation legal, accounting and financial advisory fees and expenses)
associated with such issuance, (b) other monies paid, payable or deducted from
such consideration or (c) any value attributed or attributable to any options,
warrants or other instruments exercisable for Depomed securities issued in
connection therewith, which shall be treated in accordance with Section 3.3
below.


3.2.          The
term “Common Stock Equivalents” (as defined in Section 4(a)(iv) of the
Certificate) shall not include, and no anti-dilution adjustments will be made
for, any Depomed securities (including without limitation warrants or shares
underlying warrants) issued in a private sale pursuant to which the purchasers
are granted registration rights for the resale of such securities and such
securities are sold at a price not less than the lesser of 85% of the Fair
Market Value (as defined in the Certificate). 
The term “provided that the rights of the holders of the Series A
Preferred as set forth in Section 4(a)(iii) are not affected” in Section
4(a)(iv) shall not be deemed to limit Depomed’s right to issue securities in
accordance with the foregoing provisions without triggering any price
anti-dilution.


3.3.          Section
4(a)(vi)(A) of the Certificate shall be interpreted to require that shares of
Depomed Common Stock underlying warrants and other convertible securities
(including without limitation convertible debt or preferred stock) shall be
deemed issued upon the date that the warrants or convertible securities are
issued, shall be deemed issued for consideration equal to the exercise or
conversion price of the securities, and no price anti-dilution adjustment shall
be made under the Certificate unless the exercise or conversion price of the
warrants or convertible securities is less than the Fair Market Value (or such
lesser amount as is set forth in Section 3.2 above, as applicable) on the date
the warrants or convertible securities are issued.  For avoidance of doubt, in any issuance by the Company of more than one
form of security in a single transaction or series of related transactions
(such as the issuance of units consisting of Depomed Common Stock and warrants
to purchase Depomed Common Stock) at different sale or conversion prices, the
antidilution provisions of the Certificate, as interpreted hereby, shall be
applied separately to each such security and not on the basis of the average
sale or conversion prices of such separate securities.


2





















 


4.             Voting
Agreement and Related Matters.


4.1.          In the event any Corporate Transaction
(as defined in Section 4.2) involving Depomed occurs while any Series A
Preferred remains outstanding, each holder of the Series A Preferred shall vote
its shares of Series A Preferred in favor of such Corporate Transaction and shall
not exercise any appraisal or dissenters’ rights in connection with such
Corporate Transaction which are or may be available to such holder under the
California Corporations Code; provided that each of the following conditions is
met:


(i)            The
Corporate Transaction is approved by (a) the Board of Directors of Depomed and
(b) the holders of a majority of Depomed’s Common Stock then outstanding;


(ii)           The
holder receives at least fifteen (15) days advanced written notice of the
consummation of the Corporate Transaction; and


(iii)          The
holder receives consideration in the Corporate Transaction in the form of cash,
marketable securities or other marketable property valued at an amount equal to
the full liquidation preference of the holder’s shares of Series A Preferred
upon consummation of the Corporate Transaction, as such liquidation preference
is determined in accordance with the Certificate.  Subject to the limitation set forth in the
immediately preceding sentence, the condition set forth in this clause (iii)
shall be met if the consideration received by the holder in the Corporate
Transaction is in the same form, and valued by the same method, as the
consideration received in the Corporate Transaction by holders of Depomed’s
Common Stock.  For the avoidance of
doubt, if the consideration received by holders of Depomed’s Common Stock in
the Corporate Transaction is marketable securities or other marketable
property, the condition in this clause (iii) shall be met if the holder
receives consideration in the Corporate Transaction with a value equal to the
aggregate liquidation preference of the holder’s shares of Series A Preferred
as of the trading day immediately preceding the closing of the Corporate
Transaction (the “Value Date”), based on the average closing price of such
marketable securities or other marketable property during the ten trading day
period ending on the Value Date, as reported on the principal national exchange
or quotation service on which such marketable securities or other marketable
property is then listed or quoted.


4.2.          A “Corporate Transaction” shall be
deemed to include any merger, consolidation, or other corporate transaction in
which a controlling interest in Depomed is transferred to a third party, the
sale of all or substantially all of Depomed’s assets to an third party or a
leveraged or management buyout of Depomed by a third party; provided, however,
that a merger solely for the purpose of reincorporating Depomed in a different
jurisdiction shall not constitute a Corporate Transaction.


4.3.          Unless
otherwise agreed by the holders of a majority of the shares of the Series A
Preferred then outstanding, Depomed covenants and agrees that it shall not
approve any Corporate Transaction pursuant to which (i) all of Depomed’s Common
Stock then issued and outstanding is sold or exchanged for cash or for
securities of a third party or (ii) all or substantially all of Depomed’s
assets are sold to an unaffiliated third party, unless, in either case,


3





















 


each holder of the Series A
Preferred receives in full the Liquidation Preference (or its pro rata share of
the Liquidation Preference, as applicable) in the form of cash, marketable
securities or other marketable property valued in the manner set forth in
Section 4.1 above.


4.4.          The
foregoing shall not limit the right of the Series A Preferred holders to
convert the Series A Preferred prior to consummation of such Corporate
Transaction.


5.             Mutual
Releases.


5.1.          Effective as of the date of this Agreement,
the Shareholder, including itself, its affiliates, its direct and indirect
parent and subsidiary entities and investment advisers (including without
limitation Polygon Investment Partners LLP and Polygon Investment Partners LP
and the partners thereof), the record holder of the Series A Preferred and its
and their respective administrators, affiliates, predecessors, successors,
assigns, officers, directors, employees, shareholders, trustees, limited
partners, hereby release and forever discharge Depomed, and its past and
present directors, officers and employees, administrators, agents, attorneys,
predecessors, successors, subsidiaries, affiliates, assigns, customers,
licensees and other transferees from any and all actual or potential causes of
action, actions, claims, and demands whatsoever in law or in equity arising on
or prior to the date hereof, directly or indirectly, relating to the Dispute,
the Certificate, the Series A Preferred or the Common Stock underlying the
Series A Preferred.


5.2.          Effective as of the date of this
Agreement, Depomed including its administrators, affiliates, predecessors,
successors, assigns, officers, directors, employees, trustees, and
subsidiaries, hereby releases and forever discharges the Shareholder and any of
its direct and indirect parent and subsidiary entities and investment advisers
(including without limitation Polygon Investment Partners LLP and Polygon
Investment Partners LP and the partners therof), and their respective past and
present directors, officers and employees, administrators, agents, attorneys,
predecessors, successors, subsidiaries, affiliates, assigns, customers, limited
partners, licensees and other transferees from any and all actual or potential
causes of action, actions, claims, and demands whatsoever in law or in equity
arising on or prior to the date hereof, directly or indirectly, relating to the
Dispute, the Certificate, the Series A Preferred or the Common Stock underlying
the Series A Preferred.


5.3.          Nothing herein shall be construed to
release either of the Parties from their respective obligations pursuant to
this Agreement.


5.4.          Each Party has been advised by legal
counsel and is familiar with the provision of Section 1542 of the California
Civil Code, which provides as follows:


“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED A SETTLEMENT WITH THE DEBTOR.”


4





















 


5.5.          Each Party knowingly waives any rights
it may have under Section 1542, and under any similar provision of any other
state or federal law, and the releases provided in Sections 5.1 and 5.2 include
all causes of action, actions, claims, and demands whatsoever in law or in
equity that are not known or are not ascertainable as of the execution of this
Agreement.


6.             Representations
and Warranties.


6.1           Each Party
represents and warrants that it has the right to enter into this Agreement and
to grant the rights set forth therein, and further warrants that it is under no
restriction with respect to the grant of such rights.


6.2           The Shareholder
represents and warrants to Depomed that (i) it is the sole holder of any
beneficial, legal or equitable interest in any of the outstanding shares of
Series A Preferred (other than the investors and investment advisers with
beneficial interests in the Shareholder) and (ii) this Agreement shall be
binding and enforceable against the holder of any beneficial interest in the
Series A Preferred.


7.             Arbitration.  If any dispute arising from or relating to
the Dispute, the Certificate, the Series A Preferred or the Common Stock
underlying the Series A Preferred regarding the interpretation or enforcement of
this Agreement or the Certificate shall arise from the date hereof, any such
dispute or claim(s) by either Party shall be settled by arbitration conducted
in New York, New York in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a single arbitrator. 
The Parties shall endeavor to select a mutually acceptable arbitrator
within fifteen business days after the commencement of a dispute or claim
hereunder.  If the Parties cannot agree on an arbitrator, then the American
Arbitration Association shall select said arbitrator.  The arbitration of such issues,
including the determination of any amount of damages suffered by any Party
hereto by reason of the acts or omissions of any Party, shall be final and
binding upon all parties.  Except as
otherwise set forth in this Agreement, the cost of any arbitration hereunder,
including the cost of the record or transcripts thereof, if any, administrative
fees, and all other fees involved including reasonable attorneys’ fees incurred
by the Party determined by the arbitrator to be the prevailing Party, shall be
paid by the Party determined by the arbitrator not to be the prevailing Party,
or otherwise allocated in an equitable manner as determined by the arbitrator.  The Parties shall use reasonable efforts to
enable the arbitrator to render its decision no later than sixty (60) days
after the submission of the dispute to the arbitrator.


8.             Standstill.  The Shareholder represents, warrants and
covenants to Depomed that neither the Shareholder, nor any affiliate,
representative, employee, agent or investment adviser of the Shareholder
(including without limitation any affiliate, representative, employee or agent
of Polygon Investment Partners LP or Polygon Investment Partners LLP), either
directly or indirectly, has entered into or will at any time in the future
enter into any agreement to purchase all or any part of convertible debt
securities of Depomed outstanding on the date hereof.


5





















 


9.             The Agreement.


9.1.          This
Agreement may be amended or modified only in writing executed by Depomed and
the holders of at least a majority of the issued and outstanding shares of
Series A Preferred.


9.2.          It
is understood and agreed that this Agreement, any consideration given or
accepted in connection with it and the agreements made in it are all made,
given and accepted in settlement and compromise of disputed claims and are not
an admission of liability by any Party.


9.3.          Each
Party has undertaken such independent investigation and evaluation as it deems
appropriate and is entering this Agreement in reliance on that and not in
reliance on any advice, disclosure, representation or information provided by
or expected from the other Party.  This
is an agreement of settlement and compromise, made in recognition that the
Parties may have different or incorrect understandings, information and
contentions, as to facts and law, and with each Party compromising and settling
any potential correctness or incorrectness of its understandings, information
and contentions as to the facts and law.


10.           Miscellaneous.


10.1.        Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same Agreement.  A
signature by facsimile shall be deemed to be an original.


10.2.        Confidentiality.  Depomed and the Shareholder shall not,
without the other party’s prior written consent, disclose the terms of and
reasons for this Agreement to any third party, except (a) as necessary for
compliance with applicable laws and regulations or legal or administrative
processes proceedings or (b) in connection with a transfer of the Warrant or
Series A Preferred (provided that no such transfer shall be discussed with any
holder of any direct or indirect beneficial interest in convertible debt
securities of Depomed outstanding on the date hereof).  The Shareholder acknowledges and agrees that
Depomed will file this Agreement and the Warrant as exhibits to its filings
with the United States Securities and Exchange Commission.


10.3.        Governing Law.  This Agreement and the rights of the Parties
hereunder shall be governed and construed by the laws of the State of
California, without giving effect to its conflicts of laws principles.


10.4.        Severability.  If any provision of this Agreement is found
to be unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall remain in full force and effect.


10.5.        Entire Agreement.  This Agreement, the Certificate and the
Warrant constitute the entire understanding between the parties with respect to
the subject matter hereof and replaces and supersedes any previous agreements
between the parties.  There are no
understandings, representations, licenses or warranties of any kind, express or
implied, not expressly set forth herein.


6





















 


10.6.        Binding Nature.  The terms and conditions of this Agreement
shall be binding upon the Parties, their successors and assigns, including
without limitation subsequent assigns, purchasers, heirs, or any other
transferee(s) of the Series A Preferred and the Warrant.


10.7.        Notice.  Any notice given under this Agreement shall
be in writing and transmitted by registered mail and facsimile addressed to the
other Party for whom notice is given at the address shown below or at such
other address as the addressee shall have furnished in writing to the other
Party as follows:


If to Depomed:


Depomed, Inc.


1360 O’Brien Drive


Menlo Park, CA
94025-1436


Attn: President


Telephone:
650-462-5900


Facsimile:
650-462-9993


 


With a copy to:


Stephen C.
Ferruolo


Heller Ehrman
White & McAuliffe LLP


4350 La Jolla
Village Drive


7th Floor


San Diego, CA
92122-1246


Telephone:
858-450-8400


Facsimile:
858-450-8499


 


 


If to the
Shareholder:


 


Kings Road
Investments Ltd.


598 Madison
Avenue, 14th Floor


New York, NY 10022


Attn:  Brandon Jones


                              Erik Caspersen


Telephone:  (212) 359-7330


Facsimile:  (212) 359-7303


 


With a copy to:


Schulte Roth &
Zabel LLP


919 Third Avenue


New York, NY 10022


Attn:  Eleazer Klein, Esq.


Telephone:  (212) 756-2000


Facsimile:  (212) 593-5955


 


[Signature Page Follows]


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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.


	
   

  	
  DEPOMED,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John F. Hamilton

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John F. Hamilton

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  VP & CFO

  
	
   

  	
   

  	
   

  
	
   

  	
  KINGS
  ROAD INVESTMENTS LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brandon Jones

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Brandon Jones

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Co-head, Private
  Investments, Polygon Investment Partners LP as Investment Manager for Kings
  Road Investments Ltd.

  



 


 










 













EXHIBIT A


 


WARRANT





















 


THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF UNLESS PURSUANT TO A REGISTERED OFFERING OR BY TRANSFER EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES REPRESENTED BY THIS
WARRANT ARE SUBJECT TO THE TRANSFER RESTRICTIONS SET FORTH HEREIN.


DEPOMED, INC.


COMMON STOCK WARRANT


NO.:  W- 2004 - 01


EXERCISABLE BY DELIVERY OF:  issued and outstanding shares of the Series A
Preferred Stock of Depomed, Inc. as of January 20, 2006


This certifies that, for value received, Kings Road
Investments Ltd. or its registered permitted assigns (the “holder”), upon due exercise of this warrant
(this “Warrant”), is entitled to
purchase from Depomed, Inc., a California corporation (the “Company”), at any time on or after January
20, 2006 (the “Initial Exercise Date”),
and before 5:00 p.m. Pacific Standard Time on January 20, 2009 (such date, or
such earlier date on which this Warrant terminates pursuant to Section 7
hereof, the “Expiration Date”),
all or any part of the number of shares of the Common Stock, no par value, of
the Company (“Common Stock”) for
which this Warrant is exercisable in accordance with Section 1(a) below
(such shares, the “Warrant Shares”)
at the purchase price determined in accordance with Section 1(b) below
(the “Purchase Price”).  Both the Purchase Price and the number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
as provided below.


SECTION 1.  Exercise of Warrant.


(a)           Provided that this
Warrant does not terminate on or prior to the Initial Exercise Date pursuant to
Section 7 below, the holder of this Warrant may, at any time during the
period beginning on Initial Exercise Date and ending on the Expiration Date
(the “Exercise Period”), exercise
this Warrant in whole at any time or in part from time to time (but not for
less than 1,000 Warrant Shares or other securities which the holder is entitled
to purchase hereunder (“Warrant Securities”),
unless this Warrant is then exercisable for fewer than 1,000 Warrant Shares or
Warrant Securities and is exercised in full) for a number of shares of Common
Stock equal to the quotient of:  (i) the
product of (A) the number of shares of Series A Preferred Stock, no par value,
of the Company (the “Series A Preferred”)
issued and outstanding (including any accrued dividends) and held of record by
the holder as of the Initial Exercise Date, multiplied by (B) $1,000.00;
divided by (ii) the “Purchase Price” in effect at the time of exercise.  





















 


Notwithstanding any provision to the contrary in this Warrant, in no
event will this Warrant be exercisable for a number of Warrant Shares in excess
of 6,934,768 shares of Common Stock (as adjusted to reflect stock splits, stock
dividends and other similar transactions affecting the Common Stock set forth
in Section 3 below), which is equal to 19.99% of 34,691,190, the number
of outstanding shares of Common Stock as of December 10, 2004.


(b)           The Purchase Price
for each Warrant Share initially shall be equal to the Series A Conversion
Price (as defined in the Certificate of Determination of Preferences and Rights
of Series A Preferred Stock of the Company, Inc. filed with the Secretary of
State of the State of California on January 14, 2000 (the “Certificate of Determination”)) in effect
on the Initial Exercise Date.  On each
Adjustment Date (as defined below), the Purchase Price shall be decreased by
multiplying the Purchase Price then in effect by a fraction the numerator of
which is 100 and the denominator is 102.5. 
An “Adjustment Date” shall
mean each of the following dates:  July
20, 2006, January 20, 2007, July 20, 2007, January 20, 2008, July 20, 2008 and
January 20, 2009.  For exercises on dates
in between Adjustment Dates, the Purchase Price shall be adjusted
proportionately to account for the number of days that have passed since the
last Adjustment Date.


(c)           The Purchase Price
may be paid only by delivery to the Company for cancellation shares of Series A
Preferred.  The Purchase Price may not be
paid in cash, check, cashier’s check, cancellation of indebtedness or any form
of consideration other than issued and outstanding shares of Series A
Preferred.  Each share of Series A
Preferred shall represent $1,000.00 of aggregate Purchase Price.


(d)           The Company and the
initial holder acknowledge and agree that the following table sets forth the number
of Warrant Shares for which this Warrant will be exercisable on the Adjustment
Dates, and the Purchase Price applicable to any such exercise, assuming that
(i) the Warrant is exercisable throughout the Exercise Period, (ii) there are
no adjustments to the Series A Conversion Price on or prior to the Initial
Exercise Date (it being understood and agreed that the Series A Conversion
Price in effect as of December 10, 2004 is $7.50), (iii) no shares of Series A
Preferred are converted into Common Stock (or otherwise converted, repurchased,
retired or cancelled) on or prior to the Initial Exercise Date (it being
understood and agreed that, in that event, there will be Eighteen Thousand One
Hundred Fifty-Eight and Eight Hundred Forty-Eight One-Thousandths (18,158.848)
shares of Series A Preferred issued and outstanding as of the Initial Exercise
Date and that any conversion of shares of Series A Preferred into Common Stock
prior to the Initial Exercise Date will cause the maximum number of Warrant
Shares reflected in the table below to be proportionately reduced) and (iv)
there are no adjustments under Section 4 hereof:


	
  Exercise Date

  	
   

  	
  Purchase Price

  	
   

  	
  Aggregate Number of

  Issued and

  Outstanding Shares of

  Series A Preferred

  	
   

  	
  Maximum Number of

  Warrant Shares

  	
   

  
	
  January 20, 2006

  	
   

  	
  $

  	
  7.50

  	
   

  	
  18,158.848

  	
   

  	
  2,421,180

  	
   

  
	
  July 20, 2006

  	
   

  	
  $

  	
  7.3171

  	
   

  	
  18,158.848

  	
   

  	
  2,481,700

  	
   

  
	
  January 20, 2007

  	
   

  	
  $

  	
  7.1386

  	
   

  	
  18,158.848

  	
   

  	
  2,543,755

  	
   

  
	
  July 20, 2007

  	
   

  	
  $

  	
  6.9645

  	
   

  	
  18,158.848

  	
   

  	
  2,607,344

  	
   

  
	
  January 20, 2008

  	
   

  	
  $

  	
  6.7946

  	
   

  	
  18,158.848

  	
   

  	
  2,672,541

  	
   

  
	
  July 20, 2008

  	
   

  	
  $

  	
  6.6289

  	
   

  	
  18,158.848

  	
   

  	
  2,739,346

  	
   

  
	
  January 20, 2009

  	
   

  	
  $

  	
  6.4672

  	
   

  	
  18,158.848

  	
   

  	
  2,807,838

  	
   

  



2





















(e)           To exercise this Warrant, the holder
must deliver to the Company at the address specified in Section 6(i)
below (i) a completed written notice of such holder’s election to exercise this
Warrant in the form attached hereto (a “Notice
of Exercise”), (ii) a number of Shares of Series A Preferred
sufficient to pay the Purchase Price then in effect for the number of Warrant
Shares or Warrant Securities being purchased, and (iii) this Warrant; provided,
however, that the Company may require that such holder furnish to the
Company a written statement that such holder is purchasing such Warrant Shares
or Warrant Securities for such holder’s own account for investment and not with
a view to the distribution thereof (provided that by making the representations
herein, the holder 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), that none of such shares will be offered or sold in violation of the
provisions of the Securities Act and applicable state securities laws and as to
such other customary matters relating to the holder as the Company may
reasonably request and as are required under applicable law for the issuance of
such Warrant Shares or Warrant Securities without registration under the
Securities Act and applicable state securities laws.  Upon receipt of such items, the Company
shall, within seven (7) business days, execute or cause to be executed and
deliver to such holder a certificate or certificates representing the aggregate
number of Warrant Shares (or, if applicable, Warrant Securities) specified in
the Notice of Exercise.


(f)            This
Warrant may not be exercised for fractional Warrant Shares or Warrant
Securities.  If this Warrant is exercised
only in part, the Company shall deliver to the holder a new Warrant evidencing
the rights of such holder to purchase the remaining Warrant Shares called for
by this Warrant at the same time the Company delivers the certificate or
certificates for the Warrant Shares or Warrant Securities being issued.  The new Warrant shall in all other respects
be identical with this Warrant, or, at the request of such holder, appropriate
notation of the partial exercise of the Warrant may be made on this Warrant and
the same returned to such holder.  The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of certificates for Warrant Shares
or Warrant Securities under this Section, except that, if the holder requests
that the certificates be registered in a name or names other than the name of
the holder, the holder must pay the Company an amount sufficient to pay any
stock transfer taxes payable upon the execution and delivery of such share
certificates in such other name(s).  The
holder must pay such amount for taxes prior to the Company being required to
deliver the Warrant Shares (or Warrant Securities, as the case may be).


(g)           The
Company represents, warrants, covenants and agrees that (i) it shall at
all times prior to the exercise of this Warrant reserve and keep available for
issuance sufficient shares of Common Stock or Warrant Securities, as the case
may be, for issuance upon the exercise hereof, and (ii) all such Warrant
Shares or Warrant Securities issuable upon any exercise of this Warrant in
accordance herewith shall be validly authorized and issued, fully paid and
nonassessable upon such issuance.


3





















 


(h)           This
Warrant shall not entitle the holder hereof to any of the rights of a
shareholder of the Company by virtue of such holder’s ownership hereof prior to
exercise in the manner herein provided.


SECTION
2.  Transfer and Division; Restrictions
on Transfer.


(a)           The holder of
this Warrant may transfer this Warrant in whole (in the case of the transfer of
all issued and outstanding shares of Series A Preferred) or in part (in the
case of the transfer of less than all issued and outstanding shares of Series A
Preferred) simultaneously with any transfer of 3,000 or more shares of Series A
Preferred to the transferee of such shares of Series A Preferred in proportion
to the number of shares of Series A Preferred so transferred relative to the
number of all shares of Series A Preferred then issued and outstanding;
provided, however, that the initial holder of this Warrant may transfer this
Warrant in part (and in proportion to the number of shares of Series A
Preferred so transferred relative to the number of all shares of Series A
Preferred then issued and outstanding) to a single transferee of fewer than
3,000 shares of Series A Preferred if, at the time of such transfer, the
initial holder holds fewer than 3,000 shares of Series A Preferred and
transfers all of the issued and outstanding shares of Series A Preferred then
held by the initial holder to such transferee. 
Except as provided in this Section 2(a), no transfer or partial
transfer of this Warrant shall be made to a holder of less than 3,000 shares of
Series A Preferred.  Any purported
transfer of the Warrant or shares of Series A Preferred in violation of the restrictions
set forth in this Section 2(a) shall be void and of no force or effect.


(b)           Subject
to the provisions of Section 2(a) above and Section 3, this
Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of the
Warrant with a properly executed assignment or partial assignment, as
applicable, in the form attached hereto, at the principal office of the
Company.


(c)           The
Company will
maintain a register containing the names and address of the initial holder of this
Warrant, and shall record in such register any permitted transfers of this
Warrant (in whole or in part) and the name and address of any permitted
transferee of this Warrant.  The holder
of this Warrant may change such holder’s address as shown on the warrant
register by written notice to the Company requesting such change.  Until any transfer of this Warrant is made in
the warrant register, the Company may treat the holder of this Warrant as the
absolute owner hereof for all purposes, and the rights and obligations of the
Company hereunder shall not be affected by any notice or knowledge to the
contrary.


(d)           Upon
receipt of evidence
reasonably satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant, and (i) in the case of loss, theft
or destruction, of indemnity reasonably satisfactory to it, or (ii) in the case
of mutilation, upon surrender and cancellation thereof, the Company at its own
expense shall execute and deliver to the registered holder, in lieu thereof, a
new Warrant identical in all respects to such lost, stolen, destroyed or
mutilated Warrant.


4





















 


SECTION
3.  Compliance with Securities Act.


Each certificate for Warrant Shares (or Warrant Securities) initially
issued upon the exercise of this Warrant and each certificate for Warrant
Shares (or Warrant Securities) issued to permitted transferees of any such
certificate shall be stamped or otherwise imprinted with legend in
substantially the following form, unless such Warrant Shares (or Warrant
Securities) are freely tradable pursuant to an exemption from registration
under applicable securities laws and regulations:


“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF UNLESS PURSUANT TO A REGISTERED OFFERING OR BY TRANSFER
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS.”


SECTION 4.  Adjustment of Purchase Price.


(a)           The Purchase Price
and the number of Warrant Shares and the number or type or amount of any
Warrant Securities and property for which this Warrant may be exercisable (or
which may be issued to the holder upon exercise) shall be subject to adjustment
from time to time effective upon each occurrence of any of the following events
during the Exercise Period:


(i)            If the Company
shall declare or pay any dividend with respect to its Common Stock payable in
shares of Common Stock, subdivide the outstanding Common Stock into a greater
number of shares of Common Stock, or reduce the number of shares of Common
Stock outstanding (whether by stock split, reverse stock split,
reclassification or otherwise than by repurchase of its Common Stock, a “Stock Split”), the Purchase Price and
number of Warrant Shares or Warrant Securities issuable upon exercise of this
Warrant shall be appropriately adjusted so that the holder hereof shall receive
upon exercise of this Warrant, for the same aggregate consideration provided
herein, the same number of shares of Common Stock or other securities (plus
cash in lieu of fractional securities) as the holder would have received as a
result of such Stock Split had such holder exercised this Warrant in full
immediately prior to such Stock Split.


(ii)           If the Company
shall (in each case, whether in one transaction or a series of related
transactions) (A) merge or consolidate with or into one or more corporations,
limited liability companies or partnerships, (B) sell or otherwise dispose of
all or substantially all its assets or (C) adopt a plan of recapitalization or
reorganization and in any such merger, consolidation, sale or other
disposition, recapitalization or reorganization the holders of Common Stock (or
Warrant Securities for which this Warrant is then exercisable) receive, or the
Common Stock is exchanged for, cash, stock or other securities convertible into
equity of the surviving or acquiring corporations or entities, or other
securities or property, then in each case after the effective date of such
merger, consolidation, sale, recapitalization or reorganization, as the case


5





















 


may be, the holder
of this Warrant shall, for the same aggregate consideration provided herein, be
entitled to receive upon exercise of this Warrant, in lieu of the shares of
Common Stock (or Warrant Securities) as to which this Warrant otherwise would
be exercisable, shares of such stock or other securities (plus cash in lieu of
fractional shares), cash or property as the holder of this Warrant would have
received pursuant to the terms of the merger, consolidation, sale or other
disposition, recapitalization or reorganization had such holder exercised this
Warrant or its remaining portion in full immediately prior to such merger,
consolidation, sale or other disposition, recapitalization or reorganization
(and provided that this Warrant does not terminate in accordance with Section
7 below immediately prior to such consolidation, merger, sale or other
disposition, recapitalization or reorganization).  In the event of any consolidation, merger,
sale or other disposition, recapitalization or reorganization as described in
this Section 4(a)(ii), provision shall be made in connection therewith
for the surviving or acquiring entity to assume all obligations and duties of
the Company hereunder or to issue substitute warrants in lieu of this Warrant
with all such changes and adjustments in the number or kind of shares of stock
or securities or property thereafter subject to this Warrant or in the Purchase
Price as shall be required in connection with this Section 4(a)(ii).


(iii)          If the Company
proposes to liquidate and dissolve (other than in connection with a transaction
described in Section 4(a)(ii) for which appropriate adjustment is made
as provided therein), the Company shall give notice thereof as provided in Section
5 below and shall permit the holder of this Warrant to elect to exercise
any unexercised portion hereof at any time within the 10 day period following
delivery of such notice and thereby participate as a stockholder of the Company
in connection with such liquidation or dissolution.


(b)           Whenever any
adjustment is made as provided in any provision of Section 4(a):


(i)            the Company shall
compute the adjustments in accordance with this Section 4 and shall
prepare a certificate signed by an executive officer of the Company setting
forth the adjusted number of shares or other securities or property and
Purchase Price, as applicable, and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be filed
with the Company or its designee; and


(ii)           a notice setting
forth the adjusted number of shares or other securities or property and the
Purchase Price, as applicable, shall forthwith be prepared and delivered by the
Company to the holder of record of each Warrant as promptly as practicable.


(c)           If at any time, as a
result of any adjustment made pursuant to this Section 4, the holder of
this Warrant shall become entitled, upon exercise hereof, to receive any
Warrant Shares other than shares of Common Stock or to receive any Warrant
Securities, the number of such other shares or securities so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner, on terms and with a result as nearly equivalent as practicable to the
provisions contained in this Section 4 with respect to the Common Stock.


(d)           No adjustment shall
be made under this Section 4 in respect of any event that occurs on or
prior to the Initial Exercise Date.


6





















 


SECTION 5.  Special Agreements of the Company.


In case the Company proposes:


(a)           to pay any dividend
upon the Common Stock or make any distribution or offer any subscription or
other rights to the holders of Common Stock;


(b)           to effect any
capital reorganization or reclassification of capital stock of the 

Company; or


(c)           to effect the
consolidation, merger, sale of all or substantially all of the assets,
liquidation, dissolution or winding up of the Company,


then, in any such event, the Company shall cause
notice of any such intended action to be given to the holder of this Warrant
not less than 15 days prior to the date on which the transfer books of the
Company shall close or a record be taken for such dividend or distribution, or
the date when such capital reorganization, reclassification, consolidation,
merger, sale, liquidation, dissolution or winding up shall be effected, or the
date of such other event, as the case may be.


SECTION
6.  Notices.


Any notice or other document required or permitted to be given or
delivered to the holder of this Warrant shall be in writing and sent (a) by fax
if the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), or (b) by registered
or certified mail with return receipt requested (postage prepaid) or (c) by a
recognized overnight delivery service (with charges prepaid).


(i)            if to the Company,
at Depomed, Inc., 1360 O’Brien Drive, Menlo Park, CA 94025, Fax: (650) 462-9993
Attention: Chief Financial Officer, or such other address as the Company from
time to time shall specify to the holder of this Warrant in writing; or


(ii)           if to the holder,
at its address set forth on the Warrant register, or such other address as the
holder or its registered permitted assigns shall have specified to the Company
in writing.


Notices given under this Section 6 shall be deemed given when actually
received or, if later, three business days after sent in accordance with this Section
6.


SECTION
7.  Termination.


(a)           This
Warrant will not be exercisable, and will terminate, in the event of any
merger, reorganization, sale of all or substantially all the assets of the
Company, or upon any liquidation or dissolution of the Company, in each case
that occurs on or prior to January 20, 2006.


7





















 


(b)           This Warrant will not be exercisable, and
will terminate, immediately prior to the consummation of any Corporate
Transaction (as defined below) involving the Company that occurs during the
Exercise Period; provided that each of the following conditions is met:


(i)            The Corporate
Transaction is approved by (A) the Board of Directors of the Company and (B)
the holders of a majority of the Common Stock then outstanding;


(ii)           The holder receives
at least fifteen (15) days advanced notice of the consummation of the Corporate
Transaction; and


(iii)          The holder receives
consideration in the Corporate Transaction in the form of cash, marketable
securities or other marketable property valued at an amount equal to the full
liquidation preference of the holder’s shares of Series A Preferred upon
consummation of the Corporate Transaction, as such liquidation preference is
determined in accordance with the Certificate of Determination.  Subject to the limitation set forth in the
immediately preceding sentence, the condition set forth in this clause (iii)
shall be met if the consideration received by the holder in the Corporate
Transaction is in the same form, and valued by the same method, as the
consideration received in the Corporate Transaction by holders of Common
Stock.  For the avoidance of doubt, if
the consideration received by holders of Common Stock in the Corporate
Transaction is marketable securities or other marketable property, the
condition in this clause (iii) shall be met if the holder receives
consideration in the Corporate Transaction equivalent to the aggregate
liquidation preference of the holder’s shares of Series A Preferred as of the
trading day immediately preceding the Closing of the Corporate Transaction (the
“Value Date”), based on the
average closing price of such marketable securities or other marketable
property during the ten trading day period ending on the Value Date, as
reported on the principal national exchange or quotation service on which such
marketable securities or other marketable property is then listed or quoted.


A “Corporate Transaction” shall be deemed to
include any merger, consolidation, or other corporate transaction in which a
controlling interest in the Company is transferred to a third party, the sale
of all or substantially all of the Company’s assets to a third party or a
leveraged or management buyout of the Company; provided, however, that a merger
solely for the purpose of reincorporating the Company in a different
jurisdiction shall not constitute a Corporate Transaction.


(c)           This
Warrant will not be exercisable, and will terminate, upon the conversion of all
issued and outstanding shares of Series A Preferred into Common Stock on or
prior to the Initial Exercise Date.


SECTION 8.  Amendment.


This Warrant may not be amended, modified or otherwise altered in any
respect except by the written consent of the registered holder of this Warrant
and the Company.


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SECTION
9.  Successors and Assigns.


This Warrant shall be binding upon and inure to the benefit of the
Company and the holder of this Warrant and their respective successors and
permitted assigns.


SECTION
10.  Governing Law.


This Warrant shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to its conflicts or
choice of law principles.


[signature page follows]


 


 


9























 


 


IN WITNESS
WHEREOF, the Company has caused this Warrant to be signed in its name by its
duly authorized officers and accepted by the holder of this Warrant this ________
day of December, 2004.


 


	
  Accepted and Agreed:

  	
   

  	
  Depomed, Inc.

  
	
  Kings Road Investments Ltd.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
  Name: John F.
  Hamilton

  
	
  Title:

  	
   

  	
  Title:  Vice President of
  Finance and
       Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address for Notices:

  	
   

  	
   

  	
   

  
	
  598 Madison
  Avenue, 14th Floor

  	
   

  	
   

  	
   

  
	
  New York, NY
  10022

  	
   

  	
   

  	
   

  
							



 


 


10





















 


 


NOTICE OF
EXERCISE


 


The undersigned, ___________________, pursuant to the
provisions of the foregoing Warrant, hereby elects to subscribe for and
purchase ____________________ shares of the Common Stock, no par value, of
Depomed, Inc. covered by said Warrant (or such number of Warrant Securities
currently issuable upon exercise thereof), and makes payment therefor in full
at the price per share provided by said Warrant by delivering herewith _____
shares of the Series A Preferred Stock of Depomed, Inc.


 


	
  Dated:

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature Guarantee:

  	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Social Security
  or Tax ID No.

  	
   

  
								



 





















 


ASSIGNMENT


 


FOR VALUE RECEIVED _______________ hereby sells,
assigns and transfers unto ____________________ (SS# or Tax
ID#_________________) the foregoing Warrant and all rights evidenced thereby,
and does irrevocably constitute and appoint _____________________, attorney, to
transfer said Warrant on the books of Depomed, Inc.  The assignee understands and acknowledges
that this Warrant may be transferred in accordance with the terms and subject
to the conditions of the Warrant, including without limitation Section 2(a)
thereof.


	
  Dated:

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature Guarantee:

  	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							



 





















PARTIAL
ASSIGNMENT


 


FOR VALUE RECEIVED _______________ hereby assigns and
transfers unto ____________________ (SS# or Tax ID#________________) the right
to purchase _______ shares of the Common Stock, no par value, of Depomed, Inc.
covered by the foregoing Warrant (or such number of Warrant Securities
currently issuable upon exercise thereof), and a proportionate part of said
Warrant and the rights evidenced thereby, and does irrevocably constitute and
appoint ____________________, attorney, to transfer that part of said Warrant
on the books of Depomed, Inc.


	
  Dated:

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature Guarantee:

  	
   

  	
  Address: