exv10w43



 





EXHIBIT 10.43




Execution Version




REVENUE INTEREST FINANCING AND WARRANT PURCHASE AGREEMENT




Dated as of January 28, 2008




between




ARTES MEDICAL, INC.,




and




COWEN HEALTHCARE ROYALTY PARTNERS, L.P.




 









 





Table of Contents




	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	1	 
	Section 1.01

	 	Definitions
	 	 	1	 
	ARTICLE II ASSIGNMENT OF REVENUE INTEREST AND WARRANT	 	 	14	 
	Section 2.01

	 	Assignment
	 	 	14	 
	Section 2.02

	 	Payments by the Company
	 	 	14	 
	Section 2.03

	 	Assignment Advance
	 	 	15	 
	Section 2.04

	 	No Assumed Obligations
	 	 	15	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	15	 
	Section 3.01

	 	Organization
	 	 	16	 
	Section 3.02

	 	Corporate Authorization
	 	 	16	 
	Section 3.03

	 	Governmental Authorization
	 	 	16	 
	Section 3.04

	 	Ownership
	 	 	16	 
	Section 3.05

	 	Subsidiaries and Capitalization
	 	 	17	 
	Section 3.06

	 	Financial Statements
	 	 	18	 
	Section 3.07

	 	No Undisclosed Liabilities
	 	 	18	 
	Section 3.08

	 	Litigation
	 	 	18	 
	Section 3.09

	 	Compliance with Laws
	 	 	18	 
	Section 3.10

	 	Conflicts
	 	 	19	 
	Section 3.11

	 	Subordination
	 	 	19	 
	Section 3.12

	 	Intellectual Property
	 	 	19	 
	Section 3.13

	 	Regulatory Approval
	 	 	23	 
	Section 3.14

	 	Material Contracts
	 	 	24	 
	Section 3.15

	 	Place of Business
	 	 	24	 
	Section 3.16

	 	Broker’s Fees
	 	 	24	 
	Section 3.17

	 	Insurance
	 	 	24	 
	Section 3.18

	 	Solvency
	 	 	24	 
	Section 3.19

	 	Other Information
	 	 	25	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CHRP	 	 	25	 
	Section 4.01

	 	Organization
	 	 	25	 
	Section 4.02

	 	Authorization
	 	 	25	 






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Table of Contents
(continued)





	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	Section 4.03

	 	Broker’s Fees
	 	 	25	 
	Section 4.04

	 	Conflicts
	 	 	25	 
	ARTICLE V COVENANTS	 	 	26	 
	Section 5.01

	 	Consents and Waivers
	 	 	26	 
	Section 5.02

	 	Access; Information
	 	 	26	 
	Section 5.03

	 	Material Contracts
	 	 	27	 
	Section 5.04

	 	Confidentiality; Public Announcement
	 	 	27	 
	Section 5.05

	 	Security Agreement
	 	 	28	 
	Section 5.06

	 	Further Assurance
	 	 	28	 
	Section 5.07

	 	Put Option; Step-Down Option
	 	 	29	 
	Section 5.08

	 	Remittance to and from the Collection Accounts
	 	 	30	 
	Section 5.09

	 	License Agreements
	 	 	32	 
	Section 5.10

	 	Intellectual Property
	 	 	32	 
	Section 5.11

	 	Negative Covenants
	 	 	33	 
	Section 5.12

	 	Future Agreements
	 	 	33	 
	Section 5.13

	 	Insurance
	 	 	33	 
	Section 5.14

	 	Notice
	 	 	34	 
	Section 5.15

	 	Use of Proceeds
	 	 	34	 
	ARTICLE VI THE CLOSING; CONDITIONS TO CLOSING	 	 	35	 
	Section 6.01

	 	Closing
	 	 	35	 
	Section 6.02

	 	Conditions Applicable to CHRP
	 	 	35	 
	Section 6.03

	 	Conditions Applicable to the Company
	 	 	37	 
	ARTICLE VII TERMINATION	 	 	37	 
	Section 7.01

	 	Termination Date
	 	 	37	 
	Section 7.02

	 	Effect of Termination
	 	 	37	 
	ARTICLE VIII MISCELLANEOUS	 	 	38	 
	Section 8.01

	 	Survival
	 	 	38	 
	Section 8.02

	 	Future Equity Offerings
	 	 	38	 
	Section 8.03

	 	Notices
	 	 	38	 
	Section 8.04

	 	Successors and Assigns
	 	 	39	 






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Table of Contents
(continued)





	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	Section 8.05

	 	Indemnification
	 	 	40	 
	Section 8.06

	 	Independent Nature of Relationship
	 	 	41	 
	Section 8.07

	 	Tax
	 	 	41	 
	Section 8.08

	 	Entire Agreement
	 	 	42	 
	Section 8.09

	 	Amendments; No Waivers
	 	 	42	 
	Section 8.10

	 	Interpretation
	 	 	42	 
	Section 8.11

	 	Headings and Captions
	 	 	43	 
	Section 8.12

	 	Counterparts; Effectiveness
	 	 	43	 
	Section 8.13

	 	Severability
	 	 	43	 
	Section 8.14

	 	Expenses; Attorneys Fees
	 	 	43	 
	Section 8.15

	 	Governing Law; Jurisdiction
	 	 	43	 
	Section 8.16

	 	Waiver of Jury Trial
	 	 	44	 






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EXHIBITS




	 	 	 	 	 
	Exhibit A

	 	—
	 	Form of Assignment of Revenue Interest
	Exhibit B(1)

	 	—
	 	Form of Comerica Deposit Agreement
	Exhibit B(2)

	 	 	 	Form of JPMorgan Deposit Agreement
	Exhibit C

	 	—
	 	Form of Investor Rights Agreement
	Exhibit D

	 	—
	 	Form of Note and Warrant Purchase Agreement
	Exhibit E

	 	—
	 	Form of Revenue Interest Security Agreement
	Exhibit F

	 	—
	 	Form of Second Warrant
	Exhibit G

	 	—
	 	Legal Opinion of Heller Ehrman LLP (transaction opinion)
	Exhibit H

	 	—
	 	Legal Opinion of Heller Ehrman LLP (IP opinion)







-iv-











 





REVENUE INTEREST FINANCING AND WARRANT PURCHASE AGREEMENT




     This REVENUE INTEREST FINANCING AND WARRANT PURCHASE AGREEMENT (as amended, supplemented or
otherwise modified from time to time, this “Agreement”) is made and entered into as of
January 28, 2008 by and between Artes Medical, Inc., a Delaware corporation, (the
“Company”), and Cowen Healthcare Royalty Partners, L.P., a Delaware limited partnership
(“CHRP”).



     WHEREAS, the Company wishes to assign, convey and transfer to CHRP, and CHRP wishes to accept
the assignment, conveyance, and transfer from the Company, the Revenue Interest (as hereinafter
defined), upon and subject to the terms and conditions hereinafter set forth; and



     WHEREAS, as further inducement to enter into this Agreement, the Company wishes to issue to
CHRP, and CHRP wishes to accept from the Company, the Second Warrant (as hereinafter defined).



     NOW, THEREFORE, in consideration of the mutual covenants, agreements representations and
warranties set forth herein, the parties hereto agree as follows:



ARTICLE I




DEFINITIONS




     Section 1.01 Definitions.



     The following terms, as used herein, shall have the following meanings:



     “Additional Included Products” shall mean, as of any date of determination, from
October 1, 2007 through and until the end of the Term,




     (a) prior to the date that the payments received and retained (i.e., not refunded
pursuant to the true-up in Section 5.08(e) by CHRP) by CHRP under Sections
2.02, 5.07(c) and 5.08 exceed *** Percent (***%) of the
aggregate amount paid by CHRP under Section 2.03, any products not internally
developed (including in-licensed or purchased) by the Company or its Affiliates that are
primarily used for or have an FDA-approved indication in the field of cosmetic, aesthetic
or dermatologic procedures or any other non-disease-modifying cosmetic, aesthetic or
dermatologic application including scar repair, non-surgical chin and nose augmentation,
facial trauma repair (e.g. orbital tissue bulking) and treatment of HIV lipoatrophy, but,
for the avoidance of doubt, excluding non-aesthetic, non-cosmetic and non-dermatologic
applications, such as for the treatment of GERD, urinary incontinence, spinal
disease/injury, sleep apnea or any other non-cosmetic, non-aesthetic and non-dermatologic
use that would require a Regulatory Approval Application in the Territory assuming that such
applications are differentiated in terms of brand, formulation, dosing, etc. to the extent
that the products relating to such





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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applications are not substituted for or do not
cannibalize the cosmetic, aesthetic and dermatologic applications; and




     (b) from and after the date that the payments received and retained (i.e., not
refunded pursuant to the true-up in Section 5.08(e) by CHRP) by CHRP under
Sections 2.02, 5.07(c) and 5.08 are at least *** Percent
(***%) of the aggregate amount paid by CHRP under Section 2.03, any
products not internally developed (including in-licensed or purchased) by the Company or
its Affiliates that are primarily used for or have an FDA-approved indication as a dermal
or soft tissue filler with: (i) an FDA-approved claim or data based on clinical trial
results published in the IFU or package insert, demonstrating semi-permanence (defined as
efficacy equal to or greater than 18 months), or (ii) manufactured with an industry
recognized non-resorbable component (e.g. PMMA), or (iii) a resorbable component that is
generally recognized by experts in the industry as providing wrinkle correction or dermal
or soft tissue filling for at least 18 months, but, for the avoidance of doubt, excluding
non-aesthetic, non-cosmetic and non-dermatologic applications as described in clause (a)
above.



     “Additional Intellectual Property” shall mean all proprietary information; trade
secrets; know-how; confidential information; inventions (whether patentable or unpatentable and
whether or not reduced to practice or claimed in a pending patent application) and improvements
thereto; Patents; registered or unregistered trademarks, trade names, service marks, including all
goodwill associated therewith; registered and unregistered copyrights and all applications thereof;
in each case that are owned, controlled by, issued to, licensed to, licensed by or hereafter
acquired by or licensed by the Company or its Subsidiaries, but excluding the Intellectual
Property.



     “Affiliate” shall mean any Person that controls, is controlled by, or is under common
control with another Person. For purposes of this definition, “control” shall mean (i) in
the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the
stock or shares having the right to vote for the election of directors, and (ii) in the case of
non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity
interest with the power to direct the management and policies of such non-corporate entities.



     “Agreement” shall have the meaning set forth in the first paragraph hereof.



     “Applicable Percentage” shall mean, as of any date of determination, from October 1,
2007 through and until the end of the Term,



     (a) prior to the date that the payments received and retained (i.e., not refunded pursuant to
the true-up in Section 5.08(e) by CHRP) by CHRP under Sections 2.02,
5.07(c) and 5.08 exceed *** Percent (***%) of the aggregate amount paid by CHRP
under Section 2.03, the following:





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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     (i) with respect to Net Product Sales in the Territory of up to and including ***
dollars ($ *** ), *** percent (***%); and




     (iii) with respect to Net Product Sales in the Territory in excess of *** dollars
($***), *** percent (***%);




     and



     (b) from and after the date that the payments received and retained (i.e., not refunded
pursuant to the true-up in Section 5.08(e) by CHRP) by CHRP under Sections 2.02,
5.07(c) and 5.08 are at least *** Percent (***%) of the aggregate amount paid
by CHRP under Section 2.03, *** percent (***%) of Net Product Sales in the Territory.



     “Assignment of Revenue Interest” shall mean the Assignment of Revenue Interest
pursuant to which the Company shall assign, convey and transfer to CHRP all of its rights and
interests in and to the Revenue Interest, which Assignment of Revenue Interest shall be
substantially in the form of Exhibit A.



     “Audit Costs” shall mean, with respect to any audit of the books and records of the
Company and its Subsidiaries with respect to amounts payable or paid under this Agreement, the
out-of-pocket cost of such audit payable to third parties, including all fees, costs and expenses
incurred in connection therewith.



     “Bankruptcy Event” shall mean the occurrence of any of the following:



          (i) the Company or any Subsidiary shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, relief of debtors or the like, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its respective debts, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any portion of its assets, or the
Company or any Subsidiary shall make a general assignment for the benefit of its respective
creditors;



          (ii) there shall be commenced against the Company or any Subsidiary any case, proceeding or
other action of a nature referred to in clause (i) above which remains undismissed, undischarged or
unbonded for a period of ninety (90) Business Days;



          (iii) there shall be commenced against the Company or any Subsidiary any case, proceeding or
other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against (A) all or substantially all of its assets
and/or (B) the Included Products or any substantial portion of the Intellectual Property, which
results in the entry of an order for any such relief which shall not have been vacated, discharged,
stayed, satisfied or bonded pending appeal within ninety (90) Business Days from the entry thereof;





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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          (iv) the Company shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above;



          (v) the Company shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its respective debts as they become due; or



          (vi) the Company shall be in a financial condition at any time on or after January 1, 2011
when the Company is not a “going concern,” such that the sum of its debts is greater than the fair
market value of its property at such time.



     “Business Day” shall mean any day other than a Saturday, a Sunday, any day which is a
legal holiday under the laws of the State of New York, or any day on which banking institutions
located in the State of New York are required by law or other governmental action to close.



     “Change of Control” shall mean:



          (i) the acquisition by any Person or group (within the meaning of Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) of beneficial ownership of any capital stock of
the Company, if after such acquisition, such Person or group would be the “beneficial owner” (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the combined voting power
of the Company’s then outstanding securities entitled to vote generally in the election of
directors;



          (ii) the approval by the Company’s stockholders of a merger or consolidation of the Company,
with any other Person, other than a merger or consolidation which would result in the Company’s
voting securities outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) more
than fifty percent (50%) of the combined voting power of the Company’s voting securities or such
surviving entity’s voting securities outstanding immediately after such merger or consolidation;



          (iii) the sale, lease, transfer, exclusive license or other disposition, in a single
transaction or series of related transactions, by the Company or any of its Subsidiaries of all or
substantially all the assets of the Company and its Subsidiaries taken as a whole (including,
without limitation, the Included Products) or the sale or disposition (whether by merger or
otherwise) of one or more Subsidiaries of the Company if substantially all of the assets of the
Company and its Subsidiaries taken as a whole are held by such Subsidiary or Subsidiaries
(including, without limitation, the
Included Products), except where such sale, lease, transfer, exclusive license or other
disposition is to a wholly owned Subsidiary of the Company; or



          (iv) the sale, lease, license, transfer or assignment (or any attempt to do any of the
foregoing) of all or any material portion of the Intellectual Property or Regulatory Approvals for
the Territory other than to a wholly owned Subsidiary of the Company,


provided, however, that a transaction or series of transactions approved by the Company’s board of
directors in which the Company issues its equity securities and/or rights to acquire its equity
securities to raise funds in support of its operations, shall not be deemed to be a Change of



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Control to the extent all equity securities and/or rights to acquire equity securities issued
pursuant to this sentence, when taken in the aggregate, represent less than (i) forty-nine percent
(49%) of the Company’s then outstanding securities (determined on a fully-diluted, as if exercised,
basis) entitled to vote generally in the election of directors if all investors are financial
investors, or (ii) twenty percent (20%) of the Company’s then outstanding securities (determined on
a fully-diluted, as if exercised, basis) entitled to vote generally in the election of directors if
one or more investors is a non-financial investor.



     “CHRP” shall have the meaning set forth in the first paragraph hereof.



     “CHRP Concentration Account” shall mean a segregated account in the name of CHRP
established for the benefit of CHRP and maintained at the Deposit Bank pursuant to the terms of the
JPMorgan Deposit Agreement and this Agreement. The CHRP Concentration Account shall be the account
into which the funds held in the Joint Concentration Account which are payable to CHRP pursuant to
this Agreement are swept by the Deposit Bank in accordance with the terms of this Agreement and the
JPMorgan Deposit Agreement.



     “CHRP Indemnified Party” shall have the meaning set forth in Section 8.05.



     “Closing” shall have the meaning set forth in Section 6.01.



     “Closing Date” shall mean the date following the date hereof on which CHRP fulfills
its funding obligations pursuant to Section 6.03(d).



     “Collateral” shall mean the property included in the definition of “Collateral” in the
Revenue Interest Security Agreement.



     “Collection Accounts” shall mean collectively, that certain lockbox account, that
certain credit card account # ***      and that certain deposit account # ***, each
maintained at the Collection Bank pursuant to the Comerica Deposit Agreement and this Agreement.
Such lockbox and credit card accounts shall be the accounts into which all payments made in respect
of the sales of the Included Products and the Additional
Included Products are to be remitted. Such deposit account shall be the account into which
all amounts in such lockbox and credit card accounts shall be swept on a daily basis.



     “Collection Bank” shall mean Comerica Bank.



     “Comerica Deposit Agreement” shall mean the Comerica Deposit and Account Control
Agreement entered into by the Collection Bank, the Company and CHRP, substantially in the form of
Exhibit B(1), pursuant to which, (i) the Collection Accounts will be maintained, (ii)
“control”, within the meaning of the UCC, shall be established in favor of CHRP with respect to the
Collection Accounts, and (iii) funds will flow from the Collection Accounts to the Joint
Concentration Account.



     “Company” shall have the meaning set forth in the first paragraph hereof.





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




-5-









 










     “Company Concentration Account” shall mean a segregated account in the name of the
Company established and maintained at the Collection Bank pursuant to the terms of the Comerica
Deposit Agreement and this Agreement. The Company Concentration Account shall be the account into
which the funds remaining in the Joint Concentration Account after payment therefrom of the amounts
payable to CHRP pursuant to this Agreement are swept in accordance with the terms of this Agreement
and the JPMorgan Deposit Agreement.



     “Company Indemnified Party” shall have the meaning set forth in Section 8.05.



     “Confidential Information” shall mean, as it relates to the Company and its Affiliates
and the Included Products, the Additional Included Products, the Intellectual Property, the
Additional Intellectual Property, confidential business information, financial data and other like
information (including ideas, research and development, know-how, formulas, schematics,
compositions, technical data, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), inventory, ideas, algorithms,
processes, computer software programs or applications (in both source code and object code form),
client lists and tangible or intangible proprietary information or material, or such other
information that either party identifies to the other as confidential or the nature of which or the
circumstances of the disclosure of which would reasonably indicate that such information is
confidential. Notwithstanding the foregoing definition, Confidential Information shall not include
information that (i) is already in the public domain at the time the information is disclosed, (ii)
thereafter becomes lawfully obtainable from other sources, (iii) is disclosed in any document filed
with any Governmental Authority or (iv) is disclosed under securities laws, rules and regulations
applicable to the Company or CHRP, as the case may be, or pursuant to the rules and regulations of
any securities exchange or trading system on which securities of the Company may be listed for
trading.



     “Daily Amount” shall have the meaning set forth in Section 2.02(a)(ii).



     “Deposit Bank” shall mean JPMorgan Chase Bank, N.A. or such other bank or financial
institution approved by each of CHRP and the Company and a party to any successor agreement to the
JPMorgan Deposit Agreement.



     “Dispute” shall have the meaning set forth in Section 3.12(k).



     “Excluded Liabilities” shall have the meaning set forth in Section 2.04.



     “FDA” shall mean the United States Food and Drug Administration or any successor
federal agency thereto.



     “FDA Approval” shall mean approval by the FDA of the formulation, manufacture,
marketing, sale and distribution of the Included Products in the Territory.



     “Financial Statements” shall mean the audited consolidated balance sheets of the
Company and its Subsidiaries at December 31, 2006, 2005 and 2004, and the related audited
consolidated statements of operations, stockholders’ equity and cash flows of the Company and its
Subsidiaries for the fiscal years ended December 31, 2006, 2005 and 2004, and the unaudited
consolidated balance sheet of the Company and its Subsidiaries at September 30, 2007 and the
related unaudited consolidated statements of operations, stockholders’ equity and cash flows of



-6-









 







the Company and its Subsidiaries for the fiscal quarter ended September 30, 2007 and the accompanying
footnotes thereto.



     “Fiscal Quarter” shall mean a calendar quarter.



     “Fiscal Year” shall mean a calendar year.



     “GAAP” shall mean generally accepted accounting principles in the United States in
effect from time to time.



     “Governmental Authority” shall mean any government, court, regulatory or
administrative agency or commission, or other governmental authority, agency or instrumentality,
whether foreign, federal, state or local (domestic or foreign), including the Patent Office, the
FDA, the United States National Institutes of Health, or any other government authority in any
country.



     “Included Products” shall mean, as of any date of determination, from October 1, 2007
through and until the end of the Term,




          (a) prior to the date that the payments received and retained (i.e., not refunded
pursuant to the true-up in Section 5.08(e) by CHRP) by CHRP under Sections
2.02, 5.07(c) and 5.08 exceed    ***    Percent (***%) of the
aggregate amount paid by CHRP under Section 2.03, ArteFill®, and any
improvements to ArteFill® (including new formulations thereof and combination
products thereto), and any internally developed products that are primarily used for or
have an FDA-approved indication in the field of cosmetic, aesthetic or dermatologic procedures or
any other non-disease-modifying cosmetic, aesthetic or dermatologic application, including
scar repair, non-surgical chin and nose augmentation, facial trauma repair (e.g. orbital
tissue bulking) and treatment of HIV lipoatrophy, but, for the avoidance of doubt,
excluding non-aesthetic, non-cosmetic and non-dermatologic applications, such as for the
treatment of GERD, urinary incontinence, spinal disease/injury, sleep apnea or any other
non-cosmetic, non-aesthetic and non-dermatologic use that would require a Regulatory
Approval Application in the Territory assuming that such applications are differentiated in
terms of brand, formulation, dosing, etc. to the extent that the products relating to such
applications are not substituted for or do not cannibalize the cosmetic, aesthetic and
dermatologic applications; and




          (b) from and after the date that the payments received and retained (i.e., not
refunded pursuant to the true-up in Section 5.08(e) by CHRP) by CHRP under
Sections 2.02, 5.07(c) and 5.08 exceed    ***    Percent (***%) of the
aggregate amount paid by CHRP under Section 2.03, ArteFill®, and any
improvements to ArteFill® (including new formulations thereof and combination
products thereto), and any internally developed products that are primarily used for or
have an FDA-approved indication as a dermal or soft tissue filler with: (i) an FDA-approved
claim or data based on clinical trial results published in the IFU or package insert,
demonstrating semi-





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




-7-









 











permanence (defined as efficacy equal to or greater than 18 months), or
(ii) manufactured with an industry recognized non-resorbable component (e.g. PMMA), or
(iii) a resorbable component that is generally recognized by experts in the industry as
providing wrinkle correction or dermal or soft tissue filling for at least 18 months, but,
for the avoidance of doubt, excluding non-aesthetic, non-cosmetic and non-dermatologic
applications as described in clause (a) above.



     “Included Product Payments” with respect to the Included Products and the Additional
Included Products means, for any period of determination, the sum of the following for such period:
(i) the amounts actually received by the Company or any of its Affiliates to a Third Party with
respect to the sale of Included Products and the Additional Included Products by the Company or any
of its Affiliates in the Territory, (ii) the amounts actually received by the Company or any of its
Affiliates from a Third Party retained by the Company to distribute or sell the Included Products
and/or the Additional Included Products in the Territory (including any amounts actually received
by the Company or its Affiliates under License Agreements), and (iii) collections in respect of
write-offs or allowances for bad debts in respect of items described in the preceding clauses (i)
and (ii). For the avoidance of doubt and without limitation of the foregoing, Included Product
Payments shall include (A) all amounts actually received by the Company or any of its Affiliates
from a Third Party in connection with any marketing, royalty or manufacturing arrangement with
respect to the Included Products or the Additional Included Products in the Territory and (B) all
amounts received in respect of any settlements, licenses or cross-licenses of the Intellectual
Property. For further avoidance of doubt, Included Product Payments shall not include amounts paid
by BioForm Medical Inc. to the Company through the date of this Agreement pursuant to the
Settlement and License Agreement, dated October 31, 2005, and the Second License Agreement,
dated September 21, 2007.



     “Intellectual Property” shall mean all proprietary information; trade secrets;
know-how; confidential information; inventions (whether patentable or unpatentable and whether or
not reduced to practice or claimed in a pending patent application) and improvements thereto;
Patents; registered or unregistered trademarks, trade names, service marks, including all goodwill
associated therewith; registered and unregistered copyrights and all applications thereof; in each
case that are owned, controlled by, issued to, licensed to, licensed by or hereafter acquired by or
licensed by the Company or its Subsidiaries, in each case relating to, embodied by, covering or
involving the Use of the Included Products or the Additional Included Products in the Territory.



     “Investor Rights Agreement” shall mean the Investor Rights Agreement between
CHRP and the Company substantially in the form of Exhibit C.



     “Joint Concentration Account” shall mean a segregated account in the name of the
Company, subject to a control agreement in favor of CHRP, established for the benefit of the
Company and CHRP and maintained at the Deposit Bank pursuant to the terms of the JPMorgan Deposit
Agreement and this Agreement. The Joint Concentration Account shall be the account into which
Collection Bank sweeps the funds held in the deposit account described in the definition of
“Collection Accounts”.



     “JPMorgan Deposit Agreement” shall mean the Deposit and Account Control Agreement
entered into by a Deposit Bank, the Company and CHRP, substantially in the form of Exhibit
B(2), pursuant to which, (i) the Joint Concentration Account and the CHRP Concentration Account
shall be established, (ii) “control”, within the meaning of the UCC, shall be established



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in favor of CHRP with respect to the Joint Concentration Account, and (iii) funds will flow from the
Collection Accounts into the Joint Concentration Account and from the Joint Concentration Account
into the CHRP Concentration Account and the Company Concentration Account.



     “Knowledge” shall mean the actual knowledge of an officer of the Company relating to a
particular matter. Notwithstanding the foregoing, an officer of the Company or any Affiliate
thereof charged with responsibility for the aspect of the business relevant or related to the
matter at issue shall be deemed to have knowledge of a particular matter if, in the prudent
exercise of his or her duties and responsibilities in the ordinary course of business, such officer
should have known of such matter.



     “License Agreement” shall mean any existing or future license, development,
commercialization, co-promotion, collaboration, distribution, manufacturing, marketing or
partnering agreement entered into by the Company or any of its Affiliates relating to the Included
Product in the Territory and/or under the Intellectual Property.



     “Licensees” shall mean, collectively, the licensees, sublicensees or distributors
under the License Agreements; each a “Licensee”.



     “Liens” shall mean any lien, hypothecation, charge, instrument, license, preference,
priority, security agreement, security interest, interest, mortgage, option, privilege, pledge,
liability, covenant, order, tax, right of recovery, trust or deemed trust (whether contractual,
statutory or otherwise arising) or any encumbrance, right or claim of any other person of any kind
whatsoever whether choate or inchoate, filed or unfiled, noticed or unnoticed, recorded or
unrecorded, contingent or non-contingent, material or non-material, known or unknown.



     “Losses” shall mean collectively, any and all claims, damages, losses, judgments,
liabilities, costs and expenses (including reasonable expenses of investigation and reasonable
attorneys’ fees and expenses in connection with any action, suit or proceeding).



     “Material Adverse Change” shall mean, with respect to the Company, a material adverse
change in the business, operations, assets, or financial condition of the Company and its
Subsidiaries taken as a whole.



     “Material Adverse Effect” shall mean (i) the effect of a Material Adverse Change, (ii)
a material adverse effect on the validity or enforceability of any of the Transaction Documents,
(iii) a material adverse effect on the right of the Company to perform any of its obligations under
any of the Transaction Documents, (iv) a material adverse effect on the rights or remedies of CHRP
under any of the Transaction Documents, (v) a material adverse effect on the right of CHRP to
receive the Revenue Interest, the First Warrant, the Second Warrant or any payment due to CHRP
arising under any Transaction Document, (vi) a material adverse effect on the ability of the
Company to Use the Included Product in the Territory, or (vii) a right to terminate or receive
damages inuring to the benefit of a Third Party arising with respect to any Material Contract;
provided, however, that “Material Adverse Effect” shall exclude any effect resulting from (a)
changes to general economic conditions or any condition affecting the cosmetic and plastic surgery
markets generally, (b) war, hostilities, military actions or acts of terrorism, (c) any decision by
the FDA on the Company’s application to change the label for ArteFill® related to the
five-year efficacy labeling or to the removal of the skin testing requirement, (d) the announcement
of this Agreement or the pendency or consummation of the transactions



-9-









 







contemplated by the Transaction Documents, (e) any action taken by the Company or its Subsidiaries that is required by
the Transaction Documents, or the failure by the Company or its Subsidiaries to take any action
that is prohibited by the Transaction Documents, or (f) changes in the price of (or trading volume
in) the Company’s stock, in and of itself (it being understood that the underlying cause of, and
the facts, circumstances and/or occurrences giving rise to or contributing to any changes in the
price of (or trading volume in) the Company’s stock shall, to the same extent as if this definition
of Material Adverse Effect were written without this clause (f), constitute a Material Adverse
Effect and/or be taken into account in determining whether there has been, is or would be a
Material Adverse Effect).



     “Material Contract” shall mean the contracts, agreements or other arrangements listed
on Schedule 3.14 hereto to which either the Company or any of its Subsidiaries is a party
or any of the Company’s or its Subsidiaries’ respective assets or properties are
bound or committed (other than the Transaction Documents) related to the Use of any Included
Product or the Intellectual Property (including each License Agreement).



     “Net Product Sales” with respect to the Included Products and the Additional Included
Products shall mean, for any period of determination, the net product sales in the Territory for
such period of determination as prepared by the Company in accordance with GAAP and as reported in
the Company’s financial statements contained in the Company’s quarterly or annual reports for such
period of determination. In calculating Net Product Sales, any transfer from the Company to an
Affiliate shall be disregarded and the calculation shall instead be based on the first transfer to
a Third Party.



     “Note and Warrant Purchase Agreement” shall mean the Note and Warrant Purchase
Agreement between CHRP and the Company substantially in the form of Exhibit D.



     “Note Security Agreement” shall mean the Note Security Agreement by and between the
Company and CHRP executed pursuant to the Note and Warrant Purchase Agreement.



     “Obligations” shall mean any and all obligations of the Company and its Subsidiaries
under the Transaction Documents.



     “Patent Office” shall mean the respective patent office, including the United States
Patent and Trademark Office and any comparable foreign patent office, for any Patents.



     “Patents” shall mean all patents, patent rights, patent applications, patent
disclosures and invention disclosures issued or filed, together with all reissues, divisions,
continuations, continuations-in-part, revisions, extensions, and reexaminations thereof relating to
the Included Products or the Additional Included Products, their respective composition of matter,
formulation, or methods of manufacture or use thereof that are issued or filed as of the date
hereof as identified in Schedule 3.12(a)(i) and Schedule 3.12(a)(ii) or filed
during the Term, which are owned, controlled by, issued to, licensed to or licensed by the Company
or any of its Affiliates.



     “Permitted Liens” shall have the meaning provided therefor in the Note and Warrant
Purchase Agreement.



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     “Person” shall mean an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, but not including a government or
political subdivision or any agency or instrumentality of such government or political subdivision.



     “Put Option” shall have the meaning set forth in Section 5.07(a).



     “Put Option Closing Date” shall have the meaning set forth in Section 5.07(a).



     “Put Option Event” shall mean any one of the following events:



          (i) any Change of Control;



          (ii) any Bankruptcy Event; or



          (iii) any breach of any representation, warranty or certification made by the Company or its
Subsidiaries in any of the Transaction Documents or certificates given by the Company in writing
pursuant hereto or thereto which breach results in a Material Adverse Effect and which breach is
not cured by the Company within ten (10) days after the Company receives notice thereof or any
officer of the Company becomes aware thereof; provided, however, that if the breach cannot by its
nature be cured within the ten (10) day period or cannot after diligent attempts by the Company be
cured within such ten (10) day period, and such breach is likely to be cured within a reasonable
time, then the Company shall have an additional reasonable period (which shall not in any case
exceed ten (10) days) to attempt to cure such breach; or



          (iv) any breach of or default under any material covenant or agreement by the Company under
any Transaction Document which breach or default results in a Material Adverse Effect and which
breach or default is not cured by the Company within ten (10) days after the Company receives
notice thereof or any officer of the Company becomes aware thereof; provided, however, that if the
breach or default cannot by its nature be cured within the ten (10) day period or cannot after
diligent attempts by the Company be cured within such ten (10) day period, and such breach or
default is likely to be cured within a reasonable time, then the Company shall have an additional
reasonable period (which shall not in any case exceed ten (10) days) to attempt to cure such breach
or default; provided, however, that the Company shall not be entitled to a cure period under this
clause (iv) if the breach or default giving rise to the Put Option Event is the Company’s breach or
default of its obligations under Sections 2.02, 5.07(c) or 5.08.



     “Put Price” shall mean an amount that is the greater of:




     (a) an amount that would generate an internal rate of return (utilizing the
same methodology utilized by the IRR function in Microsoft Excel) to CHRP of ***
percent (***%) on all payments made by CHRP pursuant to Section
2.03 as of the date of exercise of the Put Option, taking into account the
amount and timing of all payments made by the Company to and received and retained
by





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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CHRP pursuant to Sections 2.02 and 5.08, prior to and as of the
date of payment of the Put Price, and




     (b) an amount equal to     ***     percent (***%) of all payments made by CHRP
pursuant to Section 2.03 as of such date, less an amount equal to the
aggregate of all payments made by the Company and received and retained by CHRP
(i.e. not refunded by CHRP) pursuant to Sections 2.02 and 5.08,
prior to and as of the date of payment of the Put Price; provided,
however that if the Put Option Event precipitating the exercise of the Put
Option results, in whole or part, from the Company’s breach of
its obligations arising under Section 5.08, the JPMorgan Deposit
Agreement or the Comerica Deposit Agreement, then the Put Option Price shall be
calculated on the basis that the percentages in these clause (a) and (b) shall have
equaled     ***     Percent (***%) and     ***     Percent (***%), respectively.



     “Quarterly Report” shall mean, with respect to the relevant Fiscal Quarter of the
Company, (i) a report showing all payments made by the Company to CHRP under this Agreement during
such quarter and showing in detail the basis for the calculation of such payments, (ii) a
reconciliation of such report referred to in clause (i) above to all information and data
deliverable to the Company, CHRP or their Affiliates by the parties to any License Agreement,
together with relevant supporting documentation and (iii) such additional information as CHRP may
reasonably request.



     “Regulatory Agency” shall mean a Governmental Authority with responsibility for the
approval of the marketing and sale of pharmaceuticals in the United States or other regulation of
pharmaceuticals.



     “Regulatory Approval Application” shall mean an application for Regulatory Approval
required before commercial sale or use of any Included Product as a drug or device in a regulatory
jurisdiction, including with respect to an NDA, PMA, supplemental NDA, 510(k), BLA, or any prior
approval supplement or amendment thereto submitted to the FDA.



     “Regulatory Approval” shall mean all approvals (including, without limitation, where
applicable, pricing and reimbursement approval and schedule classifications), product and/or
establishment licenses, registrations or authorizations of any Governmental Authority of a
Regulatory Approval Application necessary for the manufacture, use, storage, import, export,
transport, offer for sale, or sales of the Included Products in a regulatory jurisdiction.



     “Revenue Interest” shall mean CHRP’s right to receive amounts equal to the Applicable
Percentage of the Net Product Sales pursuant to the terms and conditions of this Agreement.



     “Revenue Interest Security Agreement” shall mean the Revenue Interest Security
Agreement by and between the Company and CHRP providing for, among other things, the grant by the
Company in favor of CHRP of a valid continuing, perfected lien on and security interest in the
Revenue Interest and the other Collateral described therein, which Security Agreement shall be
substantially in the form of Exhibit E.



     “Revenue Rights” shall mean (A) with respect to any License Agreement, all of the
Company’s and its Subsidiaries’ rights under such License Agreement, including, without



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limitation, rights to receive payments in respect of sales of the Included Products in the Territory and (B)
otherwise, all of the Company’s and its Subsidiaries’ rights, however derived, to receive payments
in respect of sales of the Included Products in the Territory.



     “Second Warrant” shall mean the Common Stock Purchase Warrant substantially in the
form of Exhibit F.



     “Step-Down Option” shall have the meaning set forth in Section 5.07(c).



     “Step-Down Option Closing Date” shall have the meaning set forth in Section
5.07(c).



     “Step-Down Price” shall mean an amount equal to *** Percent (***%) of
all payments made by CHRP pursuant to Section 2.03 as of such date, less an amount equal to
the aggregate of all payments made by the Company and received and retained by CHRP (i.e. not
refunded by CHRP) pursuant to Sections 2.02 and 5.08, prior to and as of Step-Down
Option Closing Date.



     “Subsidiary” or “Subsidiaries” shall mean with respect to any Person (i) any
corporation of which the outstanding capital stock having at least a majority of votes entitled to
be cast in the election of directors under ordinary circumstances shall at the time owned, directly
or indirectly, by such Person or (ii) any other Person of which at least a majority voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by such Person.



     “Subsidiary Note Security Agreement” shall mean the Subsidiary Note Security Agreement
by and between the Company’s domestic Subsidiary and CHRP executed pursuant to the Note and Warrant
Purchase Agreement.



     “Term” shall mean the period from and including the date hereof through and including
December 31, 2017, unless earlier terminated upon CHRP’s exercise of its Put Option pursuant to
Section 5.07 or otherwise in accordance with the terms of this Agreement.



     “Territory” shall mean the United States.



     “Third Party” shall mean any Person other than the Company or CHRP or their respective
Affiliates.



     “Transaction Document” shall mean each of this Agreement, the Assignment of Revenue
Interest, the Comerica Deposit Agreement, the JPMorgan Deposit Agreement, the Investor Rights
Agreement, the Note and Warrant Purchase Agreement, the Revenue Interest Security Agreement, the
Second Warrant (together with all schedules, exhibits, amendments and other documents entered into
in connection hereto and thereto).



     “Transfer” or “Transferred” shall mean any sale, conveyance, assignment,
disposition, pledge, hypothecation or transfer.



     “True-Up Statement” shall have the meaning set forth in Section 5.08(e)(i).





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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     “UCC” shall mean the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.



     “United States” shall mean the United States of America.



     “Use” shall include the use, manufacture, marketing, sale, offer for sale,
importation, distribution or commercialization.



     “Year-to-Date Net Product Sales” shall have the meaning set forth in Section
5.08(e)(i).



ARTICLE II




ASSIGNMENT OF REVENUE INTEREST AND WARRANT




     Section 2.01 Assignment.



     Upon the terms and subject to the conditions set forth in this Agreement, the Company agrees
to assign, transfer and convey to CHRP, and CHRP agrees to accept the assignment, transfer and
conveyance from the Company, free and clear of all Liens (except Permitted Liens and the security
interests created in favor of CHRP pursuant to the Revenue Interest Security Agreement, the Note
Security Agreement, the Subsidiary Note Security Agreement and any other Transaction Document) and
subject to the conditions set forth in Article VI, all of the Company’s rights and interests in and
to the Revenue Interest and the Second Warrant on the Closing Date. CHRP’s ownership interest in
the Revenue Interest and the Second Warrant so assigned shall vest immediately upon the Company’s
receipt of the advance of payment for such Revenue Interest and Second Warrant pursuant to
Section 2.03(a)(i).



     Section 2.02 Payments by the Company.



     (a) Payments in Respect of the Revenue Interest and the Second Warrant.



          (i) CHRP shall be entitled to receive the Applicable Percentage in respect of Net Product
Sales generated from October 1, 2007 through and until the end of the Term. In accordance with the
terms of Section 5.08, (A) commencing on the date hereof, the Applicable Percentage in
respect of Included Product Payments shall be swept from the Joint Concentration Account into the
CHRP Concentration Account on a daily basis (the “Daily Amount”) and (B) at the end of each
Fiscal Quarter, the parties shall true-up the Company’s payments in respect of such Fiscal Quarter
as provided in Section 5.08(e).



          (ii) In addition to the payments of the Applicable Percentage, the Company shall be obligated
in all cases to pay CHRP, and CHRP shall be entitled to receive the following additional payments:



               (A) an amount equal to Seven Million Five Hundred Thousand Dollars ($7,500,000), payable no
later than January 31, 2012, plus



               (B) an amount equal to Seven Million Five Hundred Thousand Dollars ($7,500,000), payable no
later than January 31, 2013.



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     (b) Payment Procedure. Other than payments made pursuant to the Comerica Deposit
Agreement and the JPMorgan Deposit Agreement, any payments to be made by the Company to CHRP
hereunder or under any other Transaction Document shall be made by wire transfer of immediately
available funds.



     Section 2.03 Assignment Advance.



     (a) Consideration. In full consideration for the assignment by the Company of the
Revenue Interest and the Second Warrant, and subject to the terms and conditions set forth herein,
CHRP shall advance to the Company:



          (i) fifteen million dollars ($15,000,000) at the time of Closing, and



          (ii) an additional one million dollars ($1,000,000) if the Company achieves Net Product Sales
of at least          ***          dollars ($***) in Fiscal Year 2008, which payment shall be made within
sixty (60) days of the date the Company files its Form 10-K with respect to Fiscal Year 2008 with
the Securities and Exchange Commission.


For clarity, the Company shall not be entitled to any payment, and CHRP shall have no obligations
under this Section 2.03(a)(ii) if the Company does not achieve Net Product Sales of at
least          ***     ($***) in Fiscal Year 2008.




     (b) Payment Procedure. The payments to be made by CHRP under this Section
2.03 shall be paid by wire transfer of immediately available funds to the account(s) designated
by the Company.



     Section 2.04 No Assumed Obligations.



     Notwithstanding any provision in this Agreement or any other writing to the contrary, CHRP is
accepting the assignment of only the Revenue Interest and the Second Warrant, and is not assuming
any liability or obligation of the Company or any of its Affiliates of whatever nature, whether
presently in existence or arising or asserted hereafter, whether under any Transaction Document or
otherwise. All such liabilities and obligations shall be retained by and remain obligations and
liabilities of the Company or its Affiliates (the “Excluded Liabilities”).



ARTICLE III




REPRESENTATIONS AND WARRANTIES OF THE COMPANY




     Each representation and warranty set forth below is qualified by the exceptions or disclosures
set forth in the disclosure schedule attached hereto (with specific reference to the section of
this Agreement to which the information stated in such disclosure relates) (the “Disclosure
Schedule”); provided, however, if any section of the Disclosure Schedule discloses information with
sufficient detail and in a way as to make its relevance to the disclosure required on another
section of the Disclosure Schedule readily apparent on its face, then the applicable





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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information will be deemed to have been disclosed in that other section of the Disclosure Schedule,
notwithstanding the omission of a cross-reference in or to that other section. As of the Closing
(except to the extent that any such representation or warranty is made as of a specific date, in
which case such representation or warranty shall apply only as of such specified date), and subject
to the Disclosure Schedule, the Company represents and warrants to CHRP as follows:




     Section 3.01 Organization.



     Each of the Company and it Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of organization, and has all corporate powers and
all licenses, authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted in connection with the transactions contemplated by the
Transaction Documents. Except as set forth on Schedule 3.01, each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in
every jurisdiction in which the failure to do so would have a Material Adverse Effect.



     Section 3.02 Corporate Authorization.



     Each of the Company and its Subsidiaries has all necessary power and authority to enter into,
execute and deliver the Transaction Documents and to perform all of the obligations to be performed
by it hereunder and thereunder and to consummate the transactions contemplated hereunder and
thereunder. The Transaction Documents have been duly authorized, executed and delivered by each of
the Company and its Subsidiaries, as applicable, and each Transaction Document constitutes the
valid and binding obligation of such the Company and its Subsidiaries, as applicable, enforceable
against it in accordance with their respective terms, subject, as to enforcement of remedies, to
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights
generally or general equitable principles.



     Section 3.03 Governmental Authorization.



     The execution and delivery by the Company and its Subsidiaries of the Transaction Documents,
and the performance by them of their obligations hereunder and thereunder, does not require any
notice to, action or consent by, or in respect of, or filing with, any Governmental Authority,
except for the filing of financing statements under the UCC, any required filings under federal and
state securities laws and any required filings with FINRA and the Nasdaq Stock Market.



     Section 3.04 Ownership.



     (a) Except as set forth on Schedule 3.04(a), the Company owns, or holds a valid
license under, all of the Intellectual Property and the Regulatory Approvals with respect to the
Use of the Included Products in the Territory free and clear of all Liens, except for the Permitted
Liens, and no license or covenant not to sue under any Intellectual Property or Regulatory
Approvals has been granted to any Third Party.



     (b) Except as set forth on Schedule 3.04(b), the Company owns, or holds a valid
license under, all of the Additional Intellectual Property free and clear of all Liens, except for
the



-16-









 







Permitted Liens, and no license or covenant not to sue under any Additional Intellectual
Property has been granted to any Third Party.



     (c) Except as set forth on Schedule 3.04(a), the Company, immediately prior to the
assignment of the Revenue Interest, owns, and is the sole holder of, all the Revenue Rights; and
the Company owns, and is the sole holder of, and/or has and holds a valid, enforceable and
subsisting license to, all of those other assets that are required to produce or receive any
payments from any Licensee or payor under and pursuant to, and subject to the terms of any License
Agreement, in each case free and clear of any and all Liens, except for the Permitted Liens and
those Liens created in favor of CHRP pursuant to Revenue Interest Security Agreement, the Note
Security Agreement, the Subsidiary Note Security Agreement and any other Transaction Document. The
Company has not Transferred or agreed to Transfer any portion of the Revenue Rights other than as
contemplated by this Agreement. Except as set forth on Schedule 3.04(a), the Company has
the full right to transfer, convey and assign to CHRP all of its rights and interests in and to the
Revenue Interest pursuant to this Agreement without any requirement to obtain the consent of any
Person. By the delivery to CHRP of the executed Assignment of Revenue Interest, the Company shall
transfer, convey and assign to CHRP all of its rights and interests in and to the Revenue Interest,
free and clear of any Liens, except for the Permitted Liens and those Liens created in favor of
CHRP pursuant to the Revenue Interest Security Agreement, the Note Security Agreement, the
Subsidiary Note Security Agreement and any other Transaction Document. At the Closing, and upon
the delivery of the Assignment of Revenue Interest to CHRP by the Company, CHRP shall have acquired
good and valid rights and interests of the Company in and to the Revenue Interest, free and clear
of any and all Liens, except for the Permitted Liens and those Liens created in favor of CHRP
pursuant to the Revenue Interest Security Agreement, the Note Security Agreement, the Subsidiary
Note Security Agreement and any other Transaction Document.



     Section 3.05 Subsidiaries and Capitalization.



     (a) Except as set forth on Schedule 3.05(a), the Company has no Subsidiaries and owns
no equity interests or debt interests of any other Person.



     (b) Except as set forth on Schedule 3.05(b), there are no options, warrants,
convertible instruments or other rights held by any Person to acquire any equity interest (or
interest convertible or exchangeable for any equity interest) in the Company. The authorized
capital stock of the Company consists of (i) 200,000,000 shares of Common Stock, par value $0.001
per share, of which 16,514,163 shares are issued and outstanding
as of the date hereof, and of which an additional 5,562,219 shares have been reserved for issuance
upon exercise or conversion of outstanding securities; and (ii) 10,000,000 shares of undesignated
preferred stock, none of which are issued and outstanding or reserved for issuance upon exercise or
conversion of securities.



     (c) The shares of Common Stock issuable upon exercise of the Second Warrant will, when issued,
in accordance with the exercise provisions of the Second Warrant, be duly and validly issued, fully
paid, non assessable and free and clear of all Liens, except any Liens created by or through you.



-17-









 





     Section 3.06 Financial Statements.



     The Financial Statements are complete and accurate in all material respects, were prepared in
conformity with GAAP and present fairly in all material respects the financial position and the
financial results of the Company and its Subsidiaries as of the dates and for the periods covered
thereby.



     Section 3.07 No Undisclosed Liabilities.



     Except for those liabilities (i) specifically identified on the face of the Financial
Statements, (ii) incurred by the Company and its Subsidiaries in the ordinary course of business
since September 30, 2007, (iii) in connection with the Obligations under the Transaction Documents,
(iv) disclosed in this Agreement (including those disclosed in Schedule 3.07), and (v)
liabilities under the agreements listed as Exhibits in the Company’s filings on Form 10-K (for the
12 month period ended December 31, 2006), Form 10-Q (for the quarterly period ended March 31,
2007), Form 10-Q (for the quarterly period ended June 30, 2007), Form 10-Q (for the quarterly
period ended September 30, 2007), Form 8-K (filed on April 27, 2007) and Form 8-K (filed on
September 21, 2007) filed with the SEC, there are no material liabilities of the Company and its
Subsidiaries taken as a whole or individually, of any kind whatsoever, whether accrued, contingent,
absolute, determined or determinable.



     Section 3.08 Litigation.



     Except as set forth on Schedule 3.08, there is no (i) action, suit, arbitration
proceeding, claim, investigation or other proceeding pending or, to the Knowledge of the Company,
threatened against the Company or its Subsidiaries, or their licensees or sublicensees or (ii) any
governmental inquiry pending or, to the Knowledge of the Company, threatened against the Company or
its Subsidiaries, or their licensees or sublicensees, in each case with respect to clauses (i) and
(ii) above, which, if adversely determined, would question the validity of, or could adversely
affect the transactions contemplated by any of the Transaction Documents or could reasonably be
expected to have a Material Adverse Effect. Except as set forth on Schedule 3.08, there is
no action, suit, claim, proceeding or investigation pending or, to the Knowledge of the Company,
threatened against the Company, its Subsidiaries, or their licensees or sublicensees, or any other
Person relating to the Included Products, the Intellectual Property, the
Additional Intellectual Property, the Regulatory Approvals, the Revenue Rights or the Revenue
Interest.



     Section 3.09 Compliance with Laws.



     Except as set forth on Schedule 3.09, none of the Company and its Subsidiaries (i) is
in violation of, has not violated, or to the Knowledge of the Company, is not under investigation
with respect to, and (ii) has not been threatened to be charged with or been given notice of any
violation of any law, rule, ordinance or regulation of, or any judgment, order, writ, decree,
permit or license entered by any Governmental Authority applicable to the Company, the Revenue
Interest or the Revenue Rights which could reasonably be expected to have a Material Adverse
Effect.



-18-









 





     Section 3.10 Conflicts.



     (a) Except as set forth in Schedule 3.10, neither the execution and delivery of any of
the Transaction Documents nor the performance or consummation of the transactions contemplated
hereby and thereby will: (i) contravene, conflict with, result in a breach or violation of,
constitute a default under, or accelerate the performance provided by, in any material respects any
provisions of: (A) any law, rule, ordinance or regulation of any Governmental Authority, or any
judgment, order, writ, decree, permit or license of any Governmental Authority, to which the
Company or any of its Subsidiaries or any of their respective assets or properties may be subject
or bound; or (B) any contract, agreement, commitment or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound or committed; (ii) contravene, conflict with, result in a
breach or violation of, constitute a default under, or accelerate the performance provided by, any
provisions of the certificate of incorporation or by-laws (or other organizational or
constitutional documents) of the Company or any of its Subsidiaries; (iii) except for the filing of
the UCC-1 financing statements required hereunder, filings with federal and state authorities
regarding the issuance of the Note and the Second Warrant and filings with the United States Patent
and Trademark Office, require any notification to, filing with, or consent of, any Person or
Governmental Authority; (iv) give rise to any right of termination, cancellation or acceleration of
any material right or obligation of the Company or any of its Subsidiaries or any other Person or
to a loss of any material benefit relating to the Revenue Rights or the Revenue Interest; or (v)
result in the creation or imposition of any Lien on (A) the assets or properties of the Company or
any of its Subsidiaries or (B) the Revenue Interest, the Revenue Rights, or any other Collateral,
other than, with respect to clause (v) above, pursuant to the Revenue Interest Security Agreement,
the Note Security Agreement and the Subsidiary Note Security Agreement.



     (b) None of the Company and its Subsidiaries has granted, nor does there exist, any Lien
(other than Permitted Liens) on the Revenue Rights, the Revenue Interest or any other Collateral
other than pursuant to Revenue Interest Security Agreement, the Note Security Agreement and the
Subsidiary Note Security Agreement.



     Section 3.11 Subordination.



     The claims and rights of CHRP created by any Transaction Document in and to the Revenue
Interest, the Revenue Rights and any other Collateral are not and shall not be subordinated to any
creditor of the Company or its Subsidiaries or any other Person.



     Section 3.12 Intellectual Property.



     (a) Schedule 3.12(a)(i) sets forth an accurate, true and complete list (by category
and family) of all (1) Patents and utility models, (2) trade names, common law trademarks, common
law service marks, registered trademarks, registered service marks, and applications for trademark
registration or service mark registration, (3) registered and unregistered copyrights and (4)
domain name registrations and websites, in each case with respect to clauses (1), (2), (3) and (4)
above in this subsection (a) that are necessary or used to make, have made, use, sell, have sold,
offer for sale, import, develop, promote, market, distribute, manufacture, commercialize or
otherwise exploit the Included Products in the Territory by the Company, its Affiliates,
manufacturers, distributors or Licensees, as applicable. Schedule 3.12(a)(ii) sets forth
an



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accurate, true and complete list (by category and family) of all of the Company’s Additional
Intellectual Property. For each item of Intellectual Property and Additional Intellectual Property
listed on either Schedule 3.12(a)(i) or Schedule 3.12(a)(ii), the Company has
identified (i) the owner, (ii) the countries in which such listed item is patented or registered or
in which an application for Patent or registration is pending, (iii) the application number, (iv)
the Patent or registration number, (v) the expiration date, as applicable, including any applicable
term extensions or supplemental protection certificates, if applicable, (vi) the earliest relied
upon priority filing date used to calculate the expiration date, and (vii) the due date(s) for any
applicable maintenance, annuity or renewal fee. Except as disclosed therein, each item of
Intellectual Property (other than the Patent applications) listed on Schedule 3.12(a)(i) is
valid, enforceable and subsisting and no listed Intellectual Property has lapsed, expired, been
cancelled or become abandoned. The Patent applications listed in Schedule 3.12(a)(i) have
been and continue to be prosecuted by competent Patent counsel in a diligent manner. Each of the
Patents and Patent applications listed in Schedule 3.12(a)(i) correctly identifies each and
every inventor of the claims thereof as determined in accordance with the laws of the jurisdiction
in which such Patent is issued or such Patent application is pending. Except as set forth in
Schedules 3.04(a) and 3.04(b), each Person who has or has had any rights in or to
the Intellectual Property listed on Schedule 3.12(a)(i) that are owned by, or licensed to,
the Company or one of its Subsidiaries, including, each inventor named on the Patents and Patent
applications listed in Schedule 3.12(a)(i), has executed an agreement assigning his, her or
its entire right, title and interest in and to such Intellectual Property, and the inventions
embodied, described and/or claimed therein, to the purported owner and no such Person has any
contractual or other obligation that would preclude or conflict with any such assignment or
otherwise conflict with the obligations of such Person to the applicable owner of each listed
Intellectual Property.



     (b) Schedule 3.12(b) sets forth an accurate, true and complete list of all agreements,
whether oral or written, express or implied, including, without limitation,
assignments, licenses, options, franchise, distribution, marketing and manufacturing
agreements, sponsorships, project agreements, collaboration agreements, joint development
agreements, agreements not to enforce, consents, settlements, assignments, Liens or mortgages, and
any amendments(s) renewal(s), novation(s) and termination(s) pertaining thereto, in each case
pursuant to which the Company has the legal right to exploit Intellectual Property that is not
currently owned by the Company. There are no unpaid fees or royalties under any agreement listed
on Schedule 3.12(b) that have become due, or are expected to become overdue, as of the
Closing Date.



     (c) Each agreement listed in Schedule 3.12(b) is legal, valid, binding, enforceable,
and in full force and effect. None of the Company or its Subsidiaries is in breach of such listed
agreements and, no circumstances or grounds exist that would give rise to a claim of breach or
right of rescission, termination, revision, or amendment of any of the agreements specified in
Schedule 3.12(b), including, without limitation, the execution, delivery and performance of
this Agreement and the other Transaction Documents.



     (d) Except for Intellectual Property licensed to the Company or one of its Subsidiaries
pursuant to any agreement listed on Schedule 3.12(b) and Intellectual Property owned by the
Company or its Subsidiaries, no other Intellectual Property is necessary or desirable to make, have
made, offer to sell, sell, have sold, use, import, make public, reproduce, transmit, extract,
distribute, commercialize or market the Included Products in the Territory. The Company and its
Subsidiaries has the full, legal right to make, have made, use, sell, have sold, offer for sale,
import, develop, distribute, manufacture, commercialize, market or otherwise exploit the



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Included
Products in the Territory, without infringing any intellectual property right that is owned by
another Person or a Third Party.



     (e) Except as set forth on Schedule 3.12(e), the Company and its Subsidiaries possess
sole, exclusive, valid, marketable and unencumbered title to the Intellectual Property for which
one of them is listed as the owner on Schedule 3.12(a)(i), and is or these predecessors are
a party to the agreements listed on Schedule 3.12(b); all assignments from each inventor,
as the case may be, to the Company or one of its Subsidiaries or to a predecessor in interest of
the Company, have been executed and recorded for each of the Patents listed on Schedule
3.12(a)(i); there are no Liens (other than Permitted Liens) on or to any Intellectual Property
listed on Schedule 3.12(a)(i) that it owns or agreements listed on Schedule
3.12(b).



     (f) The Company or one of its Subsidiaries has the full right, power and authority to grant
all of the rights and interests granted to CHRP in this Agreement and to its Licensees under any
existing License Agreement.



     (g) There are no unpaid maintenance, annuity or renewal fees currently overdue for any of the
Intellectual Property listed on Schedule 3.12(a)(i), nor have any applications or
registrations therefor lapsed or become abandoned, been cancelled or expired.



     (h) Each owner and inventor of each Patent and the Company or one of its Subsidiaries (to the
extent that the Company or one of its Subsidiaries is an applicant or is otherwise involved in the
Patent prosecution of any Patent) have complied in all material respects with all applicable duties
of candor and good faith in dealing with any Patent Office, including the duty to disclose to any
applicable Patent Office all information known to be material to patentability.



     (i) No payments by the Company or any of its Subsidiaries are, or at any time in the future
expected to, become due to any other Person in respect of the Use of the Included Products in the
Territory or the Intellectual Property.



     (j) Except as set forth on Schedule 3.12(j), none of the Company, its Subsidiaries or
any other Person has undertaken or omitted to undertake any acts, and no circumstance or grounds
exist, that would invalidate, reduce or eliminate, in whole or in part, the enforceability or scope
of (i) any Intellectual Property or, in the case of Intellectual Property owned or licensed by the
Company or its Subsidiaries, the Company’s or its Subsidiaries’ entitlement to exclusively exploit
such Intellectual Property, or (ii) the Company’s or its Subsidiaries’ right to enjoy payments made
in respect of sales of the Included Products in the Territory or other revenues from any
Intellectual Property.



     (k) Except as set forth on Schedule 3.12(k), there is, and has been, no pending,
decided or settled opposition, interference proceeding, reexamination proceeding, cancellation
proceeding, injunction, claim, lawsuit, proceeding, hearing, investigation, complaint, arbitration,
mediation, demand, International Trade Commission investigation, decree, or any other dispute,
disagreement, or claim (individually referred to hereinafter as a “Dispute”), nor has any
such Dispute been threatened challenging the legality, validity, enforceability or ownership of any
Intellectual Property or which would give rise to a credit against the revenues or royalties due to
the Company or one of its Subsidiaries for the manufacture, sale offer for sale, use, importation
or exportation of the Included Products in the Territory or the exploitation of the licensed



-21-









 







Intellectual Property in the Territory and no circumstances or grounds exist that would give rise
to such a Dispute. Except as set forth on Schedule 3.12(k), there are no Disputes by any
Person or Third Party against the Company or its Subsidiaries, their Licensees or their licensors,
and neither the Company nor any of its Subsidiaries has received any written notice or claim of any
such Dispute, and, there exists no circumstances or grounds upon which any such claim could be
asserted, as pertaining to the Use of the Included Products in the Territory. Except as set forth
on Schedule 3.12(k), none of the Company, its Subsidiaries or their licensors has sent any
notice of any such Dispute to a Third Party, and there exists no circumstance or grounds upon which
the Company, its Subsidiaries or their licensors could assert any such claim, as pertaining to the
Use of the Included Products in the Territory. Except as set forth on Schedule 3.12(k), no
Intellectual Property or Included Product is subject to any outstanding injunction, judgment,
order, decree, ruling charge, settlement or other disposition of Dispute, and the Company and its
Subsidiaries have fully complied with, paid and otherwise satisfied all such obligations.



     (l) There is no pending or threatened action, suit, or proceeding, or any investigation or
claim by any Governmental Authority in the Territory to which the Company or its Subsidiaries are a
party (1) that would be the subject of a claim for indemnification by any Person or Third Party
under any agreement, or (2) that the marketing, sale or distribution of the Included Products in
the Territory by the Company, its Subsidiaries or their Licensees pursuant to the related License
Agreement, as applicable, does or will infringe on any patent or other intellectual property rights
of any other Person, and there is no basis for any such action, suit, proceeding, investigation or
claim of the type described in clause (1) or (2) above. To the Company’s Knowledge, there are no
pending published or unpublished United States, international or foreign patent applications owned
by any other Person, which, if issued, would limit or prohibit, in any material respect, the use of
the Included Products in the Territory or the licensed Intellectual Property relating to the
Included Products in the Territory.



     (m) Except as set forth on Schedule 3.12(m), the Company and its Subsidiaries have
taken, and will continue to take, all commercially reasonable measures and precautions necessary to
protect and maintain (1) the confidentiality of all Intellectual Property (except such Intellectual
Property whose value would be unimpaired by public disclosure) that it owns and (2) the value of
all Intellectual Property and assets related to the Use of the Included Products in the Territory.



     (n) No material trade secret of the Company and its Subsidiaries has been published or
disclosed to any Person except pursuant to a written agreement requiring such Person to keep such
trade secret confidential.



     (o) To the Company’s Knowledge, there are no pending United States or foreign patent
applications which, if granted, would limit or prohibit the ability of the Company or its
Subsidiaries to make, have made, use, sell, offer for sale or import the Included Products in the
Territory for the purposes currently contemplated by the Company and its Subsidiaries under this
Agreement.



     (p) The Company and its Subsidiaries have previously provided to CHRP, pursuant to a Joint
Defense/Common Interest Agreement, copies of all written opinions of counsel with respect to any
Third Party intellectual property rights relating to the Included Products, including all
freedom-to-operate, product clearance or right-to-use opinions and assessments to the extent in the
possession of, or otherwise obtained by, the Company and its Subsidiaries.




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     Section 3.13 Regulatory Approval.



     (a) The Company and its Subsidiaries have made available to CHRP all of the following
documents that the Company and its Subsidiaries have received in any form from any contract party
to any License Agreement:



          (i) all regulatory correspondence, written notes in respect of telephone communications,
electronic communications, copies of all submissions to any active regulatory files regarding
preclinical, clinical, manufacturing, adverse events, any notices and forms received by a contract
party from appropriate Regulatory Agencies relating to compliance, developmental (including safety,
efficacy and potency), marketing, promotion or manufacturing activities concerning the Intellectual
Property or the Use of the Included Products in the Territory;




          (ii) correspondence or reports from both internal corporate employees and non-governmental
consultants relating to any of the regulatory and/or product liability exposures, marketing and
reimbursement strategies, manufacturing (i.e., annual audit reports), preclinical and clinical data
issues concerning the Included Products in the Territory; and




          (iii) any information or communication that would indicate that any Regulatory Agency (A) is
not likely to approve any application with respect to the Included Products, (B) is likely to
revise or revoke any current approval granted by any Regulatory Agency with respect to the Included
Products, or (C) is likely to pursue compliance actions against the Company, its Subsidiaries or
any contract party relating to a License Agreement.




     (b) Except as set forth on Schedule 3.13(b), the Company and its Subsidiaries are in
material compliance with, and have materially complied with, all applicable federal, state, local
and foreign laws, rules, regulations, standards, orders and decrees governing its business,
including all regulations promulgated by each Regulatory Agency in the Territory, the failure of
compliance with which could reasonably be expected to result in a Material Adverse Effect; the
Company and its Subsidiaries have not received any notice citing action or inaction by any of them
that would constitute any material non-compliance with any applicable federal, state, local and
foreign laws, rules, regulations, or standards, which could reasonably be expected to result in a
Material Adverse Effect; and to the Company’s Knowledge, no prospective change in any applicable
federal, state, local or foreign laws, rules, regulations or standards has been adopted which, when
made effective, could reasonably be expected to result in a Material Adverse Effect.



     (c) The studies, tests and preclinical and clinical trials conducted relating to the Included
Products by or on behalf of the Company or its Subsidiaries were and, if still pending, are being
conducted in all material respects in accordance with experimental protocols, procedures and
controls pursuant to, where applicable, accepted professional and scientific standards; the
descriptions of the results of such studies, tests and trials provided to CHRP are accurate in all
material respects; and the Company and its Subsidiaries have not received any notices or
correspondence from any Regulatory Agency or comparable authority requiring the termination,
suspension, or material modification or clinical hold of any such studies, tests or preclinical or
clinical trials conducted by or on behalf of the Company or its Subsidiaries, which termination,
suspension, material modification or clinical hold could reasonably be expected to result in a
Material Adverse Effect.



-23-









 





     Section 3.14 Material Contracts.



     Neither the Company nor any of its Subsidiaries is in breach of or in default under any
Material Contract related to the Included Products, which default, individually or in the
aggregate, would result in a Material Adverse Effect. To the Knowledge of the Company, nothing has
occurred and no condition exists that would permit any other party thereto to terminate any
Material Contract related to the Included Products. Neither the Company nor any of its
Subsidiaries has received any notice or, to the Knowledge of the Company, any threat of termination
of any such Material Contract. To the Knowledge of the Company, no other party to a Material
Contract is in breach of or in default under such Material Contract. All Material Contracts are
valid and binding on the Company and its Subsidiaries and, to the Knowledge of the Company, on each
other party thereto, and are in full force and effect. Schedule 3.14 is a complete list of all
contracts, agreements or other arrangements to which either the Company or any of its Subsidiaries
is a party or any of the Company’s or its Subsidiaries’ respective assets or properties are bound
or committed (other than the Transaction Documents) related to any Included Product or the
Intellectual Property (including each License Agreement) and for which a breach or violation by the
Company could reasonably be expected to result in a Material Adverse Effect.



     Section 3.15 Place of Business.



     The Company’s principal place of business and chief executive office are set forth on
Schedule 3.15.



     Section 3.16 Broker’s Fees.



     The Company and its Subsidiaries have not taken any action that would entitle any Person to
any commission or broker’s fee in connection with the transactions contemplated by the Transaction
Documents.



     Section 3.17 Insurance.



     There are in full force and effect insurance policies maintained by the Company and its
Subsidiaries with an insurance company rated not less than “A-” by A.M. Best Company, Inc., with
coverages and in amounts customary for companies of comparable size and condition similarly
situated in the same industry as the Company and its Subsidiaries, including product liability
insurance, directors and officers insurance and insurance against liability, subject only to such
exclusions and deductible items as are usual and customary in insurance policies of such type. The
Company and its Subsidiaries have named CHRP as an additional insured party with respect to its
general liability and product liability insurance policies. A schedule of the Company’s and its
Subsidiaries’ insurance policies is attached hereto as Schedule 3.17.



     Section 3.18 Solvency.



     None of the Company nor its Subsidiaries is “insolvent” as defined in any statute of the
United States Bankruptcy Code or in the fraudulent conveyance, fraudulent transfer or similar
statutes or laws of the States of New York or Delaware. Assuming consummation of the transactions
contemplated by the Transaction Documents, the present fair saleable value of each



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of the Company and its Subsidiaries’ assets is greater than the amount required to pay its debts as they become
due.




     Section 3.19 Other Information.



     No written statement, information, report or materials prepared by or on behalf of the Company
or its Subsidiaries and furnished to CHRP by the Company or its Subsidiaries in connection with any
Transaction Document or any transaction contemplated hereby or thereby, no written representation,
warranty or statement made by the Company and its Subsidiaries in any Transaction Document, and no
Schedule or Exhibit hereto, in each case taken in the aggregate, and as updated through the date of
this Agreement, contains any untrue statement of a material fact or omits any statement of material
fact necessary in order to make the statements made therein in light of the circumstances under
which they were made not misleading.



ARTICLE IV




REPRESENTATIONS AND WARRANTIES OF CHRP




     CHRP represents and warrants to the Company the following:



     Section 4.01 Organization.



     CHRP is a limited partnership duly formed and validly existing under the laws of the State of
Delaware.



     Section 4.02 Authorization.



     CHRP has all necessary power and authority to enter into, execute and deliver the Transaction
Documents and to perform all of the obligations to be performed by it hereunder and thereunder and
to consummate the transactions contemplated hereunder and thereunder. The Transaction Documents
have been duly authorized, executed and delivered by CHRP and each Transaction Document constitutes
the valid and binding obligation of CHRP, enforceable against CHRP in accordance with their
respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights generally or general
equitable principles.



     Section 4.03 Broker’s Fees.



     CHRP has not taken any action that would entitle any Person to any commission or broker’s fee
in connection with the transactions contemplated by the Transaction Documents.



     Section 4.04 Conflicts.



     Neither the execution and delivery of this Agreement or any other Transaction Document nor the
performance or consummation of the transactions contemplated hereby or thereby will: (i)
contravene, conflict with, result in a breach or violation of, constitute a default under, or
accelerate the performance provided by, in any material respects any provisions of: (A) any law,
rule or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or
license of any Governmental Authority, to which CHRP or any of its assets or properties may be
subject or bound; or (B) any contract, agreement, commitment or instrument to which CHRP is a



-25-









 




party
or by which CHRP or any of its assets or properties is bound or committed; (ii) contravene,
conflict with, result in a breach or violation of, constitute a default under, or accelerate the
performance provided by, any provisions of the organizational or constitutional documents of
CHRP; or (iii) require any notification to, filing with, or consent of, any Person or
Governmental Authority.




ARTICLE V




COVENANTS




     During the Term, the following covenants shall apply:



     Section 5.01 Consents and Waivers.



     The Company shall use its best efforts to obtain and maintain any required consents,
acknowledgements, certificates or waivers so that the transactions contemplated by this Agreement
or any other Transaction Document may be consummated and shall not result in any default or breach
or termination of any of the Material Contracts.



     Section 5.02 Access; Information.



     (a) Promptly after receipt by the Company of notice of any action, claim, investigation,
proceeding (commenced or threatened), certificate, offer, proposal, material correspondence or
other material written communication relating to the transactions contemplated by this Agreement,
any other Transaction Document, the Revenue Rights or any Material Contract relating to the
manufacture or distribution of the Included Products or the Additional Included Products in the
Territory or to the sale or license of the Intellectual Property, then the Company shall inform
CHRP of the receipt of such notice and the substance of such action, claim, investigation,
proceeding, certificate, offer, proposal, correspondence or other written communication and, if in
writing shall furnish CHRP with a copy of such notice and any related materials with respect to
such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or
other written communication.



     (b) The Company shall keep and maintain, or cause to be kept and maintained, at all times
accurate and complete books and records. The Company shall keep and maintain, or cause to be kept
and maintained, at all times full and accurate books of account and records adequate to correctly
reflect all payments paid and/or payable with respect to Revenue Rights and the Revenue Interest
and all deposits made into the applicable Collection Accounts.



     (c) CHRP and any of CHRP’s representatives shall have the right (at its cost), from time to
time (but no more frequently than four (4) times per year), to visit the Company and its
Subsidiaries’ offices and properties where the Company and its Subsidiaries keep and maintain its
books and records relating or pertaining to the Revenue Rights, the Revenue Interest and the other
Collateral for purposes of conducting an audit of such books and records, and to inspect, copy and
audit such books and records, during normal business hours, and, upon five (5) Business Days’
written notice given by CHRP to the Company, the Company will provide CHRP and any of CHRP’s
representatives reasonable access to such books and records, and shall permit CHRP and any of
CHRP’s representatives to discuss the business, operations, properties and financial and other
condition of the Company or any of its Affiliates including, but not



-26-









 




limited to, matters relating
or pertaining to the Revenue Rights, the Revenue Interest and the other Collateral with officers of
such parties, and with their independent certified public accountants (to the extent such
independent certified accountants agree to discuss such matters with CHRP).




     (d) In the event any audit of the books and records of the Company and its Subsidiaries
relating to the Revenue Rights, Revenue Interest, and the other Collateral by CHRP and/or any of
CHRP’s representatives reveals that the amounts paid to CHRP hereunder for the period of such audit
have been understated by more than five percent (5%) of the amounts determined to be due for the
period subject to such audit, then the Audit Costs in respect of such audit shall be borne by the
Company; and in all other cases, such Audit Costs shall be borne by CHRP.



     (e) The Company shall, promptly after the end of each Fiscal Quarter (but in no event later
than forty five (45) days following the end of such Fiscal Quarter), produce and deliver to CHRP a
Quarterly Report for such quarter, together with a certificate of an executive officer of the
Company, certifying that to the knowledge of such officer (i) such Quarterly Report is a true and
complete copy (in all material respects) and (ii) any statements and any data and information
therein prepared by the Company are true, correct and accurate in all material respects.



     Section 5.03 Material Contracts.



     The Company shall comply with all material terms and conditions of and fulfill all of its
obligations under all the Material Contracts. Upon the occurrence of a material breach of any such
Material Contract by any other party thereto, which is not cured as provided therein, the Company
shall use commercially reasonable efforts to seek to enforce all of its rights and remedies
thereunder. The Company shall not amend any Material Contract (other than consents or approvals
given in the ordinary course of business) or issue any consents or other approvals under any such
Material Contract without the prior written consent of CHRP, which consent shall not be
unreasonably withheld, delayed or conditioned.



     Section 5.04 Confidentiality; Public Announcement.



     (a) All information furnished by CHRP to the Company or by the Company to CHRP, including the
Confidential Information, in connection with this Agreement and any other Transaction Document and
the transactions contemplated hereby and thereby, as well as the terms, conditions and provisions
of this Agreement and any other Transaction Document, shall be kept confidential by the Company and
CHRP, and shall be used by the Company and CHRP only in connection with this Agreement and any
other Transaction Document and the transactions contemplated hereby and thereby. Notwithstanding
the foregoing, the Company and CHRP may disclose such information to their partners, directors,
employees, managers, officers, investors, potential investors, bankers, advisors, trustees and
representatives, provided that such Persons shall be informed of the confidential nature of
such information and shall be obligated in writing to keep such information confidential pursuant
to the terms of this Section 5.04(a). The Company will consult with CHRP, and CHRP will
consult the Company, on the form, content and timing of any such disclosures of Confidential
Information related to the Transaction Documents including, without limitation, any disclosures
made pursuant to applicable securities laws or made to investment or other analysts.



-27-









 





     (b) Except as required by law or the rules and regulations of any securities exchange or
trading system or the FDA or any Governmental Authority with similar regulatory authority, or
except with the prior written consent of the other party (which consent shall not be unreasonably
withheld, conditioned or delayed), no party shall issue any press release or make any other public
disclosure with respect to the transactions contemplated by this Agreement or
any other Transaction Document; provided, however, that wherever so permitted
by relevant law or rule, the Company shall make available to CHRP prior to public release (and
consider CHRP’s reasonable revisions thereto) any press releases required by law or the rules and
regulations of any securities exchange or trading system or the FDA or any Governmental Authority
with similar regulatory authority with respect to the transactions contemplated by this Agreement
or any other Transaction Document; and provided further, that the Company and CHRP
may jointly prepare a press release for dissemination promptly following the Closing Date.
Notwithstanding anything to the contrary in this Section 5.04(b), the Company shall seek
confidential treatment under applicable Securities and Exchange Commission rules, to avoid public
disclosure of competitively sensitive provisions of the Revenue Interest (i.e., the Applicable
Percentage, the multiple step down and the Put Price formula using internal rate of return and
multiples, etc.), and to allow CHRP to review and provide input on all redacted drafts, descriptive
summaries and transmittal letters prepared in connection with the Company’s obligations arising
under this sentence prior to submission or filing with the Securities and Exchange Commission or
otherwise.



     Section 5.05 Security Agreement.



     The Company shall, at all times until the Obligations are paid and performed in full, grant in
favor of CHRP a valid, continuing, first perfected security interest in the Revenue Rights and the
Revenue Interest relating to it and the other Collateral described in the Revenue Interest Security
Agreement.



     Section 5.06 Further Assurance.



     (a) Subject to the terms and conditions of this Agreement, each of CHRP and the Company will
use their commercially reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary under applicable laws and regulations to consummate the
transactions contemplated by this Agreement and any other Transaction Document. CHRP and the
Company agree to execute and deliver such other documents, certificates, agreements and other
writings (including any financing statement filings requested by CHRP) and to take such other
actions as may be reasonably necessary in order to consummate or implement expeditiously the
transactions contemplated by this Agreement and any other Transaction Document and to vest in CHRP
good, valid and marketable rights and interests in and to the Revenue Interest free and clear of
all Liens, except for the Permitted Liens and those Liens created in favor of CHRP pursuant to
Revenue Interest Security Agreement, the Note Security Agreement, the Subsidiary Note Security
Agreement and any other Transaction Document.



     (b) CHRP and the Company shall execute and deliver such additional documents, certificates and
instruments, and to perform such additional acts, as may be reasonably requested and necessary or
appropriate to carry out and effectuate all of the provisions of this Agreement and any other
Transaction Document and to consummate all of the transactions contemplated by this Agreement and
any other Transaction Document.



-28-









 





     (c) CHRP and the Company shall cooperate and provide assistance as reasonably requested by the
other respective party in connection with any litigation, arbitration or other proceeding (whether
threatened, existing, initiated, or contemplated prior to, on or after the date hereof) to which
any party hereto or any of its officers, directors, shareholders, agents or
employees is or may become a party or is or may become otherwise directly or indirectly
affected or as to which any such Persons have a direct or indirect interests, in each case relating
to this Agreement, any other Transaction Document, the Revenue Interest or any other Collateral, or
the transactions described herein or therein.



     Section 5.07 Put Option; Step-Down Option.



     (a) In the event that a Put Option Event shall occur during the Term, CHRP shall have the
right, but not the obligation (the “Put Option”), to require the Company to repurchase from
CHRP the Revenue Interest at the Put Price in cash. In the event CHRP elects to exercise its Put
Option, CHRP shall deliver written notice to the Company specifying the closing date (the “Put
Option Closing Date”), which date shall (i) in the case of a Change of Control, be the date of
consummation of such Change of Control, and (ii) otherwise, not be earlier than thirty (30) days
after the breach or default giving rise to the Put Option Event or later than one hundred eighty
(180) days after the Put Option Event. On the Put Option Closing Date, the Company shall
repurchase from CHRP the Revenue Interest at the Put Price in cash, the payment of which shall be
made by wire transfer of immediately available funds to the account designated by CHRP.
Notwithstanding anything to the contrary contained herein, immediately upon the occurrence of a
Bankruptcy Event, CHRP shall be deemed to have automatically and simultaneously elected to have the
Company repurchase from CHRP the Revenue Interest for the Put Price in cash and the Put Price shall
be immediately due and payable without any further action or notice by any party.



     (b) In connection with the consummation of a repurchase of the Revenue Interest pursuant to
the Put Option, CHRP agrees that it will (i) promptly execute and deliver to the Company such UCC
termination statements and other documents as may be necessary to release CHRP’s Lien on the
Collateral and otherwise give effect to such repurchase and (ii) take such other actions or provide
such other assistance as may be necessary to give effect to such repurchase.



     (c) The Company shall have the right, but not the obligation (the “Step-Down Option”),
to prepay amounts to CHRP in respect of Sections 2.02 and 5.08 at the Step-Down
Price in cash; provided, however, that, the Company shall remain obligated to pay
CHRP *** percent (***%) of all Net Product Sales from and after the Step-Down Closing
Date through the end of the Term, which Net Product Sales shall be treated in accordance with
clause (b) of the definition of Applicable Percentage. In the event the Company elects to exercise
its Step-Down Option, the Company shall deliver written notice to the CHRP specifying the closing
date (the “Step-Down Option Closing Date”), which date shall be no more than ten (10)
Business Days after the date on which the Company delivers its written notice. On the Step-Down
Option Closing Date, the Company shall prepay such amounts to CHRP at the Step-Down Price in cash,





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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the payment of which shall be made by wire transfer of immediately available funds to the account
designated by CHRP.




     Section 5.08 Remittance to and from the Collection Accounts.



     (a) Within thirty (30) days of the Closing Date, the parties hereto shall enter into (i) the
JPMorgan Deposit Agreement in form and substance reasonably satisfactory to the parties hereto and
the Deposit Bank, which agreement will provide for, among other things, the establishment and
maintenance of a Joint Concentration Account and a CHRP Concentration Account, and the
establishment of “control” within the meaning of Article 9 of the UCC, with respect to the Joint
Concentration Account, all in accordance with the terms herein and therein, and (ii) the Comerica
Deposit Agreement in form and substance reasonably satisfactory to the parties hereto and the
Collection Bank, which agreement will provide for, among other things, the maintenance of the
Collection Accounts, the daily sweeping of all funds from the deposit account described in the
definition of “Collection Accounts” to the Joint Concentration Account and the establishment of
“control” within the meaning of Article 9 of the UCC, with respect to the Collection Accounts. Any
CHRP Concentration Account shall be held solely for the benefit of CHRP, but shall be subject to
the terms and conditions of this Agreement, the Revenue Interest Security Agreement, the Note
Security Agreement, the Subsidiary Note Security Agreement and the other Transaction Documents.
Funds deposited into the lockbox and credit accounts described in the definition of “Collection
Accounts” shall be swept by the Collection Bank on a daily basis into the deposit account described
in the definition of “Collection Accounts”; and subsequent thereto such funds shall be swept by the
Collection Bank on a daily basis into the Joint Concentration Account; and subsequent thereto, the
Daily Amount shall be swept by the Deposit Bank on a daily basis into the CHRP Concentration
Account. CHRP shall have immediate and full access to any funds held in the CHRP Concentration
Account and such funds shall not be subject to any conditions or restrictions whatsoever. After
the Daily Amount is swept into the CHRP Concentration Account, the amounts remaining in the Joint
Concentration Account shall then be swept by the Deposit Bank into the Company Concentration
Account. The Company shall have immediate and full access to any funds held in the Company
Concentration Account and such funds shall not be subject to any conditions or restrictions
whatsoever other than those of the Deposit Bank and as provided in the Note Security Agreement and
related documents; provided, however, that nothing herein shall (i) affect or
reduce the Company’s obligations to pay in full all amounts due to CHRP under this Agreement, or
(ii) in any manner limit the recourse of CHRP to the Collateral to satisfy the Company’s
Obligations.



     (b) The Company shall pay for all fees, expenses and charges of the Deposit Bank and the
Collection Bank other than fees relating to the CHRP Concentration Account.



     (c) The Company shall cause all its customers (including any licensees of the Intellectual
Property) to remit all payments in respect of sales of Included Products and the Additional
Included Products (or such licenses) directly to the Collection Accounts. Without limiting the
foregoing, commencing on the Closing Date and thereafter, any and all payments in respect of sales
of the Included Products and the Additional Included Products received by the Company or its
Subsidiaries shall be deposited into the Joint Concentration Account within three (3) Business Days
of the Company’s or its Subsidiaries’ receipt thereof.



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     (d) The Company shall not have any right to terminate the Collection Bank or Deposit Bank
without CHRP’s prior written consent. Any such consent, which CHRP may grant or withhold in its
sole and absolute discretion, shall be subject to the satisfaction of each of the following
conditions to the satisfaction of CHRP:



          (i) the successor Collection Bank or Deposit Bank shall be acceptable to CHRP;




          (ii) CHRP, the Company and the successor Collection Bank or Deposit Bank shall have entered
into deposit agreements substantially in the forms of the JPMorgan Deposit Agreement and Comerica
Deposit Agreement, each initially entered into, as applicable;




          (iii) all funds and items in the accounts subject to the Comerica Deposit Agreement or
JPMorgan Deposit Agreement to be terminated shall be transferred to the new accounts held at the
successor Collection Bank or Deposit Bank, as applicable, prior to the termination of the then
existing Collection Bank or Deposit Bank; and




          (iv) CHRP shall have received evidence that all of the applicable parties making payments in
respect of sales of the Included Products and Additional Included Products have been instructed to
remit all future payments in respect of sales of the Included Products and Additional Included
Products to the new accounts held at the successor Collection Bank or Deposit Bank.




     (e) True-Up.



          (i) Following the end of each Fiscal Quarter, as soon as the Company shall have determined the
Net Product Sales for such Fiscal Quarter and for each other Fiscal Quarter in the Fiscal Year in
which the then most recently ended Fiscal Quarter occurred (the “Year-to-Date Net Product
Sales”) and in any event no later than forty-five (45) days after the end of such Fiscal
Quarter (unless such Fiscal Quarter is the last Fiscal Quarter of a Fiscal Year in which case no
later than ninety (90) days after the end of such Fiscal Quarter), the Company shall present CHRP a
certificate, in reasonable detail with supporting calculations and information, detailing the
Year-to-Date Net Product Sales (the “True-Up Statement”); provided that if the Company is
required to file Forms 10-Q and 10-K with the SEC, the time periods for delivery of the True-Up
Statement shall be 15 days after the due dates for the Company’s filing of such forms with the SEC.




          (ii) If CHRP has received on or prior to the last day of the most recently ended Fiscal
Quarter payments from the Company under Section 2.02 (other than payments under Section
2.02(a)(ii), provided, however, the Company’s payments under Section 2.02(a)(ii) shall
be considered for purposes of determining the Applicable Percentage) or this Section 5.08
in respect of the Fiscal Year for which Year-to-Date Net Product Sales is calculated under clause
(i) above which are in excess of the Applicable Percentage of Year-to-Date Net Product Sales, CHRP
shall pay such excess to the Company within twenty (20) days of receipt by CHRP of the True-Up
Statement. For the avoidance of doubt, the provisions of this Section 5.08(e)(ii) shall
also apply, in any event, if and to the extent the payment received by CHRP pursuant to Section
2.02(a)(ii) results in aggregate payments received and retained (i.e., not refunded pursuant to
the true-up in Section 5.08(e) by CHRP) by CHRP under Sections 2.02,
5.07(c) and 5.08 from October 1, 2007 through the end of the Fiscal Quarter in
which payment is received by CHRP




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pursuant to Section 2.02(a)(ii), to exceed      ***      Percent (***%) of the
aggregate amount paid by CHRP under Section 2.03.




          (iii) If the Applicable Percentage of Year-to-Date Net Product Sales is in excess of the
amounts CHRP has received on or prior to the last day of the most recently ended Fiscal Quarter in
respect of the Fiscal Year for which Year-to-Date Net Product Sales is calculated under clause (i)
above under Section 2.02 (other than payments under Section 2.02(a)(ii), provided,
however, the Company’s payments under Section 2.02(a)(ii) shall be considered for purposes
of determining the Applicable Percentage) or this Section 5.08, the Company shall pay such
excess to CHRP within twenty (20) days of the receipt by CHRP of the True-Up Statement.




     Section 5.09 License Agreements.



     The Company shall use its commercially reasonable efforts to duly perform and observe all of
its covenants and obligations under each License Agreement in all material respects. Upon the
occurrence of a material breach of any of the License Agreements by any other party thereto, which
is not cured as provided therein, the Company thereto shall use its commercially reasonable efforts
to seek to enforce all of its and its Subsidiaries’ rights and remedies thereunder, if its board of
directors determines it is in the best interests of the Company and its stockholders to enforce
such rights and remedies.



     Section 5.10 Intellectual Property.



     (a) Except with respect to the Patents set forth on Schedule 5.10, the Company shall,
at its sole expense, either directly or by causing any Licensee to do so, take any and all
commercially reasonable actions (including taking legal action to specifically enforce the
applicable terms of any License Agreement) and prepare, execute, deliver and file any and all
agreements, documents or instruments which are necessary to (A) diligently maintain the applicable
Intellectual Property and the Patents and (B) diligently defend or assert such Intellectual
Property and such Patents against infringement or interference in the Territory by any other
Persons, and against any claims of invalidity or unenforceability, in any jurisdiction in the
Territory (including, without limitation, by bringing any legal action for infringement or
defending any counterclaim of invalidity or action of a Third Party for declaratory judgment of
non-infringement or non-interference). Except with respect to the patents set forth on
Schedule 5.10, the Company shall not and shall use its commercially reasonable efforts to
cause any Licensee not to, disclaim or abandon, or fail to take any action necessary or desirable
to prevent the disclaimer or abandonment of, the applicable Patents in the Territory or other
Intellectual Property; provided, however, this Section shall not apply to abandonment of any
Patents and trademarks made in the ordinary course of business to the extent consented to by CHRP
(not to be unreasonably withheld, conditioned or delayed.)



     (b) In the event that the Company becomes aware that the Use of any Included Product or
Additional Included Product in the Territory infringes or violates any Third Party





 




			
	***	 	Portions of this page have been omitted pursuant to a
request for Confidential Treatment filed separately with the Commission.




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intellectual property, the Company shall promptly use commercially reasonable efforts to attempt
to secure the right to use such intellectual property on behalf of itself and the affected
Licensee and shall pay all costs and amounts associated with obtaining any such license, without
any reduction in the Revenue Interest.




     (c) The Company shall directly, or through a Licensee, take any and all commercially
reasonable actions and prepare, execute, deliver and file any and all agreements, documents or
instruments that are necessary or desirable to secure and maintain all Regulatory Approvals in the
Territory. The Company shall not withdraw or abandon, or fail to take any action necessary to
prevent the withdrawal or abandonment of, any Regulatory Approval in the Territory once obtained.



     Section 5.11 Negative Covenants.



     The Company shall not, nor shall it permit any of its Subsidiaries to, without the prior
written consent of CHRP:



     (a) forgive, release or reduce any amount, or delay or postpone (other than on a commercially
reasonable basis) any amount, owed to the Company or its Subsidiaries and relating to the Revenue
Interest;



     (b) waive, amend, cancel or terminate, exercise or fail to exercise, any of its material
rights constituting or relating to the Revenue Rights except in respect of the abandonment on
non-material non-United States Patents which has been determined by the Company’s board of
directors to be in the best interests of the Company and its stockholders;



     (c) amend, modify, restate, cancel, supplement, terminate or waive any provision of any
License Agreement, or grant any consent thereunder, or agree to do any of the foregoing, including,
without limitation, entering into any agreement with any Licensee under the provisions of such
License Agreement; or



     (d) create, incur, assume or suffer to exist any Lien, upon or with respect to the Revenue
Interest, the Revenue Rights or the other Collateral, or agree to do or suffer to exist any of the
foregoing, except for any Permitted Liens and any Lien or agreements in favor of CHRP granted under
or pursuant to this Agreement and the other Transaction Documents.



     Section 5.12 Future Agreements.



     The Company shall not enter into, nor shall it permit any of its Subsidiaries to enter into,
any agreement that would or could reasonably be expected to result in a Material Adverse Effect
without CHRP’s prior written consent, which consent shall not be unreasonably withheld, delayed or
conditioned.



     Section 5.13 Insurance.



     The Company shall (i) maintain insurance policies with insurance companies rated not less than
“A-” by A.M. Best Company, Inc. with coverages and in amounts customary for companies of comparable
size and condition similarly situated in the same industry as the Company and its Subsidiaries,
including product liability insurance, directors and officers insurance and general liability,
subject only to such exclusions and deductible items as are usual



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and customary in insurance policies of such type, and (ii) maintain CHRP as an additional insured
party with respect to its general liability and product liability insurance policies.




     Section 5.14 Notice.



     The Company shall provide CHRP with written notice as promptly as practicable (and in any
event within five (5) Business Days) after becoming aware of any of the following:



     (a) the occurrence of a Bankruptcy Event;



     (b) any material breach or default by the Company or any of its Subsidiaries of any covenant,
agreement or other provision of this Agreement or any other Transaction Document;



     (c) any representation or warranty made or deemed made by the Company or any of its
Subsidiaries in any of the Transaction Documents or in any certificate delivered to CHRP pursuant
hereto shall prove to be untrue, inaccurate or incomplete in any material respect on the date as of
which made or deemed made; or



     (d) the occurrence of a Change of Control.



     Section 5.15 Use of Proceeds.



     The Company and its Subsidiaries shall use all proceeds received from CHRP pursuant to
Section 2.03 for the purpose of generating and increasing Net Product Sales and for working
capital and general corporate purposes, including, but not limited to, the repayment of outstanding
debt to Comerica, build out of commercial infrastructure, promotional, marketing and sales efforts
and the hiring of sales representatives and other employees. The Company and its Subsidiaries
shall not use any such proceeds for any other purposes.



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ARTICLE VI




THE CLOSING; CONDITIONS TO CLOSING




     Section 6.01 Closing.



     Subject to the closing conditions set forth in Sections 6.02 and 6.03, the
closing of the assignment of the Revenue Interest and the Second Warrant (the “Closing”)
shall take place at the offices of McDermott Will & Emery LLP, 227 W. Monroe St., Chicago, Illinois
60606, on the Closing Date.



     Section 6.02 Conditions Applicable to CHRP.



     The obligations of CHRP to effect the Closing shall be subject to the satisfaction of the
following conditions, any of which may be waived by CHRP in its sole discretion:



     (a) Accuracy of Representations and Warranties. The representations and warranties of
the Company set forth in the Transaction Documents shall be true, correct and complete in all
material respects as of the Closing Date.



     (b) No Adverse Circumstances. Except as disclosed to CHRP in the Disclosure Schedule
or the Company’s Form 10-Q for the third quarter of 2007 as filed with the SEC, there shall not
have occurred or be continuing any event or circumstance (including any development with respect to
the efficacy of the Included Products or the Intellectual Property or the use or expected future
use of the same as opposed to competing products) that could reasonably be expected to have a
Material Adverse Effect.



     (c) Litigation. No action, suit, litigation, proceeding or investigation shall have
been instituted, be pending or threatened (i) challenging or seeking to make illegal, to delay or
otherwise directly or indirectly to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in connection with the transactions
contemplated by this Agreement, or (ii) seeking to restrain or prohibit CHRP’s acquisition of the
Revenue Interest or the Second Warrant.



     (d) Consents. All notices to, consents, approvals, authorizations and waivers from
Third Parties and Government Authorities that are required for the consummation of the transactions
contemplated by this Agreement or any of the Transaction Documents shall have been obtained or
provided for and shall remain in effect.



     (e) Comerica Deposit Agreement. The Comerica Deposit Agreement (together with any
necessary account control agreements) shall have been executed and delivered by the Company and the
Collection Bank, and CHRP shall have received the same.



     (f) JPMorgan Deposit Agreement. The JPMorgan Deposit Agreement (together with any
necessary account control agreements) shall have been executed and delivered by the Company and the
Deposit Bank, and CHRP shall have received the same.



     (g) Note and Warrant Purchase Agreement. The Note and Warrant Purchase Agreement
shall have been executed and delivered by the Company, and CHRP shall have received the same.



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     (h) Second Warrant. The Second Warrant shall have been executed and delivered by the
Company, and CHRP shall have received the same.



     (i) Investor Rights Agreement. The Investor Rights Agreement shall have been executed
and delivered by the Company, and CHRP shall have received the same.



     (j) Officer’s Certificate. CHRP shall have received a certificate of an executive
officer of the Company pursuant to which such officer certifies that the conditions set forth in
Sections 6.02(a), (b), (c), and (o) have been satisfied in
all respects.



     (k) Assignment of Revenue Interest. The Assignment of Revenue Interest shall have
been executed and delivered by the Company to CHRP, and CHRP shall have received the same.



     (l) Security Agreements. The Revenue Interest Security Agreement, the Note Security
Agreement and the Subsidiary Note Security Agreement shall have been duly executed and delivered by
all the parties thereto, together with proper financing statements (including Form UCC-1s) for
filing under the UCC and/or any other applicable law, rule, statute or regulation relating to the
perfection of a security interest in filing offices in the jurisdictions listed on Schedule
6.02(l), and such agreements shall be in full force and effect.



     (m) Legal Opinions.



          (i) CHRP shall have received an opinion of Heller Ehrman LLP, transaction counsel to the
Company, in form and substance satisfactory to CHRP and its counsel, to the effect set forth in
Exhibit G.




          (ii) CHRP shall have received an opinion of Heller Ehrman LLP, intellectual property counsel
to the Company, in form and substance satisfactory to CHRP and its counsel, to the effect set forth
in Exhibit H.




     (n) Corporate Documents of the Company and its Subsidiaries. CHRP shall have received
on the Closing Date, certificates, dated as of the Closing Date, of an executive officer of the
Company and its Subsidiaries (the statements made in which shall be true and correct on and as of
the Closing Date): (i) attaching copies, certified by such officer as true and complete, of each
the Company’s and its Subsidiaries’ certificate of incorporation or other organizational documents
(together with any and all amendments thereto) certified by the appropriate Governmental Authority
as being true, correct and complete copies; (ii) attaching copies, certified by such officer as
true and complete, of resolutions of the board of directors of each of the Company and its
Subsidiaries authorizing and approving the execution, delivery and performance by it of the
Transaction Documents and the transactions contemplated herein and therein; (iii) setting forth the
incumbency of the officer or officers of the Company and its Subsidiaries who have executed and
delivered the Transaction Documents including therein a signature specimen of each such officer or
officers; and (iv) attaching copies, certified by such officer as true and complete, of a
certificate of the appropriate Governmental Authority of each of the Company and its Subsidiaries’
jurisdiction of incorporation, stating that it is in good standing under the laws of its
incorporation.



     (o) Covenants. Each of the Company and its Subsidiaries shall have complied in all
material respects with its covenants set forth in the Transaction Documents.



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     (p) Due Diligence. CHRP’s due diligence review of the Company and its Subsidiaries
shall have been completed to CHRP’s reasonable satisfaction.



     Section 6.03 Conditions Applicable to the Company.



     The obligation of the Company to effect the Closing shall be subject to the satisfaction of
each of the following conditions, any of which may be waived by the Company in their sole
discretion:



     (a) Accuracy of Representations and Warranties. The representations and warranties of
CHRP set forth in this Agreement shall be true, correct and complete in all material respects as of
the Closing Date.



     (b) Litigation. No action, suit, litigation, proceeding or investigation shall have
been instituted, be pending or threatened (i) challenging or seeking to make illegal, to delay or
otherwise directly or indirectly to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in connection with the transactions
contemplated by this Agreement, or (ii) seeking to restrain or prohibit CHRP’s acquisition of the
Revenue Interest or the Second Warrant.



     (c) Closing Certificate. The Company shall have received at the Closing a certificate
of an authorized representative of CHRP certifying that the conditions set forth in Sections
6.03(a) and (b) have been satisfied in all material respects as of the Closing Date.



     (d) Funding. CHRP shall have funded under its obligations arising under Section
2.03(a)(i) within fifteen (15) Business Days of the date hereof.



ARTICLE VII




TERMINATION




     Section 7.01 Termination Date.



     Except as otherwise provided in this Section 7.01 and in Sections 7.02 and
8.01, this Agreement shall terminate upon expiration of the Term. If any payments are
required to be made by one of the parties hereunder after that date, this Agreement shall remain in
full force and effect until any and all such payments have been made in full, and (except as
provided in Section 7.02) solely for that purpose. In addition, this Agreement shall
sooner terminate if CHRP shall have exercised the Put Option, pursuant to Section 5.07,
with the termination date in that event being the date on which the Company completes the
repurchase of the Revenue Interest with payment in full to CHRP.



     Section 7.02 Effect of Termination.



     In the event of the termination of this Agreement pursuant to Section 7.01, this
Agreement shall forthwith become void and have no effect without any liability on the part of any
party hereto or its Affiliates, directors, officers, stockholders, partners, managers or members
other than the provisions of this Section 7.02 and Sections 5.04, 5.05,
8.01, 8.02, 8.04 and 8.05 hereof, which shall survive any
termination as set forth in Section 8.01. Nothing contained in this Section 7.02
shall relieve any party from liability for any breach of this Agreement.



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ARTICLE VIII




MISCELLANEOUS




     Section 8.01 Survival.



     (a) All representations and warranties made herein and in any other Transaction Document, any
certificates or in any other writing delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Agreement and the Closing and shall continue to survive
to the extent permitted by law until the termination of this Agreement in accordance with Article
VII. Notwithstanding anything in this Agreement or implied by law to the contrary, all the
agreements contained in Sections 5.04, 5.05, 8.01, 8.02,
8.04 and 8.05 shall survive indefinitely following the execution and delivery of
this Agreement and the Closing and the termination of this Agreement.



     (b) Any investigation or other examination that may have been made or may be made at any time
by or on behalf of the party to whom representations and warranties are made shall not limit,
diminish or in any way affect the representations and warranties in the Transaction Documents, and
the parties may rely on the representations and warranties in the Transaction Documents
irrespective of any information obtained by them by any investigation, examination or otherwise.



     Section 8.02 Future Equity Offerings.



     In the event that the Company desires to conduct a transaction or series of transactions after
the Closing Date, in which the Company issues its equity securities and/or rights to acquire its
equity securities, then the Company shall take commercially reasonable efforts to discuss the
opportunity for CHRP to participate in such transaction or series of transactions, without any
further obligation.



     Section 8.03 Notices.



     All notices, consents, waivers and communications hereunder given by any party to the other
shall be in writing (including facsimile transmission and electronic mail) and delivered
personally, facsimile, by electronic mail, by a recognized overnight courier, or by dispatching the
same by certified or registered mail, return receipt requested, with postage prepaid, in each case
addressed:



     If to CHRP to:


Cowen Healthcare Royalty Partners, L.P.

c/o Cowen Healthcare Royalty GP, LLC

177 Broad Street

Suite 1101

Stamford, CT 06901

Attention: Clarke B. Futch

Facsimile No.: (646) 562-1293

Email: clarke.futch@cowen.com




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     with a copy to:


McDermott Will & Emery LLP

227 West Monroe Street

Chicago, IL 60606-5096

Attention: Timothy R.M. Bryant

Facsimile No.: (312) 984-7700

Email: tbryant@mwe.com




     If to the Company or any of its Subsidiaries to:


Artes Medical, Inc.

5870 Pacific Center Boulevard

San Diego, CA 92121

Attention: Karla R. Kelly, General Counsel

Facsimile No.: (858) 875-5609

Email: kkelly@artesmedical.com




     with a copy to:


Heller Ehrman LLP

4350 La Jolla Village Drive, 7th Floor

San Diego, CA 92122

Attention: Jeff Thacker

Facsimile No.: (858) 587-5941

Email: jthacker@hellerehrman.com



or to such other address or addresses as CHRP or the Company may from time to time designate by
notice as provided herein, except that notices of changes of address shall be effective only upon
receipt. All such notices, consents, waivers and communications shall: (a) when posted by
certified or registered mail, postage prepaid, return receipt requested, be effective three (3)
Business Days after dispatch, unless such communication is sent trans-Atlantic, in which case they
shall be deemed effective three (3) Business Days after dispatch, (b) when facsimiled or sent by
electronic mail, be effective one (1) Business Day after transmission, or (c) when delivered by a
recognized overnight courier or in person, be effective upon receipt when hand delivered.




     Section 8.04 Successors and Assigns.



     The provisions of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. None of the Company nor its Subsidiaries shall
be entitled to assign any of its obligations and rights under the Transaction Documents without the
prior written consent of CHRP. CHRP may assign without consent of the Company or its Subsidiaries
any of its rights under the Transaction Documents without restriction; provided, that if
CHRP completes a financing, securitization or other capital markets transaction with respect to the
Revenue Interest, CHRP will use its commercially reasonable efforts to remain the servicer or
administrator.



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     Section 8.05 Indemnification.



     (a) The Company hereby indemnifies and holds CHRP and its Affiliates and any of their
respective partners, directors, managers, members, officers, employees and agents (each a “CHRP
Indemnified Party”) harmless from and against any and all Losses (including all Losses in
connection with any product liability claims or claims of infringement or misappropriation of any
intellectual property rights of any Third Parties) incurred or suffered by any CHRP Indemnified
Party arising out of (i) the failure of any representation, warranty or certification made by the
Company or its Subsidiaries in any of the Transaction Documents or certificates given by the
Company or its Subsidiaries in writing pursuant hereto or thereto to be true and correct in all
material respects as of the Closing Date (except (A) for such representations and warranties that
are made as of a specific date, in which case such representations and warranties shall apply only
as of such specified date and (B) for such representations and warranties that are qualified by a
materiality or similar standard which shall be true and correct in all respects) or (ii) any breach
of or default under any covenant or agreement by the Company or its Subsidiaries pursuant to any
Transaction Document, including any failure by the Company or its Subsidiaries to satisfy any of
the Excluded Liabilities.



     (b) CHRP hereby indemnifies and holds the Company, its Affiliates and any of their respective
partners, directors, managers, officers, employees and agents (each a “Company Indemnified
Party”) harmless from and against any and all Losses incurred or suffered by a Company
Indemnified Party arising out of (i) the failure of any representation, warranty or certification
made by the CHRP in any of the Transaction Documents or certificates given by the CHRP in writing
pursuant hereto or thereto to be true and correct in all material respects as of the Closing Date
(except (A) for such representations and warranties that are made as of a specific date, in which
case such representations and warranties shall apply only as of such specified date and (B) for
such representations and warranties that are qualified by a materiality or similar standard which
shall be true and correct in all respects) or (ii) any breach of or default under any covenant or
agreement by CHRP pursuant to any Transaction Document



     (c) If any claim, demand, action or proceeding (including any investigation by any
Governmental Authority) shall be brought or alleged against an indemnified party in respect of
which indemnity is to be sought against an indemnifying party pursuant to the preceding paragraphs,
the indemnified party shall, promptly after receipt of notice of the commencement of any such
claim, demand, action or proceeding, notify the indemnifying party in writing of the commencement
of such claim, demand, action or proceeding, enclosing a copy of all papers served, if any;
provided, that the omission to so notify such indemnifying party will not relieve the
indemnifying party from any liability that it may have to any indemnified party under the foregoing
provisions of this Section 8.05 unless, and only to the extent that, such omission results
in the forfeiture of, or has a material adverse effect on the exercise or prosecution of,
substantive rights or defenses by the indemnifying party. In case any such action is brought
against an indemnified party and it notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who may be counsel to the indemnifying
party, unless such representation would be inappropriate due to actual or potential conflicts of
interest between them based on the advice of such counsel), and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 8.05 for any



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legal or other expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. In any such proceeding, an
indemnified party shall have the right to retain its own counsel, but the reasonable fees and
expenses of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the indemnifying party has assumed the defense of such proceeding and has failed
within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or
(iii) the named parties to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential conflicts of interests between them based on the
advice of such counsel. It is agreed that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate law firm (in addition to local counsel where necessary) for all
such indemnified parties. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.




     Section 8.06 Independent Nature of Relationship.



     (a) The relationship between the Company and its Subsidiaries, on the one hand, and CHRP, on
the other hand, is solely that of assignor and assignee, and neither CHRP, on the one hand, nor the
Company and its Subsidiaries, on the other hand, has any fiduciary or other special relationship
with the other or any of their respective Affiliates.



     (b) No officer or employee of CHRP will be located at the premises of the Company or any of
its Affiliates, except in connection with an audit performed pursuant to Section 5.02. No
officer, manager or employee of CHRP shall engage in any commercial activity with the Company or
any of its Affiliates other than as contemplated herein and in the other Transaction Documents.



     (c) The Company and/or any of its Affiliates shall not at any time obligate CHRP, or impose on
CHRP any obligation, in any manner or respect to any Person not a party hereto.



     Section 8.07 Tax.



     (a) For United States federal, state and local tax purposes, the Company and CHRP shall treat
the assignment of the Revenue Interest as debt for United States tax purposes. The parties hereto
agree not to take any position that is inconsistent with the provisions of this Section
8.07 on any tax return or in any audit or other administrative or judicial proceeding unless
(i) the other party to this Agreement has consented to such actions, or (ii) the party that
contemplates taking such an inconsistent position has been advised by counsel in writing that it is
more likely than not (x) that there is no “reasonable basis” (within the meaning of Treasury
Regulation Section 1.6662-3(b)(3)) for the position specified in this Section 8.07 or (y)
that



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taking such a position would otherwise subject the party to penalties under the Internal
Revenue Code of 1986, as amended.




     (b) This Agreement is not intended to create a deemed partnership, association or joint
venture between CHRP and any counterparty. Each party agrees not to refer to the other as a
“partner” or the relationship as a “partnership” or “joint venture”.



     (c) The parties agree that the payments made by CHRP under Section 2.03 shall be
allocated for income tax purposes as follows:



          (i) $83,390 shall be allocated to the Second Warrant; and




          (ii) all other amounts paid by CHRP under Section 2.03 shall be allocated to the
Revenue Interest.




     Section 8.08 Entire Agreement.



     This Agreement, together with the Exhibits and Schedules hereto (which are incorporated herein
by reference), and the other Transaction Documents constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior agreements (including the
Letter of Intent dated December 12, 2007 between Cowen Healthcare Royalty Management, LLC and the
Company), understandings and negotiations, both written and oral, between the parties with respect
to the subject matter of this Agreement; provided, however, the terms of that
certain Confidentiality Agreement by and between the Company and CHRP dated as of August 24, 2007
shall continue in effect. No representation, inducement, promise, understanding, condition or
warranty not set forth herein (or in the Exhibits, Schedules or other Transaction Documents) has
been made or relied upon by either party hereto. None of this Agreement, nor any provision hereof,
is intended to confer upon any Person other than the parties hereto any rights or remedies
hereunder.



     Section 8.09 Amendments; No Waivers.



     (a) This Agreement or any term or provision hereof may not be amended, changed or modified
except with the written consent of the parties hereto. No waiver of any right hereunder shall be
effective unless such waiver is signed in writing by the party against whom such waiver is sought
to be enforced.



     (b) No failure or delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.



     Section 8.10 Interpretation.



     When a reference is made in this Agreement to Articles, Sections, Schedules or Exhibits, such
reference shall be to an Article, Section, Schedule or Exhibit to this Agreement unless otherwise
indicated. The words “include”, “includes” and “including” when used herein shall be deemed in
each case to be followed by the words “without limitation”. Neither party hereto shall



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be or be deemed to be the drafter of this Agreement for the purposes of construing this
Agreement against one party or the other.




     Section 8.11 Headings and Captions.



     The headings and captions in this Agreement are for convenience and reference purposes only
and shall not be considered a part of or affect the construction or interpretation of any provision
of this Agreement.



     Section 8.12 Counterparts; Effectiveness.



     This Agreement may be executed in two or more counterparts, each of which shall be an
original, but all of which together shall constitute one and the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart hereof signed by
the other parties hereto. Any counterpart may be executed by facsimile or pdf signature and such
facsimile or pdf signature shall be deemed an original.



     Section 8.13 Severability.



     If any provision of this Agreement is held to be invalid or unenforceable, the remaining
provisions shall nevertheless be given full force and effect.



     Section 8.14 Expenses; Attorneys Fees.



     Each party hereto will pay all of its own fees and expenses in connection with entering into
and consummating the transactions contemplated by this Agreement; provided, that the
Company agrees to reimburse CHRP for CHRP’s actual, reasonable and documented out-of-pocket
expenses to cover due diligence and other, including legal, expenses associated with the
transactions contemplated hereby up to $300,000 in the aggregate; and provided,
further, that if any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees,
costs and necessary disbursements in addition to any other relief to which such party may be
entitled.



     Section 8.15 Governing Law; Jurisdiction.



     (a) This Agreement shall be governed by, and construed, interpreted and enforced in accordance
with, the laws of the state of New York, without giving effect to the principles of conflicts of
law thereof.



     (b) Any legal action or proceeding with respect to this Agreement or any other Transaction
Document may be brought in any state or federal court of competent jurisdiction in the state,
county and city of New York. By execution and delivery of this Agreement, each party hereto hereby
irrevocably consents to and accepts, for itself and in respect of its property, generally and
unconditionally the non-exclusive jurisdiction of such courts. Each party hereto hereby further
irrevocably waives any objection, including any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the bringing of any
action or proceeding in such jurisdiction in respect of any Transaction Document.



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     (c) Each party hereto hereby irrevocably consents to the service of process out of any of the
courts referred to in subsection (b) above of this Section 8.15 in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it
at its address set forth in this Agreement. Each party hereto hereby irrevocably waives any
objection to such service of process and further irrevocably waives and agrees not to plead or
claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document
that service of process was in any way invalid or ineffective. Nothing herein shall affect the
right of a party to serve process on the other party in any other manner permitted by law.



     Section 8.16 Waiver of Jury Trial.



     Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising
out of or relating to any Transaction Document or the transactions contemplated under any
Transaction Document. This waiver shall apply to any subsequent amendments, renewals, supplements
or modifications to any Transaction Document.



[SIGNATURE PAGE FOLLOWS]




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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the date first above written.



	 	 	 	 	 
	COMPANY: 	ARTES MEDICAL, INC.

 	 
	 	By:  	/s/ Diane S. Goostree
 	 
	 	 	Name:  	Diane S. Goostree 	 
	 	 	Title:  	President & CEO 	 
	 
	CHRP: 	COWEN HEALTHCARE ROYALTY PARTNERS, L.P.

 	 
	 	By 	Cowen Healthcare Royalty GP, LLC
 	 
	 	 	Its General Partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	              /s/ Todd C. Davis
 	 
	 	 	Name:  	Todd C. Davis 	 
	 	 	Title:  	 	 



SIGNATURE PAGE TO

REVENUE INTEREST FINANCING AND

WARRANT PURCHASE AGREEMENT