exv10w1



 







EXHIBIT 10.1




EXECUTION COPY




UNIT PURCHASE AGREEMENT




by and among




Avanir Pharmaceuticals




(the “Buyer”),




The Parties Listed on Schedule A Attached Hereto




(the “Sellers”)




and




Alamo Pharmaceuticals, LLC




(the “Company”)




with respect to all outstanding units representing membership interests of the Company




Dated as of May 22, 2006




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE I
	 	 	 	 
	PURCHASE AND SALE
	 	 	 	 
	 
	 	 	 	 
	SECTION 1.01. Purchase and Sale of the Units
	 	 	1	 
	SECTION 1.02. Purchase Price
	 	 	1	 
	SECTION 1.03. Sellers’ Payment Waterfall
	 	 	2	 
	SECTION 1.04. Contingent Payments; Non-US Licensing Earn-Out Payments; Run Rate Contingent Payments
	 	 	3	 
	SECTION 1.05. Adjustment to the Buyer Note 2 for Excess Product Returns
	 	 	9	 
	SECTION 1.06. Tax Allocation
	 	 	10	 
	SECTION 1.07. Designated Buyer Subsidiary
	 	 	11	 
	 
	 	 	 	 
	ARTICLE II
	 	 	 	 
	CLOSING
	 	 	 	 
	 
	 	 	 	 
	SECTION 2.01. Closing
	 	 	11	 
	SECTION 2.02. Closing Deliveries by the Sellers
	 	 	11	 
	SECTION 2.03. Closing Deliveries by Cutler
	 	 	12	 
	SECTION 2.04. Closing Deliveries by the Buyer
	 	 	13	 
	 
	 	 	 	 
	ARTICLE III
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF THE SELLER
	 	 	 	 
	 
	 	 	 	 
	SECTION 3.01. Organization, Authority and Qualification of the Sellers
	 	 	14	 
	SECTION 3.02. Membership Interests of the Sellers
	 	 	14	 
	SECTION 3.03. No Conflict
	 	 	15	 
	SECTION 3.04. Governmental Consents and Approvals
	 	 	15	 
	 
	 	 	 	 
	ARTICLE IV
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	 	 
	 
	 	 	 	 
	SECTION 4.01. Organization, Authority and Qualification of the Company
	 	 	16	 
	SECTION 4.02. Subsidiaries
	 	 	16	 
	SECTION 4.03. Membership Interests
	 	 	17	 
	SECTION 4.04. Corporate Books and Records
	 	 	18	 
	SECTION 4.05. No Conflict
	 	 	18	 
	SECTION 4.06. Governmental Consents and Approvals
	 	 	18	 
	SECTION 4.07. Financial Information; Books and Records
	 	 	18	 
	SECTION 4.08. Absence of Undisclosed Liabilities
	 	 	19	 
	SECTION 4.09. Receivables
	 	 	19	 
	SECTION 4.10. Inventories
	 	 	20	 
	SECTION 4.11. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions
	 	 	20	 
	SECTION 4.12. Litigation
	 	 	23	 






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	 	 	Page	 
	SECTION 4.13. Environmental and Other Permits and Licenses; Related Matters
	 	 	23	 
	SECTION 4.14. Material Contracts
	 	 	25	 
	SECTION 4.15. Intellectual Property
	 	 	27	 
	SECTION 4.16. Real Property
	 	 	29	 
	SECTION 4.17. Assets
	 	 	31	 
	SECTION 4.18. Customers
	 	 	31	 
	SECTION 4.19. Suppliers
	 	 	32	 
	SECTION 4.20. Employee Benefit Matters
	 	 	32	 
	SECTION 4.21. Labor Matters
	 	 	34	 
	SECTION 4.22. Certain Interests
	 	 	35	 
	SECTION 4.23. Taxes
	 	 	36	 
	SECTION 4.24. Compliance; Regulatory Compliance
	 	 	37	 
	SECTION 4.25. Product Registration Files
	 	 	39	 
	SECTION 4.26. Insurance
	 	 	39	 
	SECTION 4.27. Certain Business Practices
	 	 	39	 
	SECTION 4.28. Brokers
	 	 	40	 
	 
	 	 	 	 
	ARTICLE V
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF THE BUYER
	 	 	 	 
	 
	 	 	 	 
	SECTION 5.01. Organization and Authority of the Buyer
	 	 	40	 
	SECTION 5.02. No Conflict
	 	 	40	 
	SECTION 5.03. Governmental Consents and Approvals
	 	 	41	 
	SECTION 5.04. Investment Purpose
	 	 	41	 
	SECTION 5.05. Litigation
	 	 	41	 
	SECTION 5.06. SEC Filings; Financial Statements
	 	 	41	 
	SECTION 5.07. Brokers
	 	 	42	 
	 
	 	 	 	 
	ARTICLE VI
	 	 	 	 
	ADDITIONAL AGREEMENTS
	 	 	 	 
	 
	 	 	 	 
	SECTION 6.01. Use of Intellectual Property
	 	 	42	 
	SECTION 6.02. Intercompany Arrangements
	 	 	42	 
	SECTION 6.03. Sellers’ Representative.
	 	 	42	 
	SECTION 6.04. No Contribution/Indemnification; Offset
	 	 	43	 
	SECTION 6.05. Indemnification
	 	 	43	 
	SECTION 6.06. Release
	 	 	44	 
	SECTION 6.07. Post-Closing Operating Covenants
	 	 	44	 
	SECTION 6.08. Termination of Transfer Restrictions
	 	 	45	 
	SECTION 6.09. Further Action
	 	 	45	 
	 
	 	 	 	 
	ARTICLE VII
	 	 	 	 
	EMPLOYEE MATTERS
	 	 	 	 
	 
	 	 	 	 
	SECTION 7.01. Benefits
	 	 	45	 
	SECTION 7.02. Termination of Certain Company Plans
	 	 	45	 
	SECTION 7.03. WARN Act
	 	 	46	 






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	 	 	Page	 
	SECTION 7.04. Release Agreements
	 	 	46	 
	 
	 	 	 	 
	ARTICLE VIII
	 	 	 	 
	TAX MATTERS
	 	 	 	 
	 
	 	 	 	 
	SECTION 8.01. Books and Records; Cooperation
	 	 	46	 
	SECTION 8.02. Allocation of Taxes
	 	 	46	 
	SECTION 8.03. Notices
	 	 	48	 
	SECTION 8.04. Tax Clearance Certificate
	 	 	48	 
	SECTION 8.05. Transfer Taxes
	 	 	48	 
	SECTION 8.06. Miscellaneous
	 	 	48	 
	 
	 	 	 	 
	ARTICLE IX
	 	 	 	 
	INDEMNIFICATION
	 	 	 	 
	 
	 	 	 	 
	SECTION 9.01. Survival of Representations and Warranties
	 	 	49	 
	SECTION 9.02. Indemnification by Cutler
	 	 	50	 
	SECTION 9.03. No Effect on Liability
	 	 	51	 
	SECTION 9.04. Limits on Indemnification
	 	 	51	 
	SECTION 9.05. Defense of Third Party Claims
	 	 	53	 
	SECTION 9.06. Procedure for Claims between Parties
	 	 	54	 
	SECTION 9.07. Indemnification Payment
	 	 	54	 
	SECTION 9.08. Resolution of Conflicts and Claims
	 	 	55	 
	 
	 	 	 	 
	ARTICLE X
	 	 	 	 
	GENERAL PROVISIONS
	 	 	 	 
	 
	 	 	 	 
	SECTION 10.01. Certain Defined Terms
	 	 	57	 
	SECTION 10.02. Definitions
	 	 	67	 
	SECTION 10.03. Interpretation and Rules of Construction
	 	 	68	 
	SECTION 10.04. Expenses
	 	 	69	 
	SECTION 10.05. Notices
	 	 	69	 
	SECTION 10.06. Public Announcements
	 	 	71	 
	SECTION 10.07. Titles
	 	 	71	 
	SECTION 10.08. Severability
	 	 	71	 
	SECTION 10.09. Entire Agreement
	 	 	71	 
	SECTION 10.10. Assignment
	 	 	71	 
	SECTION 10.11. Amendment
	 	 	72	 
	SECTION 10.12. Waiver
	 	 	72	 
	SECTION 10.13. No Third Party Beneficiaries
	 	 	72	 
	SECTION 10.14. Specific Performance
	 	 	72	 
	SECTION 10.15. Governing Law
	 	 	73	 
	SECTION 10.16. Consent to Jurisdiction
	 	 	73	 
	SECTION 10.17. Attorneys’ Fees
	 	 	73	 
	SECTION 10.18. Currency
	 	 	73	 
	SECTION 10.19. Cumulative Remedies
	 	 	73	 
	SECTION 10.20. Representation by Counsel
	 	 	73	 






iii









 






	 	 	 	 	 
	 	 	Page	 
	SECTION 10.21. Execution and Counterparts
	 	 	74	 
	SECTION 10.22. Disclosure
	 	 	74	 






SCHEDULES




	 	 	 
	Schedule A

	 	List of the Sellers






EXHIBITS




	 	 	 
	Exhibit A

	 	Form of Accredited Investor Certificate
	Exhibit B

	 	Form of Amended and Restated Operating Agreement
	Exhibit C

	 	Form of Assignment and Assumption of Units Agreement
	Exhibit D

	 	Form of Buyer Note 1
	Exhibit E

	 	Form of Buyer Note 2
	Exhibit F

	 	Form of Buyer Note 3
	Exhibit G

	 	Letter Agreement
	Exhibit H

	 	Form of Non-Compete Agreement
	Exhibit I

	 	Form of Pledge Agreement
	Exhibit J

	 	Form of Registration Rights Agreement
	Exhibit K

	 	Form of Release Agreement






iv









 





UNIT PURCHASE AGREEMENT




          This UNIT PURCHASE AGREEMENT dated as of May 22, 2006 (this “Agreement”), is entered
into by and among Avanir Pharmaceuticals, a California corporation (the “Buyer”), the
parties listed on Schedule A attached hereto (the “Sellers”) and Alamo
Pharmaceuticals, LLC, a California limited liability company (the “Company”).




RECITALS




          WHEREAS, the Sellers own 10,300,000 membership interest units (the “Units”),
representing all of the outstanding Equity Participations (as defined herein) of the Company;




          WHEREAS, the Company, directly and through its Subsidiaries, among other things, is engaged in
the business of developing and reformulating approved drugs and development compounds into branded
products and the production, distribution and marketing of the Product (as defined herein) at
various locations in the United States and abroad (the “Business”);




          WHEREAS, the Sellers wish to sell to the Buyer, and the Buyer wishes to purchase from the
Sellers, the Units, upon the terms and subject to the conditions set forth herein; and




          WHEREAS, certain capitalized terms used in the Agreement are defined in Section 10.01 of the
Agreement.




AGREEMENT




          NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this
Agreement and for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the Sellers and the Buyer hereby
agree as follows:




ARTICLE I

PURCHASE AND SALE




          SECTION 1.01. Purchase and Sale of the Units. Upon the terms and subject to the
conditions of this Agreement, at the Closing, the Buyer shall purchase from the Sellers, and the
Sellers shall sell, assign, transfer, convey and deliver, or cause to be sold, assigned,
transferred, conveyed and delivered, to the Buyer, the Units free and clear of all Encumbrances of
any kind for the consideration specified in Section 1.02 below.




          SECTION 1.02. Purchase Price.




          (a) In consideration of the purchase of the Units, the Buyer agrees to pay to the Sellers’
Representative for distribution pursuant to Section 1.03 (i) the Buyer Debt Repayment Amount, (ii)
the Buyer Notes, (iii) the Contingent Payments as provided in Section

1









 








1.04, (iv) the Non-US
Licensing Earn-Out Payments as provided in Section 1.04 and (v) the Contingent Note or Run Rate
Contingent Payments as provided in Section 1.04 (collectively, the “Purchase Price”);
provided, however that the aggregate principal amount of the Buyer Note 2 shall be reduced at the
Closing and prior to issuance and delivery by the aggregate amount of the gross wholesale prices
charged to the Company’s wholesalers for any shipments of the Product by the Company after the
close of business on May 18, 2006 and prior to the Closing.




          (b) The Buyer shall deduct from the Purchase Price (including any amounts payable under
Section 1.04) any amounts required to be withheld or deducted under the Code or other applicable
Tax Law; provided that the Buyer agrees that no such deduction is required from the Buyers Debt
Repayment Amount or the Buyer Notes paid at the Closing. To the extent that amounts are so
withheld by the Buyer, such withheld amounts shall be treated for purposes of this Agreement as
having been paid to the Seller and/or the Sellers’ Representative, as applicable, in respect of
whom such deduction and withholding was made, based upon that portion of the Purchase Price to
which such Seller would have been entitled pursuant to Section 1.03 and Section 1.04, as
applicable, absent such deduction. Any amounts so deducted shall be remitted by the Buyer to the
appropriate Governmental Authority on a timely basis.




          SECTION 1.03. Sellers’ Payment Waterfall. In consideration of the payment by Cutler
on behalf of the Company of the Cutler Debt Repayment Amount and other amounts paid by Cutler in
connection with the transactions contemplated by the Acquisition Documents (the “Cutler
Threshold Amount”), the Sellers hereby agree that any payments of the Purchase Price made by
the Buyer pursuant to this Agreement shall be made to Sellers’ Representative, who shall, in turn,
distribute such payments in accordance with the following:




          (a) Cutler shall receive the Buyer Note 1, the Buyer Note 2 and the Buyer Note 3 (which shall
be deemed to have been received by Cutler at the time of its issuance, even though retained by the
Buyer pursuant to the terms of the Pledge Agreement);




          (b) If the Cutler Debt Repayment Amount shall have been paid to the Company Lenders prior to
the Closing as confirmed in the Beneficiary Demand Statements, then Cutler shall receive the Buyer
Debt Repayment Amount;




          (c) Cutler shall receive the Contingent Note or any Run Rate Contingent Payments;




          (d) Cutler shall receive any Contingent Payments and any Non-US Licensing Earn-Out Payments
until Cutler has received an amount pursuant to this Section 1.03(b) equal to the Cutler Threshold
Amount minus the sum of: (x) the principal amount of each of the Buyer Notes, as reduced pursuant
to the terms of this Agreement, (y) the aggregate amount of any Contingent Note or any Run Rate
Contingent Payments and (z) $4,000,000; and




          (e) Thereafter, any Contingent Payment and Non-US Licensing Earn-Out Payment amounts shall be
distributed to the Sellers in proportion to their respective Sharing Percentages.




2









 








          For all purposes hereunder, Sellers’ Representative, and not the Buyer, shall be responsible
for distributing any amounts received by it pursuant to the terms of this Agreement in accordance
with this Section 1.03.




          SECTION 1.04. Contingent Payments; Non-US Licensing Earn-Out Payments; Run Rate
Contingent Payments.




          (a) Calculation of Contingent Payments. For the period beginning on the Closing Date
and ending on December 31, 2018 (the “Contingent Payment Period”):





     (i) Not later than 45 calendar days following the end of the first four consecutive
fiscal quarters (provided that if such fourth consecutive fiscal quarter is the fourth
fiscal quarter of a fiscal year of the Buyer such time period shall be 75 calendar days)
during the Contingent Payment Period that Net Product Revenues during such four consecutive
fiscal quarters period exceeds $40.0 million (the “Initial Contingent Payment
Determination Period”), the Buyer and the Company, jointly and severally, shall pay to
the Sellers’ Representative by wire transfer of immediately available funds to an account
designated by the Sellers’ Representative prior to the second Business Day preceding the end
of such 45 day (or 75 day, if applicable) period after the Initial Contingent Payment
Determination Period, an aggregate amount equal to Ten Million Four Hundred Fifty Thousand
Dollars ($10,450,000) (the “Initial Contingent Payment”), which amount shall be
distributed by the Sellers’ Representative in accordance with Section 1.03.




     (ii) In addition to the amounts payable pursuant to Section 1.04(a)(i), not later than
45 calendar days following the end of the first four consecutive fiscal quarters (provided
that if such fourth consecutive fiscal quarter is the fourth fiscal quarter of a fiscal year
of the Buyer such time period shall be 75 calendar days) during the Contingent Payment
Period in which the Net Product Revenues during such four consecutive fiscal quarters period
exceeds $50.0 million (the “Subsequent Contingent Payment Determination Period”),
the Buyer and the Company, jointly and severally, shall pay to the Sellers’ Representative
by wire transfer of immediately available funds to an account designated by the Sellers’
Representative prior to the second Business Day preceding the end of such 45 day (or 75 day,
if applicable) period after the Subsequent Contingent Payment Determination Period, an
amount equal to Twenty-Five Million Dollars ($25,000,000) (the “Subsequent Contingent
Payment,” together with the Initial Contingent Payment, the “Contingent
Payments”), which amount shall be distributed by the Sellers’ Representative in
accordance with Section 1.03; provided, however, that if such 45 day (or 75 day, if
applicable) period after the Subsequent Contingent Payment Determination Period shall end
within 12 months of the date of payment by the Buyer and the Company of the Initial
Contingent Payment, then the Buyer and the Company shall have until 12 months after the date
of payment by the Buyer and the Company of
the Initial Contingent Payment to pay the Subsequent Contingent Payment; provided
further that if the Initial Contingent Payment Determination Period and the Subsequent
Contingent Payment Determination Period shall include the same four consecutive fiscal
quarters, the Initial Contingent Payment shall be payable by
the Buyer and the Company prior
to the end of the 45 day (or 75 day, if applicable) period after such four consecutive
fiscal quarters and the Buyer and the Subsequent Contingent Payment shall be payable by



3









 







the
Buyer and the Company within 12 months after the date of payment by the Buyer and the
Company of the Initial Contingent Payment.



          (b) Non-US Licensing Earn-Out Payments. In addition to the amounts payable pursuant
to Section 1.04(a), not later than 45 calendar days following the end of each fiscal quarter
(provided that such time period shall be 75 calendar days for any fourth fiscal quarter of a fiscal
year of the Buyer) during the Contingent Payment Period, the Buyer and the Company, jointly and
severally, shall pay to the Sellers’ Representative by wire transfer of immediately available funds
to an account designated by the Sellers’ Representative prior to the second Business Day preceding
the end of such 45 day (or 75 day, if applicable) period an amount equal to the product of (x) the
Net Non-US Licensing Revenues received during the preceding fiscal quarter multiplied by (y) 0.5
(such product for each fiscal quarter, a “Non-US Licensing Earn-Out Payment,” and, together
with all other Non-US Licensing Earn-Out Payments, the “Non-US Licensing Earn Out
Payments”), which amount shall be distributed by the Sellers’ Representative in accordance with
Section 1.03.




          (c) IMS Data Contingent Payments. In addition to the amounts payable pursuant to
Sections 1.04(a) and 1.04(b), if the amount of sales of the Product as first reported by IMS Health
Incorporated (“IMS”) on a National Sales Perspective Report (a “NSP Report”) for
each of the months of April 2006 and May 2006 is equal to or exceeds $1,266,539 (as reported by IMS
on the NSP Report first issued for March 2006) for each such month, then the Buyer shall issue to
Cutler a senior note in the aggregate principal amount of Four Million Dollars ($4,000,000) that
shall contain the same terms and conditions set forth in the Buyer Note 2 (the “Contingent
Note”). The Buyer shall provide notice to the Sellers’ Representative within 15 calendar days
of receipt by Buyer of the NSP Report first issued by IMS for May 2006 setting forth whether Cutler
shall be entitled to the Contingent Note. The Buyer shall (A) provide to the Sellers’
Representative with such notice a copy of the NSP Reports first issued by IMS for the months of
March, April and May 2006 (it being understood for purposes of this Section 1.04(c) that the data
contained in such NSP Reports first issued by IMS for the months of March, April and May 2006 shall
be deemed the final data upon which the determination of the amount of sales of the Product is made
for each such month, and that no data for each such month as first reported by IMS shall be altered
by any subsequent revisions by IMS to such data for those months in subsequent NSP Reports) and
(B), if issuable pursuant to this Section 1.04(c), deliver to the Sellers’ Representative the
Contingent Note for distribution to Cutler.




          (d) Run Rate Contingent Payments. In the event that the Buyer is not required to
issue the Contingent Note in accordance with Section 1.04(c) because the amount of sales of the
Product as first reported by IMS on a NSP Report for each of the months of April 2006 and May 2006
is not equal to or exceeds $1,266,539 for each such month, in addition to the amounts payable
pursuant to Sections 1.04(a) and
1.04(b):





     (i) Subject to Section 1.04(d)(iii), not later than 45 calendar days following the
first fiscal quarter (provided that such time period shall be 75 calendar days if such
fiscal quarter is the fourth fiscal quarter of a fiscal year of the Buyer) during the
Contingent Payment Period in which the Net Product Revenues equals or exceeds $1.0 million
in each of the three consecutive months of such fiscal quarter (the “Initial Run Rate
Contingent Payment Determination Period”):



4









 






     (A) if the end of such 45 day (or 75 day, if applicable) period after the
Initial Run Rate Contingent Payment Determination Period shall occur prior to the
Maturity Date of the Buyer Note 2 (as defined therein), then the Buyer at its sole
option shall (1) issue to Cutler a senior note in the aggregate principal amount of
Two Million Dollars ($2,000,000) that shall contain the same terms and conditions
set forth in the Buyer Note 2 (the “Alternate Contingent Note 1”), except
the Maturity Date of such Alternate Contingent Note 1 shall be the third anniversary
of the Closing Date unless prepaid in accordance with its terms prior to such date,
or (2) pay, jointly and severally with the Company, to the Sellers’ Representative
by wire transfer of immediately available funds to an account designated by the
Sellers’ Representative prior to the second Business Day preceding the end of such
45 day (or 75 day, if applicable) period after the Initial Run Rate Contingent
Payment Determination Period, an amount equal to Two Million Dollars ($2,000,000)
which amount shall be distributed by the Sellers’ Representative in accordance with
Section 1.03; or




     (B) if the end of such 45 day (or 75 day, if applicable) period after the
Initial Run Rate Contingent Payment Determination Period shall occur on or after the
Maturity Date of the Buyer Note 2, then the Buyer and the Company, jointly and
severally, shall pay the Initial Run Rate Contingent Payment by wire transfer of
immediately available funds to an account designated by the Sellers’ Representative
prior to the second Business Day preceding the end of such 45 day (or 75 day, if
applicable) period after the Initial Run Rate Contingent Payment Determination
Period, an amount equal to Two Million Dollars ($2,000,000) which amount shall be
distributed by the Sellers’ Representative in accordance with Section 1.03.



          The issuance of the Alternate Contingent Note 1 or the payment of the applicable cash amount
as provided in this Section 1.04(d)(i) shall be the “Initial Run Rate Contingent Payment”.





     (ii) Subject to Section 1.04(d)(iii), not later than 45 calendar days following the
first fiscal quarter (provided that such time period shall be 75 calendar days if such
fiscal quarter is the fourth fiscal quarter of a fiscal year of the Buyer) during the
Contingent Payment Period in which the Net Product Revenues equals or exceeds $1.5 million
in each of the three consecutive months of such fiscal quarter (the “Subsequent Run Rate
Contingent Payment Determination Period”):




     (A) if the end of such 45 day (or 75 day, if applicable) period after the
Subsequent Run Rate Contingent Payment Determination Period shall occur prior
to the Maturity Date of the Buyer Note 2, then the Buyer at its sole option
shall (1) issue to Cutler an additional senior note in the aggregate principal
amount of Two Million Dollars ($2,000,000) that shall contain the same terms and
conditions set forth in the Buyer Note 2 (the “Alternate Contingent Note
2”), except the Maturity Date of such Alternate Contingent Note 2 shall be the
third anniversary of the Closing Date unless prepaid in accordance with its terms
prior to such date, or (2) pay, jointly and severally with the Company, to the
Sellers’



5









 







Representative by wire transfer of immediately available funds to an
account designated by the Sellers’ Representative prior to the second Business Day
preceding the end of such 45 day (or 75 day, if applicable) period after the
Subsequent Run Rate Contingent Payment Determination Period, an amount equal to Two
Million Dollars ($2,000,000) which amount shall be distributed by the Sellers’
Representative in accordance with Section 1.03; or




     (B) if the end of such 45 day (or 75 day, if applicable) period after the
Subsequent Run Rate Contingent Payment Determination Period shall occur on or after
the Maturity Date of the Buyer Note 2, then the Buyer and the Company, jointly and
severally, shall pay the Subsequent Run Rate Contingent Payment by wire transfer of
immediately available funds to an account designated by the Sellers’ Representative
prior to the second Business Day preceding the end of such 45 day (or 75 day, if
applicable) period after the Subsequent Run Rate Contingent Payment Determination
Period, an amount equal to Two Million Dollars ($2,000,000) which amount shall be
distributed by the Sellers’ Representative in accordance with Section 1.03.



          The issuance of the Alternate Contingent Note 2 or the payment of the applicable cash amount
as provided in this Section 1.04(d)(ii) shall be the “Subsequent Run Rate Contingent
Payment”.





     (iii) If the Initial Run Rate Contingent Payment Determination Period and the
Subsequent Run Rate Contingent Payment Determination Period shall be the same fiscal quarter
and the 45 day (or 75 day, if applicable) period after the end of such fiscal quarter shall:




     (A) occur prior to the Maturity Date of the Buyer Note 2, then in lieu of
payment of the Initial Run Rate Contingent Payment and the Subsequent Run Rate
Contingent Payment, then the Buyer at its sole option shall (1) issue to Cutler a
senior note in the aggregate principal amount of Four Million Dollars ($4,000,000)
that shall contain the same terms and conditions set forth in the Buyer Note 2 (the
“Alternate Contingent Note 3”), except the Maturity Date of such Alternate
Contingent Note 3 shall be the third anniversary of the Closing Date unless prepaid
in accordance with its terms prior to such date, or (2) pay, jointly and severally
with the Company, to the Sellers’ Representative by wire transfer of immediately
available funds to an account designated by the Sellers’ Representative prior to the
second Business Day preceding the end of such 45 day (or 75 day, if applicable)
period after such fiscal quarter an amount equal to Four
Million Dollars ($4,000,000) which amount shall be distributed by the Sellers’
Representative in accordance with Section 1.03; or




     (B) occur on or after the Maturity Date of the Buyer Note 2, then in lieu of
payment of the Initial Run Rate Contingent Payment and the Subsequent Run Rate
Contingent Payment, the Buyer and the Company, jointly and severally, shall pay the
Alternate Run Rate Contingent Payment by wire transfer of immediately available
funds to an account designated by the Sellers’



6









 







Representative prior to the second
Business Day preceding the end of such 45 day (or 75 day, if applicable) period
after such fiscal quarter, an amount equal to Four Million Dollars ($4,000,000)
which amount shall be distributed by the Sellers’ Representative in accordance with
Section 1.03.



          The issuance of the Alternate Contingent Note or the payment of the applicable cash amount
provided in this Section 1.04(d)(iii) shall be the “Alternate Run Rate Contingent Payment”,
which together with the Initial Run Rate Contingent Payment and the Subsequent Run Rate Contingent
Payment, shall be the “Run Rate Contingent Payments”.





     (iv) In no event shall any Run Rate Contingent Payments be payable by the Buyer in
accordance with this Section 1.04(d) if the Buyer shall have been required to issue to
Cutler the Contingent Note pursuant to Section 1.04(c).



          (e) Interim Reports. Not later than 45 calendar days following the end of each fiscal
quarter during the Contingent Payment Period (provided that if such fiscal quarter is the fourth
quarter of a fiscal year of the Buyer such time period shall be 75 calendar days), the Buyer shall
furnish, or otherwise cause to be made available at its sole cost and expense, to the Sellers’
Representative a report (“Contingent Payment Quarterly Report”) setting forth in reasonable
detail Net Product Revenues and the Net Non-US Licensing Revenues for each month of such fiscal
quarter. Each Contingent Payment Quarterly Report furnished or made available to the Sellers’
Representative shall be accompanied by (i) a copy of any report covering such fiscal quarter
provided by Buyer or the Company to CIMA Labs, Inc. (or its successor) in accordance with Section
4.3 of that certain Amended and Restated Development, License and Supply Agreement, dated August
22, 2005 as amended by Amendment #1 dated October 19, 2005 to which the Company is a party, and
(ii) a certificate of an officer of the Buyer certifying (A) the amount of any Contingent Payment,
Non-US Licensing Earn-Out Payment or Run Rate Contingent Payment due or (B) that no Contingent
Payment, Non-US Licensing Earn-Out Payment or Run Rate Contingent Payment is due under the terms of
this Agreement. Each Contingent Payment Quarterly Report shall be prepared in accordance with GAAP
applied on a basis consistent with the preparation of the Buyer’s consolidated financial
statements. Upon reasonable notice, the Buyer shall make available to Sellers’ Representative and
its agents and representatives during normal business hours all of the books, records, personnel
and workpapers used to prepare each Contingent Payment Quarterly Report.




          (f) Disputes. Not more than one (1) time during each calendar year during the
Contingent Payment Period or the 24 month period immediately succeeding it, the Sellers’
Representative and its advisors, agents and representatives shall have the right, at its sole cost
and expense, to audit the Net Product Revenues and the Net Non-US Licensing Revenues during
the eight fiscal quarters preceding the commencement of such audit to the extent such fiscal
quarters have not previously been audited by the Sellers’ Representative. Following such audit or
review of the materials supporting the preparation of a Contingent Payment Quarterly Report
specified in Section 1.04(e) hereof by Sellers’ Representative, the Sellers’ Representative shall
have the right to dispute one or more Contingent Payment Quarterly Reports covered by such audit
that it reasonably believes contain any errors. If the Sellers’ Representative elects to dispute
one or more such Contingent Payment Quarterly Reports, in whole or in part, then Sellers’
Representative shall provide a written notice to the Buyer specifying in reasonable detail




7









 







its
objections thereto (“Contingent Payment Dispute Notice”). Promptly following receipt by
the Buyer of any Contingent Payment Dispute Notice from the Sellers’ Representative, the Buyer and
the Sellers’ Representative shall attempt to reconcile their differences, and any resolution by
them as to any disputed amounts shall be final, binding and conclusive on the parties hereto. If
the Sellers’ Representative and the Buyer are unable to reach a resolution with such effect within
20 Business Days after the receipt by the Buyer of the Contingent Payment Dispute Notice, the
Sellers’ Representative and the Buyer shall submit the items remaining in dispute for resolution to
an independent accounting firm of national reputation mutually and reasonably acceptable to the
Sellers’ Representative and the Buyer (the “Independent Accounting Firm”), which shall,
within 30 Business Days after such submission, determine and report to the Sellers’ Representative
and the Buyer upon such remaining disputed items, and such report shall be final, binding and
conclusive on the Sellers and the Buyer. The fees and disbursements of any accounting firm
retained by the Sellers’ Representative or the Buyer to assist it in any dispute regarding any
Contingent Payment Quarterly Report and the Independent Accounting Firm, if any, shall be borne by
either the Buyer or Cutler in the event that either the Buyer or the Sellers’ Representative,
respectively, does not prevail in the dispute (including the Company in the event that the Buyer is
such non-prevailing party); provided that to the extent the dispute relates to the amount of Non-US
Licensing Earn-Out Payments payable, the expenses shall be allocated between Cutler and the Buyer
in the same proportion that the aggregate amount of such remaining disputed items so submitted to
the Independent Accounting Firm that is unsuccessfully disputed by the Buyer or the Sellers’
Representative (as finally determined by the Independent Accounting Firm) bears to the total amount
of such remaining disputed items so submitted; provided, further that Cutler shall not be entitled
to reimbursement from any Seller for such fees and disbursements under this Section 1.04(f) in
excess of any amount of the Purchase Price actually received by such Seller.




          (g) Late Payments. Any Contingent Payment, Non-US Licensing Earn-Out Payment or Run
Rate Contingent Payment that shall not be paid when due shall bear interest at a rate equal to the
prime rate of interest per annum charged by Citibank, N.A. on the date such Contingent Payment,
Non-US Licensing Earn-Out Payment or Run Rate Contingent Payment was due, compounded monthly, on
such past due amount from the date due until paid in full.




          (h) Payments. The Buyer and the Company, jointly and severally, shall pay each
Contingent Payment, Non-US Licensing Earn-Out Payment and any cash payment for any the Run Rate
Contingent Payment to the Sellers’ Representative, as and when due, by wire transfer of immediately
available funds to such account as the Sellers’ Representative may reasonably direct by written
notice delivered to the Buyer at least two Business Days prior to the proposed date of such
payment. Sellers’ Representative shall be responsible for distributing any such Contingent
Payment, Non-US Licensing Earn-Out Payment and any cash payment for any
the Run Rate Contingent Payment in accordance with Section 1.03. If the Buyer issues to
Cutler any of the Contingent Note 1, Contingent Note 2 or Alternate Contingent Note as payment for
any Run Rate Contingent Payment as and when due, each such note shall be delivered to Sellers’
Representative for distribution to Cutler in accordance with Section 1.03.




          (i) Characterization of Payments. Other than amounts properly characterized as
interest for Tax purposes, all Contingent Payments, Non-US Licensing Earn-Out Payments and Run Rate
Contingent Payments made pursuant to this Section 1.04 shall constitute an

8









 








adjustment of the
consideration paid for the Assets for Tax purposes and shall be treated as such by the Buyer and
the Sellers on their Tax Returns to the extent permitted by Law.




          (j) Operating Covenant. So long as Buyer’s current product portfolio is not
materially modified and the Buyer is marketing products to psychiatrists, following the Closing and
prior to the last day of the Contingent Payment Period, the Buyer shall cause the Company to use
commercially reasonable efforts to market the Product to psychiatrists in at least a second detail
position.




          SECTION 1.05. Adjustment to the Buyer Note 2 for Excess Product Returns.




          (a) Determination of Excess Returns. In the event that the Company’s gross product
sales that were generated by the Product returned to the Company during the first six full calendar
months after the Closing (but specifically excluding any gross product sales generated by any
Product returns accepted by the Company during such period to the extent the Company was not
required to accept such returns by the applicable sales terms in effect as of the Closing Date)
exceeds 1% of the gross product sales of the Product during the first six full calendar months as
first reported by IMS on a NPS Report for each month during such period (the “Excess Returns
Amount”), then the Buyer shall deliver a written notice (the “Excess Returns Notice”)
to the Sellers’ Representative within 45 calendar days of the end of such six-month period
specifying the Excess Returns Amount and setting forth in reasonable detail the Buyer’s calculation
of such amount, and shall attach to such notice the NPS Reports first issued by IMS for each of the
first six full calendar months. Upon reasonable notice, the Buyer shall make available to the
Sellers’ Representative and its agents and representatives during normal business hours all of the
books, records, personnel and workpapers that are reasonably necessary for the Sellers’
Representative to understand the preparation of the Excess Returns Notice.




          (b) Dispute. If the Sellers’ Representative elects to dispute the Excess Returns
Amount set forth in the Excess Returns Notice, in whole or in part, then Sellers’ Representative
shall provide a written notice to the Buyer within 10 Business Days of delivery by the Buyer of the
Excess Returns Notice, which shall specify the estimated amount thereof in dispute and set forth in
reasonable detail the basis of its objections thereto (“Returns Dispute Notice”). Promptly
following receipt by the Buyer of any Returns Dispute Notice from the Sellers’ Representative, the
Buyer and the Sellers’ Representative shall attempt to reconcile their differences, and any
resolution by them as to any disputed amounts shall be final, binding and conclusive on the parties
hereto. If the Sellers’ Representative and the Buyer are unable to reach a resolution with such
effect within 20 Business Days after the receipt by the Buyer of the Returns Dispute Notice, the
Sellers’ Representative and the Buyer shall submit the items remaining in dispute for resolution to
the Independent Accounting Firm, which shall, within 30
Business Days after such submission, determine and report to the Sellers’ Representative and
the Buyer upon such remaining disputed items, and such report shall be final, binding and
conclusive on the Sellers and the Buyer. The fees and disbursements of any accounting firm
retained by the Sellers’ Representative or the Buyer to assist it in any dispute regarding the
Excess Returns Notice and the Independent Accounting Firm, if any, shall be borne by either the
Buyer or Cutler in the event that either the Buyer or the Sellers’ Representative, respectively,
does not prevail in the dispute (including the Company in the event that the Buyer is such
non-prevailing party); provided, however that if the Sellers’ Representative is not the prevailing
party, Cutler shall not

9









 








be entitled to reimbursement from any Seller for such fees and
disbursements under this Section 1.05(b) in excess of any amount of the Purchase Price actually
received by such Seller.




          (c) Reduction of the Buyer Note 2. In the event that (i) the Buyer shall not have
received a Returns Dispute Notice within 10 Business days of delivery by the Buyer of the Excess
Returns Notice or (ii) the Sellers’ Representative shall have delivered a Returns Dispute Notice
and in accordance with Section 1.05(b) either (A) the Buyer and the Sellers’ Representative shall
have, subsequent to the giving of such Returns Dispute Notice, mutually agreed upon the Excess
Returns Amount or (ii) the Independent Accounting Firm shall have determined the Excess Returns
Amount, the Buyer may unilaterally reduce the outstanding principal amount of the Buyer Note 2 by
the Excess Returns Amount.




          (d) Operating Covenant. Following the Closing and prior to the end of the six full
calendar months after the Closing, the Buyer shall not cause the Company to contact customers and
distributors to actively solicit returns of the Product, except as may be required by Law.




          SECTION 1.06. Tax Allocation.




          (a) The Purchase Price (plus assumed liabilities to the extent properly taken into account
under the Code and the Treasury regulations promulgated thereunder), shall be allocated among the
Assets of the Company in accordance with Section 1060 of the Code and the Treasury regulations
promulgated thereunder, as agreed upon by the Buyer and Sellers within sixty (60) days after the
Closing, which agreement will be based on an independent appraisal, and which may be revised in
accordance with the following sentence (the “Allocation”). The Buyer and Sellers’
Representative agree to revise the Allocation to reflect any Contingent Payments, Non-US Licensing
Earn-Out Payments and Run Rate Contingent Payments made pursuant to Section 1.04 above (in each
case, excluding any amounts properly characterized as interest for federal income Tax purposes).




          (b) To the extent Buyer and Sellers’ Representative cannot agree on how to prepare or revise
the Allocation in accordance with Section 1.06(a) hereof, then the Buyer and the Sellers’
Representative shall attempt to determine an appropriate Allocation, and any resolution by them as
to any disputed amounts shall be final, binding and conclusive on the parties hereto. If the
Sellers’ Representative and the Buyer are unable to reach a resolution with such effect within 20
Business Days, the Sellers’ Representative and the Buyer shall submit the items remaining in
dispute for resolution to the Independent Accounting Firm, which shall,
within 30 Business Days after such submission, determine and report to the Sellers’
Representative and the Buyer upon such remaining disputed items, and such report shall be final,
binding and conclusive on the Sellers and the Buyer. The fees and disbursements of the Independent
Accounting Firm shall be allocated between the Sellers’ Representative and the Buyer in the same
proportion that the aggregate amount of such remaining disputed items so submitted to the
Independent Accounting Firm that is unsuccessfully disputed by each such party (as finally
determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed
items so submitted.




10









 








          (c) The Buyer and the Sellers’ Representative agree to (i) be bound by the Allocation, (ii)
act in accordance with the Allocation in the preparation of all financial statements and the filing
of all Tax Returns (including filing Form 8594 with their United States federal income Tax Return
for the taxable year that includes the date of the Closing) and in the course of any Tax audit, Tax
review or Tax litigation relating thereto, and (iii) take no position and cause their Affiliates to
take no position inconsistent with the Allocation for income Tax purposes, including United States
federal and state income Tax and foreign income Tax, unless otherwise required pursuant to an
agreement with the IRS.




          SECTION 1.07. Designated Buyer Subsidiary. The Buyer shall have the right to designate
one of its wholly-owned direct or indirect subsidiaries (the “Designated Buyer Subsidiary”)
to which immediately after the Closing the Buyer may contribute and assign the Units purchased by
the Buyer; provided, however that the Buyer shall remain liable for all of its obligations under
this Agreement.




ARTICLE II

CLOSING




          SECTION 2.01. Closing. Subject to the terms and conditions of this Agreement, the
sale and purchase of the Units contemplated by this Agreement shall take place at a closing (the
“Closing”) to be held at the offices of Latham & Watkins LLP, 650 Town Center Drive,
20th Floor, Costa Mesa, California 92626, at 9:00 A.M. local time on the Business Day
following the satisfaction or waiver of all conditions to the obligations of the parties set forth
in Section I.A and Section I.B of the Letter Agreement, or at such other place or at such other
time or on such other date as the Sellers’ Representative and the Buyer may mutually agree upon in
writing (the “Closing Date”).




          SECTION 2.02. Closing Deliveries by the Sellers.




          (a) At the Closing, the Sellers shall deliver or cause to be delivered to the Buyer:





     (i) an Assignment and Assumption of Units Agreement reflecting the assignment of the
Units from each Seller to the Buyer, duly executed by the applicable Seller;




     (ii) a certificate, in form and substance reasonably acceptable to the Buyer, from the
Company, signed under penalty of perjury, indicating that fifty percent or more of the value
of the gross assets of the Company does not consist of U.S. real property interests, in
accordance with Section 1.1445-11T(d)(2) of the Regulations;




     (iii) good standing certificates for the Company and for each Subsidiary from the
Secretary of State of the jurisdiction in which such entity is incorporated or organized and
from the Secretary of State in each other jurisdiction in which the properties owned or
leased by any of the Company or any Subsidiary, or the operation of its business in such
jurisdiction, requires the Company or any Subsidiary to qualify to do business as a foreign
corporation, in each case dated as of a date not earlier than 10 Business Days



11









 







prior to the
Closing and accompanied by a bring-down letter dated as of the Closing Date;




     (iv) a report of a search of applicable Uniform Commercial Code financing statements
and fixture filings, dated as of a date no more than one week prior to the Closing Date,
with respect to the Company and each Subsidiary showing no Encumbrances on the Company’s or
such Subsidiary’s Assets or the Units, other than Encumbrances (x) securing repayment of the
Company Debt to be paid by the Buyer at the Closing pursuant to Section 1.02(a) and (y) as
set forth in Section 2.02(a)(iv) of the Company Disclosure Letter;




     (v) documentation reasonably satisfactory to the Buyer evidencing the release of
Encumbrances securing repayment of the Company Debt, contingent only upon payment of the
Buyer Debt Repayment Amount and the Cutler Debt Repayment Amount;




     (vi) duly executed Powers of Attorney on behalf of the Company and each Subsidiary in a
form reasonably acceptable to the Buyer and such other instruments as may be necessary to
authorize the Buyer and its designees to become signatories on each of the bank accounts of
the Company and each Subsidiary, including but not limited to the lockbox accounts of the
Company and each Subsidiary, and letters from the Company and each Subsidiary to the
institutions holding such accounts authorizing and directing such institutions to remove
such signatories on such accounts as the Buyer may direct;




     (vii) copies of consents or waivers for the Consent Contracts listed in Section 4.14(a)
of the Company Disclosure Letter in a form reasonably acceptable to the Buyer, which
consents or waivers shall be effective at or prior to the Closing;




     (viii) documentation reasonably satisfactory to the Buyer evidencing the termination of
each 401(k) Plan and the Phantom Unit Plan Phantom and the elimination of Pool Shares in
accordance with Section 7.02;




     (ix) the Release Agreements for each of the Key Employees, duly executed by each such
Employee, and documentation reasonably satisfactory to the Buyer evidencing the payment by
the Company to each of the Key Employees of the amounts owed to each such Key Employee for
any change of control payments applicable to such Key Employee; and




     (x) all other certificates, opinions, instruments and other documents as may be
reasonably requested by the Buyer to effect the transactions contemplated hereby, in each
case reasonably satisfactory in form and substance to the Buyer.



          SECTION 2.03. Closing Deliveries by Cutler.




          (a) Prior to the Closing, Cutler shall, in his individual capacity, deliver the Cutler Debt
Repayment Amount in cash by wire transfer in immediately available funds to an account designated
by the Company Lenders in the Beneficiary Demand Letters or assume a portion of the Company Debt
equal to the Cutler Debt Repayment Amount and deliver evidence of such assumption to the Buyer in
form and substance reasonably satisfactory to the Buyer.





12









 








          (b) At the Closing, Cutler shall, in his individual capacity, deliver to the Buyer:





     (i) A Non-Compete Agreement, duly executed by Cutler;




     (ii) the Registration Rights Agreement, duly executed by Cutler;




     (iii) the Accredited Investor Certificate, duly executed by Cutler;




     (iv) each of the Buyer Notes, duly executed by Cutler;




     (v) the Pledge Agreement providing for the pledge of the Buyer Note 3 to the Buyer as
security for the performance by Cutler of his obligations under Article IX, duly
executed by Cutler;




     (vi) the resignation, effective as of the Closing, of Cutler as manager of the Company,
duly executed by Cutler; and




     (vii) a certificate, in form and substance reasonably acceptable to the Buyer, from
Cutler, signed under penalty of perjury, indicating Cutler’s tax payer identification number
and stating that Cutler is a non-foreign Person pursuant to Section 1.1445-2(b)(2) of the
Regulations;



          SECTION 2.04. Closing Deliveries by the Buyer.




          (a) At the Closing, the Buyer shall deliver to the Sellers:





     (i) an Assignment and Assumption of Units Agreement reflecting the assignment of the
Units from each Seller to the Buyer, duly executed by the Buyer; and




     (ii) an Amended and Restated Operating Agreement for the Company duly executed by the
Buyer, reflecting the Buyer as the sole member of the Company;




     (iii) A Non-Compete Agreement, duly executed by the Buyer;



          (b) At the Closing, the Buyer shall deliver the Buyer Debt Repayment Amount, by wire transfer
in immediately available funds to an account designated by the Company Lenders in the Beneficiary
Demand Statements, all pursuant to the documents governing the Company Debt; provided, however that
if the Cutler Debt Repayment Amount shall have been paid to the Company Lenders prior to the
Closing as confirmed in the Beneficiary Demand Statements, the Buyer shall deliver the Buyer Debt
Repayment Amount to the Sellers’ Representative, by wire transfer in immediately available funds to
an account designated by the Sellers’ Representative prior to the Closing Date to be distributed in
accordance with Section 1.03.




          (c) At the Closing, the Buyer shall deliver to the Sellers’ Representative to be distributed
in accordance with Section 1.03:




13









 









     (i) the Buyer Note 1, duly executed by the Buyer;




     (ii) the Buyer Note 2, duly executed by the Buyer; and




     (iii) the Registration Rights Agreement, duly executed by the Buyer.



          (d) At the Closing, the Buyer shall issue the Buyer Note 3 in favor of Cutler and shall retain
possession of the Buyer Note 3 pursuant to the terms of the Pledge Agreement.




ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLER




          Each Seller severally and not jointly hereby represents and warrants to the Buyer that the
statements contained in this Article III are correct and complete as of the date hereof
(or, if made as of a specified date, as of such date) and will be correct and complete as of the
Closing (as though made then and as though the date of the Closing were substituted for the date of
this Agreement throughout this Article III):




          SECTION 3.01. Organization, Authority and Qualification of the Sellers.




          (a) If such Seller is an entity, (i) such Seller is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization and has all necessary power
and authority to enter into this Agreement and the Ancillary Agreements, to carry out its
obligations hereunder and thereunder, to consummate the transactions contemplated hereby and
thereby and to own, hold, sell and transfer pursuant to this Agreement the Units owned by such
Seller; and (ii) the execution and delivery of this Agreement and the Ancillary Agreements by such
Seller, the performance by such Seller of its obligations hereunder and thereunder and the
consummation by such Seller of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of such Seller and its equityholders.




          (b) If such Seller is an individual, such Seller has all required power, authority and
capacity to execute and deliver this Agreement and the Ancillary Agreements, to perform his or her
obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by such Seller of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by all required action on the part of such Seller.




          (c) This Agreement and the Ancillary Agreements to which such Seller is a party have been,
duly and validly executed and delivered by such Seller, and constitute legal, valid and binding
obligations of such Seller, enforceable against such Seller in accordance with their respective
terms, except to the extent such enforceability (a) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors’ rights generally and (b) is
subject to general principles of equity.




          SECTION 3.02. Membership Interests of the Sellers. Such Seller holds of record and owns
beneficially, and has good and valid title to, all of the Units held by such Seller, which upon the
Closing shall be free and clear of any Taxes and Encumbrances (other than this

14









 








Agreement). Except
for the Existing Operating Agreement and such Seller’s Transfer of Limited Liability Company
Interest entered into between Cutler and such Seller pursuant to which such Seller received its
Units (its “Transfer Agreement”), each of which shall terminate and have no further effect
upon the Closing, (a) such Seller is not a party to any voting trust, proxy or other Contract or
understanding with respect to the voting of any Units, and (b) there are no outstanding Contracts
to which such Seller is a party (i) restricting the transfer of, (ii) affecting the voting rights
of, (iii) requiring the repurchase, redemption or disposition of, or containing any right of first
refusal with respect to, (iv) requiring the registration for sale of, or (v) granting any
preemptive or antidilutive right with respect to, any Units or other Equity Participations of the
Company or the Subsidiaries or otherwise granting any Person the right to make an investment in, or
loan to, the Company or any Subsidiary.




          SECTION 3.03. No Conflict. Assuming that all consents, approvals, authorizations and
other actions described in Section 4.06 have been obtained and all filings and notifications listed
in Section 4.06 of the Company Disclosure Letter have been made, the execution, delivery and
performance of this Agreement and the Ancillary Agreements to which such Seller is a party by such
Seller does not and will not (a) violate, conflict with or result in the breach of any provision of
the Articles of Organization, the Existing Operating Agreement or the articles of organization or
operating agreement (or certificate of incorporation, bylaws, or similar organizational documents)
of such Seller or (b) conflict with or violate any Law applicable to such Seller or any of its
Assets (in each case, other than such conflicts, violations or breaches (i) which could not in the
aggregate reasonably be expected to materially and adversely affect the validity or enforceability
of this Agreement or such Ancillary Agreements, materially impair such Seller’s ability to perform
its obligations under this Agreement, materially impair the ability of the Buyer to own all of the
outstanding Equity Participations of the Company following the Closing or
otherwise have a Material Adverse Effect or (ii) as would occur solely as a result of the
identity or the legal or regulatory status of the Buyer or any of its Affiliates).




          SECTION 3.04. Governmental Consents and Approvals. The execution, delivery and
performance of this Agreement and each Ancillary Agreement by such Seller does not and will not
require any consent, approval, authorization or other order of, action by, permit of, filing with
or notification to, any Governmental Authority on the part of such Seller, except (a) as described
in Section 3.04 of the Seller Disclosure Letter, (b) where the failure to obtain any such consent,
approval or action, to make any such filing or to give any such notice could not reasonably be
expected to materially and adversely affect the ability of such Seller to consummate the
transactions contemplated by this Agreement or to perform its obligations hereunder, materially
impair the ability of the Buyer to own all of the outstanding Equity Participations of the Company
following the Closing, or otherwise have a Material Adverse Effect, or (c) those as would be
required solely as a result of the identity or the legal or regulatory status of the Buyer or any
of its Affiliates.




ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY




          The Company hereby represents and warrants to the Buyer, that the statements contained in this
Article IV are correct and complete as of the date hereof (or, if made as of a specified
date, as of such date) and will be correct and complete as of the Closing (as though

15









 








made then and
as though the date of the Closing were substituted for the date of this Agreement throughout this
Article IV).




          SECTION 4.01. Organization, Authority and Qualification of the Company. The Company
is a limited liability company duly organized, validly existing and in good standing under the laws
of the State of California and has all necessary power and authority to own, operate or lease its
Assets now owned, operated or leased by it and to carry on the Business as it is currently
conducted. The Company is duly licensed or qualified to do business and is in good standing under
the laws of each jurisdiction in which the properties owned or leased by it or the operation of its
Business makes such licensing or qualification necessary, which jurisdictions are set forth in
Section 4.01 of the Company Disclosure Letter, except for those jurisdictions in which the adverse
effects of all such failures by the Company or its Subsidiaries to be qualified, licensed or in
good standing could not in the aggregate reasonably be expected to have a Material Adverse Effect.
To the Company’s Knowledge, all material limited liability company actions taken by the Company
have been duly authorized. The Company has not taken any action that in any material respect
conflicts with, constitutes a default under or results in a violation of any provision of its
Articles of Organization or Existing Operating Agreement. True and correct copies of the Articles
of Organization and the Existing Operating Agreement of the Company, each as in effect on the date
hereof, have been made available to the Buyer in the Diligence Materials.




          SECTION 4.02. Subsidiaries.




          (a) Section 4.02(a) of the Company Disclosure Letter sets forth a true and complete list of
all Subsidiaries, listing for each Subsidiary its name, type of entity, the jurisdiction and date
of its incorporation or organization, its authorized capital stock, partnership capital or
equivalent, the number and type of its issued and outstanding shares of capital stock, partnership
interests or similar ownership interests, the current ownership of such shares, partnership
interests or similar ownership interests, and all jurisdictions in which it is licensed or
qualified to do business.




          (b) Other than the Subsidiaries, there are no other corporations, partnerships, joint
ventures, associations or other entities in which the Company or any Subsidiary owns, of record or
beneficially, any direct or indirect equity or other interest or any right (contingent or
otherwise) to acquire the same. Other than the Subsidiaries, neither the Company nor any
Subsidiary is a member of (nor is any part of the Business conducted through) any partnership nor
is the Company or any Subsidiary a participant in any joint venture or similar arrangement, it
being understood that the Company’s contractual relationship with CIMA Labs, Inc. shall not
constitute a joint venture or similar arrangement for purposes hereof. Except as set forth on
Section 4.02 of the Company Disclosure Letter, all of the outstanding Equity Participations of each
Subsidiary are owned by the Company, whether directly or indirectly through a Subsidiary, free and
clear of all Encumbrances.




          (c) Each of the Subsidiaries is a limited liability company, duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its organization or incorporation and
has all necessary power and authority to own, operate or lease its Assets now owned, operated or
leased by it and to carry on its business as it is currently conducted. Each of

16









 








the Subsidiaries is
duly licensed or qualified to do business and is in good standing under the laws of each
jurisdiction in which the properties owned or leased by it or the operation of its business makes
such licensing or qualification necessary or desirable, which jurisdictions are set forth in
Section 4.02 of the Company Disclosure Letter, except for those jurisdictions in which the adverse
effects of all such failures by such Subsidiaries to be qualified, licensed or in good standing
could not in the aggregate reasonably be expected to have a Material Adverse Effect. The Company
has made available to the Buyer in the Diligence Materials correct and complete copies of the
organizational documents, operating agreements and bylaws of each of the Subsidiaries (as amended
to date). None of the Subsidiaries are in any material respect in default under or in violation of
any provision of its organizational documents, operating agreements or bylaws.




          SECTION 4.03. Membership Interests.




          (a) Except as set forth in Section 4.03 of the Company Disclosure Letter, the Units owned by
the Sellers are all of the outstanding Equity Participations of the Company. Upon the consummation
of the transactions contemplated by this Agreement, the Buyer will acquire good and marketable
title to all of the Company’s Equity Participations, which upon the Closing shall be free and clear
of any Taxes, Encumbrances, warrants, purchase rights, Contracts, commitments, assessments,
equities and demands. Except as set forth in Section 4.03(a) of the Company Disclosure Letter,
there are no rights, commitments, or Contracts of any
character to which the Company or any Subsidiary is bound relating to the issued or unissued
Equity Participations of the Company, including the Units, or convertible into or exchangeable or
exercisable for the Equity Participations of the Company, including the Units, or obligating the
Company or the Subsidiaries to issue or sell Equity Participations of the Company or the
Subsidiaries or securities convertible into or exchangeable or exercisable for the Equity
Participations of the Company of the Subsidiaries.




          (b) Section 4.03(b) of the Company Disclosure Letter sets forth (i) the name and address of
each Person owning Units, (ii) the number of Units owned of record by such Person, and (iii) with
respect to any interest convertible, exchangeable or exercisable for Units (1) the name of the
individual holding such interest, (2) the number of Units into which such interest is convertible,
exchangeable or exercisable, (3) the conversion or exercise price thereof, (4) the vesting schedule
applicable to such interest, if any, and (5) the Company Plan or other Contract pursuant to which
such interest was issued. To the Company’s Knowledge, all of the outstanding Units and any Equity
Participations convertible, exchangeable or exercisable for Units were issued in compliance with
all applicable state and federal securities laws.




          (c) No bonds, debentures, notes or other Indebtedness of the Company or any of the
Subsidiaries has the right to vote on any matters on which members or equityholders may vote.




          (d) Except as described in Section 4.03(d) of the Company Disclosure Letter, there are no
outstanding Contracts to which the Company or any of the Subsidiaries is a party or to which any of
the Assets of the Company or the Subsidiaries are subject, whether oral or written, express or
implied to which any of the Company or any of the Subsidiaries is a party or by which they are
otherwise bound (i) restricting the transfer of, (ii) affecting the voting rights




17









 







of, (iii)
requiring the repurchase, redemption or disposition of, or containing any right of first refusal
with respect to, (iv) requiring the registration for sale of, or (v) granting any preemptive or
antidilutive right with respect to, any Units or other Equity Participations of the Company or the
Subsidiaries or otherwise granting any Person the right to make an investment in, or loan to, the
Company or any Subsidiary. Except as disclosed in Section 4.03(d) of the Company Disclosure
Letter, there are no outstanding obligations under any Contract of the Company or any Subsidiary to
provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise)
in, any Subsidiary or any other Person, other than guarantees by the Company of any Indebtedness or
other obligations of any wholly–owned Subsidiary.




          SECTION 4.04. Corporate Books and Records. To the Company’s Knowledge, all minute
books and other similar records prepared by the Company and the Subsidiaries contain accurate
records of, in all material respects, and accurately reflect, in all material respects, the actions
described therein. Complete and accurate copies of all such minute books and other similar records
have been available to the Buyer by the Company in the Diligence Materials.




          SECTION 4.05. No Conflict. Assuming that all consents, approvals, authorizations and other actions described in
Section 4.06 have been obtained and all filings and notifications listed in Section 4.06 of the
Company Disclosure Letter have been made, the execution, delivery and performance of this Agreement
and the Ancillary Agreements by the Sellers and the Company does not and will not (a) violate,
conflict with or result in the breach of any provision of the Articles of Organization, the
Existing Operating Agreement or the articles of organization or operating agreement (or certificate
of incorporation, bylaws, or similar organizational documents) of the Company or any Subsidiary,
(b) conflict with or violate any Law applicable to the Company, any Subsidiary or any of their
respective Assets (other than such conflicts, violations or breaches as would occur solely as a
result of the identity or the legal or regulatory status of Buyer or any of its Affiliates), or (c)
except as set forth in Section 4.05(c) of the Company Disclosure Letter, conflict with, result in
any breach of, result in any loss of any benefit under or contribute to a change of control, a
default (or event which with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the creation of any
Encumbrance on any of the Units or any of the Assets pursuant to, any Contract, permit, or other
instrument or arrangement to which the Company or any Subsidiary is a party or by which any of the
Units or any of such Assets is bound or affected.




          SECTION 4.06. Governmental Consents and Approvals. The execution, delivery and
performance of this Agreement and each Ancillary Agreement by the Company does not and will not
require any consent, approval, authorization or other order of, action by, permit of, filing with
or notification to, any Governmental Authority on the part of the Company or any Subsidiary that
is, in each case, material, except (a) as described in Section 4.06 of the Company Disclosure
Letter, or (b) those as would be required solely as a result of the identity or the legal or
regulatory status of the Buyer or any of its Affiliates. To Company’s Knowledge, there is no
reason why all the consents, approvals and authorizations necessary for the consummation of the
transactions contemplated by this Agreement that is, in each case, material, will not be received.




          SECTION 4.07. Financial Information; Books and Records.




18









 








          (a) True and complete copies of (i) the audited consolidated balance sheets of the Company for
each of the three fiscal years ended as of December 31, 2003, 2004 and 2005, and the related
audited consolidated statements of operations, cash flows and statements of members’ deficit,
together with all related notes and schedules thereto, accompanied by the reports thereon of the
Sellers’ Accountants (collectively referred to herein as the “Financial Statements”) and
(ii) the unaudited consolidated balance sheet of the Company as of April 30, 2006, and the related
consolidated statement of operations and cash flows of the Company for the three month period then
ended, together with all related notes and schedules thereto (collectively referred to herein as
the “Interim Financial Statements”) have been delivered by the Company to the Buyer. The
Financial Statements and the Interim Financial Statements (i) were prepared in accordance with the
books of account and other financial records of the Company
and the Subsidiaries, (ii) present fairly in all material respects the consolidated financial
condition, results of operations, cash flows, changes in members’ deficit and net assets, as the
case may be, of the Company and the Subsidiaries as of the dates thereof or for the periods covered
thereby, subject in the case of the Interim Financial Statements, to normal and recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be materially adverse
to the Company and its Subsidiaries taken as a whole), and (iii) have been prepared in accordance
with GAAP applied on a basis consistent with the past practices of the Company and the
Subsidiaries, except as disclosed in the notes thereto and, with respect to the Interim Financial
Statements, except for any absence of notes thereto.




          (b) The books of account and other financial records of the Company and the Subsidiaries: (i)
reflect in all material respects all items of income and expense and all Assets and Liabilities
required to be reflected therein in accordance with GAAP applied on a basis consistent with the
past practices of the Company and the Subsidiaries, respectively, and (ii) are in all material
respects complete and correct, and do not contain or reflect any material inaccuracies or
discrepancies.




          (c) Section 4.07(c) of the Company Disclosure Letter sets forth a complete list of all Company
Debt, including the amount owed to each Company Lender as of the date of this Agreement. Except as
disclosed in Section 4.07(c) of the Company Disclosure Letter, there is no other outstanding
Company Debt.




          SECTION 4.08. Absence of Undisclosed Liabilities. Except as disclosed in Section
4.08 of the Company Disclosure Letter, there are no Liabilities of the Company or any Subsidiary,
other than Liabilities (i) reflected or reserved against in the Interim Financial Statements, (ii)
Liabilities that are not required by GAAP to be reflected or reserved against in the Interim
Financial Statements, or (iii) Liabilities incurred since the date of the Interim Financial
Statements in the ordinary course of business consistent with past practice that are not material
(individually or in the aggregate) to the Business.




          SECTION 4.09. Receivables. Section 4.09 of the Company Disclosure Letter accurately
presents in all material respects an aged list of the Receivables as of the date of the Interim
Financial Statements showing separately those Receivables that as of such date had been outstanding
for (a) 29 days or less, (b) 30 to 59 days, (c) 60 to 89 days, (d) 90 to 119 days and (e) more than
119 days. Except to the extent, if any, reserved for in the Interim Financial Statements, all
Receivables reflected in the Interim Financial Statements arose from, and the




19









 







Receivables existing
as of the Closing have arisen from, the sale of Inventory or services to Persons not affiliated
with the Company or any Subsidiary and in the ordinary course of business consistent with past
practice and, to the Company’s Knowledge, except as reserved against in the Interim Financial
Statements, constitute or will constitute, as the case may be, only valid, undisputed claims of the
Company or a Subsidiary not subject to valid claims of setoff or other defenses or counterclaims
other than normal cash discounts, chargebacks and other adjustments accrued in the ordinary course
of business consistent with past practice. To the Company’s Knowledge, all Receivables reflected
in the Interim Financial Statements or arising from the date thereof until
the Closing (subject to the reserve for bad debts, if any, reflected in the Interim Financial
Statements) are or will be good and have been collected or are or will be collectible, without
resort to litigation or extraordinary collection activity, within 90 days after the Closing.




          SECTION 4.10. Inventories. Subject to amounts reserved therefor in the Interim
Financial Statements, the values at which all Inventories are carried in the Interim Financial
Statements reflect in all material respects the historical inventory valuation policy of the
Company and the Subsidiaries of stating such Inventories at the lower of cost (determined on the
first-in, first-out method) or market value and all Inventories are valued such that the Company
and the Subsidiaries are expected to earn their customary gross margins thereon. Except as set
forth in Section 4.10 of the Company Disclosure Letter, the Company or a Subsidiary, as the case
may be, has good and marketable title to the Inventories free and clear of all Encumbrances. The
Inventories do not consist of, in any material amount, items that are obsolete or damaged. The
Inventories do not consist of any items held on consignment. Neither the Company nor any
Subsidiary is under any obligation or liability with respect to accepting returns of items of
Inventory or merchandise in the possession of their customers other than in the ordinary course of
business consistent with past practice. No clearance or extraordinary sale of the Inventories has
been conducted since the date of the Interim Financial Statements. Since the date of the Interim
Financial Statements, neither the Company nor any Subsidiary has acquired or committed to acquire
or manufacture Inventory for sale which is not of a quality and quantity usable in the ordinary
course of business within a reasonable period of time and consistent with past practice, nor has
the Company or any Subsidiary changed the price of any Inventory except for (a) price reductions to
reflect any reduction in the cost thereof to the Company or such Subsidiary, (b) reductions and
increases responsive to normal competitive conditions and consistent with the Company’s or such
Subsidiary’s past sales practices, (c) increases to reflect any increase in the cost thereof to the
Company or such Subsidiary and (d) increases and reductions made with the written consent of the
Buyer. Section 4.10 of the Company Disclosure Letter contains a complete list of the addresses of
all warehouses and other facilities in which the Inventories are located. In all material
respects, the Inventories are in good and merchantable condition, are suitable and usable for the
purposes for which they are intended and are in a condition such that they can be sold in the
ordinary course of the Business consistent with past practice. Section 4.10 of the Company
Disclosure Letter sets forth a complete schedule of all wholesaler reports received by the Company
since January 1, 2005. Complete and accurate copies of all such wholesaler reports have been
provided by the Sellers to the Buyer in the Diligence Materials.




          SECTION 4.11. Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions. Since the close of business on May 18, 2006 no shipments of any Product have been
made by the Company to any customers or distributors. Except as set forth in





20









 







Section 4.11 of the
Company Disclosure Letter, since the date of the Interim Financial Statements, the Business has
been conducted in all material respects in the ordinary course and consistent with past practice.
As amplification and not limitation of the foregoing, except as set forth in Section 4.11 of the
Company Disclosure Letter, since the date of the Interim Financial Statements, neither the Company
nor any Subsidiary has:




          (a) permitted or allowed any of the Assets to be subjected to any Encumbrance, other than
Permitted Encumbrances and Encumbrances that will be released at or prior to the Closing;




          (b) written down or written up (or failed to write down or write up in accordance with GAAP
consistent with past practice) the value of any Inventories or Receivables or revalued any of the
Assets other than in the ordinary course of business consistent with past practice and in
accordance with GAAP;




          (c) made any change in any method of accounting or accounting practice or policy used by the
Company or any Subsidiary, other than such changes as are required by GAAP and concurred with by
Sellers’ Accountants;




          (d) contacted customers and distributors to actively solicit returns of the Product, except as
may be required by Law;




          (e) amended, terminated, cancelled or compromised any material claims of the Company or any
Subsidiary or waived any other rights of substantial value to the Company or any Subsidiary;




          (f) settled any pending or threatened litigation involving the Company or any Subsidiary
(whether brought by a private party or a Governmental Authority);




          (g) sold, transferred, leased, subleased, licensed or otherwise disposed of any Assets, real,
personal or mixed (including leasehold interests and intangible property), other than the sale of
Inventories in the ordinary course of business consistent with past practice;




          (h) issued or sold any Equity Participations or other rights of any kind to acquire Units or
other Equity Participations in the Company or any Subsidiary;




          (i) repurchased, redeemed or otherwise acquired any of the Units or Equity Participations of
the Company or any Subsidiary or declared, made or paid any dividends or distributions (whether in
cash, securities or other property) to the holders of Units or Equity Participations of the Company
or any Subsidiary or otherwise, other than dividends, distributions and redemptions declared, made
or paid by any Subsidiary solely to the Company or another Subsidiary;




          (j) split, combined or reclassified any Equity Participation of the Company or any Subsidiary;




          (k) merged with, entered into a consolidation with or acquired an interest in any Person or
acquired a substantial portion of the assets or business of any Person or any

21









 








division or line of
business thereof, or otherwise acquired any material assets other than in the ordinary course of
business consistent with past practice;




          (l) made any capital expenditure or commitment for any capital expenditure in excess of $5,000
individually or $20,000 in the aggregate;




          (m) made or changed any material election in respect of Taxes, adopted or changed any
accounting method or period in respect of Taxes, entered into any tax-sharing, allocation,
compensation or like agreement, settled any claim or assessment in respect of Taxes, requested any
tax ruling or consented to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;




          (n) failed to pay any creditor any amount in excess of $25,000 owed to such creditor more than
30 days past due;




          (o) (i) paid, announced, promised or granted, whether orally or in writing, any increase in
the wages, salaries, compensation, bonuses, incentives, pensions, severance or termination
payments, fringe benefits or other benefits payable by the Company or any Subsidiary including any
increase or change pursuant to any Company Plan to (A) any of its executive officers (except as
required by Law), or (B) to any of its other employees or consultants (except as required by Law
or, with respect to such non-executive employees only, in the ordinary course of business
consistent with the past practices of the Company or such Subsidiary), (ii) amended any Plan or
Contract to accelerate the timing of payment of any severance, termination, incentive or other
compensation or benefits, or (iii) entered into or amended any currently effective employment,
severance, termination or indemnification Contract or any Contract the benefits of which are
contingent or the terms of which would be materially altered upon the occurrence of the
transactions contemplated by this Agreement (either alone or upon the occurrence of additional or
subsequent events);




          (p) entered into any Contract with any of its directors, officers, managers, employees or
holders of Equity Participations (or with any relative, beneficiary, spouse or Affiliate of such
Persons) outside of the ordinary course of business consistent with past practice;




          (q) suffered any casualty loss or damage with respect to any of the Assets which in the
aggregate have a replacement cost of more than $35,000, whether or not such loss or damage shall
have been covered by insurance;




          (r) enter into any Contract containing any restriction on the ability of the Company or any
Subsidiary to assign its rights, interests or obligations thereunder, unless such restriction
expressly excludes any assignment to the Buyer or any Affiliate of the Buyer in connection with or
following the consummation of the transactions contemplated by this Agreement;




          (s) amended or restated the articles of organization or operating agreement (or other
organizational documents) of the Company or any Subsidiary, except as required pursuant to the
terms of this Agreement;




22









 








          (t) entered into any material strategic alliance, affiliate agreement or joint marketing
arrangement or agreement;




          (u) suffered any Material Adverse Effect; or




          (v) agreed, whether in writing or otherwise, to take any of the actions specified in this
Section 4.11 or granted any options to purchase, rights of first refusal, rights of
first offer or any other similar rights or commitments with respect to any of the actions
specified in this Section 4.11, except as expressly contemplated by this Agreement and the
Ancillary Agreements.




          SECTION 4.12. Litigation. Except as set forth in Section 4.12 of the Company
Disclosure Letter (which, with respect to each Action set forth therein, sets forth the parties,
nature of the proceeding, date and method commenced, amount of charges or other relief sought and,
if applicable, paid or granted) and with respect to environmental matters, which are governed by
Section 4.13, there are no Actions by or against the Company or any Subsidiary (or by or against
any manager or officer of the Company or any Subsidiary in their capacity as such relating to the
Business, the Company or any Subsidiary) or affecting any of the Assets or the Business pending
before any Governmental Authority (or, to the Company’s Knowledge, threatened to be brought by or
before any Governmental Authority). None of the matters set forth in Section 4.12 of the Company
Disclosure Letter has or has had a Material Adverse Effect or could reasonably be expected to
affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the
consummation of the transactions contemplated hereby or thereby. Except as set forth in Section
4.12 of the Company Disclosure Letter, neither the Company nor the Subsidiaries or any of their
respective Assets is subject to any continuing order, writ, injunction, judgment, arbitration
ruling, award, decree or other finding, settlement agreement or other similar agreement with, or
continuing investigation by any Governmental Authority (nor, to the Company’s Knowledge, are there
any such order, writ, injunction, judgment, arbitration ruling, award, decree or other finding, or
investigation threatened to be imposed by any Governmental Authority) which has or has had a
Material Adverse Effect or could reasonably be expected to affect the legality, validity or
enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.




          SECTION 4.13. Environmental and Other Permits and Licenses; Related Matters.




          (a) Except as set forth in Section 4.13 of the Company Disclosure Letter or except as would
not reasonably be expected to have a Material adverse Effect:





     (i) The Company and each Subsidiary is in compliance with, and for the past three years
has been in material compliance with, all applicable Environmental Laws and all
Environmental Permits. All past noncompliance with Environmental Laws or Environmental
Permits has been resolved without any material pending, ongoing or future obligation, cost
or liability.



23









 






     (ii) To the Company’s Knowledge, there are no underground or aboveground storage tanks
or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Materials are being or have been treated, stored or disposed of on any of the Leased Real
Property or, during the period of the Company’s or any Subsidiary’s lease, use or occupancy
thereof, on any property formerly leased, used or occupied by the Company or any Subsidiary,
in each case above where such storage tanks, surface
impoundments, septic tanks, pits, sumps or lagoons are or were subject to regulation
under Environmental Laws.




     (iii) There has been no Release of any Hazardous Material by the Company or any
Subsidiary on any of the Leased Real Property or, during the period of the Company’s or any
Subsidiary’s lease, use or occupancy thereof, on any property formerly owned, leased, used
or occupied by the Company or any Subsidiary, in each case above, where such Release would
reasonably be expected to give rise to an obligation of the Company or any Subsidiary to
conduct Remedial Action.




     (iv) Neither the Company nor any Subsidiary is conducting, and none of them has
undertaken or completed, in the past five years, any Remedial Action relating to any Release
or threatened Release of any Hazardous Material at the Leased Real Property or at any other
site, location or operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law or Environmental Permit.




     (v) To the Company’s Knowledge, there is no asbestos or asbestos-containing material on
any of the Leased Real Property.




     (vi) To the Company’s Knowledge, none of the Leased Real Property is listed or proposed
for listing on the National Priorities List or CERCLIS or on any analogous federal, state or
local list.




     (vii) There are no Environmental Claims pending or, to the Company’s Knowledge,
threatened against the Company, any Subsidiary or the Leased Real Property, and to the
Company’s Knowledge there are no circumstances that would reasonably be expected to form the
basis of any such Environmental Claim, including with respect to any off-site disposal
location currently or formerly used by the Company or any Subsidiary or any of its
predecessors or with respect to previously operated facilities.



          (b) In the Diligence Materials, the Seller has provided the Buyer with copies of (i) any
environmental assessment or audit reports or other similar studies or analyses relating to the
Business, the Leased Real Property, the Company or any Subsidiary, and (ii) its current insurance
policies that specifically provide coverage to the Company or any Subsidiary or the Business for
environmental matters.




          (c) Neither the execution of this Agreement or the Ancillary Agreements nor the consummation
of the transactions contemplated hereby or thereby will require any material

24









 








Remedial Action or
notice to or consent of Governmental Authorities or third parties pursuant to any applicable
Environmental Law or Environmental Permit.




          (d) This Section 4.13 contains the sole and exclusive representations and warranties of the
Sellers with respect to environmental, health and safety matters, including any matters relating to
Environmental Laws, Environmental Permits or Hazardous Materials.




          SECTION 4.14. Material Contracts.




          (a) Section 4.14(a) of the Company Disclosure Letter lists each of the following Contracts of
the Company and the Subsidiaries (such Contracts, together with all Contracts concerning the use,
occupancy, management or operation of any Leased Real Property (including all Contracts and leases
listed or otherwise set forth in Section 4.16(d) of the Company Disclosure Letter), all Company IP
Agreements set forth in Section 4.15(a) of the Company Disclosure Letter, and all Company Plans set
forth in Section 4.19(a) of the Company Disclosure Letter, being “Material Contracts”) and
indicates thereon those Material Contracts for which consent or waiver of the right to terminate is
required to be obtained by reason of the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements (collectively, the “Consent Contracts”):





     (i) each Contract, invoice, purchase order and other arrangement, under the terms of
which the Company or any Subsidiary: (A) was obligated to pay consideration of more than
$25,000 in the aggregate, during the calendar year ended December 31, 2005, and which
continue to have material executing provisions, (B) is likely to pay, otherwise give or
receive consideration of more than $25,000 in the aggregate during the calendar year ended
December 31, 2006, (C) is likely to pay, otherwise give consideration of more than $100,000
in the aggregate over the remaining term of such Contract or (D) cannot be cancelled by the
Company or such Subsidiary without penalty or further payment or without more than 90 days’
notice;




     (ii) each Contract pursuant to which the Company, any of the Subsidiaries or any other
party thereto has continuing obligations, other than a continuing obligation to maintain
confidentiality, relating to the research, development, clinical trial, marketing, supply,
license, manufacture, co–promotion or collaboration of any product or product candidate
currently subject to research and development or being produced or sold by the Company or
any of the Subsidiaries;




     (iii) each Contract pursuant to which the Company, any of the Subsidiaries or any other
party thereto has continuing obligations involving the payment of royalties or other amounts
calculated based upon the revenues or income of the Company or any of the Subsidiaries or
income or revenues related to any product of the Company or any of the Subsidiaries;




     (iv) all broker, distributor, dealer, manufacturer’s representative, franchise, agency,
sales promotion, market research, marketing, consulting and advertising Contracts pursuant
to which the Company, any of the Subsidiaries or any other party thereto has continuing
obligations to which the Company or any Subsidiary is a party;



25









 






     (v) all management Contracts and Contracts with independent contractors or consultants
(or similar arrangements) to which the Company or any Subsidiary is a party and which are
not cancelable without penalty or further payment and without more than 90 days’ notice;




     (vi) all Contracts relating to Indebtedness of the Company or any Subsidiary;




     (vii) all Contracts with any Governmental Authority to which the Company or any
Subsidiary is a party;




     (viii) all Contracts that limit or purport to limit the ability of the Company or any
Subsidiary to compete in any line of business or with any Person or in any geographic area
or during any period of time;




     (ix) all Contracts between or among the Company or any Subsidiary, on one hand, and the
Seller or any Affiliate of the Seller (other than the Company or any Subsidiary), on the
other hand, except for the Existing Operating Agreement;




     (x) all employment, consulting, severance, termination, retirement, profit sharing,
bonus, incentive or deferred compensation, retention or change in control Contracts
providing for benefits to any current or former employee (to the extent there are any
continuing obligations thereunder), consultant or manager of the Company or any Subsidiary;
and




     (xi) all other Contracts, whether or not made in the ordinary course of business, which
are material to the Company, any Subsidiary or the conduct of the Business, or the absence
of which would have a Material Adverse Effect.


For purposes of this Section 4.14 and Section 4.16, the term “lease” shall include any and
all leases, subleases, sale/leaseback agreements or similar arrangements.




          (b) Each Material Contract: (i) is valid and binding on the Company or the Subsidiary party
thereto and, to the Company’s Knowledge on the other parties thereto and is in full force and
effect, except as such effectiveness may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar Laws relating to or affecting creditors generally and by the availability of
equitable remedies (whether in proceedings at law or in equity), and represents, together with any
other Material Contract listed in Section 4.16(a) of the Company Disclosure Letter that relate to
the same subject matter, the material terms of the agreement between the parties with respect to
the subject matter of such Material Contract, (ii) unless identified as a Consent Contract, is
freely and fully assignable to the Buyer without penalty or right of termination by the other party
thereto upon assignment to the Buyer and (iii) upon consummation of the transactions contemplated
by this Agreement and the Ancillary Agreements, except to the extent that any consents set forth in
Section 4.08 of the Company Disclosure Letter or consents required by such Material Contract to the
extent identified as a Consent Contract are not obtained, shall continue in full force and effect
without penalty or other adverse consequence. Neither the Company nor any Subsidiary is in
material breach of, or default under, any Material Contract.





26









 








          (c) To the Company’s Knowledge, no other party to any Material Contract is in material breach
thereof or default thereunder and no event has occurred that, with notice or lapse of time, would
constitute such a material breach or default, and none of the Sellers, the Company or any
Subsidiary has received any notice of termination or cancellation under any Material Contract.




          (d) To Company’s Knowledge, neither the Company nor any Subsidiary has received any notice of
termination, cancellation, breach or default under any Material Contract.




          (e) The Company has made available to the Buyer in the Diligence Materials true and complete
copies of all Material Contracts.




          (f) Except as set forth in Section 4.14(f) of the Company Disclosure Letter, there is no
Contract granting any Person any preferential right to purchase, any of the Assets.




          SECTION 4.15. Intellectual Property.




          (a) Section 4.15(a) of the Company Disclosure Letter sets forth a true and complete list of
(i) all Patents and Patent applications, registered Trademarks and Trademark applications,
registered Copyrights and Copyright applications, and domain names included in the Company
Intellectual Property, (ii) all Company IP Agreements, other than commercially available
off-the-shelf Software licensed pursuant to shrink-wrap or click-wrap licenses that is not material
to the Business and (iii) other Company Intellectual Property material to the Business, including
pharmaceutical products currently under development.




          (b) To the Company’s Knowledge, the operation of the Business as currently conducted,
including pharmaceutical products currently under development, and the use of the Company
Intellectual Property and Licensed Intellectual Property in connection therewith, does not conflict
with, infringe, misappropriate or otherwise violate the Intellectual Property or other proprietary
rights of any Person, and no Actions or Claims are pending or, to the Company’s Knowledge,
threatened against the Sellers, the Company or any Subsidiary alleging any of the foregoing.




          (c) The Company or a Subsidiary is the exclusive owner of the entire and unencumbered right,
title and interest in and to the Company Intellectual Property and Company IP Agreements, and the
Company or a Subsidiary has a valid right to use the Company Intellectual Property and Licensed
Intellectual Property in the ordinary course of the Business as currently conducted or as
contemplated to be conducted.




          (d) Except as disclosed in Section 4.15(d) of the Company Disclosure Letter, no Company
Intellectual Property or, to the Company’s Knowledge, any Licensed Intellectual Property is subject
to any outstanding final judgment, decree, order, injunction or ruling restricting the use of such
Intellectual Property or that would impair the validity or enforceability of such Intellectual
Property.




          (e) The Company Intellectual Property and the Licensed Intellectual Property include all of
the Intellectual Property necessary for the conduct of the Business as currently conducted and for
the production, distribution and marketing of the Product and the




27









 







pharmaceutical products currently
under development. The Company Intellectual Property and, to the Company’s Knowledge, the Licensed
Intellectual Property are subsisting, valid and enforceable, and have not been adjudged invalid or
unenforceable in whole or part. Each item of Company Intellectual Property and Licensed
Intellectual Property required to be listed in Section
4.15(a) of the Company Disclosure Letter and shown as registered, filed, issued or applied
for, has been duly registered in, filed in or issued by the official government registrars and/or
issuers (or officially recognized issuers) of Patents, Trademarks, Copyrights or internet domain
names, in the various jurisdictions indicated in Schedule 4.15(a) of the Company Disclosure Letter
and in all material respects each such registration, application, filing and/or issuance (i) has
not been abandoned, canceled or otherwise materially compromised; (ii) has been maintained
effective by all material requisite filings, renewals and payments; and (iii) remains in full force
and effect. All material payments due with respect to such Company Intellectual Property and
Licensed Intellectual Property, including maintenance fees and prosecution fees, have been made.
The Company has taken all actions necessary to maintain and protect each item of Company
Intellectual Property and Licensed Intellectual Property that Company owns or uses consistent with
practices that are customary in the Company’s industry.




          (f) No Actions or Claims have been asserted or are pending or, to the Company’s Knowledge,
threatened against the Company or any Subsidiary (i) based upon, affecting, challenging, or seeking
to deny or restrict the use by the Company or any Subsidiary of any of the Company Intellectual
Property or Licensed Intellectual Property, (ii) alleging that any services provided by, processes
used by, or products manufactured or sold by the Company or any Subsidiary infringe or
misappropriate any Intellectual Property right of any third party or (iii) alleging that the
Licensed Intellectual Property is being licensed or sublicensed in conflict with the terms of any
license or other agreement.




          (g) To the Company’s Knowledge, no Person is engaging in any activity that infringes the
Company Intellectual Property or Licensed Intellectual Property. Except as set forth in Section
4.15(g) of the Company Disclosure Letter, neither the Company nor any Subsidiary has granted any
license or other right to any third party with respect to the Company Intellectual Property or
Licensed Intellectual Property. Except as set forth in Section 4.15(g) of the Company Disclosure
Letter, the consummation of the transactions contemplated by this Agreement and the Ancillary
Agreements will not result in the termination of any of the Company Intellectual Property or the
Company’s right to the Licensed Intellectual Property.




          (h) To the Company’s Knowledge, (i) there has been no misappropriation of any material trade
secrets or other material confidential Intellectual Property used in connection with the Business
by any Person; (ii) no employee, independent contractor or agent of the Company or any Subsidiary
has misappropriated any trade secrets of any other Person in the course of performance as an
employee, independent contractor or agent of the Business; and (iii) no employee, independent
contractor or agent of the Company or any Subsidiary is in default or breach of any term of any
employment agreement, nondisclosure agreement, assignment of invention agreement or similar
Contract relating in any way to the protection, ownership, development, use or transfer of
Intellectual Property.




          (i) The Company’s or any Subsidiary’s operation of any web sites or databases used in
connection with the Business, and content thereof and data processed,




28









 







collected, stored or
disseminated in connection therewith, do not violate any applicable U.S. Law or, to the Company’s
Knowledge, the applicable Laws of any other jurisdiction, including European Directive 95/46/EC,
and any Person’s right of privacy or publicity. Except as would not, individually or in the
aggregate, have a Material Adverse Effect, the Company or any
Subsidiary (i) has obtained all necessary permits, approvals, consents, authorizations or
licenses to lawfully operate its web sites and to use its data and (ii) is operating its web sites
and using its data in accordance with the scope of such permits, approvals, consents,
authorizations or licenses. The Company and each Subsidiary has posted a privacy policy governing
the Company’s or such Subsidiary’s use of data, and disclaimers of liability on its web sites, and
the Company and each Subsidiary has complied with such privacy policy in all material respects.
The Company and each Subsidiary has taken all steps in accordance with normal industry practice to
secure its web sites and data, and any portion thereof, from unauthorized access or use by any
Person.




          (j) The Company’s or any Subsidiary’s initiation of unsolicited commercial email used in
connection with the Business does not violate any applicable U.S. Law, including the Controlling
the Assault of Non-Solicited Pornography and Marketing Act of 2003 and all rules and regulations
promulgated thereunder, or, to the Company’s Knowledge, the applicable Laws of any other
jurisdiction.




          (k) Except as set forth in Section 4.15(k) of the Company Disclosure Letter, no current
licensor, holder of Equity Participations, employee, director or officer of the Company, a
Subsidiary or any of their respective Affiliates will have, directly or indirectly, any interest in
any of the Company Intellectual Property, nor will any such person have any rights to past or
future royalty payments or license fees from the Company, deriving from licenses, technology
agreements or other Contracts, between any such person and the Company or Subsidiary or any of
their respective Affiliates.




          (l) All directors, managers, officers, management employees, consultants and technical and
professional employees of the Company and each Subsidiary are under written obligation to the
Company or such Subsidiary to maintain in confidence all confidential or proprietary information
acquired by them in the course of their employment. Each present or past employee, officer or
consultant of the Company or a Subsidiary who developed any part of any of the Company Intellectual
Property is a party to a written agreement that, to the extent permitted by law, conveys or
obligates such person to convey to Company or a Subsidiary any and all right, title and interest in
and to all such Company Intellectual Property developed by such person in connection with such
person’s employment with or engagement on behalf of the Company.




          SECTION 4.16. Real Property.




          (a) Neither the Company nor any of the Subsidiaries owns or has owned any real property.




          (b) Section 4.16(b) of the Company Disclosure Letter lists: (i) the street address of each
parcel of Leased Real Property, (ii) the identity of the lessor, lessee and current occupant (if
different from lessee) of each such parcel of Leased Real Property, (iii) the terms




29









 







(referencing
applicable renewal periods) and rental payment amounts (including all escalations)
pertaining to each such parcel of Leased Real Property and (iv) the current use of each such
parcel of Leased Real Property.




          (c) Except as described in Section 4.16(c) or 4.13(a) of the Company Disclosure Letter, to the
Company’s Knowledge, there is no material violation of any Law (including any building, planning or
zoning law) relating to any of the Leased Real Property. Either the Company or a Subsidiary, as
the case may be, is in peaceful and undisturbed possession of each parcel of Leased Real Property,
and there are no contractual or legal restrictions that preclude or restrict the ability to use the
Leased Real Property for the purposes for which it is currently being used. To the Company’s
Knowledge, all existing water, sewer, steam, gas, electricity, telephone, cable, fiber optic cable,
Internet access and other utilities required for the use, occupancy, operation and maintenance of
the Leased Real Property are adequate for the conduct of the Business as currently is conducted.
To the Company’s Knowledge, there are no material latent defects or material adverse physical
conditions affecting the Leased Real Property or any of the facilities, buildings, structures,
erections, improvements, fixtures, fixed assets and personalty of a permanent nature annexed,
affixed or attached to, located on or forming part of the Leased Real Property. Neither the Company
nor any Subsidiary has leased any parcel or any portion of any parcel of Leased Real Property to
any other Person and no other Person has any rights to the use, occupancy or enjoyment thereof
pursuant to any lease, sublease, license, occupancy or other Contract, nor has the Company or any
Subsidiary assigned its interest under any lease listed in Section 4.16(b) of the Company
Disclosure Letter to any third party.




          (d) Section 4.16(d) of the Company Disclosure Letter sets forth a true and complete list of
all leases and subleases relating to the Leased Real Property and any and all ancillary documents
(the “Ancillary Lease Documents”) pertaining thereto (including all amendments,
modifications, supplements, exhibits, schedules, addenda and restatements thereto and thereof and
all consents, including consents for alterations, assignments and sublets, documents recording
variations, memoranda of lease, options, rights of expansion, extension, first refusal and first
offer and evidence of commencement dates and expiration dates). During the past two years, with
respect to each of the leases listed in Section 4.16(b) of the Company Disclosure Letter, neither
the Company nor any Subsidiary has exercised or given any notice of exercise, nor has any lessor or
landlord exercised or received any notice of exercise by a lessor or landlord of, any option, right
of first offer or right of first refusal contained in any such lease or sublease, including any
such option or right pertaining to purchase, expansion, renewal, extension or relocation
(collectively, “Options”).




          (e) To the Company’s Knowledge, there are no condemnation proceedings or eminent domain
proceedings of any kind pending or threatened against the Leased Real Property.




          (f) All the Leased Real Property is occupied under a valid and current certificate of
occupancy or similar permit, the transactions contemplated by this Agreement and the Ancillary
Agreements will not require the issuance of any new or amended certificate of occupancy and, to the
Company’s Knowledge, there are no facts that would prevent the Leased Real Property from being
occupied by the Company or any Subsidiary, as the case may be, after





30









 







the Closing in the same manner
as occupied by the Company or such Subsidiary immediately prior to the Closing.




          (g) To the Company’s Knowledge, no improvements on the Leased Real Property and none of the
current uses and conditions thereof violate any Encumbrance, applicable deed restrictions or other
applicable covenants, restrictions, agreements, existing site plan approvals, zoning or subdivision
regulations or urban redevelopment plans as modified by any duly issued variances, and no permits,
licenses or certificates pertaining to the ownership or operation of all improvements on the Leased
Real Property, other than those which are transferable with the Leased Real Property, are required
by any Governmental Authority having jurisdiction over the Leased Real Property.




          (h) The rental set forth in each lease or sublease of the Leased Real Property is the actual
rental being paid, and there are no separate agreements or understandings with respect to the same.




          (i) The Company or a Subsidiary, as the case may be, has the full right to exercise any
Options contained in the leases and subleases pertaining to the Leased Real Property on the terms
and conditions contained therein and upon due exercise would be entitled to enjoy the full benefit
of such Options with respect thereto.




          SECTION 4.17. Assets.




          (a) The Company or a Subsidiary, as the case may be, owns, leases or has the legal right to
use all the Assets that are material to the operation of the Business, including the Company
Intellectual Property, the Licensed Intellectual Property, the Company IP Agreements and the Leased
Real Property, used or intended to be used in the conduct of the Business or otherwise owned,
leased or used by the Company or any Subsidiary, and, with respect to contract rights, is a party
to and enjoys the right to the benefits of all Contracts, agreements and other arrangements used or
intended to be used by the Company or any Subsidiary or in or relating to the conduct of the
Business. The Company or a Subsidiary, as the case may be, has good and marketable title to, or,
in the case of leased or subleased Assets, valid and subsisting leasehold interests in, all the
Assets, free and clear of all Encumbrances, except (i) as set forth in Section 4.15(f), 4.16(c) or
4.18(a) of the Company Disclosure Letter and (ii) Permitted Encumbrances.




          (b) All the Assets are in good operating condition and repair in all material respects and are
suitable for the purposes for which they are used and intended in all material respects.




          SECTION 4.18. Customers. Listed in Section 4.18 of the Company Disclosure Letter are
the names and addresses of the ten most significant customers (by revenue) of the Business for the
twelve-month period ended April 30, 2006. None of the Sellers, the Company nor any Subsidiary has
received any notice or has any reason to believe that any significant customer of the Business has
ceased, or will cease, to use the products, equipment, goods or services of the Company or any
Subsidiary, or has substantially reduced, or will substantially reduce, the use of such products,
equipment, goods or services at any time.




31









 








          SECTION 4.19. Suppliers. Listed in Section 4.19 of the Company Disclosure Letter are
the names and addresses of each of the three most significant suppliers of raw materials, supplies,
merchandise and other goods for the Business for the twelve-month period ended April 30, 2006 and
the amount for which each such supplier invoiced the Company and the Subsidiaries during such
period. None of the Seller, the Company nor any Subsidiary has received any notice or has any
reason to believe that any such supplier will not sell raw materials, supplies, merchandise and
other goods to the Company or any Subsidiary at any time after the Closing on terms and conditions
substantially similar to those used in its current sales to the Business, subject only to general
and customary price increases. Except as set forth in Section 4.14 of the Company Disclosure
Letter, none of the raw materials, supplies, merchandise or other goods supplied to the Business
are such that they are not generally available in the market from more than one source.




          SECTION 4.20. Employee Benefit Matters.




          (a) Section 4.20(a) of the Company Disclosure Letter sets forth each employment, consulting,
severance, termination, retirement, profit sharing, bonus, incentive or deferred compensation,
retention or change in control plan, program or Contract, and each bonus, pension, stock option,
restricted stock or other equity-based, profit sharing, savings, life, health, disability,
accident, medical, insurance, vacation, other welfare fringe benefit or other employee compensation
plan, program, policy or Contract (whether formal or informal) or commitment, including each
“employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”) (“Plans”) under which the Company or any of the
Subsidiaries has any obligation, whether actual or contingent, direct or indirect, to provide
compensation or benefits to any current or former employee, consultant or director of the Company
or any of the Subsidiaries (collectively the “Company Plans”). True and complete copies of
each Company Plan, including, but not limited to, any trust instruments and/or insurance contracts,
if any, forming a part thereof, all amendments thereto and the most recent determination letters
issued by the IRS, all approvals received from any foreign Governmental Authority, the most recent
summary plan descriptions (including any material modifications), the two most recent annual
reports on Form 5500 (including all exhibits and attachments thereto), the two most recent
actuarial reports and the two most recent audited financial reports for any funded Company Plan
have been supplied or made available to the Buyer, as applicable. Neither the Company nor any
Subsidiary has any existing plan or legally binding commitment to create any additional Company
Plan or modify or change any existing Company Plan that would increase the compensation or benefits
provided to any current or former employee, consultant or director of the Company or any Subsidiary
of the Company.




          (b) With respect to each Company Plan: (i) if intended to qualify under Section 401(a) of the
Code or under any Law of any foreign jurisdiction, such Company Plan has received a favorable
determination letter from the IRS or required approval of a Governmental Authority of a foreign
jurisdiction that has not been revoked and, to the Company’s Knowledge,
no event or circumstance exists that has or is likely to adversely affect such qualification
or exemption; (ii) the Company Plan has been operated and administered in compliance in all
material respects with its terms and all applicable Laws (including ERISA, the Code and any
relevant foreign Laws); (iii) there are no pending or, to the Company’s Knowledge, threatened
claims against, by or on behalf of any Company Plans or the assets, fiduciaries or administrators




32









 







thereof (other than routine claims for benefits); (iv) no material breaches of fiduciary duty under
which the Company or a fiduciary could reasonably be expected to incur a liability have occurred;
(v) no material non-exempt prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code has occurred; (vi) no lien has been imposed under the Code, ERISA or any
foreign Law; and (vii) all contributions, premiums and expenses to or in respect of such Company
Plan have been timely paid in full or, to the extent not yet due, have been adequately accrued on
the Company’s Financial Statements and Interim Financial Statements.




          (c) No Company Plan is, and neither the Company nor any ERISA Affiliate thereof contributes
to, has contributed within the last six years to or has any liability or obligation, whether actual
or contingent, with respect to any Company Plan that is (A) a “multiemployer plan” (within the
meaning of Section 3(37) of ERISA), (B) a “multiple employer plan” (within the meaning of Section
413(c) of the Code), (C) a single employer plan or other pension plan subject to Title IV or
Section 302 of ERISA or Section 412 of the Code, or (D) any foreign plan that provides defined
benefits.




          (d) Neither the Company nor any Subsidiary has any obligations to provide health, life
insurance, or death benefits with respect to any current or former employees, consultants or
directors of the Company or any Subsidiary beyond their termination of employment or service,
whether under a Company Plan or otherwise, other than as required under Section 4980B of the Code,
and each such Company Plan may be amended or terminated at any time without incurring material
liability thereunder (other than for benefits and administrative claims incurred in the ordinary
course). There are no outstanding participant loans under the Company’s 401(k) Plan.




          (e) Neither the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, either alone or in combination with another event (whether
contingent or otherwise) will (i) entitle any current or former employee, consultant or director of
the Company or any Subsidiary or any group of such employees, consultants or directors to any
payment; (ii) increase the amount of compensation or benefits due to any such employee, consultant
or director; (iii) accelerate the vesting, funding or time of payment of any compensation, equity
award or other benefit; or (iv) result in any “parachute payment” under Section 280G of the Code
(whether or not such payment is considered to be reasonable compensation for services rendered).




          (f) No Company Plan, and neither the Company nor any Subsidiary of the Company with respect to
any Company Plan, has received notice that it is the subject of an audit or investigation by the
IRS, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other federal or
state governmental agency or any foreign Governmental Authority, nor is any such audit or
investigation pending or, to the Company’s Knowledge, threatened.




          (g) Neither the Company nor any Subsidiary maintains any plan, program or arrangement or is a
party to any Contract that provides any benefits or payments to any current or former employee,
director or consultant in, based on or measured by the value of, any equity security of, or
interest in, the Company or any Subsidiary.




33









 








          (h) To the Company’s Knowledge, neither the Company nor any Subsidiary has made any payments
or provided any benefits to any “service provider,” within the meaning of Section 409A of the Code,
which were or are subject to additional income tax under Section 409A(a)(1)(B) of the Code or any
other taxes or penalties imposed under Section 409A.




          (i) Neither the Company nor any Subsidiary has any material liability (including a material
liability arising out of an indemnification, guarantee, hold harmless or similar agreement)
relating to any insurance contract held under or purchased to fund a Company Plan, the issuer of
which, to the Company’s Knowledge, is or was insolvent or in reorganization or the payments under
which were suspended.




          (j) Section 4.20(j) of the Company Disclosure Letter sets forth any and all Indebtedness in
excess of ten thousand U.S. dollars (US $10,000) owed by any current or former employee, consultant
or director of the Company or any Subsidiary of the Company to the Company or any Subsidiary of the
Company.




          SECTION 4.21. Labor Matters.




          (a) Neither the Company nor any Subsidiary is a party to any collective bargaining or similar
agreement, and there are no labor unions or other organizations representing, purporting to
represent or, to the Company’s Knowledge, attempting to represent, any employee of the Company or
any of Subsidiary. There are no unfair labor practice complaints pending against the Company or
any Subsidiary before the National Labor Relations Board or any other Governmental Authority nor,
to the Company’s Knowledge, are any such complaints threatened. Neither the Company nor any
Subsidiary has, with respect to any employees of the Company or any Subsidiary, experienced any
strike, slowdown or work stoppage during the past three years, nor, to the Company’s Knowledge, are
any such strikes, slowdowns, work stoppages or lockouts threatened.




          (b) Neither the Company nor any Subsidiary has violated any Law or any order, judgment or
arbitration award of any court, arbitrator or any Government Authority regarding the terms and
conditions of employment of its employees, former employees or prospective employees or other labor
related matters, including any Laws, orders, judgments or awards relating to wrongful discharge,
discrimination, personal rights, wages, hours, collective bargaining, fair labor standards or
occupational health and safety, except as would not reasonably be expected to result in a material
liability to the Company or any Subsidiary. The Company and its Subsidiaries have withheld and
paid to the appropriate Governmental Authority all amounts required to be withheld from
compensation paid to employees of the Company or any Subsidiary and are not liable for any arrears
of Taxes or penalties or other sums for failure to withhold and pay applicable Taxes.




          (c) (i) The Company and each Subsidiary have paid in full to all their respective employees or
adequately accrued for in accordance with GAAP all wages, salaries, commissions, bonuses, benefits
and other compensation due to or on behalf of such employees; (ii) there is no claim with respect
to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened
before any Governmental Authority with respect to any persons currently or formerly employed by the
Company or any Subsidiary; and (iii) neither the





34









 







Company nor any Subsidiary is a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to
employees or employment practices.




          (d) In the three years prior to the date hereof, neither the Company nor any of its
Subsidiaries has effectuated (i) a “plant closing” (as defined in the Worker Adjustment and
Retraining Notification Act (the “WARN Act”) or any similar state, local or foreign Law)
affecting any site of employment or one or more facilities or operating units within any site of
employment or facility of the Company or any of its Subsidiaries or (ii) a “mass layoff” (as
defined in the WARN Act, or any similar state, local or foreign law) affecting any site of
employment or facility of the Company or any of its Subsidiaries.




          (e) There are no material liabilities, whether contingent or absolute, of the Company or any
Subsidiary relating to workers’ compensation benefits that are not fully insured against by a bona
fide third-party insurance carrier.




          (f) With respect to each Company Plan and with respect to each state workers’ compensation
arrangement that is funded wholly or partially through an insurance policy or public or private
fund, there is not presently any deficiency in the payment of premiums required to have been paid
to the date under such insurance policy or fund.




          SECTION 4.22. Certain Interests.




          (a) Except as set forth in Section 4.22(a) of the Company Disclosure Letter, no officer or
director of the Company or any Subsidiary and no relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any such officer or director:





     (i) owns, directly or indirectly, in whole or in part, or has any other interest in any
tangible or intangible property that the Company or any Subsidiary uses or has used in the
conduct of the Business or otherwise; or




     (ii) has outstanding any Indebtedness to the Company or any Subsidiary.



          (b) Except as set forth in Section 4.22(b) of the Company Disclosure Letter, Cutler does not
have any direct or indirect financial interest in any competitor, supplier or customer of the
Company or any Subsidiary or the Business; provided, however, that the ownership of securities
representing no more than one percent of the outstanding voting power of any competitor, supplier
or customer and that are also listed on any national securities exchange, shall not be deemed to be
a “financial interest” so long as Cutler has no other connection or relationship with such
competitor, supplier or customer;




          (c) Except as set forth in Section 4.22(c) of the Company Disclosure Letter, and except for
the payment of employee compensation, employee benefits and business expense reimbursement in the
ordinary course of business consistent with past practice, none of the Company or any Subsidiary
has any Liability or any other obligation of any nature whatsoever to any officer or director or
former officer or director of the Company or any Subsidiary, or any Seller, other than Sellers’
rights as holders of Units set forth in the Existing Operating Agreement, or to any relative or
spouse (or relative of such spouse) who resides with, or is a dependent of, any such officer,
director or Seller.





35









 








          SECTION 4.23. Taxes.




          (a) Filing of Tax Returns and Payment of Taxes. The Company and each of the
Subsidiaries have duly and timely filed with the appropriate taxing authorities all Tax Returns
required to be filed. All such Tax Returns filed are complete and accurate in all material
respects. All material Taxes owed by the Company and each of the Subsidiaries (whether or not
shown on any Tax Return) have been timely paid. Except as set forth in Section 4.23(a) of the
Company Disclosure Letter, neither the Company nor any of the Subsidiaries is currently the
beneficiary of any extension of time within which to file any Tax Return. Except as set forth in
Section 4.23(a) of the Company Disclosure Letter, no material claim has ever been made in writing
by an authority in a jurisdiction where the Company or any of the Subsidiaries does not file Tax
Returns that the Company or any of the Subsidiaries is or may be subject to taxation by that
jurisdiction.




          (b) Audits, Investigations, Disputes or Claims. No deficiencies for Taxes have been
claimed, proposed or assessed by any Tax authority against the Company or any of the Subsidiaries.
Except as disclosed in Section 4.23(b) of the Company Disclosure Letter, there are no pending or,
to the Company’s Knowledge, threatened audits, investigations, disputes or claims or other actions
for or relating to any Liability for Taxes with respect to the Company or any of the Subsidiaries,
and there are no matters under discussion with any governmental authorities, or known to the
Company, with respect to Taxes that are likely to result in a material additional Liability for
Taxes with respect to the Company or any of the Subsidiaries. The Company has made available to
the Buyer in the Diligence Materials complete and accurate copies of all examination reports and
statements of deficiencies assessed against or agreed to by the Company and the Subsidiaries since
March 13, 2000. Except as set forth in Section 4.23(b) of the Company Disclosure Letter, neither
the Sellers nor the Company has waived any statute of limitations in respect of Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency.




          (c) Taxes of Other Persons. Except as set forth in Section 4.23(c) of the Company
Disclosure Letter, the Company and the Subsidiaries do not have Liability for the Taxes of any
Person (i) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.




          (d) Tax Sharing Agreements. There are no Tax-sharing agreements or similar
arrangements (including indemnity arrangements) with respect to or involving the Company, the
Subsidiaries, the Units, the Assets of the Company or the businesses conducted by the Company
or the Subsidiaries, and after the Closing, none of the Company, the Subsidiaries, the Units, the
Assets of the Company or the businesses conducted by the Company and the Subsidiaries, shall be
bound by any such Tax-sharing agreements or similar arrangements or have any Liability thereunder
for amounts due in respect of periods prior to the Closing.




          (e) No Withholding. None of the transactions contemplated hereby are subject to
withholding under Section 1445 of the Code. The Company and the Subsidiaries have withheld and
paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder or other third party or otherwise. The
transactions contemplated herein are not subject to the tax withholding




36









 







provisions of Section 3406
of the Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of law.




          (f) Tax Treatment of the Company and Subsidiaries. At all times since its formation,
the Company has been classified as a partnership for Tax purposes, and up to and including the
Closing, the Company will be classified as a partnership for Tax purposes. No Form 8832 has ever
been filed with respect to the Company as other than a partnership and, as of the Closing, no such
election shall have been made. At all times since their formation, and up to and including the
Closing, each of the Subsidiaries has been an entity with a single owner that is disregarded as
separate from the Company for federal Tax purposes. No Form 8832 has ever been filed with respect
to any of the Subsidiaries as other than a disregarded entity, and as of the Closing, no such
election shall have been made.




          (g) (i) Section 4.23(g) of the Company Disclosure Letter (A) lists all income franchise and
similar Tax Returns (federal, state, local and foreign) filed with respect to each of the Company
and the Subsidiaries for taxable periods ended on or after March 13, 2000, (B) indicates the most
recent income, franchise or similar Tax Return for each relevant jurisdiction for which an audit
has been completed or the statute of limitations has lapsed and (C) indicates all Tax Returns that
currently are the subject of an audit; and (ii) the Seller has delivered to the Buyer correct and
complete copies of all federal, state, local and foreign income, franchise and similar Tax Returns,
examination reports and statements of deficiencies assessed against or agreed to by the Company or
any Subsidiary since March 13, 2000.




     SECTION 4.24. Compliance; Regulatory Compliance.



     (a) Each of the Company and the Subsidiaries is and has been operated in material compliance
with all Laws applicable to the Company or any of the Subsidiaries or by which any Asset of the
Company or any of the Subsidiaries is bound or to which it is subject and is not in material
default or violation of any federal or state governmental licenses, registrations, approvals,
authorizations, exemptions filings, permits or franchises (collectively, “Permits”) to
which the Company or any of the Subsidiaries is a party.



     (b) Each of the Company and the Subsidiaries has in effect all material Permits necessary for
the conduct of the Business as presently conducted. Except as set forth in Section 4.24(b) of the
Company Disclosure Letter, neither the Company nor any Subsidiary has received any written notice
or communication from any Governmental Authority asserting or alleging
that it has failed to comply with applicable Law or the requirements of any Permit, or, to the
Company’s Knowledge, threatening or asserting any actual or possible revocation, withdrawal,
cancellation, suspension, termination or modification of any Permit, and there are no facts or
circumstances that would reasonably be expected to give rise to any such notice or communication.
Except as set forth on Section 4.24(b) of the Company Disclosure Letter, to the Company’s
Knowledge, no such Permit will be terminated or impaired, or will become terminable, in whole or in
part, as a result of the consummation of the transaction contemplated by this Agreement.



          (c) Except as set forth in Section 4.24(c) of the Company Disclosure Letter, (i) the Company
meets, in all material respects, all of the requirements of participation and




37









 







payment of Medicare,
Medicaid, any other state or federal government health care programs, and any other public or
private third party payor programs (collectively, “Programs”) that the Company participates
in or receives payment from, (ii) the Company is not or has not been excluded from participation in
any Programs, (iii) there is no audit, claim review, or other Action pending or, to the Company’s
Knowledge, threatened which could result in the imposition of penalties or the exclusion of the
Company from any Program and the Company has not received notice of any such audit, claim review or
other Action, and (iv) all reports, documents, claims, and notices required to be filed, maintained
or furnished to any U.S. Governmental Authority by the Company under any Programs have been so
filed, maintained or furnished and all such reports, documents, claims and notices were complete
and correct on the date filed (or were corrected or supplemented by a subsequent filing). None of
the Subsidiaries of the Company participate in or receive payment from any Program.




     (d) To the Company’s Knowledge, the Company and the Subsidiaries’ manufacturers, suppliers,
distributors and third party contractors, currently and at all times have manufactured, marketed,
imported, exported, tested, developed, processed, packaged, labeled, stored, and distributed their
products in compliance with all applicable Laws, including federal statutes, and rules and
regulations promulgated by the United states Food and Drug Administration (“FDA”). All of
the products currently marketed by the Company and the Subsidiaries in the United States have been
approved for sale by the FDA. In addition, the Company and the Subsidiaries and, to the Company’s
Knowledge, any third party manufacturer of Company products are in material compliance with all FDA
requirements applicable to the Business, including the registration and listing requirements set
forth in 21 C.F.R. part 207. Neither the Company nor the Subsidiaries, nor, to the Company’s
Knowledge any third party manufacturers have received any notice from, or otherwise have knowledge
of, the FDA or any other U.S. Governmental Authority, questioning or alleging violations with
respect to its manufacturing practices, or threatening to limit, suspend, or revoke any product
approval, change the marketing classification or labeling of, or otherwise require market removal
or withdrawal of any of the Company’s products. Except as set forth on Section 4.24(d) of the
Company Disclosure Letter, neither the Company nor the Subsidiaries have received, and to the
Company’s Knowledge, there are no facts that furnish any basis for, any Form FDA-483 notice of
inspectional observations, warning letters, untitled letters or other correspondence or notice from
the FDA, or any applicable U.S. Governmental Authority alleging or asserting noncompliance with any
applicable Laws or Permits; and there have been no voluntary or involuntary recalls, corrective
actions, removals, field notifications, import alerts, product detentions, product seizures,
governmental investigations, or civil or criminal enforcement action
initiated relating to the products or the Company or the Subsidiaries. There has been no false
information or material omission in any product application to the FDA by the Company or any
Subsidiary. All United States regulatory approvals for the products currently marketed by the
Company and the Subsidiaries are exclusively owned by and registered in the name of the Company or
one of the Subsidiaries and are in full force and effect.



38









 





     (e) To the Company’s Knowledge, all studies, tests, pre-clinical and clinical trials conducted
by or on behalf of the Company and the Subsidiaries have been, and are being conducted in all
material respects in compliance with applicable Laws, protocols, procedures, controls, rules,
regulations and guidelines, including, if applicable, those promulgated by the FDA relating
thereto, including the federal Food, Drug and Cosmetic Act (21 U.S.C. § 321 et seq.) and its
applicable implementing regulations at 21 C.F.R. Parts 50, 54, 56, 58 and 312.



     (f) Except as set forth in Section 4.24(f) of the Company Disclosure Letter, neither the
Company, nor any Subsidiary nor any current manager, officer or employee of the Company or any
Subsidiary has been convicted of any crime or engaged in any conduct that could result in a
material debarment or exclusion under 21 U.S.C. Section 335a or any similar state Law.



          SECTION 4.25. Product Registration Files. The product registration and approval
files and the investigational new drug submissions and files of the Company and each of the
Subsidiaries have at all times been maintained in all material respects in accordance with all
applicable legal and regulatory requirements. The Company and each of the Subsidiaries have made
available to the Buyer or its agents copies of all material documentation filed in the last three
years in connection with the regulatory approval or registration of the Product, and
investigational new drug applications and submissions for any pharmaceutical product candidate in
development.




          SECTION 4.26. Insurance. Section 4.26 of the Company Disclosure Letter sets forth a
true and complete list of all insurance policies or binders of insurance (including general
liability insurance, property insurance and workers’ compensation insurance) held by the Company or
any of the Subsidiaries. True and complete copies of all such insurance policies have been made
available by the Company to the Buyer in the Diligence Materials. In each case, such insurance
policies are with insurance companies deemed responsible by the Company, in such types and amounts
and covering such risks as are consistent in all material respects with customary practices and
standards of companies engaged in businesses and operations similar to those of the Company or such
Subsidiary, as the case may be. No notice of cancellation or termination has been received by the
Company with respect to any such insurance policies and all premiums due to date on such insurance
policies have been paid. Except as set forth in Section 4.26 of the Company Disclosure Letter,
during the past three years, neither the Company nor any of the Subsidiaries has been refused any
insurance with respect to any aspect of operations of the Business, nor has its coverage been
rescinded by any insurance carrier to which it has applied for insurance or with which it has
carried insurance.




          SECTION 4.27. Certain Business Practices. None of the Company or any of the Subsidiaries or any of their respective managers,
directors, officers, agents, representatives or employees (in their capacity as managers,
directors, officers, agents, representatives or employees) has: (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to political activity in
respect of the Business; (b) directly or indirectly, paid or delivered any fee, commission or other
sum of money or item of property, however characterized, to any finder, agent, or other party
acting on behalf of or under the auspices of a governmental official or Governmental Authority, in
the United States or any other country, which is in any manner illegal under any Law of the United
States or any other country having jurisdiction; or (c) made any payment to any customer or
supplier of the Company or any




39









 







of the Subsidiaries or any officer, director, partner, employee or
agent of any such customer or officer, director, partner, employee or agent for the unlawful
reciprocal practice, or made any other unlawful payment or given any other unlawful consideration
to any such customer or supplier or any such officer, director, partner, employee or agent, in
respect of the Business.




          SECTION 4.28. Brokers. Except for Goldman, Sachs & Co., Inc., no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement or the Ancillary Agreements based upon
arrangements made by or on behalf of the Seller. The Company is solely responsible for the fees
and expenses of Goldman, Sachs & Co., Inc.




ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BUYER




          Subject to the exceptions and qualifications set forth in the Buyer Disclosure Letter, the
Buyer hereby represents and warrants to the Sellers that the statements contained in this
Article V are correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing (as though made then and as though the date of the Closing were
substituted for the date of this Agreement throughout this Article V):




          SECTION 5.01. Organization and Authority of the Buyer. (a) The Buyer is a
corporation duly organized, validly existing and in good standing under the laws of the State of
California and has all necessary corporate power and corporate authority to enter into this
Agreement and the Ancillary Agreements to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, (b)
the Buyer is duly licensed or qualified to do business and is in good standing in each jurisdiction
in which the properties owned or leased by it or the operation of its business makes such licensing
or qualification necessary; (c) the execution and delivery by the Buyer of this Agreement and the
Ancillary Agreements to which it is a party, the performance by the Buyer of its obligations
hereunder and thereunder and the consummation by the Buyer of the transactions contemplated hereby
and thereby have been duly authorized by all requisite corporate action on the part of the Buyer;
and (d) this Agreement and the Ancillary Agreements to which the Buyer is a party have been duly
executed and delivered by the Buyer, and constitute the legal, valid and binding obligations of the
Buyer, enforceable against the
Buyer in accordance with their respective terms, except to the extent such enforceability (i)
may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating
to creditors’ rights generally and (ii) is subject to general principles of equity.




          SECTION 5.02. No Conflict. Assuming that all consents, approvals, authorizations and
other actions described in Section 5.03 have been obtained and all filings and notifications and
other actions referred to in Section 5.03, except as may result from any facts or circumstances
relating solely to the Sellers, the execution, delivery and performance by the Buyer of this
Agreement and the Ancillary Agreements to which it is a party do not and will not (a) violate,
conflict with or result in the breach of any provision of the Certificate of Incorporation or
Bylaws of the Buyer, (b) conflict with or violate any Law applicable to the Buyer, or its assets,
properties or business (other than such conflicts, violations or breaches as would occur solely as
a result of the identity or legal or regulatory status of the Company, any





40









 






Subsidiary or a Seller), or (c) conflict with, result in any breach of, constitute a default
(or event which with the giving of notice or lapse of time, or both, would become a default) under,
require any consent under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of or result in the creation of any Encumbrance on any of
its assets pursuant to, any Contract, permit, or other instrument or arrangement to which the Buyer
is a party, which would adversely affect the ability of the Buyer to carry out its obligations
under, and to consummate the transactions contemplated by, this Agreement or the Ancillary
Agreements.




          SECTION 5.03. Governmental Consents and Approvals. The execution, delivery and
performance by the Buyer of this Agreement and each Ancillary Agreement to which the Buyer is a
party do not and will not require any material consent, approval, authorization or other order of,
action by, filing with, or notification to any Governmental Authority on the part of the Buyer.
The Buyer knows of no reason why all the consents approvals and authorizations necessary for the
consummation of the transactions contemplated by this Agreement will not be received.




          SECTION 5.04. Investment Purpose. The Buyer is acquiring the Units solely for the
purpose of investment and not with a view to, or for offer or sale in connection with, any
distribution thereof.




          SECTION 5.05. Litigation. Except as set forth in a writing given to the Sellers by
the Buyer on the date of this Agreement, no Action by or against the Buyer is pending or, to the
knowledge of the Buyer, threatened to be brought by or before any Governmental Authority, which
could affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or
the consummation of the transactions contemplated hereby or thereby.




          SECTION 5.06. SEC Filings; Financial Statements. 




          (a) The Buyer has filed all registration statements, prospectuses, forms, reports, definitive
proxy statements, schedules and documents required to be filed by it under the Securities Act or
the Exchange Act, as the case may be, since January 1, 2004 (collectively, the “Buyer SEC
Filings”). Each Buyer SEC Filing, (i) as of its date, complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not,
at the time it was filed, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not misleading, except, in
each case, as such information, statement or omission has been subsequently revised, supplemented,
amended or superseded by a later-filed Buyer SEC Filing.




          (b) Each of the consolidated financial statements (including, in each case, any notes thereto)
contained in the Buyer SEC Filings was prepared in accordance with GAAP applied (except as may be
indicated in the notes thereto and, in the case of unaudited quarterly financial statements, as
permitted by Form 10-Q under the Exchange Act) on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto), and each presented fairly in all
material respects the consolidated financial position, results of operations and cash flows of the
Buyer as of the respective dates thereof and for the respective periods




41









 




indicated therein (subject,
in the case of unaudited statements, to normal and recurring year-end adjustments).




          SECTION 5.07. Brokers. Except for Banc of America Securities, no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements made by or on behalf
of the Buyer. The Buyer shall be solely responsible for payment of the fees and expenses of Banc
of America Securities.




ARTICLE VI

ADDITIONAL AGREEMENTS




          SECTION 6.01. Use of Intellectual Property.




          (a) The Sellers acknowledge that from and after the Closing, the name “Alamo Pharmaceuticals”,
“R.T. Alamo” and all similar or related names, marks and logos (all of such names, marks and logos
being the “Company Marks”) shall be owned by the Company or a Subsidiary (and indirectly by
the Buyer), that neither the Sellers nor any of their Affiliates shall have any rights in the
Company Marks and that neither the Sellers nor any of their Affiliates will contest the ownership
or validity of any rights of the Buyer, the Company or any Subsidiary in or to the Company Marks.




          (a) From and after the Closing, neither the Sellers nor any of their Affiliates shall use any
of the Company Intellectual Property or any of the Licensed Intellectual Property except as
permitted by the Buyer in writing.




          SECTION 6.02. Intercompany Arrangements. Immediately prior to the consummation of
the Closing, Sellers’ Representative shall contribute, or cause to be contributed, to the capital
of the Company, the difference between (i) the intercompany Indebtedness owed by the Company and
any Subsidiary to the Sellers and their Affiliates (other than the Company and the Subsidiaries) as
of the Closing and (ii) the intercompany Indebtedness owed by the Sellers and their Affiliates
(other than the Company and the Subsidiaries) to the Company as of the Closing and all such
intercompany Indebtedness shall cease to exist and be of no further force or effect.




          SECTION 6.03. Sellers’ Representative. 




          (a) The Sellers’ Representative shall serve as and have all powers as agent and
attorney-in-fact of each Seller, for and on behalf of each Seller: (i) to give and receive notices
and communications; (ii) to negotiate, enter into settlements and compromises of, and demand
mediation and arbitration and comply with orders of courts and awards of arbitrators with respect
to any disputes related to the indemnification provisions of Article VIII and Article
IX; (iii) to litigate, mediate, arbitrate, defend, enforce or to take any other actions and
execute any documents that the Sellers’ Representative deems advisable in connection with
enforcing any rights or obligations or defending any claim or action under this Agreement on behalf
of the Sellers; (iv) to sign receipts, consents or other documents to effect the transactions
contemplated hereby; and (v) to take any and all actions necessary or appropriate in the judgment
of the Sellers’ Representative for the accomplishment of the foregoing. The Sellers’




42









 




Representative may, in all questions arising under this Agreement, rely on the advice of counsel,
and shall not be liable to the Sellers for any action taken or not taken in its capacity as
Sellers’ Representative in the absence of such Sellers’ Representative’s willful misconduct or bad
faith.




          (b) A decision, act, consent or instruction of the Sellers’ Representative shall constitute a
decision of the Sellers, and shall be final, binding and conclusive upon the Sellers and the Buyer.
Each Seller agrees that Sellers’ Representative shall be vested with the sole power and authority
to enforce this Agreement against the Buyer or the Company on behalf of each Seller. Any Buyer
Indemnified Party may rely upon any decision, act, consent or instruction of the Sellers’
Representative as being the decision, act, consent or instruction of the Sellers. Although the
Sellers’ Representative shall not be obligated to obtain instructions from the Sellers prior to any
decision, act, consent or instruction, if, and to the extent that, the Sellers’ Representative
receives any written instructions from the Sellers holding a majority of the Sharing Percentages,
the Sellers’ Representative shall comply with such instructions.




          (c) The power of attorney granted by the Sellers to the Sellers’ Representative pursuant to
this Section 6.03 is coupled with an interest and is irrevocable and shall not terminate or
otherwise be affected by the death, disability, incompetence, bankruptcy or insolvency of any
Seller.




          (d) All indemnification payments made pursuant to this Agreement shall be treated as an
adjustment of the consideration paid for the Assets for Tax purposes.




          SECTION 6.04. No Contribution/Indemnification; Offset. Each Seller agrees that such
Seller will not seek, nor will they be entitled to, contribution from, or indemnification by, the
Company or any Subsidiary, under their organizational documents in connection with this Agreement
and the transactions contemplated by this Agreement. Each Seller also agrees not to make any
claims against any directors and officers insurance policy maintained or to be maintained by the
Company or any Subsidiary in respect of amounts due by such Seller to the Buyer in connection with
this Agreement and the transactions contemplated by this Agreement.




          SECTION 6.05. Indemnification. For a period of six years from and after the Closing
Date, and for so long thereafter as any claim for indemnification asserted on or prior to such date
has not been fully adjudicated, the Buyer shall cause the Company and the Subsidiaries and their
successors to (i) to the fullest extent permitted by Law, indemnify and hold harmless each present
and former director and officer of the Company, each present and former director and officer of
each of its Subsidiaries and each Seller (the “D&O Indemnified Parties”), against any
losses incurred or suffered by any of the D&O Indemnified Parties in connection with any
liabilities or any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, in which the D&O Indemnified Party may be involved relating to the
performance or nonperformance by the D&O Indemnified Party prior to the Closing Date of any act
concerning the activities of the Company or the Subsidiaries in their capacity as a director,
officer or member of the Company or of a Subsidiary, if (a) the D&O Indemnified Party acted in good
faith and in a manner it believed to be in, or not contrary to, the best interests of the Company,
and (b) the D&O Indemnified Party’s conduct did not constitute gross negligence, fraud, or willful
misconduct, and (ii) advance expenses as incurred by any D&O Indemnified Party in connection with
any matters for which such D&O Indemnified Party is entitled to




43









 




indemnification from the Company
and the Subsidiaries pursuant to this Section 6.05 to the fullest extent permitted under applicable
Law and under the Existing Operating Agreement, the certificates of incorporation, articles or
organization, operating agreements, other organizational documents of any Subsidiary, or any
Contract providing for such indemnification, in each case, as in effect on the date hereof;
provided, however, that the D&O Indemnified Party to whom expenses are advanced shall first provide
an undertaking to repay such advances if it is ultimately determined that such D&O Indemnified
Party is not entitled to indemnification under this Section 6.05. Any amount paid to indemnify
directors and officers of the Company for any liability relating to the approval of this Agreement
or the transactions contemplated by this Agreement shall in no event constitute Damages for
purposes of Article IX.




          SECTION 6.06. Release.




          (a) Each Seller hereby agrees to release and discharge the Company and each Subsidiary from
any and all obligations to indemnify such Sellers or otherwise hold them harmless pursuant to any
Contract entered into prior to the Closing and any and all claims against the Company and each
Subsidiary that such Seller holds as a result of being holders of the Units, including such claims
pursuant to any Contract that such Seller entered into in such Seller’s capacity as a holder of the
Units, provided that, for the avoidance of doubt, this paragraph shall not relieve the Buyer from
any obligations it may have under the Acquisition Documents or that certain Medicare Part D Rebate
Agreement by and between United HealthCare Services, Inc. and the Company, dated as of September 9,
2005 and as amended as of January 1, 2006.




          (b) Each Seller expressly waives and relinquishes any and all rights and benefits it now has
or may have in the future under the terms of Section 1542 of the Civil Code of the State of
California (“Section 1542”), which section reads in full as follows:





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


Notwithstanding Section 1542, and subject to the continuing obligations under the Acquisition
Documents, such Seller knowingly and voluntarily waives the provisions of Section 1542 as well as
any other statutory or common law provisions of similar effect and acknowledges and agrees that
this waiver is an essential part of this Agreement.




          SECTION 6.07. Post-Closing Operating Covenants(a) . Except for the contribution and
assignment of the Units by the Buyer to the Designated Buyer Subsidiary immediately after the
Closing, the Buyer agrees that after Closing and until the last day of the Contingent Payment
Period, the Buyer shall not transfer the assets of the Company related to the Product either
directly through the sale of such assets or indirectly through a merger or consolidation of the
Company with another Person or sale of all of the equity interests in the Company unless the
acquiror or surviving Person of the merger or consolidation agrees to assume the obligation to make
the Contingent Payments and the Non-US Licensing Earn-Out Payments.




44









 








          SECTION 6.08. Termination of Transfer Restrictions. The Sellers, the Company and the Buyer
hereby agree that the restrictions on the transferability of the Units contained in the Transfer
Agreements of each Seller and the Existing Operating Agreement are hereby terminated upon the
Closing and have no lasting effect whatsoever.




          SECTION 6.09. Further Action. Each of the parties hereto shall use all commercially
reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done
all things necessary, proper or advisable under applicable Law, and to execute and deliver such
documents and other papers, as
may be required to carry out the provisions of this Agreement and the Ancillary Agreements to
which it is a party and consummate and make effective the transactions contemplated hereby and
thereby.




ARTICLE VII

EMPLOYEE MATTERS




          SECTION 7.01. Benefits.




          (a) Employees of the Company or any Subsidiary who continue to be employed by the Buyer or its
subsidiaries (the “Continuing Employees”) shall receive service credit for service with the
Company and its Subsidiaries, for purposes of determining eligibility to participate in any
employee benefit plan or arrangement of the Buyer in which Continuing Employees are otherwise
eligible to participate after the Closing Date, to the same extent such service was credited under
comparable Company Plans.




          (b) No provision of this Section 7.01 shall create any third party beneficiary or other rights
in any Continuing Employee or former employee (including any beneficiary or dependent thereof) in
respect of (i) continued employment (or resumed employment) with the Buyer or its subsidiaries
(including the Company), or (ii) any benefits that may be provided, directly or indirectly, under
any Company Plans or any similar plan or arrangement which may be established by the Buyer or any
of its subsidiaries. No provision of this Section 7.01 shall obligate the Buyer or any of its
subsidiaries to maintain any benefit plan at any time.




          SECTION 7.02. Termination of Certain Company Plans.




          (a) Termination of 401(k) Plan. Effective as of no later than the day immediately
preceding the Closing Date, each of the Company, the Subsidiaries and each of their ERISA
Affiliates shall adopt resolutions terminating any and all Company Plans that include a Code
Section 401(k) arrangement (each a “401(k) Plan”). The Company shall provide to the Buyer,
no later than three Business Days prior to the Closing, resolutions of the Manager of the Company,
its Subsidiaries and/or such ERISA Affiliates, as appropriate, evidencing the termination of any
and all 401(k) Plan(s) in accordance with this Section 7.02(a). The form and substance of such
resolutions shall be subject to the reasonable and timely approval of the Buyer. The Company also
shall take such additional actions in furtherance of terminating such 401(k) Plan(s) as the Buyer
may reasonably require.




          (b) Termination of Phantom Unit Plan. Effective as of no later than the day
immediately preceding the Closing Date, the Company shall terminate the Phantom Unit Plan and
eliminate all Pool Shares thereunder without payment of any consideration therefor. The




45









 




Company
shall provide to the Buyer, no later than three Business Days prior to the Closing, resolutions of
the Manager of the Company evidencing the termination of the Phantom Unit Plan and the elimination
all Pool Shares in accordance with this Section 7.02(b). The form and substance of such
resolutions shall be subject to the reasonable and timely approval of the Buyer. The Company also
shall take such additional actions in furtherance of terminating the Phantom Unit Plan and
eliminating all Pool Shares thereunder as the Buyer may reasonably require.




          SECTION 7.03.  WARN Act. The Buyer shall be responsible for complying with the WARN
Act and any similar state, local or foreign Law, if applicable, with respect to any “plant
closings” or “mass layoffs” (within the meaning of the WARN Act) occurring on or after Closing.




          SECTION 7.04. Release Agreements. Each of the Key Employees shall have executed a Release
Agreement which shall provide for the payment by the Company prior to the Closing of any amounts
payable to such Key Employees under any Company Plan related to a change of control of the Company
applicable to such Key Employees in exchange for each Key Employee’s release and discharge of the
Company and each Subsidiary from all and any future payments of such change of control payments.




ARTICLE VIII

TAX MATTERS




          SECTION 8.01. Books and Records; Cooperation. The Buyer, on one hand, and the
Sellers and the Sellers’ Representative, on the other hand, agree to furnish or cause to be
furnished to the other, upon reasonable request, as promptly as practicable (and only during normal
business hours), such information and assistance relating to the Units and the Assets of the
Company, including access to books and records, as is reasonably necessary for the filing of all
Tax Returns by the Buyer or the Sellers and the Sellers’ Representative, the making of any election
relating to Taxes, the preparation for any audit by any taxing authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Taxes. Each of the Buyer, on one hand,
and the Sellers and the Sellers’ Representative, on the other hand, shall retain a copy of all
books and records with respect to Taxes pertaining to the Units and the Assets of the Company, for
a period of at least seven years following the Closing. At the end of such period, each of the
Buyer and the Sellers’ Representative shall provide the other with at least 10 days prior written
notice before transferring, destroying or discarding any such books and records, during which
period the party receiving such notice can elect to take possession, at its own expense, of such
books and records. The Buyer, on one hand, and the Sellers and the Sellers’ Representative, on the
other hand, shall cooperate fully with the other in the conduct of any audit, litigation or other
proceeding relating to Taxes involving the Units and the Assets of the Company. The Buyer, on one
hand, and the Sellers and the Sellers’ Representative, on the other hand, further agree, upon
reasonable request, to use their commercially reasonable efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to
the transactions contemplated hereby).




          SECTION 8.02.  Allocation of Taxes.




46









 





          (a) Except as otherwise provided in Section 8.05 hereof relating to Transfer Taxes, the
Sellers shall be responsible for and shall promptly pay when due all Taxes of the Company and all
Taxes levied with respect to the Units and the Assets of the Company, in each case, attributable to
the Pre-Closing Tax Period. All Taxes of the Company and all Taxes levied with respect to the Units
and the Assets of the Company, in each case, for the Straddle Period shall be apportioned between
the Pre-Closing Tax Period and the Post-Closing Tax Period, as follows:




          (i) in the case of any Taxes other than Taxes based upon or related to income or receipts, the
portion allocable to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for
the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in
the Tax period ending on the Closing and the denominator of which is the number of days in the
entire Straddle Period, and




          (ii) in the case of any Tax based upon or related to income or receipts, the portion allocable
to the Pre-Closing Tax Period shall be deemed equal to the amount which would be payable if the
relevant Straddle Period ended at the close of business on the Closing Date.



Each Seller shall also include any income, gain, loss, deduction or other tax items for any period
or portion thereof ending on or before the Closing Date on such Seller’s Tax Returns in a manner
consistent with the Schedule K-1s furnished by Company to such Seller for such period.




          (b) Upon receipt of any bill for such Taxes (including such Taxes relating to the Units or the
Assets of the Company), the Buyer, on one hand, and the Sellers and the Sellers’ Representative, on
the other hand, shall present a statement to the other setting forth the amount of reimbursement to
which each is entitled under this Section 8.02 together with such supporting evidence as is
reasonably necessary to calculate the proration amount. The proration amount shall be paid by the
party owing it to the other within 10 days after delivery of such statement. In the event that the
Buyer or the Sellers shall make any payment for which it is entitled to reimbursement under this
Section 8.02, the applicable party shall make such reimbursement promptly but in no event later
than 10 days after the presentation of a statement setting forth the amount of reimbursement to
which the presenting party is entitled along with such supporting evidence as is reasonably
necessary to calculate the amount of reimbursement. Notwithstanding the foregoing, the Buyer shall
not be liable for, and Cutler agrees to indemnify and hold harmless the Buyer, the Company, and
each Subsidiary for, (i) any Taxes of any Seller or the Company and any Taxes levied with respect
to the Units or the Assets of the Company, in each case, attributable to Pre-Closing Tax Periods,
or (ii) any other Taxes of any Seller for any periods.




          (c) Cutler shall indemnify the Buyer and, following the Closing, the Company, for any Damages
suffered by the Buyer as a result of the Internal Revenue Service recharacterizing the Contingent
Payments or the Non-U.S. Licensing Earn-Out Payments. For purposes of this Section 8.02(c),
Damages shall include any additional Tax, interest and penalties payable by the Buyer as a result
of such recharacterization (net of Tax Benefits from such recharacterization in accordance with
Section 9.04(d)), calculated taking into account the Buyer’s actual tax characteristics (e.g., so
that a reduction in net operating losses is not to be treated as a tax detriment except at the time
and to the extent such net operating losses could




47









 




actually have been used to offset the Buyer’s income). At Cutler’s request and expense, the
Buyer shall contest any recharacterization which would result in Cutler being obligated to make
payments pursuant to this Section 8.02(c), and Cutler shall have the right to control the conduct
of the portion of any such contest relating to such recharacterization (a “Recharacterization
Contest”); provided that Cutler shall keep the Buyer informed of the progress of such
Recharacterization Contest on a timely basis and, in connection with such Recharacterization
Contest, shall take any actions reasonably requested by the Buyer; provided further if Cutler has
the right to control the conduct and resolution of such Recharacterization Contest, but elects in
writing not to do so, is not diligently pursuing resolution of such Recharacterization Contest
after 10 days notice of such event given by the Buyer to Cutler or is not reasonably expected to
fully indemnify the Buyer pursuant to this Agreement for any Damages arising from such
Recharacterization Contest, then the Buyer shall, at Cutler’s expense, have the right to control
the conduct and resolution of such Recharacterization Contest, provided that the Buyer shall keep
Cutler informed of all developments on a timely basis and the Buyer shall not resolve such
Recharacterization Contest in a manner that could reasonably be expected to have a material adverse
effect on Cutler’s indemnification obligations under this Agreement without Cutler’s consent, which
consent shall not be unreasonably withheld; provided further (a) that if, within 10 days after
receiving notice of the Recharacterization Contest, Cutler agrees to, and within 30 days after
receiving such notice, in fact does, indemnify the Buyer for the full amount of Damages that would
be suffered by Buyer if the parties were to agree to the Internal Revenue Service’s position as
asserted in the Recharacterization Contest, then the Buyer shall control the conduct and resolution
of the Recharacterization Contest at the Buyer’s expense, and (b) if the Buyer elects in writing to
waive its right to indemnification pursuant to this Section 8.02(c), then the Buyer shall control
the conduct and resolution of such Recharacterization Contest at the Buyer’s expense.




          SECTION 8.03. Notices. The Sellers’ Representative shall promptly notify Buyer in
writing upon receipt by any Seller of notice of any pending or threatened federal, state, local or
foreign Tax audits or assessments relating to the income, properties or operations of any Seller
that reasonably may be expected to relate to the Units or the Assets or business of the Company.




          SECTION 8.04. Tax Clearance Certificate. If the Buyer so requests in writing, at the
Closing, the Sellers and the Sellers’ Representative shall use their commercially reasonable
efforts to provide the Buyer with a clearance certificate or similar document(s) which may be
required by any state taxing authority to relieve the Buyer of any obligation to withhold any
portion of the payments to the Sellers pursuant to this Agreement; provided that, in connection
with the Closing, the Buyer has not requested any and the Sellers and the Sellers’ Representative
have not provided any such tax clearance certificate.




          SECTION 8.05. Transfer Taxes. The Sellers’ Representative shall be liable for all
transfer, stamp, documentary, sales, use and similar Taxes arising from the transactions described in
this Agreement (the
“Transfer Taxes”). The Sellers’ Representative shall file in a timely fashion all Tax
Returns relating to such Transfer Taxes.




          SECTION 8.06. Miscellaneous.




48









 





          (a) The Sellers and the Sellers Representative, on the one hand, and the Buyer, on the other
hand, agree to treat all payments made by any of them to or for the benefit of the other (including
any payments to the Company or any Subsidiary) under this Article VIII, under other
indemnity provisions of this Agreement and for any misrepresentations or breaches of warranties or
covenants as adjustments to the Purchase Price or as capital contributions for Tax purposes and
that such treatment shall govern for purposes hereof except to the extent that the Laws of a
particular jurisdiction provide otherwise, in which case such payments shall be made in an amount
sufficient to indemnify the relevant party on an after-Tax basis.




          (b) Notwithstanding any provisions in this Agreement to the contrary, the obligations of
Cutler to indemnify and hold harmless the Buyer, the Company and the Subsidiaries pursuant to this
Article VIII and in accordance with Article IX, and the representations and
warranties contained in Section 3.05 and Section 4.23, shall terminate at the close of business on
the 60th day following the expiration of the applicable statute of limitations with respect to the
Tax liabilities in question (giving effect to any waiver, mitigation or extension thereof).




          (c) From and after the date of this Agreement, neither the Sellers nor the Sellers’
Representative shall, without the prior written consent of the Buyer (which may, in its reasonable
discretion, withhold such consent), make, or cause or permit to be made, any Tax election that
would affect the Company or any Subsidiary.




          (d) The Buyer shall be entitled to recover from Cutler professional fees and related costs
that the Buyer may reasonably incur to enforce the provisions of this Article VIII.




ARTICLE IX

INDEMNIFICATION




          SECTION 9.01. Survival of Representations and Warranties.




          (a) The representations and warranties of the Sellers and the Company contained in this
Agreement shall survive the Closing until one year following the Closing Date; provided, however,
that (i) the representations and warranties made pursuant to Sections 3.01, 3.02, 4.01, 4.02, 4.03
and 4.28 shall survive indefinitely and (ii) the representations and warranties dealing with Tax
matters and the Tax indemnities and obligations set forth in Article VIII shall survive as
provided in Section 8.06(b). Neither the period of survival nor the liability of Cutler with
respect to the representations and warranties of the Sellers or the Company shall be reduced by any
investigation made at any time by or on behalf of the Buyer. Notwithstanding the foregoing, if
written notice of a claim has been given prior to the expiration of the applicable
representations and warranties by the Buyer to the Sellers’ Representative, then the relevant
representations and warranties shall survive as to such claim, until such claim has been finally
resolved.




          (b) The representations and warranties of the Buyer contained in this Agreement shall survive
the Closing until one year following the Closing Date; provided, however, that the representations
and warranties made pursuant to Sections 5.01, 5.02 and 5.07 shall survive indefinitely. Neither
the period of survival nor the liability of the Buyer with




49









 




respect to the Buyer’s representations
and warranties shall be reduced by any investigation made at any time by or on behalf of the
Sellers. If written notice of a claim has been given prior to the expiration of the applicable
representations and warranties by the Sellers’ Representative to the Buyer, then the relevant
representations and warranties shall survive as to such claim, until such claim has been finally
resolved.




          SECTION 9.02. Indemnification by Cutler.




          (a) Subject to the applicable survival periods and limitations in Section 9.01 and the
limitations in Section 9.04, Cutler shall, in his individual capacity and not on behalf of any
other of the Sellers, indemnify, save and hold harmless the Buyer and its Affiliates (including the
Company and the Subsidiaries from and after the Closing) and their respective officers, directors,
employees, and agents, and each of their successors and permitted assigns (each, a “Buyer
Indemnified Party” and collectively, the “Buyer Indemnified Parties”) from and against
any and all costs, losses, demands, claims, debts, actions, assessments, judgments, settlements,
sanctions, obligations and other liabilities (whether absolute, accrued, contingent, fixed or
otherwise), monetary damages, fines, Taxes, fees, penalties, interest obligations, deficiencies and
expenses (including reasonable amounts paid in settlement, interest, court costs, costs of
investigation, reasonable fees and expenses of attorneys, accountants, financial advisors and other
experts, and other expenses of litigation or preparation for litigation as incurred) (herein,
“Damages”), incurred in connection with, arising out of, resulting from or incident to:





     (i) any untruth, inaccuracy, incorrectness or breach of any representation or warranty
made by the Sellers or the Company contained in this Agreement;




     (ii) any nonfulfillment, nonperformance, nonobservance or other breach of any covenant
or agreement by Cutler (including Cutler’s capacity as an individual Seller) or, prior to
the Closing, the Company contained in this Agreement;




     (iii) any indemnification obligations of Cutler as provided in Article VIII;
and




     (iv) fraud or willful misconduct by the Sellers, the Company or any of their Affiliates
in connection with or arising out of this Agreement or the transactions contemplated hereby.




     (b) Interpretation




     (i) The term “Damages” as used in this Section 9.02 is not limited to matters
asserted by third parties against a Buyer Indemnified Party, but includes Damages incurred
or sustained by the Buyer Indemnified Party in the absence of third party claims.




     (ii) For purposes of determining whether the Threshold has been met pursuant to Section
9.04(d), the representations, warranties, covenants or agreements of the Sellers or the
Company contained in this Agreement (including the Seller Disclosure Letter and the Company
Disclosure Letter) delivered by the Sellers and the Company pursuant hereto shall be deemed
not to be qualified by any limitation as to materiality (including the words “material” or
“Material Adverse Effect”), and Damages incurred or suffered arising out of any such
misrepresentation or breach shall be determined without



50









 






deduction on account of any
materiality qualification (including the words “material” or “Material Adverse Effect”)
contained in any representation, warranty, covenant or agreement giving rise to the claim
for indemnification hereunder.



          SECTION 9.03. No Effect on Liability.




          (a) Except as expressly provided herein, none of (i) the consummation of the transactions
contemplated by this Agreement, (ii) the delay or omission of any of the Buyer Indemnified Parties
to exercise any of its rights under this Agreement or (iii) any investigation or disclosure that
any party makes, any notice that any party gives, or any knowledge that any party obtains as a
result thereof, or otherwise, shall (A) affect the liability of Cutler to the Buyer Indemnified
Parties pursuant to this Article IX or Article VIII or (B) prevent the Buyer or any
other Buyer Indemnified Party from relying on the representations or warranties contained in this
Agreement.




          SECTION 9.04. Limits on Indemnification.




          (a) Threshold. Notwithstanding the provisions of Section 9.02, no Buyer Indemnified
Party shall seek, or be entitled to, indemnification from Cutler pursuant to Section 9.02 until the
aggregate claims for Damages of the Buyer Indemnified Parties are more than $100,000 (the
“Threshold”), in which event, the Buyer Indemnified Parties shall be entitled to recover
the full amount of such Damages, including Damages comprising the Threshold; provided, however,
that such Threshold will not apply to any claim for indemnification made by any Buyer Indemnified
Party that results from: (i) the indemnity obligations set forth in Section 9.02(a)(i) arising from
the representations and warranties set forth in Sections 3.01, 3.02, 4.01, 4.02, 4.03, 4.07(c),
4.23 or 4.28 or (ii) the indemnity obligations set forth in Sections 9.02(a)(iii) and 9.02(a)(iv).




          (b) Cap. No amounts shall be payable under this Article IX by Cutler to the Buyer
Indemnified Parties to the extent such payment would result in aggregate payments by Cutler in
excess of an amount equal to Four Million Dollars ($4,000,000) (the “Cap”); provided,
however that the Cap with respect to the indemnity obligations set forth in Section 9.02(a)(i)
arising from Section 4.23 and the indemnity obligations set forth in Section 9.02(a)(iii) shall be
payable by Cutler to the Buyer Indemnified Parties to the extent such payments would not result in
aggregate payments by Cutler under this Article IX in excess of Six Million Dollars
($6,000,000); provided further, that the Buyer Indemnified Parties may, without regard to the Cap,
recover from Cutler the full amount of Damages in connection with claims arising from (x) the
indemnity obligations set forth in Section 9.02(a)(i) arising from the representations and
warranties set forth in Sections 3.01, 3.02, 4.01, 4.02, 4.03, 4.07(c), or 4.28, (y) the indemnity
obligations in Section 9.02(a)(ii) or (z) the indemnity obligations in Section 9.02(a)(iv), except
that no amounts shall be payable by Cutler for Damages in connection with claims arising from (x)
and (y) to the extent such payment would result in aggregate payments by Cutler under this
Article IX in excess of an amount equal to that portion of the Purchase Price distributed
to Cutler in accordance with Section 1.03.




          (c) Insurance and Indemnity Recoveries. Any Damages for which the Buyer Indemnified
Parties may seek indemnification pursuant to this Article IX shall be net of (i) any




51









 




insurance recoveries received by the Buyer Indemnified Parties or to which the Buyer Indemnified
Parties’ insurance carrier has agreed, after inquiry by the Buyer, that the Buyer Indemnified
Parties are entitled to receive in respect of such Damages, which the Buyer shall in good faith
attempt to obtain to the extent such attempt is commercially reasonable, and (ii) any amounts
actually received by the Buyer Indemnified Parties from third parties in respect of such Damages
under an indemnification agreement, which the Buyer shall attempt in good faith to obtain to the
extent such attempt is commercially reasonable.




          (d) Tax Benefits. If any Damages for which the Buyer Indemnified Parties may seek
indemnification pursuant to this Article IX gives rise to a currently realizable Tax
Benefit by the Company or the Buyer, the Damages hereunder shall be reduced by the amount of the
Tax Benefit so available. For the purposes of this Section 9.04(d), a Tax Benefit is “currently
realizable” to the extent it can be reasonably anticipated that such Tax Benefit will be realized
in the current or four (4) subsequent taxable periods or years or in any Tax return with respect
thereto (including through a carryback to a prior taxable period) or in any taxable period or year
prior to the date of the indemnity claim. In the event that there should be a determination
disallowing the Tax Benefit, Cutler shall be liable to refund to the Buyer the amount of any
related reduction previously allowed pursuant to this Section 9.04(d). The amount of the refunded
reduction or payment shall be deemed to be Damages for purposes of Sections 9.04(a) and 9.04(b).
The parties agree that any Damages paid (or adjustments) made with respect to a Tax Benefit,
pursuant to this Agreement shall be treated for all Tax purposes as an adjustment to the Purchase
Price, unless otherwise required by applicable law, in which event payments shall be made in an
amount sufficient to indemnify the Buyer Indemnified Party on a net after-Tax basis.




          (e) Gross Negligence Limitation. No amounts of indemnity shall be payable as a result
of any claim in respect of Damages arising under this Article IX to the extent that any
such Damages arise from or were caused by the gross negligence of a Buyer Indemnified Party after
the Closing.




          (f) Exclusive Remedy. Except for any claim (a) grounded in fraud or willful
misconduct of any Person or (b) seeking specific performance, equitable relief or remedial action
against any Person, the parties hereto acknowledge and agree that, from and after the Closing Date,
the indemnification provisions of this Article IX shall be the exclusive remedy of the
Buyer Indemnified Parties against such Person with respect to the transactions contemplated by this
Agreement (including against any Seller other than Cutler). With respect to actions grounded in
fraud or willful misconduct or seeking equitable relief or remedial action against any Person, (y)
the right of a Buyer Indemnified Party to be indemnified and held harmless pursuant to the
indemnification provisions of this Article IX shall be in addition to and cumulative of any
rights of such party at law or in equity against such Person and (z) no such Buyer Indemnified
Party shall, by exercising the remedy available to it under this Article IX, be deemed to
have elected such remedy exclusively or to have waived any other remedy, whether at law or in
equity, available to it against such Person.




          (g) Notwithstanding anything to the contrary in this Agreement, no Seller (other than Cutler)
shall have any liability for monetary damages under this Agreement;



52









 




provided, however, that
this limitation shall not apply to any matter or claim arising separate and apart from the
Acquisition Documents.




          SECTION 9.05. Defense of Third Party Claims.




          (a) If any lawsuit or enforcement action is filed against a Buyer Indemnified Party by any
third party (each a “Third Party Claim”) for which indemnification under this Article
IX may be sought, written notice (“Third Party Notice”) thereof shall be given by the
Buyer Indemnified Party to Cutler as promptly as practicable, but in any event within 30 calendar
days of service. The Third Party Notice shall describe in reasonable detail the facts and
circumstances known to the Buyer Indemnified Party that gave rise to such indemnification claim,
and the amount or good faith estimate of the amount arising therefrom. Any delay in submitting a
Third Party Notice to Cutler shall not relieve him of any liability hereunder, except to the extent
that he may demonstrate actual material damage or prejudice caused by such failure, and then only
to the extent thereof.




          (b) After receipt of such Third Party Notice, if Cutler acknowledges in writing to the sender
that he is liable, and has indemnity obligations for any Damages resulting from any such Third
Party Claim, then Cutler shall be entitled, if he so elects at his own cost, risk and expense, (i)
to take control of the defense and investigation of such Third Party Claim, (ii) to employ and
engage attorneys of his own choice (provided, that such attorneys are reasonably acceptable to the
Buyer Indemnified Party) to diligently handle and defend the same, unless the
named parties to such action or proceeding include both one or more of any Seller and a Buyer
Indemnified Party, and the Buyer Indemnified Party has been advised by counsel that there are one
or more legal defenses available to such Buyer Indemnified Party that are different from or
additional to those available to an applicable Seller or there is otherwise a conflict of interest
that exists or is reasonably likely to exist that would make it inappropriate, in the reasonable
judgment of counsel to the Buyer Indemnified Party, for the same counsel to represent both the
Buyer Indemnified Party and any Seller, in which event such Buyer Indemnified Party shall be
entitled, at the cost and expense of Cutler, to separate counsel of its own choosing (provided,
that such cost and expense shall be limited to the reasonable fees of one firm of attorneys,
together with appropriate local counsel, for any such Third Party Claim) and (iii) to compromise or
settle such claim, which compromise or settlement shall be made only with the written consent of
the Buyer Indemnified Party, unless the settlement involves any payment of cash by Cutler and the
Buyer Indemnified Party and its Affiliates are released in full in connection with the settlement,
such consent not to be unreasonably withheld or delayed. Notwithstanding the foregoing, Cutler
shall not be entitled to assume the defense of any Third Party Claim if the Third Party Claim seeks
an order, injunction or other equitable relief or relief for other than money damages against the
Buyer Indemnified Party that the Buyer Indemnified Party reasonably determines, after conferring
with outside counsel, cannot be separated from any related claim for money damages. If such
equitable relief or relief for other than money damages portion of the Third Party Claim can be so
separated from that for money damages, Cutler shall be entitled to assume the defense of the
portion relating to money damages. If Cutler elects to assume the defense of a Third Party Claim,
the Buyer Indemnified Party shall cooperate in all reasonable respects with him and his attorneys
in the investigation, trial and defense of such Third Party Claim and any appeal arising therefrom;
provided, however, that the Buyer Indemnified Party may, at its own cost, participate in the
investigation, trial and defense of such lawsuit or action and any appeal arising therefrom




53









 




and
may, at its own expense, retain separate counsel of its choosing. The parties shall cooperate with
each other in any notifications to insurers.




          (c) If Cutler fails to notify the Buyer Indemnified Party within 30 calendar days after
receipt of the Third Party Notice that he elects to defend the Buyer Indemnified Party pursuant to
this Section 9.05 or if Cutler elects to defend the Buyer Indemnified Party pursuant to this
Section 9.05 but fails to diligently prosecute or settle the Third Party Claim, which failure
continues for 10 calendar days after notice to him from the Buyer Indemnified Party of such
failure, then the Buyer Indemnified Party against which such claim has been asserted will have the
right to undertake, and Cutler shall pay the cost and expense thereof of (which covenant to pay the
cost and expense thereof will constitute Damages), the defense, compromise or settlement of such
Third Party Claim on behalf of and for the account and risk of Cutler, so long as such Buyer
Indemnified Party diligently and in good faith defends, compromises or settles such Third Party
Claim. In such event, the Buyer Indemnified Party shall have full control of such defense and
proceedings; provided, however, that such claim shall not be compromised or settled without the
prior written consent of Cutler, which consent shall not be unreasonably withheld or delayed. If
the Buyer Indemnified Party assumes the defense of the claim, Cutler shall cooperate in all
reasonable respects with the Buyer Indemnified Party in such defense and make available to the
Buyer Indemnified Party at his expense, all such witnesses, records, materials and information in
the Sellers’ possession or under the Sellers’ control relating thereto as are reasonably required
by the Buyer Indemnified Party, and the Buyer Indemnified Party will keep Cutler reasonably
informed of the progress of any such defense, compromise or settlement.




          SECTION 9.06. Procedure for Claims between Parties. If a claim for Damages is to be
made by a Buyer Indemnified Party entitled to indemnification hereunder, such Buyer Indemnified
Party shall give written notice to Cutler as soon as reasonably practicable after the Buyer
Indemnified Party becomes aware that a fact, condition or event has occurred or exists which may
give rise to Damages for which indemnification by a Buyer Indemnified Party may be sought under
this Article IX (a “Claim Notice”). The Claim Notice shall (i) describe in
reasonable detail the facts and circumstances known to the Buyer Indemnified Party that gave rise
to such indemnification claim, and the amount or, if the amount cannot then be reasonably
determined, good faith estimate of the amount arising therefrom and (ii) provide for a demand of
payment of the amount or, if the amount cannot then be reasonably determined, a good faith estimate
of the amount arising from such claim for Damages. Any delay in submitting a Claim Notice to
Cutler shall not relieve him of any liability hereunder, except to the extent that he may
demonstrate actual material damage or prejudice caused by such failure, and then only to the extent
thereof.




          SECTION 9.07. Indemnification Payment.




          (a) If Cutler does not object in writing within the 30 calendar day period after delivery by
the Buyer Indemnified Party of a Claim Notice (an “Objection Notice”), such failure to so
object shall be an irrevocable acknowledgment by Cutler that the Buyer Indemnified Party(ies)
identified in the Claim Notice is entitled to the full amount of the claim for Damages set forth in
such Claim Notice. After the expiration of 30 calendar days after receipt of a Claim Notice from a
Buyer Indemnified Party to Cutler, the Buyer may unilaterally reduce the outstanding principal
amount of the Buyer Note 3 by an amount equal to the Damages specified




54









 




in the Claim Notice and
provide a written notice to Cutler specifying the amount of such reduction; provided, however that
no such reduction in the outstanding principal amount of the Buyer Note 3 shall be made if Cutler
shall have delivered an Objection Notice to the Buyer Indemnified Party prior to the expiration of
such 30 calendar day period.




          (b) In the event that (a) the Buyer Indemnified Party shall not have received an Objection
Notice within the 30 calendar day period specified in Section 9.07(a) or (b) Cutler shall have
delivered an Objection Notice and either (i) Cutler and the Buyer Indemnified Party shall have,
subsequent to the giving of such Objection Notice, mutually agreed that Cutler is obligated to
indemnify the Buyer Indemnified Party for a specified amount or (ii) a judgment shall have been
rendered by the court having jurisdiction over the matters relating to such claim (including any
decision that has been rendered by an arbitrator(s) and entered as a judgment in any court having
jurisdiction in accordance with Section 9.08), then, subject to the limitations set forth in
Section 9.04:





     (i) the Buyer shall have the right to first reduce the outstanding principal and
accrued but unpaid interest under the Buyer Note 3 by the amount of the Damages that Cutler
is obligated to pay to the Buyer Indemnified Party under this Article IX until the
Buyer Note 3 has been satisfied in full;




     (ii) the Buyer shall provide Cutler written notice of any such reduction in the Buyer
Note 3 pursuant to this Section 9.07 and the amount of additional Damages that Cutler is
obligated to pay pursuant to this Article IX; and




     (iii) thereafter, Cutler shall promptly pay to the Buyer Indemnified Party the
additional amount of specified Damages by wire transfer of immediately available funds, or
if the Buyer Note 1 or the Buyer Note 2, or any of the Contingent Note or Alternate Notes if
issued, shall not yet have been repaid in full, Cutler shall be able to elect to pay such
additional amount of specified Damages by having the Buyer reduce the outstanding principal
and accrued but unpaid interest on such Buyer Notes, Contingent Note or Alternate Contingent
Notes up to the amount of such additional amount of specified damages in lieu of making a
cash payment for such additional amount of specified Damages.



          SECTION 9.08. Resolution of Conflicts and Claims.




          (a) If the Buyer Indemnified Party receives an Objection Notice from Cutler within the 30
calendar day period set forth in Section 9.07(a), the Buyer Indemnified Party and Cutler shall
attempt in good faith to agree upon the rights of the respective parties with respect to each of
such claims. If the Buyer Indemnified Party and Cutler should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties.




          (b) If no such agreement can be reached after good faith negotiation and prior to 30 days
after delivery of an Objection Notice, the Buyer or Cutler, in its or his discretion, may:





               (i) demand arbitration of the matter unless (x) the amount of indemnifiable Damages
that could result from such matter is greater than $500,000 or (y)



55









 






the amount of the Damage
that is at issue is the subject of a pending litigation involving a Third Party Claim, in
which event arbitration shall not be commenced until such amount is ascertained and is less
than $500,000 or both parties agree to arbitration; or




               (ii) litigate such matter before any California State court or Federal court of the
United States of America, sitting in California, having jurisdiction.



          (c) If a disputed matter is properly the subject of arbitration pursuant to the terms of
Section 9.08(b), the matter shall be settled by arbitration conducted by one neutral arbitrator
mutually agreeable to Cutler and the Buyer. Such arbitrator shall be admitted to the Bar of the
State of New York or the State of California and shall have been a judge in either such state for a
period of not less than 10 years (the “Selection Criteria”). In the event that, within 15
days after submission of any dispute to arbitration, Cutler and the Buyer cannot mutually agree on
one arbitrator, then, within 15 days after the end of such 15 day period, Cutler and the Buyer
shall each select one arbitrator in accordance with the Selection Criteria. The two arbitrators so
selected shall select a third neutral arbitrator in accordance with the Selection Criteria and such
third arbitrator shall, acting alone, preside over the arbitration proceedings. If either Cutler
or the Buyer fails to select an arbitrator during this 15 day period, then the parties agree that the
arbitration will be conducted by one neutral arbitrator selected by the other party, if any.




          (d) Any such arbitration shall be held in San Diego, California, under the Streamlined
Arbitration Rules & Procedures then in effect of JAMS. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the designation of the
arbitrator. Except in the event that the arbitrator determines there has been fraud or willful
misconduct by a party, all expenses relating to the arbitration, including, the respective expenses
of each party, the fees of the arbitrator and the administrative fee of JAMS, shall be borne in
equal measure by Cutler and the Buyer. The arbitrator shall set a limited time period for the
conduct of each phase of the arbitration proceedings and establish procedures designed to reduce
the cost and time for adjudicating the subject matter of the dispute. The arbitrator shall rule
upon motions to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys’ fees and costs, to the same extent as a competent court of law or equity,
should the arbitrator determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The decision of the
arbitrator as to the validity and amount of any claim properly brought before such arbitrator
pursuant to the terms of this Section 9.08 shall be final, binding, and conclusive upon the parties
to this Agreement. The arbitrator’s decision shall be a reasoned decision and shall set forth the
award, judgment, decree or order awarded. Within 30 days of a decision of the arbitrator requiring
payment by Cutler or the Buyer, such payment shall be made by Cutler or a Buyer Indemnified Party
by wire transfer of immediately available funds, subject to Section 9.08.




          (e) Judgment upon any award rendered by the arbitrator may be entered in any court having
jurisdiction.




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ARTICLE X

GENERAL PROVISIONS




          SECTION 10.01. Certain Defined Terms. For purposes of this Agreement:




          “Accredited Investor Certificate” means the certificate of Cutler in substantially the
form attached hereto as Exhibit A, certifying Cutler’s status “accredited investor” within
the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act and Cutler’s
investment intent with respect to any securities of the Buyer received by Cutler pursuant to this
Agreement or the transactions contemplated by this Agreement.




          “Acquisition Documents” means this Agreement, the Ancillary Agreements, the Accredited
Investor Certificate, and any certificate, Financial Statements, Interim Financial Statements,
report or other document delivered pursuant to this Agreement or the transactions contemplated by
this Agreement.




          “Action” means any claim, action, suit, arbitration, proceeding or investigation by or
before any Governmental Authority.




          “Affiliate” means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under
common control with, such specified Person.




          “Alternate Contingent Notes” means Alternate Contingent Note 1, Alternate Contingent
Note 2 and Alternate Contingent Note 3.




          “Amended and Restated Operating Agreement” means the Amended and Restated Operating
Agreement in substantially the form attached hereto as Exhibit B, reflecting the Buyer as
the sole member of the Company, and the withdrawal of the Sellers as members of the Company.




          “Ancillary Agreements” means the Amended and Restated Operating Agreement, the
Assignment and Assumption of Units Agreement, the Buyer Notes, the Contingent Note, the Alternate
Contingent Notes, the Non-Compete Agreement, the Pledge Agreement, the Registration Rights
Agreement and the Release Agreements.




          “Articles of Organization” means the Limited Liability Company Articles of
Organization of the Company filed with the Secretary of State of the State of California on March
13, 2000, as amended by the Limited Liability Company Certificate of Amendment filed with the
Secretary of State of the State of California on June 6, 2000.




          “Assets” means the assets and properties of the Company and each Subsidiary reasonably
necessary for the continued operation of the Business as it is presently conducted.




          “Assignment and Assumption of Units Agreement” means an Assignment and Assumption of
Units Agreement to be executed by the Designated Buyer Subsidiary and each Seller in substantially
the same form attached hereto as Exhibit C.




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          “Beneficiary Demand Statements” means a statement from the applicable Company Lender
setting forth the amount necessary (including prepayment expenses) to pay in full all amounts owing
as of the Closing to such Company Lenders, and including wire transfer instructions necessary for
such payment. If all such amounts owed to the Company Lenders have been paid in full prior to the
Closing, such Beneficiary Demand Statements shall instead provide confirmation of the payment in
full prior to the Closing of such amounts owed to the Company Lenders.




          “Business Day” means any day that is not a Saturday, a Sunday or other day on which
banks are required or authorized by Law to be closed in The City of Los Angeles.




          “Buyer Common Stock” means the Class A common stock, no par value, of the Buyer.




          “Buyer Disclosure Letter” means the Buyer Disclosure Letter dated as of the date
hereof, delivered by the Buyer to the Sellers’ Representative in connection with this Agreement.




          “Buyer Note 1” means the senior note issued by the Buyer to Cutler in the form
attached hereto as Exhibit D in the aggregate principal amount of Fourteen Million Four
Hundred Thousand Dollars ($14,400,000) under the terms and conditions set forth therein.




          “Buyer Note 2” means the senior note issued by the Buyer to Cutler in the form
attached hereto as Exhibit E in the aggregate principal amount of Six Million Six Hundred
Seventy-Five Thousand Dollars ($6,675,000), as may be reduced in amount at the Closing and prior to
issuance and delivery pursuant to Section 1.02(a), under the terms and conditions set forth
therein.




          “Buyer Note 3” means the senior note issued by the Buyer to Cutler in the form
attached hereto as Exhibit F in the aggregate principal amount of Four Million Dollars
($4,000,000) under the terms and conditions set forth therein, and pledged to the Buyer under the
terms and conditions set forth in the Pledge Agreement.




          “Buyer Notes” means the Buyer Note 1, the Buyer Note 2 and the Buyer Note 3.




          “Buyer Debt Repayment Amount” means Four Million Forty Thousand Dollars ($4,040,000).




          “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended through the Closing.




          “CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability
Information System, as updated through the Closing.




          “Claims” means any and all administrative, regulatory or judicial actions, suits,
petitions, appeals, demands, demand letters, claims, liens, notices of noncompliance or violation,
investigations, proceedings, consent orders or consent agreements.




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




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          “Company Debt” means all of the consolidated Indebtedness together with interest
accrued on the principal amount thereof owed by the Company and any of its Subsidiaries, excluding
any Indebtedness owed by the Company to a wholly-owned Subsidiary or any Indebtedness owed by a
wholly-owned Subsidiary to the Company, through the date of Closing to the Company Lenders as set
forth in Section 4.07(c) of the Company Disclosure Letter and confirmed by the Beneficiary Demand
Statements delivered by the Company Lenders to the Buyer no later than the second Business Day
prior to the Closing.




          “Company Intellectual Property” means Intellectual Property owned by the Company or
any Subsidiary.




          “Company IP Agreements” means (a) licenses of Intellectual Property by the Company or
any Subsidiary to any third party, (b) licenses of Intellectual Property by any third party to the
Company or any Subsidiary, (c) agreements between the Company or any Subsidiary and any third party
relating to the development or use of Intellectual Property, and (d) consents,
settlements, decrees, orders, injunctions, judgments or rulings governing the use, validity or
enforceability of Company Intellectual Property.




          “Company’s Knowledge” the actual knowledge after due inquiry of Neal Cutler, Sam
Simmons, Susan Leveille, Elvis Reyes, Lee Tintle, Paul Duffy and John Sramek.




          “Company Lenders” means Wells Fargo Bank, National Association and Merrill Lynch Bank
USA.




          “Company Software” means all Software (a) material to the operation of the Business or
(b) manufactured, distributed, sold, licensed or marketed by the Company or any Subsidiary.




          “Contracts” means any of the agreements, arrangements, contracts, leases, powers of
attorney, notes, bonds, loans, mortgages, indentures, evidence of indebtedness, purchase orders,
letters of credit, settlement agreements, franchise agreements, undertakings, covenants not to
compete, employment agreements, licenses, instruments, obligations, commitments, understandings,
policies, purchase and sales orders, quotations and other executory commitments to which any Person
is a party or to which any of the assets of such Person are subject, whether oral or written,
express or implied.




          “control” (including the terms “controlled by” and “under common control
with”), with respect to the relationship between or among two or more Persons, means the
possession, directly or indirectly or as trustee, personal representative or executor, of the power
to direct or cause the direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee, personal representative or executor, by Contract,
credit arrangement or otherwise.




          “Copyrights” means mask works, rights of publicity and privacy, and copyrights in
works of authorship of any type, including Software, registrations and applications for
registration thereof throughout the world, all rights therein provided by international treaties
and conventions, all moral and common law rights thereto, and all other rights associated
therewith.




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          “Cutler” means Neal R. Cutler.




          “Cutler Debt Repayment Amount” means an amount of cash or assumption of Indebtedness
necessary to cause the Company Debt to not exceed Four Million Dollars ($4,000,000) as of the
Closing.




          “Diligence Materials” means the documents as of the second Business Day prior to the
Closing Date contained in the DataSite database maintained by the Company with Merrill Corporation
and made available to the Buyer and its representatives via the Internet.




          “Encumbrance” means any security interest, pledge, hypothecation, mortgage, lien
(including environmental and tax liens), violation, charge, lease, license, encumbrance, servient
easement, adverse claim, reversion, reverter, preferential arrangement, purchase right, assessment,
commitments, restrictive covenant, condition or restriction of any kind, including
any restriction on the use, voting, transfer, receipt of income or other exercise of any
attributes of ownership.




          “Environment” means surface waters, groundwaters, soil, subsurface strata and ambient
air.




          “Environmental Claims” means any Claims relating in any way to any Environmental Law
or any Environmental Permit, including (a) any and all Claims by Governmental Authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (b) any and all Claims by any Person seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the
Environment.




          “Environmental Laws” means all Laws, as amended and now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment, health, safety,
natural resources or Hazardous Materials, including CERCLA; the Resource Conservation and Recovery
Act, 42 U.S.C. §§ 6901 et seq.; the Hazardous Materials Transportation Act, 49
U.S.C. §§ 6901 et seq.; the Clean Water Act, 33 U.S.C. §§ 1251 et
seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the
Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§
300f et seq. and the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
§§ 136 et seq.




          “Environmental Permits” means all permits, approvals, identification numbers, licenses
and other authorizations required under or issued pursuant to any applicable Environmental Law.




          “Equity Participations” means any security or right entitling the holder, absolutely
or contingently, to participate in the revenues or equity appreciation of another Person, including
membership interests, units, performance units, options, warrants, company appreciation rights,
interests in “phantom” stock plans, restricted or contingent stock or profits interests, voting
securities, stock appreciation rights or equivalents, stock loan purchase plans, convertible
debentures or stock bonus plans.




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          “ERISA Affiliate” means any entity which is a member of a “controlled group of
corporations” with or under “common control” with the Company, within the meaning of Sections
414(b), (c), (m) or (o) of the Code.




          “Exchange Act” means the Securities Exchange Act of 1934, as amended.




          “Existing Operating Agreement” means the Third Amended and Restated Operating
Agreement of the Company dated as of June 14, 2001.




          “GAAP” means United States generally accepted accounting principles and practices in
effect from time to time applied consistently throughout the periods involved.




          “Governmental Authority” means any federal, national, supranational, state,
provincial, local, or similar government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.




          “Gross Product Revenues” means with respect to the Product during the first full six
calendar months, the gross sales of the Product in the U.S. before any adjustments for any
discounts, rebates or returns.




          “Hazardous Materials” means (a) petroleum and petroleum products, radioactive
materials, asbestos-containing materials, urea formaldehyde foam insulation, transformers or other
equipment that contain polychlorinated biphenyls and radon gas, (b) any other chemicals, materials
or substances defined as or included in the definition of “hazardous substances”, “hazardous
wastes”, “hazardous materials”, “extremely hazardous wastes”, “restricted hazardous wastes”, “toxic
substances”, “toxic pollutants”, “contaminants” or “pollutants”, or words of similar import, under
any applicable Environmental Law, and (c) any other chemical, material or substance which is
regulated by any Environmental Law.




          “Indebtedness” means, with respect to any Person, (a) all indebtedness of such Person,
whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred
purchase price of property or services (other than trade payables and expense accruals in the
ordinary course of business consistent with past practice), (c) all obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been or should be, in accordance with
GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities, (g) all Indebtedness of others referred
to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through an agreement otherwise to
assure a creditor against loss, and (h) all Indebtedness referred to in clauses (a) through (f)
above secured by (or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights)
owned by such Person, even though such Person has not assumed or become liable for the payment of
such Indebtedness.




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          “Intellectual Property” means (a) Patents, (b) Trademarks, (c) Copyrights, (d) Trade
Secrets and (e) Software.




          “Inventories” means all inventory, merchandise, finished goods, and raw materials,
packaging, labels, supplies and other personal property maintained, held or stored for sale in the
ordinary course of business by or for the Company or any Subsidiary at the Closing, and any prepaid
deposits for any of the same.




          “IRS” means the Internal Revenue Service of the United States.




          “Key Employees” means Paul Duffy, Susan Leveille, Elvis Reyes, Samuel Simmons and Lee
Tintle.




          “Law” means any statute, law, constitution, ordinance, regulation, rule, notice, court
decision, agency guideline, requirement or rule of law (including common law), code or edict
issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Authority.




          “Leased Real Property” means the real property leased by the Company or any Subsidiary
as tenant, together with, to the extent leased by the Company or any Subsidiary, all buildings and
other structures, facilities or improvements currently or hereafter located thereon, all fixtures,
systems, equipment and items of personal property of the Company or any Subsidiary attached or
appurtenant thereto and all easements, licenses, rights and appurtenances relating to the
foregoing.




          “Letter Agreement” means that certain Letter Agreement between the Buyer, the Company
and Cutler attached hereto as Exhibit G, executed concurrently with this agreement.




          “Liabilities” or “Liability” means any and all Indebtedness, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined
or determinable, including those arising under any Law, Action or order, writ, injunction, award,
judgment, decree, resolution, stipulation, or determination by any Governmental Authority, and
those arising under any Contract, arrangement, commitment or undertaking.




          “Licensed Intellectual Property” means Intellectual Property licensed to the Company
or any Subsidiary pursuant to the Company IP Agreements.




          “Material Adverse Effect” means any circumstance, change in or effect on the Business,
the Company (considered on a consolidated basis with the Subsidiaries) that, individually or in the
aggregate with all other circumstances, changes in or effects on the Business, the Company or the
Subsidiaries: (a) is or is reasonably likely to be materially adverse to the business, operations,
Assets or Liabilities (including contingent liabilities), employee relationships, customer or
supplier relationships, results of operations or the condition (financial or otherwise) of the
Business, or the Company and the Subsidiaries, taken together as a whole, or (b) is reasonably
likely to materially adversely effect the ability of the Buyer to operate or conduct the Business
in the manner in which it is currently or contemplated to be operated or conducted by the Company
or any Subsidiary, it being understood that in no event shall any of




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the following be deemed by
itself or by themselves, either individually or in the aggregate, to constitute a Material Adverse
Effect: (i) the failure of the Company to meet projections of earnings, revenues or other
financial measure (whether such projections were made by the Company or independent third parties),
in and of itself (it being understood that the facts or occurrences giving rise or contributing to
such failure may be deemed to constitute, or be taken into account in determining whether there has
been, or will be, a Material Adverse Effect) or (ii) changes or other developments in the
pharmaceutical industry or the general economic or financial conditions which are not unique to the
Company but also affect other Persons who participate in the pharmaceutical industry, which changes
or developments do not
disproportionately affect the Company relative to the other participants in the pharmaceutical
industry in any material respect.




          “Net Non-US Licensing Revenues” means, with respect to the Product during each fiscal
quarter in the Contingent Payment Period, the licensing revenues, including royalties and milestone
payments, actually received by the Buyer or any of its Affiliates from a Person (excluding any
Affiliate of the Buyer) pursuant to any sublicense agreement with such Person for any territory
outside of the United States relating directly and solely to the Product, reduced by any royalty
payments to CIMA Labs, Inc. pursuant to the Company’s contractual obligations to CIMA Labs, Inc.
for such payments.




          “Net Product Revenues” means, with respect to the Product during each fiscal quarter
in the Contingent Payment Period, the sum of (i) the net sales of the Product in the U.S. as would
be shown in the Buyer’s consolidated financial statements for such quarter prepared in accordance
with GAAP and (ii) the net sales of the Product in the U.S. as would be shown in the consolidated
financial statements prepared in accordance with GAAP for such quarter of any Person to which a
sublicense directly related to the Product has been granted.




          “Non-Compete Agreement” means a Non-Compete Agreement in substantially the form
attached hereto as Exhibit H.




          “Patents” means United States, foreign and international patents, patent applications
and statutory invention registrations, including reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by
international treaties and conventions.




          “Permitted Encumbrances” means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced and as to which
neither the Company nor any Subsidiary is otherwise subject to civil or criminal liability due to
its existence: (a) liens for Taxes not yet due and payable, for which adequate reserves have been
maintained in accordance with GAAP; (b) Encumbrances imposed by Law, such as materialmen’s,
mechanics’, carriers’, workmen’s and repairmen’s liens and other similar liens arising in the
ordinary course of business securing obligations that are not yet due and payable and are not in
excess of $5,000 in the case of a single property or $50,000 in the aggregate at any time; (c)
pledges or deposits to secure obligations under workers’ compensation laws or similar legislation
or to secure public or statutory obligations; and (d) minor survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that (i) were not incurred in
connection with any Indebtedness, (ii) do not render title to




63









 




the property encumbered thereby
unmarketable and (iii) do not, individually or in the aggregate, materially adversely affect the
value of or the use of such property for its current and anticipated purposes.




          “Person” means any individual, partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity, as well as any syndicate
or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.




          “Phantom Unit Plan” means the Alamo Pharmaceuticals, LLC Phantom Unit Plan.




          “Pharmaceutical Laws” means Laws primarily regulating the testing, clinical trials,
manufacturing, storage, packaging, sale or distribution of drugs and/or medical device products.




          “Pledge Agreement” means the pledge agreement in the form attached hereto as
Exhibit I to be executed by Cutler providing for the pledge of the Buyer Note 3 as a
security for the performance by Cutler of his obligations under Article IX.




          “Pool Shares” means the Equity Participations granted by the Company under the Phantom
Unit Plan.




          “Post-Closing Tax Period” means any Tax period beginning after the Closing and that
portion of any Straddle Period beginning after the Closing.




          “Pre-Closing Tax Period” means any Tax period ending on or before the Closing and the
portion of any Straddle Period ending on the Closing.




          “Product” means an orally disintegrating tablet dosage form of clozapine, USP sold in
the United States pursuant to New Drug Application No. 21-590 and currently marketed under the
trademark FazaClo.




          “Receivables” means any and all accounts receivable, notes and other amounts
receivable from third parties, including customers and employees, arising from the conduct of the
Business before the Closing, whether or not in the ordinary course, together with any unpaid
financing charges accrued thereon.




          “Regulations” means the Treasury Regulations (including Temporary Regulations)
promulgated by the United States Department of Treasury with respect to the Code or other federal
tax statutes.




          “Registration Rights Agreement” means the registration rights agreement between the
Buyer and Cutler in the form attached hereto as Exhibit J providing for the registration of
the resale of the shares of the Buyer Common Stock issuable upon conversion of the Buyer Notes, if
any, into shares of the Buyer Common Stock under the Securities Act with the Securities and
Exchange Commission pursuant to the terms and conditions set forth therein.




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          “Release” means disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying, seeping, placing and the like into or upon any land or water
or air or otherwise entering into the Environment.




          “Release Agreements” mean the releases in the form attached hereto as Exhibit
K executed by each Key Employee providing for the payment by the Company prior to the Closing
of any amounts payable to such Key Employees under any Company Plan related to a change of control
of the Company applicable to such Key Employees in exchange for each Key Employee’s
release and discharge of the Company and each Subsidiary from all and any future claims for
such change of control payments.




          “Remedial Action” means all action to (a) clean up, remove, treat or handle in any
other way Hazardous Materials in the Environment; (b) prevent the Release of Hazardous Materials so
that they do not migrate, endanger or threaten to endanger public health or the Environment; or (c)
perform remedial investigations, feasibility studies, corrective actions, closures and
post-remedial or post-closure studies, investigations, operations, maintenance and monitoring.




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




          “Seller Disclosure Letter” means the Seller Disclosure Letter dated as of the date
hereof, delivered by the Sellers’ Representative to the Buyer in connection with this Agreement.




          “Sellers’ Accountants” means Grant Thornton LLP.




          “Sellers’ Representative” initially means Cutler. In the event of (a) the death or
permanent disability of the Sellers’ Representative or (b) the Sellers’ Representative’s
resignation as the Sellers’ Representative for any reason, the Sellers holding a majority of the
Sharing Percentages shall by written notice to the Buyer, appoint a successor Sellers’
Representative within 30 calendar days. Each successor Sellers’ Representative shall have all of
the power, authority, rights and privileges conferred by this Agreement upon the original Sellers’
Representative, and the term “Seller’s Representative” as used herein shall be deemed to include
any successor Sellers’ Representative.




          “Sharing Percentage” of each Seller means a fraction (expressed as a percentage) the
numerator of which is the number of Units owned by such Seller as of the Closing and the
denominator of which is the aggregate number of Units owned by all Sellers as of the Closing.




          “Software” means computer software, programs and databases in any form, including
Internet web sites, web content and links, source code, object code, operating systems and
specifications, data, databases, database management code, utilities, graphical user interfaces,
menus, images, icons, forms, methods of processing, software engines, platforms and data formats,
all versions, updates, corrections, enhancements and modifications thereof, and all related
documentation, developer notes, comments and annotations.




          “Straddle Period” means any Tax period beginning before and ending after the Closing.




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          “Subsidiary” or “Subsidiaries” means any corporation, partnership, limited
liability company, joint venture or other legal entity of which the Company, as the case may be
(either alone or through or together with any other subsidiary), owns, directly or indirectly,
greater than 40% of the Units, stock or other Equity Participations, the holders of which are
generally entitled to vote for the election of the Board of Directors or other governing body of
such corporation or other legal entity, or of which the Company is the managing member, general
partner, or which the Company is otherwise contractually entitled to direct and control such
entity.




          “Tax” or “Taxes” means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest, penalties, additions to
tax and additional amounts imposed with respect thereto) imposed by any government or taxing
authority, whether disputed or not, including taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers’ compensation, unemployment compensation, or net
worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value added, or gains taxes, license, registration and documentation fees; and customs’ duties,
tariffs, and similar charges.




          “Tax Benefit” means an amount by which the Tax liability of the Buyer or, following
the Closing, the Company is reduced (including by deduction, reduction of income by virtue of
increased Tax basis or otherwise, entitlement to refund, credit or otherwise) plus any related
interest received from the relevant taxing authority. Where the Buyer or, following the Closing,
the Company, has other losses, deductions, credits or items available to it, the Tax Benefit from
any losses, deductions, credits or items relating to the Damages shall be deemed to be realized
only after the utilization of such other losses, deductions, credits or items.




          “Tax Returns” means any return, declaration, report, election, claim for refund or
information return or other statement or form relating to, filed or required to be filed with any
Tax authority, including any schedule or attachment thereto or any amendment thereof.




          “Trade Secrets” means trade secrets, know-how and other confidential or proprietary
technical, business and other information, including manufacturing and production processes and
techniques, research and development information, technology, drawings, specifications, designs,
plans, proposals, technical data, financial, marketing and business data, pricing and cost
information, business and marketing plans, customer and supplier lists and information, and all
rights in any jurisdiction to limit the use or disclosure thereof.




          “Trademarks” means trademarks, service marks, trade dress, logos, trade names,
corporate names, URL addresses, domain names and symbols, slogans and other indicia of source or
origin, including the goodwill of the business symbolized thereby or associated therewith, common
law rights thereto, registrations and applications for registration thereof throughout the world,
all rights therein provided by international treaties and conventions, and all other rights
associated therewith.




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      SECTION 10.02. Definitions. The following terms have the meanings set forth in the
Sections set forth below:




	 	 	 
	Definition	 	Location
	“401(k) Plan”
	 	7.02(a)
	“Agreement”
	 	Preamble
	“Allocation”
	 	1.06(a)
	“Alternate Contingent Note 1”
	 	1.04(d)(i)(A)
	“Alternate Contingent Note 2”
	 	1.04(d)(ii)(A)
	“Alternate Contingent Note 3”
	 	1.04(d)(iii)(A)
	“Alternate Run Rate Contingent Payment”
	 	1.04(d)(iii)
	“Ancillary Lease Documents”
	 	4.16(d)
	“Business”
	 	Recitals
	“Buyer”
	 	Preamble
	“Buyer Indemnified Party” or “Buyer Indemnified Parties”
	 	9.02(a)
	“Buyer SEC Filings”
	 	5.06(a)
	“Claim Notice”
	 	9.06
	“Closing”
	 	2.01
	“Closing Date”
	 	2.01
	“Company”
	 	Recitals
	“Company Marks”
	 	6.01(a)
	“Consent Contracts”
	 	4.14(a)
	“Contingent Note”
	 	1.04(c)
	“Contingent Payment Dispute Notice”
	 	1.04(f)
	“Contingent Payment Quarterly Report”
	 	1.04(e)
	“Contingent Payment Period”
	 	1.04(a)
	“Contingent Payments”
	 	1.04(a)(ii)
	“Continuing Employees”
	 	7.01(a)
	“Cutler Debt Repayment Amount”
	 	2.03
	“Cutler Threshold Amount”
	 	1.03
	“Damages”
	 	9.02(a)
	“Designated Buyer Subsidiary”
	 	1.07
	“ERISA”
	 	4.21(a)
	“Excess Returns Amount”
	 	1.05(a)
	“Excess Returns Notice”
	 	1.05(a)
	“D&O Indemnified Parties”
	 	6.09
	“FDA”
	 	4.24(d)
	“Financial Statements”
	 	4.07(a)(ii)
	“IMS”
	 	1.04(c)
	“Independent Accounting Firm”
	 	1.04(f)
	“Initial Contingent Payment”
	 	1.04(a)(i)
	“Initial Contingent Payment Determination Period”
	 	1.04(a)(i)
	“Initial Run Rate Contingent Payment”
	 	1.04(d)(i)






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	Definition	 	Location
	“Initial Run Rate Contingent Payment Determination
Period”
	 	1.04(d)(i)
	“Interim Financial Statements”
	 	4.07(a)(iii)
	“lease”
	 	4.14(a)
	“Material Contracts”
	 	4.14(a)
	“Multiemployer Plan”
	 	4.20(c)
	“Multiple Employer Plan”
	 	4.20(c)
	“Non-US
Licensing Earn-Out Payment” or “Non-US Licensing
Earn-Out Payments”
	 	1.04(b)
	“NSP Report”
	 	1.04(c)
	“Objection Notice”
	 	9.07(a)
	“Options”
	 	4.16(d)
	“Permits”
	 	4.24(a)
	“Plans”
	 	4.21(a)
	“Programs”
	 	4.24(c)
	“Purchase Price”
	 	1.02(a)
	“Recharacterization Contest”
	 	8.02(c)
	“Returns Dispute Notice”
	 	1.05(b)
	“Run Rate Contingent Payments”
	 	1.04(d)(iii)
	“Section 1542”
	 	6.06(b)
	“Selection Criteria”
	 	9.08(c)
	“Sellers”
	 	Preamble
	“Subsequent Contingent Payment”
	 	1.04(a)(ii)
	“Subsequent Contingent Payment Determination Period”
	 	1.04(a)(ii)
	“Subsequent Run Rate Contingent Payment”
	 	1.04(d)(ii)
	“Subsequent Run Rate Contingent Payment Determination
Period”
	 	1.04(d)(ii)
	“Supplemental Data”
	 	4.07(d)
	“Third Party Claim”
	 	9.05(a)
	“Third Party Notice”
	 	9.05(a)
	“Threshold”
	 	9.04(a)
	“Transfer Taxes”
	 	8.05
	“Units”
	 	Recitals
	“WARN Act”
	 	4.21(d)






          SECTION 10.03. Interpretation and Rules of Construction. In this Agreement, except
to the extent otherwise provided or that the context otherwise requires:




          (a) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule,
such reference is to an Article or Section of, or a Schedule or Exhibit to, this Agreement;




68









 








          (b) the table of contents and headings for this Agreement are for reference purposes only and
do not affect in any way the meaning or interpretation of this Agreement;




          (c) whenever the words “include,” “includes” or “including” are used in this Agreement, they
are deemed to be followed by the words “without limitation”;




          (d) the words “hereof,” “herein” and “hereunder” and words of similar import, when used in
this Agreement, refer to this Agreement as a whole and not to any particular provision of this
Agreement;




          (e) all terms defined in this Agreement have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto, unless otherwise defined therein;




          (f) the definitions contained in this Agreement are applicable to the singular as well as the
plural forms of such terms;




          (g) any Law defined or referred to herein or in any agreement or instrument that is referred
to herein means such Law or statute as from time to time amended, modified or supplemented,
including by succession of comparable successor Laws;




          (h) references to a Person are also to its successors and permitted assigns; and




          (i) the use of “or” is not intended to be exclusive unless expressly indicated otherwise.




          SECTION 10.04. Expenses. Except as otherwise specified in this Agreement, all costs
and expenses, including fees and disbursements of counsel, financial advisors and accountants,
incurred in connection with this Agreement and the transactions contemplated by this Agreement
shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have
occurred. Notwithstanding the foregoing, without limitation, the Buyer shall be responsible for
the payment of all fees of legal counsel to the Buyer and fees of Banc of America Securities
directly related to the transactions contemplated by this Agreement, and the Sellers shall be
responsible for the payment of all fees of legal counsel to the Sellers and fees of
Goldman, Sachs & Co. directly related to the transactions contemplated by this Agreement.




          SECTION 10.05. Notices. All notices, requests, demands, Claims and other
communications which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered; when transmitted if
transmitted by confirmed facsimile with a copy sent by another means specified herein; the business
day after it is sent, if sent for next day delivery to a domestic address by recognized overnight
delivery service (e.g., Federal Express); and five business days after the date mailed by certified
or registered mail, postage prepaid, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:



If to the Buyer, addressed to:



Avanir Pharmaceuticals




69









 




11388 Sorrento Valley Rd

San Diego, CA 92121



Attn: Eric K. Brandt

Telephone: (858) 622-5200

Fax: (858) 658-7447



with a copy to:



Latham & Watkins LLP

650 Town Center Drive

20th Floor

Costa Mesa, California 92626

Attn: Cary K. Hyden and Jonn R. Beeson

Telephone: (714) 540-1235

Fax: (714) 755-8290



If to the Sellers, addressed to:



PO Box 3637

Beverly Hills, CA 90212-0637

Attn: Neal R. Cutler, as Sellers’ Representative

Telephone:

Fax:



with a copy to:



Milbank, Tweed, Hadley & McCloy LLP

601 South Figueroa Street, 30th Floor

Los Angeles, California 90017

Attn: Brett Goldblatt

Telephone: (213) 892-4000

Fax: (213) 629-5063



If to Cutler, addressed to:



Neal
R. Cutler


[Address]



Telephone:

Fax:



with a copy to:



Milbank, Tweed, Hadley & McCloy LLP

601 South Figueroa Street, 30th Floor

Los Angeles, California 90017




70









 




Attn: Brett Goldblatt

Telephone: (213) 892-4000

Fax: (213) 629-5063



or to such other place and with such other copies as each of the Buyer, the Sellers’ Representative
and Cutler may designate as to itself by written notice to the other (in accordance with this
Section 10.05).




          SECTION 10.06. Public Announcements. Neither party hereto shall make, or cause to be
made, any press release or public announcement in respect of this Agreement or the transactions
contemplated hereby or otherwise communicate with any news media without the prior written consent
of the other party unless otherwise required by Law, applicable stock exchange regulation or order,
writ, injunction, judgment, arbitration ruling, award, or decree by any Governmental Authority, and
the parties hereto shall cooperate as to the timing and contents of any such press release, public
announcement or communication.




          SECTION 10.07. Titles. The titles, captions or headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.




          SECTION 10.08. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced as a result of any rule of law or public policy,
all other terms and other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions contemplated by this
Agreement is not affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent
of the parties as closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are fulfilled to the greatest extent possible.




          SECTION 10.09. Entire Agreement. This Agreement, including the Schedule and Exhibits
hereto, the Seller Disclosure Letter and the other agreements, documents and written understandings
referred to herein or otherwise entered into or delivered by the parties hereto on the date of this
Agreement (including the Ancillary Agreements), constitute the entire agreement and understanding
and supersede all other prior covenants, agreements, undertakings, obligations, promises,
arrangements, communications, representations and warranties, whether oral or written, by any party
hereto or by any director, officer, employee, agent, Affiliate or Representative of any party
hereto. There are no covenants, agreements, undertakings or obligations with respect to the
subject matter of this Agreement other than those expressly set forth or referred to herein or in
other agreements, documents and written understandings entered into or delivered by the parties
hereto on the date of this Agreement, and no representations or warranties of any kind or
nature whatsoever, express or implied, including any implied warranties of merchantability or
fitness for a particular purpose, are made or shall be deemed to be made herein by the parties
hereto except those expressly made herein.




          SECTION 10.10. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Sellers without the prior written consent of the




71









 




Buyer, or assigned by the Buyer without the prior written consent of the Sellers, except that the
Buyer may, without such consent but with prior notice to the Sellers, assign its rights hereunder;
provided that such assignee executes a joinder to and agrees to be bound by this Agreement.
Notwithstanding the foregoing, no such assignment shall release the assignor from any of its
obligations hereunder.




          SECTION 10.11. Amendment. This Agreement may not be amended except in an instrument
in writing signed on behalf of each of the parties hereto or by a waiver in accordance with Section
10.12. No amendment, supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby.




          SECTION 10.12. Waiver. Each party to this Agreement may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties of the other parties contained herein or in any
document delivered by the other party pursuant hereto or (c) waive compliance with any of the
agreements of the other parties or conditions to such parties’ obligations contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in writing signed by the
party to be bound thereby. Except where a specific period for action or inaction is provided
herein, neither the failure nor any delay on the part of any party in exercising any right, power
or privilege under this Agreement or the documents referred to in this Agreement shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right, power or
privilege, nor any single or partial exercise of any such right, power or privilege, preclude any
other or further exercise thereof or the exercise of any other such right, power or privilege. The
failure of a party to exercise any right conferred herein within the time required shall cause such
right to terminate with respect to the transaction or circumstances giving rise to such right, but
not to any such right arising as a result of any other transactions or circumstances.




          SECTION 10.13. No Third Party Beneficiaries. This Agreement shall be binding upon
and shall inure to the benefit of, the parties hereto and their respective successors and permitted
assigns. This Agreement and all of its conditions and provisions are for the sole and exclusive
benefit of the parties hereto and their respective successors and permitted assigns, and nothing in
this Agreement, express or implied, is intended to confer upon any Person, including any union or
any employee or former employee of the Seller, other than the parties hereto any rights or remedies
of any nature whatsoever, including any rights of employment for any specified period, under or by
reason of this
Agreement or any provision hereof; provided, however, that any Person that is not a party to
this Agreement but, by the terms of Section 9.02, is entitled to indemnification, shall be
considered a third-party beneficiary of this Agreement, with full rights of enforcement as though
such Person was a signatory to this Agreement.




          SECTION 10.14.  Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties would be damaged irreparably, and in a manner for which monetary
damages would not be an adequate remedy, in the event any of the provisions of this Agreement are
not performed in accordance with its specific terms or otherwise are breached. Accordingly, each
of the parties hereto agrees that the other parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically
this Agreement and the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the




72









 




parties and the matter, in addition
to any other remedy to which they may be entitled, at law or in equity.




          SECTION 10.15. Governing Law. This Agreement (and any claim or controversy arising
out of or relating to this Agreement) shall be governed by the law of the State of California
without regard to conflict of law principles that would result in the application of any law other
than the law of the State of California.




          SECTION 10.16. Consent to Jurisdiction. Subject to Section 9.07, each party to this
Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the
exclusive jurisdiction of any California State court, or Federal court of the United States of
America, sitting in California, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the agreements delivered in connection
herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of
any judgment relating thereto, and each of the parties hereby irrevocably and unconditionally (A)
agrees not to commence any such action or proceeding except in such courts, (B) agrees that any
claim in respect of any such action or proceeding may be heard and determined in such California
State court or, to the extent permitted by law, in such Federal court, (C) waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or hereafter have to
the laying of venue of any such action or proceeding in any such California State or Federal court,
and (D) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such California State or Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by Law. Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 10.04. Nothing in this Agreement will affect the right
of any party to this Agreement to serve process in any other manner permitted by Law.




          SECTION
10.17. Attorneys’ Fees. Should any litigation be commenced between the parties hereto
concerning this Agreement, or in
connection with the performance, breach or interpretation hereof, the party prevailing in such
litigation shall be entitled, in addition to such other relief as may be granted, to reimbursement
of all reasonable costs and expenses of such litigation, including attorneys’ fees, court costs,
costs of investigation and other costs reasonably related to such litigation.




          SECTION 10.18. Currency. Unless otherwise specified in this Agreement, all
references to currency, monetary values and dollars set forth herein shall mean United States
(U.S.) dollars and all payments hereunder shall be made in United States dollars.




          SECTION 10.19. Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party may otherwise have at
law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of other rights or remedies.




          SECTION 10.20. Representation by Counsel. Each party hereto represents and agrees
with each other that it has been represented by or had the opportunity to be represented




73









 




by,
independent counsel of its own choosing, and that it has had the full right and opportunity to
consult with its respective attorney(s), that to the extent, if any, that it desired, it availed
itself of this right and opportunity, that it or its authorized officers (as the case may be) have
carefully read and fully understand this Agreement in its entirety and have had it fully explained
to them by such party’s respective counsel, that each is fully aware of the contents thereof and
its meaning, intent and legal effect, and that it or its authorized officer (as the case may be) is
competent to execute this Agreement and has executed this Agreement free from coercion, duress or
undue influence.




          SECTION 10.21. Execution and Counterparts. This Agreement may be executed in one or
more counterparts, each of which when executed shall be deemed an original and all of which
together shall constitute one and the same instrument. The parties agree that this Agreement shall
be legally binding upon the electronic transmission, including by facsimile or email, by each party
of a signed signature page to this Agreement to the other party.




          SECTION 10.22. Disclosure. Nothing in the Seller Disclosure Letter, the Company
Disclosure Letter or the Buyer Disclosure Letter shall be deemed adequate to disclose an exception
to a representation or warranty made herein unless the Seller Disclosure Letter, the Company
Disclosure Letter or the Buyer Disclosure Letter, as the case may be, identifies the exception with
particularity and describes the relevant facts in reasonable detail. Notwithstanding the
foregoing, it is expressly understood and acknowledged that any information disclosed in the Seller
Disclosure Letter, the Company Disclosure Letter or the Buyer Disclosure Letter under any numbered
or lettered part
shall be deemed to relate to and qualify representations and warranties set forth in one or
more other parts of the Seller Disclosure Letter, the Company Disclosure Letter or the Buyer
Disclosure Letter, as the case may be, but only where the relevance of such disclosure to such
other part or parts is clear from the text of such disclosure; provided, however, the mere listing
(or inclusion of a copy) of a document or other item shall not by itself be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the representation or
warranty has to do with the existence of the document or item itself).




[Signature Pages Follow]





74









 







          IN WITNESS WHEREOF, each of the parties, by its duly authorized representative, has
entered into this Agreement as of the date first above written.




	 	 	 	 	 
	 

	 	BUYER	 	 
	 
	 	 	 	 
	 

	 	AVANIR PHARMACEUTICALS	 	 
	 
	 	 	 	 
	 

	 	/s/ Eric K. Brandt	 	 
	 

	 	 

By: Eric K. Brandt
	 	 
	 

	 	Its: President and Chief Executive Officer	 	 





Signature Page to Unit Purchase Agreement




 









 








	 	 	 	 	 
	 

	 	COMPANY	 	 
	 
	 	 	 	 
	 

	 	ALAMO PHARMACEUTICALS, LLC	 	 
	 
	 	 	 	 
	 

	 	/s/ Neal R. Cutler	 	 
	 

	 	 

By: Neal R. Cutler
	 	 
	 

	 	Its: Manager	 	 





Signature Page to Unit Purchase Agreement




 









 








	 	 	 	 	 
	 

	 	SELLERS	 	 
	 
	 	 	 	 
	 

	 	NEAL R. CUTLER	 	 
	 
	 	 	 	 
	 

	 	/s/ Neal R. Cutler	 	 
	 

	 	 

Neal R. Cutler
	 	 





Signature Page to Unit Purchase Agreement




 









 








	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Robert D. English	 	 
	 

	 	 	 	 

Print Name of Seller
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Robert D. English	 	 
	 

	 	 	 	 

Signature of Seller
	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Name of Seller
	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Signature of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Name of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Title of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 	 	Address for
Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 1
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 2
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 3
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Attention
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Facsimile
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Telephone
	 	 





Signature Page to Unit Purchase Agreement




 









 








	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Michael Beckloff	 	 
	 

	 	 	 	 

Print Name of Seller
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Michael Beckloff	 	 
	 

	 	 	 	 

Signature of Seller
	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Name of Seller
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Signature of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Name of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Title of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 1
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 2
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 3
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Attention
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Facsimile
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Telephone
	 	 





Signature Page to Unit Purchase Agreement




 









 








	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Angelico Carta	 	 
	 

	 	 	 	 

Print Name of Seller
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Angelico Carta	 	 
	 

	 	 	 	 

Signature of Seller
	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Name of Seller
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Signature of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Name of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Print Title of Authorized Signatory
	 	 
	 
	 	 	 	 	 	 
	 	 	Address for
Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 1
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 2
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Address – Line 3
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Attention
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Facsimile
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Telephone
	 	 





Signature Page to Unit Purchase Agreement





 










 







	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Anthony R. Disanto	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  /s/ Anthony R. Disanto	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement




 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Robert M. Lichten	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  /s/ Robert M. Lichten	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement





 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Lee Tintle	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  /s/ Lee Tintle	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement




 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  John J. Sramek	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ John J. Sramek	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement




 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Samuel Simmons	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Samuel Simmons	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement




 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Paul F. Duffy	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  /s/ Paul F. Duffy	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement




 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Robert L. Sevy	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  /s/ Robert L. Sevy	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address – Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address – Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address – Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 





Signature Page to Unit Purchase Agreement




 









 






	 	 	 	 	 	 	 
	 	 	SELLERS	 	 
	 
	 	 	 	 	 	 
	 	 	FOR INDIVIDUALS:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Seller	 	 
	 
	 	 	 	 	 	 
	 	 	FOR ENTITIES:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  United Healthcare Services, Inc.	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Seller	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Stephen J. Hemsley	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Signature of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Stephen J. Hemsley	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Name of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  President and COO, United Health Group	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Print Title of Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices :	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  United Health Group Incorporated	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 1	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  9900 Bren Road East	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 2	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  Minnetanka, MN 55343	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Address — Line 3	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  General Counsel & VP Corporate Development	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attention	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  952-936-1398	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Facsimile	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	  952-936-5744	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Telephone	 	 






Signature Page to Unit Purchase Agreement




 









 





SCHEDULE A




     Unit Holders     




	 	 	 
	 

	 	Michael Beckloff
	 

	 	Angelico Carta
	 

	 	Neal Cutler
	 

	 	Tony Disanto
	 

	 	Paul Duffy
	 

	 	Robert English
	 

	 	Robert Lichten
	 

	 	Bob Sevy
	 

	 	Sam Simmons
	 

	 	John Sramek
	 

	 	Lee Tintle
	 

	 	United Healthcare







 









 







Exhibit B




FOURTH AMENDED AND RESTATED

LIMITED LIABILITY COMPANY OPERATING AGREEMENT

OF

ALAMO PHARMACEUTICALS, LLC




     THIS FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the
“Agreement”) of Alamo Pharmaceuticals, LLC (the “Company”) is entered into by
Avanir Pharmaceuticals, a California corporation, as the sole member (the “Member”),
effective as of May 24, 2006 (the “Effective Date”).



     The Member, by execution of this Agreement, hereby continues the existence of the Company as a
limited liability company pursuant to the provisions in the Beverly-Killea Limited Liability
Company Act, §17000, et seq., as it may be amended from time to time, and any successor to such
statute (the “Act”). The rights and obligations of the Member and the administration and
termination of the Company shall be governed by this Agreement and the Act. The Agreement shall be
considered the “Operating Agreement” of the Company within the meaning of Section 17001(ab) of the
Act. To the extent this Agreement is inconsistent in any respect with the Act, this Agreement
shall control.



     1. Organizational and Other Matters.



     (a) Name. The name of the Company shall be “Alamo Pharmaceuticals, LLC”.



     (b) Principal Business Office. The principal business office of the Company
shall be located at 11388 Sorrento Valley Road, San Diego, California 92121.



     (c) Registered Agent. The name and address of the registered agent of the
Company for service of process on the Company in the State of California is CT Corporation
System, 818 West 7th Street, Los Angeles, California 90017, or as otherwise
determined by the Member from time to time.



     (d) Term. The Company shall have a perpetual existence.



     (e) Articles of Organization. The Company was formed as a limited liability
company under the Act by the filing of Articles of Organization with the Secretary of State
of the State of California on March 13, 2000, as the same may be amended, restated or
supplemented from time to time. The Member or an Officer (as defined below) shall execute,
deliver and file any other certificates (and any amendments, supplements and/or restatements
thereof) necessary for the Company to qualify to do business in any jurisdiction in which
the Company may wish to conduct business. The existence of the Company as a separate legal
entity shall continue until cancellation of the Articles of Organization as provided in the
Act.



 









 





     2. Purpose. The business purpose of the Company is to engage in any lawful act or
activity for which a limited liability company may be engaged under applicable law (including,
without limitation, the Act).



     3. Management of Company. All decisions relating to the business, affairs, and
properties of the Company shall be made by the Member. Any person appointed as an officer or
manager of the Company prior to the Effective Date is hereby removed, provided that, at any time
after the Effective Date, the Member may appoint a Board of Managers (the “Managers”) and
may also appoint a President or one or more Vice Presidents and such other officers of the Company
as the Member may deem necessary or advisable (the “Officers”) to manage the day-to-day
business affairs of the Company. The Managers, and each of them, and the Officers, and each of
them, shall have the authority to act on behalf of, bind, and execute and deliver documents in the
name and on behalf of the Company. No such delegation shall cause the Member to cease to be a
Member. The Member may remove any Manager or Officer and may increase or decrease the number of
Managers and Officers at any time for any reason.



     4. Distributions and Allocations. Each distribution of cash or other property by the
Company shall be made 100% to the Member. Each item of income, gain, loss, deduction, or credit of
the Company shall be treated as income, gain, loss, deduction or credit (as applicable) of the
Member.



     5. Exculpation. As of the Effective Date, neither (i) the Member, (ii) any affiliate
of the Member, nor (iii) any officer, director, employee, or agent of the Company, the Member or
any of its affiliates, shall be liable, responsible, or accountable in damages or otherwise to the
Company or the Member by reason of, or arising from, the operations, business, or affairs of, or
any action taken or failure to act on behalf of, the Company except for its or his gross negligence
or willful misconduct.



     6. Indemnity. The Company shall indemnify and hold harmless (i) the Member, (ii) any
affiliate of the Member, and (iii) any officer, director, employee, or agent of the Company, the
Member or any of its affiliates, (each, an “Indemnitee”), from and against any claim, loss,
damage, liability, or reasonable expense (including reasonable attorneys’ fees, court costs, and
costs of investigation and appeal) suffered or incurred by any such Indemnitee by reason of, or
arising from, the operations, business, or affairs of, or any action taken or failure to act on
behalf of, the Company.



     7. Dissolution and Winding Up. The Company shall dissolve and its business and
affairs shall be wound up pursuant to a written instrument executed by the Member.



     8. Amendments. This Agreement may be amended or modified from time to time only by a
written instrument executed by the Member.



     9. Governing Law. The validity and enforceability of this Agreement shall be governed
by and construed in accordance with the laws of the State of California without regard to otherwise
governing principles of conflicts of law.



Signature Page to Fourth Amended and Restated Operating Agreement




 









 








     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first
above written.



	 	 	 	 	 
	 	MEMBER:



AVANIR PHARMACEUTICALS, a California corporation

 	 
	 	By:  	/s/ Eric K. Brandt
 	 
	 	 	Eric K. Brandt 	 
	 	 	President and Chief Executive Officer 	 



Signature Page to Fourth Amended and Restated Operating Agreement