Document:

exv10w1

Exhibit 10.1

LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 21, 2008 (the “Effective Date”)
between SILICON VALLEY BANK, a California corporation and with a loan production office located at
4370 La Jolla Village Drive, Suite 860, San Diego, California 92122 (“SVB”), as collateral agent
(the “Collateral Agent”), and the Lenders listed on Schedule 1.1 thereof and party hereto,
including without limitation, SVB and OXFORD FINANCE CORPORATION, (“OXFORD”) and SOMAXON
PHARMACEUTICALS, INC., a Delaware corporation (“Borrower”), provides the terms on which Lenders
shall lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:

     1 ACCOUNTING AND OTHER TERMS

     Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and
determinations must be made following GAAP. Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in Section 13. All other terms contained in this
Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent
such terms are defined therein.

     2 LOAN AND TERMS OF PAYMENT

     2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Lenders the outstanding
principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.

     2.1.1 Term Loan.

          (a) Availability. Subject to the terms and conditions of this Agreement, during the
Draw Period, Lenders agree, severally and not jointly, to make one (1) loan available to Borrower
in an amount up to the Term Loan, according to each Lender’s pro-rata share of the Term Loan based
upon the respective Commitment Percentage of each Lender. After repayment, the Term Loan may not
be re-borrowed.

          (b) Interest Payments. Commencing on the first Payment Date of the month following
the month in which the Funding Date occurs, Borrower shall make monthly payments of interest, in
arrears, at the rate set forth in Section 2.2(a).

          (c) Repayment. Commencing on the Amortization Date, and continuing on the Payment
Date of each month thereafter, Borrower shall make consecutive equal monthly payments of principal
and interest, in arrears, to each Lender, as calculated by the Collateral Agent based upon: (1) the
amount of the Term Loan multiplied by each Lender’s Commitment Percentage, (2) the effective rate
of interest, as determined in Section 2.2(a), and (3) a repayment schedule equal to thirty (30)
months. All unpaid principal and accrued interest with respect to the Term Loan is due and payable
in full on the Term Loan Maturity Date. Payments received after 12:00 p.m. Pacific time are
considered received at the opening of business on the next Business Day. The Term Loan may only be
prepaid in accordance with Sections 2.1.1(d) and 2.1.1(e).

          (d) Mandatory Prepayment Upon an Acceleration. If the Term Loan is accelerated
following the occurrence of an Event of Default or otherwise, Borrower shall immediately pay to
Lenders an amount equal to the sum of: (i) all outstanding principal plus accrued interest, (ii)
the Prepayment Fee, (iii) the Final Payment, plus (iv) all other sums, that shall have become due
and payable, including interest at the Default Rate with respect to any past due amounts.

          (e)  Permitted Prepayment of Loans. Borrower shall have the option to prepay all,
but not less than all, of the Term Loan advanced by Lenders under this Agreement, provided Borrower
(i) provides written notice to Collateral Agent of its election to prepay the Term Loan at least
thirty (30) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all
outstanding principal plus accrued interest, (B) the Prepayment

 

 

Fee, (C) the Final Payment, plus
(D) all other sums, that shall have become due and payable, including interest at the Default Rate
with respect to any past due amounts.

     2.2 Payment of Interest on the Credit Extensions.

          (a) Interest Rate. Subject to Section 2.2(b), the principal amount outstanding under
the Term Loan shall accrue interest at a fixed per annum rate equal
to 9.57%, which interest shall
be payable monthly in accordance with Section 2.2.(e).

          (b) Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, the Credit Extensions shall bear interest at a rate per annum which is five
percentage points above the rate that is otherwise applicable thereto (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Collateral Agent.

          (c) 360-Day Year. Interest shall be computed on the basis of a 360-day year
comprising twelve (12) months consisting of thirty (30) days.

          (d) Debit of Accounts. Collateral Agent may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or any other amounts
Borrower owes Lenders under the Loan Documents when due unless other arrangements are made for
Borrower to make certain principal and interest payments to any Lender, as provided in Section
2.1.1(c). These debits shall not constitute a set-off.

          (e) Payments. Unless otherwise provided, interest is payable monthly on the Payment
Date of each month. Payments of principal and/or interest received after 12:00 p.m. Pacific time
are considered received at the opening of business on the next Business Day. When a payment is due
on a day that is not a Business Day, the payment is due the next Business Day and additional fees
or interest, as applicable, shall continue to accrue.

     2.3 Secured Promissory Notes. Each Term Loan shall be evidenced by a Secured Promissory Note
in the form attached as Exhibit D hereto (each a “Secured Promissory Note”), and shall be
repayable as set forth herein. The Borrower irrevocably authorizes each Lender to make or cause to
be made, on or about the Funding Date of any Term Loan or at the time of receipt of any payment of
principal on such Lender’s Secured Promissory Note, an appropriate notation on such Lender’s
Secured Promissory Note Record reflecting the making of such Term Loan or (as the case may be) the
receipt of such payment. The outstanding amount of each Term Loan set forth on such Lender’s
Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing
and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount
on such Lender’s Secured Promissory Note Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Secured Promissory Note to make payments of principal of or
interest on any Secured Promissory Note when due. Upon receipt of an affidavit of an officer of a
Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, which
affidavit shall include customary indemnification obligations of such Lender, the Borrower shall
issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof
and of like tenor.

     2.4 Fees. Borrower shall pay to Collateral Agent:

          (a) Commitment Fee. A fully earned, non-refundable commitment fee of Seventy-Five
Thousand Dollars ($75,000) to be shared between the Lenders pursuant to their respective Commitment
Percentages;

          (b) Prepayment Fee. The Prepayment Fee, as and when due hereunder;

          (c) Final Payment. The Final Payment, as and when due hereunder; and

          (d) Lenders’ Expenses. All Lenders’ Expenses (including reasonable attorneys’ fees
and expenses, plus expenses, for documentation and negotiation of this Agreement) incurred through
and after the Effective Date, when due.

 

 

     3 CONDITIONS OF LOANS

     3.1 Conditions Precedent to Initial Credit Extension. Each Lender’s obligation to make the
initial Credit Extension is subject to the condition precedent that Borrower shall consent to or
shall have delivered, in form and substance satisfactory to Lenders, such documents, and completion
of such other matters, as Lenders may reasonably deem necessary or appropriate, including, without
limitation:

          (a) duly executed original signatures to the Loan Documents to which Borrower is a party;

          (b) duly executed original signatures to the Control Agreement[s];

          (c) duly executed original Secured Promissory Notes in favor of each Lender according to its
Commitment Percentage in amounts not to exceed the Term Loans;

          (d) Operating Documents and a good standing certificate of Borrower certified by the Secretary
of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the
Effective Date;

          (e) duly executed original signatures to the completed Borrowing Resolutions for Borrower;

          (f) Collateral Agent shall have received certified copies, dated as of a recent date, of
financing statement searches, as Collateral Agent shall request, accompanied by written evidence
(including any UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with the initial Credit
Extension, will be terminated or released;

          (g) intentionally
deleted;

          (h) a legal opinion of Borrower’s counsel dated as of the Effective Date together with the
duly executed original signatures thereto;

          (i) evidence satisfactory to Collateral Agent that the insurance policies required by Section
6.5 hereof are in full force and effect, together with appropriate evidence showing loss payable
and/or additional insured clauses or endorsements in favor of Collateral Agent, for the ratable
benefit of the Lenders; and

          (j) payment of the fees and Lenders’ Expenses then due as specified in Section 2.4 hereof.

     3.2 Conditions Precedent to all Credit Extensions. The obligation of each Lender to make each
Credit Extension, including the initial Credit Extension, is subject to the following:

          (a) except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance
Form;

          (b) the representations and warranties in Section 5 shall be true in all material respects on
the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to any portions of the
representations and warranties that already are qualified or modified by materiality; and provided,
further that those representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no Event of Default shall
have occurred and be continuing or result from the Credit Extension. Each Credit Extension is
Borrower’s representation and warranty on that date that the representations and warranties in
Section 5 remain true in all material respects; provided, however, that such materiality qualifier
shall not be applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those representations and
warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date; and

          (c) there has not been any Material Adverse Change.

     3.3 Covenant to Deliver. Borrower agrees to deliver to Collateral Agent each item required to
be delivered to Collateral Agent under this Agreement as a condition to any Credit Extension.
Borrower expressly agrees that a Credit Extension made prior to the receipt by Collateral Agent of
any such item shall not constitute a

 

 

waiver by Lenders of Borrower’s obligation to deliver such item, and any such Credit Extension
in the absence of a required item shall be in Collateral Agent’s sole discretion.

     3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable
conditions to the making of the Term Loan set forth in this Agreement, to obtain the Term Loan,
Borrower shall notify Collateral Agent (which notice shall be irrevocable) by electronic mail,
facsimile, or telephone by 12:00 noon Eastern time five (5) Business Days prior to the date the
Term Loan is to be made. Together with any such electronic or facsimile notification, Borrower
shall deliver to Collateral Agent by electronic mail or facsimile a completed Payment/Advance Form
executed by a Responsible Officer or his or her designee. Upon receipt of a Payment/Advance Form,
Collateral Agent shall promptly provide a copy of the same to each Lender. Collateral Agent may
rely on any telephone notice given by a person whom Collateral Agent reasonably believes is a
Responsible Officer or designee. On the Funding Date, each Lender shall credit and/or transfer (as
applicable) to Borrower’s Designated Deposit Account, an amount equal to its Commitment Percentage
multiplied by the amount of the Term Loan.

     4 CREATION OF SECURITY INTEREST

     4.1 Grant of Security Interest. Borrower hereby grants Collateral Agent, for the ratable
benefit of the Lenders, and to each Lender, to secure the payment and performance in full of all of
the Obligations, a continuing security interest in, and pledges to Collateral Agent, for the
ratable benefit of the Lenders, and to each Lender, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower
represents, warrants, and covenants that the security interest granted herein is and shall at all
times continue to be a first priority perfected security interest in the Collateral (subject only
to Permitted Liens that may have superior priority under this Agreement). If Borrower shall
acquire a commercial tort claim, Borrower shall promptly notify Collateral Agent in a writing
signed by Borrower of the general details thereof (and further details as may be required by
Collateral Agent) and grant to Collateral Agent, for the ratable benefit of the Lenders, and to
each Lender in such writing a security interest therein and in the proceeds thereof to secure the
payment and performance in full of all of the Obligations, all upon the terms of this Agreement,
with such writing to be in form and substance reasonably satisfactory to Collateral Agent.

     Notwithstanding the foregoing, in the event that Borrower closes a Qualified Financing, the
Collateral Agent, and each Lender shall, at Borrower’s sole cost and expense, release its Liens in
the Collateral and all rights therein shall revert to Borrower; provided that in connection with,
and from and after, the consummation of such Qualified Financing, Borrower shall grant to
Collateral Agent, for the ratable benefit of the Lenders, and to each Lender, to secure the payment
and performance in full of all of the Obligations, a continuing security interest in, and pledge to
Collateral Agent, for the ratable benefit of the Lenders, and to each Lender a first perfected
security interest in favor of the Lenders, not avoidable under applicable solvency or bankruptcy
laws, in a certificate of deposit maintained at SVB in otherwise unrestricted and unencumbered
funds in the minimum amount of the aggregate outstanding Obligations from time to time (the “CD”).
The release of Lenders’ Lien hereunder may be delayed to take into consideration any applicable
preference periods under bankruptcy laws.

     If this Agreement is terminated, Collateral Agent’s and each Lender’s Lien in the Collateral
shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full
in cash. Upon payment in full in cash of the Obligations (other than inchoate indemnity
obligations) and at such time as the Lenders’ obligation to make Credit Extensions has terminated,
the Collateral Agent, and each Lender shall, at Borrower’s sole cost and expense, release its Liens
in the Collateral and all rights therein shall revert to Borrower.

     4.2 Authorization to File Financing Statements. Borrower hereby authorizes Collateral Agent
to file financing statements, without notice to Borrower, with all appropriate jurisdictions to
perfect or protect Collateral Agent’s and each Lender’s interest or rights hereunder, including a
notice that any disposition of the Collateral, by either Borrower or any other Person, shall be
deemed to violate the rights of the Collateral Agent and the Lenders under the Code.

     5 REPRESENTATIONS AND WARRANTIES

          Borrower represents and warrants as follows:

 

 

     5.1 Due Organization, Authorization: Power and Authority. Borrower and each of its
Subsidiaries, if any, are duly existing and in good standing, as Registered Organizations in their
respective jurisdictions of formation and are qualified and licensed to do business and are in good
standing in any jurisdiction in which the conduct of their business or their ownership of property
requires that they be qualified except where the failure to do so could not reasonably be expected
to have a material adverse effect on Borrower’s business. In connection with this Agreement,
Borrower has delivered to Collateral Agent a completed perfection certificate signed by Borrower
(the “Perfection Certificate”). Borrower represents and warrants that as of the date of the
Perfection Certificate, (a) Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection
Certificate accurately sets forth Borrower’s organizational identification number or accurately
states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s
place of business, or, if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and each of its predecessors)
has not, in the past five (5) years, changed its jurisdiction of formation, organizational
structure or type, or any organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and each of its
Subsidiaries is accurate and complete. If Borrower is not now a Registered Organization but later
becomes one, Borrower shall promptly notify Collateral Agent of such occurrence and provide
Collateral Agent with Borrower’s organizational identification number.

     The execution, delivery and performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational
documents, (ii) contravene, conflict with, constitute a default under or violate any Requirement of
Law, except where such violation would not have a material adverse effect on Borrower’s business,
(iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries
or any of their property or assets may be bound or affected, (iv) require any action by, filing,
registration, or qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in full force and
effect) or are being obtained pursuant to Section 6.1(b), except where the failure to so obtain a
Governmental Approval would not have a material adverse effect on Borrower’s business, or (v)
constitute a material breach under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which it is a party or by which it is bound in which the
default could reasonably be expected to have a material adverse effect on Borrower’s business.

     5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each
item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and
all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts
with Collateral Agent, the deposit accounts, if any, described in the Perfection Certificate
delivered to Collateral Agent in connection herewith, or of which Borrower has given Collateral
Agent notice and taken such actions as are necessary to give Collateral Agent a perfected security
interest therein.

     The Collateral is not in the possession of any third party bailee (such as a warehouse) except
as otherwise provided in the Perfection Certificate or as otherwise permitted herein. No portion
of the components of the Collateral, except for Finished Inventory, in excess of One Hundred
Thousand Dollars ($100,000), shall be maintained at locations other than as provided in the
Perfection Certificate or as permitted pursuant to Section 7.2. In the event that Borrower, after
the date hereof, intends to store or otherwise deliver any portion of the Collateral in excess of
One Hundred Thousand Dollars ($100,000), except for Finished Inventory to a bailee other than those
listed in the Perfection Certificate, then Borrower will first receive the written consent of
Collateral Agent and at the election of Collateral Agent, such bailee shall execute and deliver a
bailee agreement in form and substance satisfactory to Collateral Agent in its sole discretion.

     All Commercial Inventory is in all material respects of good and marketable quality, free from
material defects.

     Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by,
any material license or other material agreement with respect to which Borrower is the licensee
that (a) prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such material license or material agreement or any other property, or (b) for which a
default under or termination of could interfere with Collateral Agent’s right to sell any
Collateral. Borrower shall provide written notice to Collateral Agent within thirty (30) days

 

 

of entering or becoming bound by any such license or agreement (other than over-the-counter
software that is commercially available to the public). Borrower shall take such steps as
Collateral Agent reasonably requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for (x) all such material licenses or material agreements to be
deemed “Collateral” and for Collateral Agent and each Lender to have a security interest in it that
might otherwise be restricted or prohibited by law or by the terms of any such license or, whether
now existing or entered into in the future, and (y) Collateral Agent shall have the ability in the
event of a liquidation of any Collateral to dispose of such Collateral in accordance with
Collateral Agent’s rights and remedies under this Agreement and the other Loan Documents.
Notwithstanding the foregoing, the terms of the previous sentence shall not apply to and the
Collateral shall not include license agreements solely for the use of Intellectual Property of a
third party with respect to which Borrower is the licensee.

     5.3 Litigation. There are no actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries
involving more than One Hundred Thousand Dollars ($100,000).

     5.4 No Material Deviation in Financial Statements. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Collateral Agent fairly present, in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated results of
operations, in each case as of the respective dates hereof. Except with respect to spending of
cash in the ordinary course of business, provided that Borrower is not in violation of any other
provision hereof, there has not been any material deterioration in Borrower’s consolidated
financial condition since the date of the most recent financial statements submitted to Collateral
Agent.

     5.5 Solvency. The fair salable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; Borrower is able to pay its debts
(including trade debts) as they mature.

     5.6 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled”
by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not
engaged in extending credit for margin stock (under Regulations T and U of the Federal Reserve
Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor
Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an
“affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is
defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any
laws, ordinances or rules, the violation of which could reasonably be expected to have a material
adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by
previous Persons, in disposing, producing, storing, treating, or transporting any hazardous
substance other than in material compliance with all applicable laws. Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all Government Authorities that are necessary to continue
their respective businesses as currently conducted, except where the failure to do so would not
have a material adverse effect on Borrower’s business.

     5.7 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.

     5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower, except where the failure to do so would
not have a material adverse effect on Borrower’s business or as permitted in the next sentence.
Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Collateral Agent in writing of the commencement of, and any
material development in, the proceedings, (c) posts bonds or takes any other steps required to
prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of
the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to, any such plan which
could reasonably

 

 

be expected to result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

     5.9 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as
working capital and to fund its general business requirements and not for personal, family,
household or agricultural purposes.

     5.10 Full Disclosure. No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Collateral Agent or any Lender, as of the date such
representation, warranty, or other statement was made, taken together with all such written
certificates and written statements given to Collateral Agent or any Lender, contains any untrue
statement of a material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading (it being recognized that the
projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions
are not viewed as facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected or forecasted results).

     6 AFFIRMATIVE COVENANTS

     Borrower shall do all of the following:

     6.1 Government Compliance.

          (a) Maintain its and all its Subsidiaries’ legal existence and good standing in their
respective jurisdictions of formation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s
business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws,
ordinances and regulations to which it is subject, noncompliance with which could have a material
adverse effect on Borrower’s business.

          (b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its
obligations under the Loan Documents to which it is a party and the grant of a security interest to
Collateral Agent for the ratable benefit of the Lenders, in the Collateral. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Collateral Agent.

     6.2 Financial Statements, Reports, Certificates.

          (a) Deliver to Collateral Agent: (i) as soon as available, but no later than sixty (60) days
after the last day of Borrower’s fiscal year end, Borrower’s budget for the following fiscal year
as approved by Borrower’s Board of Directors; (ii) within ten (10) days of delivery, copies of all
statements, reports and notices made available to all of Borrower’s security holders or to any
holders of Subordinated Debt; except to the extent otherwise filed with the Securities and Exchange
Commission on its EDGAR web site; (iii) within five (5) days of filing, all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission, except to the extent otherwise
filed with the Securities and Exchange Commission on its EDGAR web site; (iv) a prompt report of
any legal actions pending or threatened against Borrower or any of its Subsidiaries that could
result in damages or costs to Borrower or any of its Subsidiaries of One Hundred Thousand Dollars
($100,000) or more; and (v) other financial information reasonably requested by Collateral Agent.

          (b) Within thirty (30) days after the last day of each month, deliver to Collateral Agent, a
duly completed Compliance Certificate signed by a Responsible Officer.

     6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower and its Account Debtors shall follow
Borrower’s customary practices. Borrower must promptly notify Collateral Agent of all returns,
recoveries, disputes and claims by Account Debtors that involve more than Two Hundred Fifty
Thousand Dollars ($250,000).

     6.4 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports and timely pay, and require each of its Subsidiaries to timely
file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for

 

 

deferred payment of any taxes contested pursuant to the terms of Section 5.8 hereof and except
where any delay in doing so would not have a material adverse effect on Borrower’s business, and
shall deliver to Collateral Agent, on demand, appropriate certificates attesting to such payments,
and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.

     6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard
for companies in Borrower’s industry and location and as Collateral Agent may reasonably request.
Insurance policies shall be in a form, with companies, and in amounts that are reasonably
satisfactory to Collateral Agent. All property policies shall have a lender’s loss payable
endorsement showing Collateral Agent as lender loss payee and waive subrogation against Collateral
Agent, and all liability policies shall show, or have endorsements showing, the Collateral Agent,
as an additional insured. All policies (or the loss payable and additional insured endorsements)
shall provide that the insurer must give Collateral Agent at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At Collateral Agent’s request, Borrower
shall deliver certificates of insurance and evidence of all premium payments. Proceeds payable
under any policy shall, at Collateral Agent’s option, be payable to Collateral Agent on behalf of
the Lenders on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event
of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds
of any casualty policy up to $500,000 with respect to any loss, but not exceeding $500,000, in the
aggregate for all losses under all casualty policies in any one year, toward the replacement or
repair of destroyed or damaged property; provided that any such replaced or repaired property (i)
shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed
Collateral in which Collateral Agent and Lenders have been granted a first priority security
interest, and (b) after the occurrence and during the continuance of an Event of Default, all
proceeds payable under such casualty policy shall, at the option of Collateral Agent, be payable to
Collateral Agent, for the ratable benefit of the Lenders, on account of the Obligations. If
Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or
furnish any required proof of payment to third persons and Collateral Agent, Collateral Agent may
make all or part of such payment or obtain such insurance policies required in this Section 6.5,
and take any action under the policies Collateral Agent deems prudent.

     6.6 Operating Accounts.

          (a) Maintain an operating account with Collateral Agent. At least fifty percent (50%) of the
dollar value of Borrower’s and its Subsidiaries’ cash and securities accounts at all financial
institutions shall be maintained with Collateral Agent or an Affiliate of Collateral Agent.

          (b) Provide Collateral Agent five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution other than Collateral Agent or its
Affiliates. In addition, for each Collateral Account that Borrower at any time maintains, Borrower
shall cause the applicable bank or financial institution (other than Collateral Agent) at or with
which any Collateral Account is maintained to execute and deliver a Control Agreement or other
appropriate instrument with respect to such Collateral Account to perfect Collateral Agent’s Lien
in such Collateral Account in accordance with the terms hereunder, which Control Agreement may not
be terminated without prior written consent of Collateral Agent. The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to
Collateral Agent by Borrower as such.

     6.7 Qualified Financing.

               (a) Minimum Cash at SVB. As of the Effective Date and at all times thereafter, Borrower shall
maintain unrestricted and unencumbered cash, Cash Equivalents and Investments permitted by the
Borrower’s investment policy, as amended from time to time (provided that such investment policy
and any such amendment thereto has been approved by the board of directors of Borrower or the audit
committee of the board of directors of Borrower) in accounts with SVB or an Affiliate of SVB: (i)
prior to the occurrence of the Qualified Financing, in an amount of at least fifty percent (50.0%)
of the aggregate outstanding principal amount of all Credit Extensions hereunder, and (ii) after
the occurrence of the Qualified Financing, in the minimum amount of the aggregate outstanding
Obligations from time to time, in the CD.

     6.8 Protection of Intellectual Property Rights. Borrower shall use commercially reasonably
efforts to protect, defend and maintain the validity and enforceability of its Intellectual
Property.

 

 

     6.9 Litigation Cooperation. From the date hereof and continuing through the termination of
this Agreement, make available to Collateral Agent, without expense to Collateral Agent, Borrower
and its officers, employees and agents and Borrower’s books and records, to the extent that
Collateral Agent may deem them reasonably necessary to prosecute or defend any third-party suit or
proceeding instituted by or against Collateral Agent with respect to any Collateral or relating to
Borrower.

     6.10 Further Assurances. Execute any further instruments and take further action as
Collateral Agent reasonably requests to perfect or continue Collateral Agent’s and Lenders’ Lien in
the Collateral or to effect the purposes of this Agreement.

     6.11 Notices of Litigation and Default. Borrower will give prompt written notice to
Collateral Agent of any litigation or governmental proceedings pending or threatened (in writing)
against Borrower which, if finally decided against Borrower, would have a material adverse effect
on Borrower’s business. Without limiting or contradicting any other more specific provision of
this Agreement, promptly (and in any event within five (5) Business Days) upon Borrower becoming
aware of the existence of any Event of Default or event which, with the giving of notice or passage
of time, or both, would constitute an Event of Default, Borrower shall give written notice to
Collateral Agent of such occurrence, which such notice shall include a reasonably detailed
description of such Event of Default or event which, with the giving of notice or passage of time,
or both, would constitute an Event of Default.

     6.12 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or
acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Collateral Agent of the
creation or acquisition of such new Subsidiary and take all such action as may be reasonably
required by Collateral Agent to cause each such domestic Subsidiary to guarantee the Obligations of
Borrower under the Loan Documents and grant a continuing pledge and security interest in and to the
assets of such Subsidiary (substantially as described on Exhibit A hereto); and Borrower shall
grant and pledge to Collateral Agent, for the ratable benefit of Lenders a perfected security
interest in the stock, units or other evidence of ownership of each Subsidiary (in the case of a
foreign Subsidiary, such pledge shall not exceed 65% of such stock units or other evidence of
ownership); provided, however, that the obligations contained in this Section 6.12 shall not apply
to any Subsidiary created in connection with any Qualified Financing, provided Borrower is in
compliance with all of the terms hereunder.

     7 NEGATIVE COVENANTS

     Borrower shall not do any of the following without Collateral Agent’s prior written consent:

     7.1 Dispositions. Without the prior written consent of the Collateral Agent, which consent
shall not be unreasonably withheld or delayed, convey, sell, lease, transfer, or otherwise dispose
of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (a) of Inventory in the ordinary course of business;
(b) of worn-out or obsolete Equipment; and (c) in connection with Permitted Liens and Permitted
Investments; (d) of non-exclusive licenses for the use of the Intellectual Property of Borrower or
its Subsidiaries, in connection with joint ventures and corporate collaborations in the ordinary
course of business, such as agreements with contract sales organizations, pharmaceutical companies
or specialty pharmaceutical companies to co-promote or otherwise further the commercialization of
Borrower’s product candidate SILENORTM (doxepin HCl); and (e) in the ordinary course of business for
reasonably equivalent consideration.

     7.2 Changes in Business, Ownership, or Business Locations. Without the prior written consent
of the Collateral Agent, which consent shall not be unreasonably withheld or delayed: (a) engage
in or permit any of its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b)
liquidate or dissolve; or (c) enter into any transaction or series of related transactions in
which the stockholders of Borrower who were not stockholders immediately prior to the first such
transaction own more than 40% of the voting stock of Borrower immediately after giving effect to
such transaction or related series of such transactions (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors or any PIPE transaction).
Borrower shall not, without at least fifteen (15) days prior written notice to Collateral Agent:
(1) add any new offices or business locations, including warehouses (unless such new offices or
business locations contain less than Twenty-Five Thousand Dollars ($25,000) in Borrower’s assets or
property), (2) change its jurisdiction of organization, (3) change its organizational structure or

 

 

type, (4) change its legal name, or (5) change any organizational number (if any) assigned by
its jurisdiction of organization.

     7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person; provided, however,
that if Lenders do not consent to any such transaction, then Borrower shall be entitled to prepay
all of the Obligations. A Subsidiary may merge or consolidate into another Subsidiary or into
Borrower. Notwithstanding the foregoing, Borrower may merge or consolidate so long as: (A) the
entity tor entities that result from such merger or consolidation (collectively, the “Surviving
Entity”) shall have executed and delivered to Lenders an agreement in form and substance reasonably
satisfactory to Lenders, containing an assumption by the Surviving Entity of the due and punctual
payment and performance of all Obligations and performance and observance of each covenant and
condition of Borrower in the Loan Documents: (B) all such obligations of the Surviving Entity to
Lenders shall be guaranteed by any entity, if any, that directly or indirectly owns or controls
more than 50% of the voting stock of the Surviving Entity (which guaranty shall be secured in the
discretion of the Lenders); (C) immediately after giving effect to such merger or consolidation, no
Default or Event of Default shall have occurred and be continuing; and (D) the credit risk to
Lenders, in their sole discretion, of the Surviving Entity shall not be increased. In determining
whether the proposed merger or consolidation would result in any increased credit risk, Lenders may
consider, among other things, changes in Borrower’s management team, employee base, access to
equity markets, investor support, financial position, business plan, and/or disposition of
Intellectual Property rights which may reasonably be anticipated as a result of the transaction.

     7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

     7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign
or convey any right to receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, and non-exclusive licenses permitted under
Section 7.1, or permit any Collateral not to be subject to the first priority security interest
granted herein, (which Collateral may be subject to Permitted Liens), or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Collateral Agent) with any
Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any
Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or
encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, in each case except as is
otherwise permitted in Sections 4.1 or 7.1 hereof and the definition of “Permitted Liens” herein.

     7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to
the terms of Section 6.6(b) hereof.

     7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its
convertible securities into other securities pursuant to the terms of such convertible securities
or otherwise in exchange thereof, (ii) Borrower may pay dividends or distributions solely in
capital stock; (iii) Borrower may repurchase the stock of employees or consultants pursuant to
stock repurchase agreements so long as an Event of Default does not exist at the time of such
repurchase and would not exist after giving effect to such repurchase, provided such repurchase
does not exceed in the aggregate of Seven Hundred Fifty Thousand Dollars ($750,000) per fiscal year
and provided further, that the foregoing limitations do not apply to the repurchase of the unvested
restricted stock (one hundred thirty-five thousand shares (135,000) issued to Borrower’s current
executive officers on October 8, 2007, pursuant to the terms and conditions of the restricted stock
purchase agreements currently in effect between Borrower and each of such executive officers; (iv)
purchases for value of any rights distributed in connection with any stockholder rights plan; (v)
purchases of capital stock or options to acquire such capital stock with the proceeds received from
a substantially concurrent issuance of capital stock or convertible securities; (vi) purchases of
capital stock in connection with the exercise of stock options or stock appreciation by way of a
cashless exercise; and (vii) purchases of fractional shares of capital stock arising out of stock
dividends, splits or combinations or business combinations; or (b) directly or indirectly make any
Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

 

     7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, except as permitted in Section 7.2, and except
for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable
terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction
with a non-affiliated Person.

     7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under
the terms of the subordination, intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof or adversely affect the subordination
thereof to Obligations owed to the Lenders.

     7.10 Compliance. Become an “investment company” or a company controlled by an “investment
company”, under the Investment Company Act of 1940, as amended or undertake as one of its important
activities extending credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for
that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the violation could reasonably be expected
to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any present pension,
profit sharing and deferred compensation plan which could reasonably be expected to result in any
liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

     8 EVENTS OF DEFAULT

     Any one of the following shall constitute an event of default (an “Event of Default”) under
this Agreement:

     8.1 Payment Default. Borrower fails to make any payment of principal or interest, or pay any
other Obligations within three (3) Business Days after such Obligations are due and payable (which
three (3) Business Day grace period shall not apply to payments due on the Term Loan Maturity
Date). During the cure period, the failure to cure the payment default is not an Event of Default
(but no Credit Extension will be made during the cure period);

     8.2 Covenant Default.

          (a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7,
or violates any covenant in Section 7; or

          (b) Borrower fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within ten (10) days after
the occurrence thereof; provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10)
day period, and such default is likely to be cured within a reasonable time, then Borrower shall
have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to cure the default shall not be
deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this Section shall not apply, among other things, to financial covenants or
any other covenants set forth in subsection (a) above;

     8.3 Material Adverse Change. A Material Adverse Change occurs;

     8.4 Attachment; Levy; Restraint on Business.

     (a) (i) The service of process seeking to attach, by trustee or similar process, any
funds of Borrower or of any entity under control of Borrower (including a Subsidiary) on
deposit with Collateral Agent or any Affiliate of Collateral Agent, or (ii) a notice of
lien, levy, or assessment is filed against any of

 

 

Borrower’s assets by any government agency, and the same under subclauses (i) and (ii)
hereof are not, within twenty (20) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no Credit
Extensions shall be made during any twenty (20) day cure period; and

     (b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains,
or prevents Borrower from conducting any part of its business;

     8.5 Insolvency (a) Borrower is unable to pay its debts (including trade debts) as they become
due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45)
days (but no Credit Extensions shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);

     8.6 Other Agreements. There is a default in any agreement to which Borrower is a party with a
third party or parties resulting in the acceleration of the maturity of any Indebtedness in an
amount in excess of Three Hundred Fifty Thousand Dollars ($350,000) or that could have a material
adverse effect on Borrower’s business;

     8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000)
(not covered by independent third-party insurance as to which liability has been accepted by such
insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated,
unappealable, or unstayed for a period of thirty (30) days after the entry thereof (provided that
no Credit Extensions will be made prior to the satisfaction, vacation, or stay of such judgment,
order, or decree);

     8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation,
warranty, or other statement now or later in this Agreement, any Loan Document or in any writing
delivered to Collateral Agent and/or Lenders or to induce Collateral Agent and/or Lenders to enter
this Agreement or any Loan Document, and such representation, warranty, or other statement is
incorrect in any material respect when made;

     8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and
any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement
with Collateral Agent or Lenders, or any creditor that has signed such an agreement with Collateral
Agent or Lenders breaches any terms of such agreement; or

     8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked,
rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a
full term and could reasonably be expected to cause a Material Adverse Change or (b) subject to any
decision by a Governmental Authority that designates a hearing with respect to any applications for
renewal of any of such Governmental Approval or that could result in the Governmental Authority
taking any of the actions described in clause (a) above, and such decision or such revocation,
rescission, suspension, modification or non-renewal has, or could reasonably be expected to have,
a Material Adverse Change.

     9 RIGHTS AND REMEDIES

     9.1 Rights and Remedies. While an Event of Default occurs and continues Collateral Agent may,
without notice or demand, do any or all of the following:

          (a) declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.5 occurs all Obligations are immediately due and payable without any action by
Collateral Agent or Lenders);

          (b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Collateral Agent and/or Lenders;

 

 

          (c) settle or adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Collateral Agent considers advisable, notify any Person owing Borrower money
of Collateral Agent’s and Lenders’ security interest in such funds, and verify the amount of such
account;

          (d) make any payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral
if Collateral Agent requests and make it available as Collateral Agent designates. Collateral
Agent may enter premises where the Collateral is located, take and maintain possession of any part
of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower grants Collateral Agent a
license to enter and occupy any of its premises, without charge, to exercise any of Collateral
Agent’s rights or remedies;

          (e) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Collateral Agent or Lenders owing to or for the credit or the account of Borrower;

          (f) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Subject to any non-exclusive license permitted under Section 7.1,
Collateral Agent is hereby granted a non-exclusive, royalty-free license or other right to use,
without charge, Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar
property as it pertains to the Collateral, solely and to the extent necessary for completing
production of, advertising for sale, and selling any Collateral and, in connection with Collateral
Agent’s exercise of its rights under this Section, Borrower’s rights under all licenses and all
franchise agreements inure to Collateral Agent for the benefit of the Lenders;

          (g) place a “hold” on any account maintained with Collateral Agent or Lenders and/or deliver a
notice of exclusive control, any entitlement order, or other directions or instructions pursuant to
any Control Agreement or similar agreements providing control of any Collateral;

          (h) demand and receive possession of Borrower’s Books, provided that upon taking
possession of such Books, Collateral Agent acknowledges that Borrower may not be able to comply
with the obligations under the Securities Act of 1933, as amended and the Securities Exchange Act
of 1934, as amended, with respect to reporting of the Borrower’s financial results and condition,
provided further, if Collateral Agent does receive possession of Borrower’s Books, Collateral Agent
shall provide Borrower with true and complete copies of such Books promptly upon the request of
Borrower (at Borrower’s sole cost and expense), with such prompt updates as requested to keep the
Books true and complete, and provided further that any approvals, certificates, certifications or
disclosure by Borrower relating to the financial statements, internal controls and procedures
regarding financial reporting and/or disclosure controls and procedures of Borrower shall include
disclosures reflecting all circumstances then existing, including, but not limited to, the fact
that such Books are outside the control of Borrower and its directors and officers, with such
disclosure to be determined in the sole discretion of Borrower and its directors and officers; and

          (i) exercise all rights and remedies available to Collateral Agent under the Loan Documents or
at law or equity, including all remedies provided under the Code (including disposal of the
Collateral pursuant to the terms thereof).

     9.2 Power of Attorney. Borrower hereby irrevocably appoints Collateral Agent as its lawful
attorney-in-fact, exercisable only upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b)
sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account
Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Collateral Agent determines reasonable; (d) make, settle, and
adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Collateral Agent or a third party as the Code permits. Borrower
hereby appoints Collateral Agent as its lawful attorney in fact to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of Collateral Agent’s and Lenders’
security interest in the Collateral regardless of whether an Event of Default has occurred until
all Obligations have been satisfied in full and Collateral Agent and Lenders are under no further

 

 

obligation to make Credit Extensions hereunder. Collateral Agent’s foregoing appointment as
Borrower’s attorney in fact, and all of Collateral Agent’s rights and powers, coupled with an
interest, are irrevocable until all Obligations have been fully repaid and performed and Collateral
Agent’s and Lenders’ obligation to provide Credit Extensions terminates.

     9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5
or fails to pay any premium thereon or fails to pay any other amount to a third party which
Borrower is obligated to pay under this Agreement or any other Loan Document, Collateral Agent may
obtain such insurance or make such payment, and all amounts so paid by Collateral Agent are
Lenders’ Expenses and immediately due and payable, bearing interest at the then highest applicable
rate, and secured by the Collateral. Collateral Agent will make reasonable efforts to provide
Borrower with notice of Collateral Agent obtaining such insurance at the time it is obtained or
within a reasonable time thereafter. No such payments by Collateral Agent are deemed an agreement
to make similar payments in the future or Collateral Agent’s waiver of any Event of Default.

     9.4 Application of Payments and Proceeds. Borrower shall have no right to specify the order
or the accounts to which Collateral Agent shall allocate or apply any payments required to be made
by Borrower to Collateral Agent or otherwise received by Collateral Agent under this Agreement when
any such allocation or application is not specified elsewhere in this Agreement. If an Event of
Default has occurred and is continuing, Collateral Agent and/or each Lender may apply any funds in
its possession, whether from Borrower account balances, payments, proceeds realized as the result
of any collection of Accounts or other disposition of the Collateral, or otherwise, to the
Obligations in such order as the Lenders shall determine in their sole discretion. Any surplus
shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable
to Lenders for any deficiency. If Collateral Agent, in its good faith business judgment, directly
or indirectly enters into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Collateral Agent shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase price or deferring the reduction
of the Obligations until the actual receipt by Collateral Agent of cash therefor.

     9.5 Liability for Collateral. So long as the Collateral Agent and Lenders comply with
reasonable banking practices regarding the safekeeping of the Collateral in the possession or under
the control of the Collateral Agent and Lenders, the Collateral Agent and Lenders shall not be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or
destruction of the Collateral.

     9.6 No Waiver; Remedies Cumulative. Collateral Agent’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any other Loan
Document shall not waive, affect, or diminish any right of Collateral Agent thereafter to demand
strict performance and compliance herewith or therewith. No waiver hereunder shall be effective
unless signed by Collateral Agent and then is only effective for the specific instance and purpose
for which it is given. Collateral Agent’s rights and remedies under this Agreement and the other
Loan Documents are cumulative. Collateral Agent has all rights and remedies provided under the
Code, by law, or in equity. Collateral Agent’s exercise of one right or remedy is not an election,
and Collateral Agent’s waiver of any Event of Default is not a continuing waiver. Collateral
Agent’s delay in exercising any remedy is not a waiver, election, or acquiescence.

     9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by
Collateral Agent on which Borrower is liable.

     10 NOTICES

     All notices, consents, requests, approvals, demands, or other communication (collectively,
“Communication”) by any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when
sent by electronic mail (if an email address is specified herein) or facsimile transmission; (c)
one (1) Business Day after deposit with a reputable overnight courier with all charges

 

 

prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address, facsimile number, or email address
indicated below. Either Collateral Agent, Lender or Borrower may change its mailing or email
address or facsimile number by giving the other party written notice thereof in accordance with the
terms of this Section 10.

	 	 	 	 	 
	 

	 	If to Borrower:
	 	Somaxon Pharmaceuticals, Inc.

3721 Valley Centre Drive, Suite 500

San Diego, California 92130

Attn: Meg M. McGilley, Chief Financial Officer

Fax: (858)509-1761

Email: mmcgilley@somaxon.com
	 
	 	 	 	 
	 

	 	with copies to:
	 	Somaxon Pharmaceuticals, Inc.

3721 Valley Centre Drive, Suite 500

San Diego, California 92130

Attn: Matthew W. Onaitis, General Counsel

Fax: (858) 509-1761

Email: monaitis@somaxon.com, and
	 
	 	 	 	 
	 

	 	 	 	Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, California 92130

Attn: Cheston J. Larson, Esquire

Fax: (858) 523-5450

Email: cheston.larson@lw.com
	 
	 	 	 	 
	 

	 	If to Collateral Agent:
	 	Silicon Valley Bank

4370 La Jolla Village Drive, Suite 860

San Diego, California 92122

Attention: Mr. Michael White

Fax: (858) 622-1424

Email: MWhite@svb.com
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Riemer & Braunstein LLP

Three Center Plaza

Boston, Massachusetts 02108

Attn: David A. Ephraim, Esquire

Fax: (617) 880-3456

Email: DEphraim@riemerlaw.com
	 
	 	 	 	 
	 

	 	If to Oxford:
	 	Oxford Finance Corporation

133 North Fairfax Street

Alexandria, Virginia 22314

Attention: General Counsel

Fax: (703) 519-5225

     11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL REFERENCE

     California law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Lenders, and Collateral Agent each submit to the exclusive jurisdiction of the State
and Federal courts in California. Notwithstanding the foregoing, nothing in this Agreement shall
be deemed to operate to preclude Collateral Agent from bringing suit or taking other legal action
in any other jurisdiction to realize on the Collateral or any other security for the Obligations,
or to enforce a judgment or other court order in favor of Collateral Agent and Lenders. Borrower
expressly submits and consents in advance to such jurisdiction in any action or suit commenced in
any such court, and Borrower hereby waives any objection that it may have based upon lack of
personal jurisdiction,

 

 

improper venue, or forum non conveniens and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and agrees that service
of such summons, complaints, and other process may be made by registered or certified mail
addressed to Borrower at the address set forth in Section 10 of this Agreement and that service so
made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.

     TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, LENDER AND COLLATERAL AGENT EACH
WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

     WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of any nature between them arising
at any time shall be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior
Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the
federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby
submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to
and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1,
inclusive. The private judge shall have the power, among others, to grant provisional relief,
including without limitation, entering temporary restraining orders, issuing preliminary and
permanent injunctions and appointing receivers. All such proceedings shall be closed to the public
and confidential and all records relating thereto shall be permanently sealed. If during the
course of any dispute, a party desires to seek provisional relief, but a judge has not been
appointed at that point pursuant to the judicial reference procedures, then such party may apply to
the Santa Clara County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a court under the rules
of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which
shall be conducted in the same manner as it would be before a court under the rules of discovery
applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all
discovery rules and order applicable to judicial proceedings in the same manner as a trial court
judge. The parties agree that the selected or appointed private judge shall have the power to
decide all issues in the action or proceeding, whether of fact or of law, and shall report a
statement of decision thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing
in this paragraph shall limit the right of any party at any time to exercise self-help remedies,
foreclose against collateral, or obtain provisional remedies. The private judge shall also
determine all issues relating to the applicability, interpretation, and enforceability of this
paragraph.

     12 GENERAL PROVISIONS

     12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors
and permitted assigns of each party. Borrower may not assign this Agreement or any rights or
obligations under it without Collateral Agent’s prior written consent (which may be granted or
withheld in Collateral Agent’s discretion). Lenders have the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or
any interest in, Lenders’ obligations, rights, and benefits under this Agreement and the other Loan
Documents.

     12.2 Indemnification/Expenses. Borrower agrees to indemnify, defend and hold Collateral Agent
and the Lenders and their respective directors, officers, employees, agents, attorneys, or any
other Person affiliated with or representing Collateral Agent or the Lenders (each an “Indemnified
Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively,
“Claims”) asserted by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Lenders’ Expenses incurred, or paid by such Indemnified Person
from, following, or arising from transactions between Collateral Agent, and/or Lenders and Borrower
(including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly
caused by such Indemnified Person’s gross negligence or willful misconduct.

 

 

     12.3 Time of Essence. Time is of the essence for the performance of all Obligations in this
Agreement.

     12.4 Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.

     12.5 Amendments in Writing; Integration. All amendments to this Agreement must be in writing
signed by Collateral Agent, Lenders and Borrower. This Agreement and the Loan Documents represent
the entire agreement about this subject matter and supersede prior negotiations or agreements. All
prior agreements, understandings, representations, warranties, and negotiations between the parties
about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the
Loan Documents.

     12.6 Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.

     12.7 Survival. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations which, by their terms, are to survive
the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2
to indemnify each Lender and Collateral Agent shall survive until the statute of limitations with
respect to such claim or cause of action shall have run.

     12.8 Confidentiality. In handling any confidential information, Lenders and Collateral Agent
shall exercise the same degree of care that it exercises for its own proprietary information, but
disclosure of information may be made: (a) subject to the terms and conditions of this Agreement,
to Lenders’ and Collateral Agent’s Subsidiaries or Affiliates, excluding warrant holders other than
the existing Lenders, (b) subject to the terms and conditions of this Agreement, the Lenders’
assignees in connection with the Loan Documents, and their Affiliates; (c) to prospective
transferees or purchasers of any interest in the Credit Extensions (provided, however, Lenders and
Collateral Agent shall use commercially reasonable efforts to obtain such prospective transferee’s
or purchaser’s agreement to the terms of this provision); (d) as required by law, regulation,
subpoena, or other order; (e) to regulators or as otherwise required in connection with an
examination or audit; (f) as Collateral Agent and Lenders consider appropriate in exercising
remedies under this Agreement; and (g) to third-party service providers of Collateral Agent and
Lenders so long as such service providers have executed a confidentiality agreement with Lenders
and Collateral Agent with terms no less restrictive than those contained herein. Confidential
information does not include information that either: (i) is in the public domain or in Lenders’
and/or Collateral Agent’s possession when disclosed to Lenders and/or Collateral Agent, or becomes
part of the public domain after disclosure to Lenders and/or Collateral Agent; or (ii) is disclosed
to Lenders and/or Collateral Agent by a third party, if Lenders and/or Collateral Agent does not
know that the third party is prohibited from disclosing the information.

     Collateral Agent may use confidential information for any purpose, including, without
limitation, for the development of client databases, reporting purposes, and market analysis, so
long as Collateral Agent and Lenders do not disclose Borrower’s identity or the identity of any
person associated with Borrower unless otherwise expressly permitted by this Agreement. The
provisions of the immediately preceding sentence shall survive the termination of this Agreement.

     12.9 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and
Lenders arising out of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.

     12.10 Right of Set Off. Borrower hereby grants to Collateral Agent and to each Lender, a
lien, security interest and right of set off as security for all Obligations to Collateral Agent
and each Lender hereunder, whether now existing or hereafter arising upon and against all deposits,
credits, collateral and property, now or hereafter in the possession, custody, safekeeping or
control of Collateral Agent or Lenders or any entity under the control of Collateral Agent or
Lenders (including a Collateral Agent affiliate) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand or notice,
Collateral Agent or Lenders may set off the same or any part thereof and apply the same to any
liability or obligation of Borrower even

 

 

though unmatured and regardless of the adequacy of any other collateral securing the
Obligations. ANY AND ALL RIGHTS TO REQUIRE COLLATERAL AGENT TO EXERCISE ITS RIGHTS OR REMEDIES
WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT
OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

     13 DEFINITIONS

     13.1 Definitions. As used in this Agreement, the following terms have the following meanings:

     “Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made, and includes, without limitation, all accounts receivable and other sums owing
to Borrower.

     “Account Debtor” is any “account debtor” as defined in the Code with such additions to such
term as may hereafter be made.

     “Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person,
any Person that controls or is controlled by or is under common control with the Person, and each
of that Person’s senior executive officers, directors, partners and, for any Person that is a
limited liability company, that Person’s managers and members.

     “Agreement” is defined in the preamble hereof.

     “Amortization Date” is January 1, 2009.

     “Borrower” is defined in the preamble hereof.

     “Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state
tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or any equipment containing
such information.

     “Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such
Person’s board of directors and delivered by such Person to Collateral Agent approving the Loan
Documents to which such Person is a party and the transactions contemplated thereby, together with
a certificate executed by its secretary on behalf of such Person certifying that (a) such Person
has the authority to execute, deliver, and perform its obligations under each of the Loan Documents
to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and
complete copy of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to which it is a party,
(c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person,
together with a sample of the true signature(s) of such Person(s), and (d) that Collateral Agent
may conclusively rely on such certificate unless and until such Person shall have delivered to
Collateral Agent a further certificate canceling or amending such prior certificate.

     “Business Day” is any day that is not a Saturday, Sunday or a day on which Collateral Agent is
closed.

     “Cash Equivalents” means cash equivalents as defined by GAAP, except for certificates of
deposit held for the benefit of third parties. For the avoidance of doubt, the direct purchase by
the borrower, co-borrower, or any subsidiary of the borrower of any Auction Rate Securities, or
purchasing participations in, or entering into any type of swap or other derivative transaction, or
otherwise holding or engaging in any ownership interest in any type of Auction Rate Security by the
borrower, co-borrower, or any subsidiary of the borrower shall be conclusively determined by the
Lenders as an ineligible Cash Equivalent, and any such transaction shall expressly violate each
other provision of this agreement governing Permitted Investments. Notwithstanding the foregoing,
Cash Equivalents does not include and each Borrower and Subsidiary is prohibited from purchasing,
purchasing participations in, entering into any type of swap or other equivalent derivative
transaction, or otherwise holding or engaging in any ownership interest in any type of debt
instrument, including, without limitation, any corporate or municipal bonds with a long-term
nominal maturity for which the interest rate is reset through a dutch auction and more commonly
referred to as an auction rate security.

 

 

     “Claims” are defined in Section 12.2.

     “CD” is defined in Section 4.1.

     “Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of California provided, that, to the extent that the Code is used to define any
term herein or in any Loan Document and such term is defined differently in different Articles or
Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection, or priority of, or remedies with respect to, Collateral Agent’s and
Lenders’ Lien on any Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the California, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof
relating to such attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions.

     “Collateral” is any and all properties, rights and assets of Borrower described on Exhibit
A, as may be modified by the Lenders and Borrower in writing.

     “Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

     “Collateral Agent” means, SVB, not in its individual capacity, but solely in its capacity as
agent on behalf of and for the benefit of the Lenders.

     “Commercial Inventory” means any Inventory which has been approved for marketing in the United
States by the United States Food and Drug Administration.

     “Commitment Percentage” is set forth in Schedule 1.1, as amended from time to time.

     “Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made.

     “Communication” is defined in Section 10.

     “Compliance Certificate” is that certain certificate in the form attached hereto as
Exhibit C.

     “Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or indirectly liable;
(b) any obligations for undrawn letters of credit for the account of that Person; and (c) all
obligations from any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.

     “Control Agreement” is any control agreement entered into among the depository institution at
which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary
at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Collateral
Agent pursuant to which Collateral Agent obtains control (within the meaning of the Code) for the
benefit of the Lenders over such Deposit Account, Securities Account, or Commodity Account.

     “Credit Extension” is the Term Loan or any other extension of credit by Collateral Agent or
Lenders for Borrower’s benefit.

     “Default Rate” is defined in Section 2.2.(b).

 

 

     “Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made.

     “Designated Deposit Account” is Borrower’s deposit account, account number                    ,
maintained with SVB.

     “Dollars,” “dollars” and “$” each mean lawful money of the United States.

     “Draw Period” is the period of time from the Effective Date through the earliest to occur of
(a) May 21, 2008 , and (b) an Event of Default.

     “Effective Date” is defined in the preamble of this Agreement.

     “Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.

     “ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.

     “Event of Default” is defined in Section 8.

     “Final Payment” is a payment (in addition to and not a substitution for the regular monthly
payments of principal plus accrued interest) due on the earlier to occur of (a) the Term Loan
Maturity Date (b) the acceleration of the Term Loan, or (c) the prepayment of Term Loan, equal to
the amount of the Term Loan multiplied by the Final Payment Percentage.

     “Final Payment Percentage” is, for the Term Loan, four percent (4.00%).

     “Finished Inventory” means Inventory that is fully assembled and ready for sale.

     “Funding Date” is any date on which a Credit Extension is made to or on account of Borrower
which shall be a Business Day.

     “GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other Person as may be approved by a significant segment of the
accounting profession in the United States, which are applicable to the circumstances as of the
date of determination.

     “General Intangibles” is all “general intangibles” as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights, including any rights to
unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims,
income and other tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any kind.

     “Governmental Approval” is any consent, authorization, approval, order, license, franchise,
permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or
other act by or in respect of, any Governmental Authority.

     “Governmental Authority” is any nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive,

 

 

legislative, judicial, taxing, regulatory or administrative functions of or pertaining to
government, any securities exchange and any self-regulatory organization.

     “Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations, and (d) Contingent Obligations.

     “Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

     “Intellectual Property” is defined in Exhibit A.

     “Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, samples, including without limitation such inventory as is temporarily out of Borrower’s
custody or possession or in transit and including any returned goods and any documents of title
representing any of the above.

     “Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.

     “Lender” is any one of the Lenders.

     “Lenders” shall mean the Persons identified on Schedule 1.1 hereto and each assignee that
becomes a party to this Agreement pursuant to Section 12.1.

     “Lenders’ Expenses” are all audit fees and expenses, costs, and expenses (including reasonable
attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) in connection with this Agreement.

     “Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other
encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise
against any property.

     “Loan Documents” are, collectively, this Agreement, the Warrant, the Perfection Certificate,
any note, or notes or guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Lenders and Collateral Agent in connection with this
Agreement, all as amended, restated, or otherwise modified.

     “Material Adverse Change” is (a) a material impairment in the perfection or priority of
Lenders’ Lien in the Collateral or in the aggregate value of such Collateral; (b) a material
adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or
(c) a material impairment of the prospect of repayment of any portion of the Obligations. For the
avoidance of doubt, under no circumstances shall the consummation by Borrower of a Qualified
Financing by itself constitute a Material Adverse Change.

     “Obligations” are Borrower’s obligation to pay when due any debts, principal, interest,
Lenders’ Expenses, Prepayment Fee, Final Payment, and other amounts Borrower owes Lenders now or
later, whether under this Agreement or the Loan Documents, and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Lenders
and/or Collateral Agent, and the performance of Borrower’s duties under the Loan Documents.

     “Operating Documents” are, for any Person, such Person’s formation documents, as certified
with the Secretary of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and (a) if such Person is a corporation, its bylaws in current
form, (b) if such Person is a limited liability company, its limited liability company agreement
(or similar agreement), and (c) if such Person is a partnership, its

 

 

partnership agreement (or similar agreement), each of the foregoing with all current
amendments or modifications thereto.

     “Payment/Advance Form” is that certain form attached hereto as Exhibit B.

     “Payment Date” is the first day of each calendar month.

     “Perfection Certificate” is defined in Section 5.1.

     “Permitted Indebtedness” is:

     (a) Borrower’s Indebtedness to Lenders and Collateral Agent under this Agreement and the other
Loan Documents;

     (b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

     (c) Subordinated Debt;

     (d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

     (e) Indebtedness secured by Permitted Liens; and

     (f) Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of business;

     (g) other unsecured Indebtedness not otherwise permitted by Section 7.4 not exceeding Fifty
Thousand Dollars ($50,000) in the aggregate outstanding at any time; and

     (h) extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.

     “Permitted Investments” are:

     (a) Investments shown on the Perfection Certificate and existing on the Effective Date; and

     (b) Cash Equivalents, and (ii) any Investments permitted by Borrower’s investment policy, as
amended from time to time, provided that such investment policy (and any such amendment thereto)
has been approved by the board of directors of borrower or the audit committee of the board of
directors of Borrower:

     (c) Investments consisting of the endorsement of negotiable instruments for deposit of
collection or similar transactions in the ordinary course of Borrower;

     (d) Investments consisting of deposit accounts in which Collateral Agent has a first perfected
security interest;

     (e) Investments accepted in connection with Transfers permitted by Section 7.1;

     (f) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by
Borrower in Subsidiaries (except for Subsidiaries formed in connection with a Qualified Financing)
not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year;

     (g) Investments by Borrower in Subsidiaries formed in connection with a Qualified Financing ;

 

 

     (h) Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of business; and

     (i) Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary.

     “Permitted Liens” are:

     (a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;

     (b) Liens for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains adequate reserves on
its Books, provided that no notice of any such Lien has been filed or recorded under the Internal
Revenue Code of 1986, as amended , and the Treasury Regulations adopted thereunder;

     (c) purchase money Liens and capital leases (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment securing no more than Five Hundred Thousand
Dollars ($500,000) in the aggregate amount outstanding (exclusive of amounts under (d) below), or
(ii) existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;

     (d) purchase money Liens or leases associated with providing automobiles to employees or
consultants with the written consent of the Collateral Agent;

     (e) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (d), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase;

     (f) leases or subleases of real property granted in the ordinary course of business, and
leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of Borrower’s business, if the
leases, subleases, licenses and sublicenses do not prohibit granting Collateral Agent a security
interest; and

     (g) joint ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the non-exclusive licensing of Intellectual Property, the development of technology
or the providing of technical support, provided that any cash investments by Borrower do not exceed
Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year; and

     (h) Liens in the Collateral provided to lenders in any Qualified Financing, subject to
Borrower’s compliance with the terms and conditions hereunder, including Section 4.1;

     (i) statutory Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons imposed without action of such parties, provided they
have no priority over any of Collateral Agent’s Lien and the aggregate amount of such Liens does
not any time exceed Two Hundred Fifty Thousand Dollars ($250,000);

     (j) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions,
social security and other like obligations incurred in the ordinary course of business, provided,
they have no priority over any of Collateral Agent’s Liens and the aggregate amount of the
Indebtedness secured by such Liens does not at any time exceed Two Hundred Fifty Thousand
($250,000);

     (k) Liens arising from judgment, decrees or attachments in circumstances not constituting an
Event of Default;

 

 

     (l) Liens in favor of other financial institutions arising in connection with Borrower’s
deposit and/or securities accounts held at such institutions, provided that Collateral Agent has a
first perfected security interest in the amounts held in such deposit and/or securities accounts;

     (m) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (l), but any extension, renewal or replacement lien must be limited
to the property encumbered by the existing Lien and principal amount of the indebtedness may not
increase; and

     (n) Liens securing security deposits and letters of credit for the benefit of Avnet, Inc. in
the ordinary course of business, in an amount not to exceed Six Hundred Thousand Dollars ($600,000)
at any time outstanding.

     “Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.

     “PIPE” means a private investment in a public equity transaction and/or registered direct
offering.

     “Prepayment Fee” shall be an additional fee payable to the Collateral Agent in an amount equal
to :

	 	(i)	 	for a prepayment made on or prior to twelve (12) months following the Funding Date, six
percent (6.0%) of the principal amount of the Term Loan prepaid; or
	 
	 	(ii)	 	for a prepayment made after twelve (12) months but on or prior to twenty-four (24) months
following the Funding Date, four percent (4.0%) of the principal amount of the Term Loan prepaid;
and
	 
	 	(iii)	 	for a prepayment made after twenty-four (24) months following
the Funding Date, two percent (2.0%) of the principal amount of the Term Loan
prepaid.

     “Qualified Financing” is any financing conducted by Borrower after the Effective Date in which
Borrower receives at least Twenty-Five Million Dollars ($25,000,000) in funds in exchange for at
least Twenty-Five Million Dollars ($25,000,000) in Indebtedness and as a condition to such
financing, the lenders therein obtain a first priority security interest in some or all of the
Collateral (excluding the CD). A Qualified Financing may include, but is not limited to, a
financing in which a royalty interest in any of Borrower’s product is provided to one or more third
parties.

     “Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made

     “Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its property is subject.

     “Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.

     “Secured Promissory Note” is defined in Section 2.3.

     “Secured Promissory Note Record” is a record maintained by each Lender with respect to the
outstanding Obligations and credits made thereto.

     “Securities Account” is any “securities account” as defined in the Code with such additions to
such term as may hereafter be made.

 

 

     “Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now
or hereafter indebtedness to Lenders (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Collateral Agent and Lenders entered into between
Collateral Agent, the Borrower and the other creditor), on terms acceptable to Collateral Agent and
Lenders.

     “Subsidiary” means, with respect to any Person, any Person of which more than 50.0% of the
voting stock or other equity interests (in the case of Persons other than corporations) is owned or
controlled, directly or indirectly, by such Person or one or more of Affiliates of such Person.

     “Term Loan” is a loan made by Lenders pursuant to the terms of Section 2.1.1(a) hereof, in an
amount equal to Fifteen Million Dollars ($15,000,000).

     “Term Loan Maturity Date” is, June 1, 2011.

     “Transfer” is defined in Section 7.1.

     “Warrant” is that certain Warrants to Purchase Stock dated as of the Effective Date executed
by Borrower in favor of each Lender.

 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.

	 	 	 	 	 
	SOMAXON

	 	PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 
	By 

Name:

	 	/s/ Meg M. McGilley
 

Meg M. McGilley
	 	 
	Title:

	 	Vice President and Chief Financial Officer	 	 

	 	 	 	 	 
	LENDERS:
	 	 	 	 
	 
	 	 	 	 
	SILICON VALLEY BANK, as Collateral Agent and as a Lender	 	 
	 
	 	 	 	 
	By 

Name:

	 	/s/ R. Michael White
 

R. Michael White
	 	 
	Title:

	 	Deal Team Leader	 	 

	 	 	 	 	 
	OXFORD

	 	FINANCE CORPORATION, as a Lender	 	 
	 
	 	 	 	 
	By 

Name:

	 	/s/ T.A. Lex
 

T.A. Lex
	 	 
	Title:

	 	Chief Operating Officer	 	 

 

 

SCHEDULE 1.1

LENDERS AND COMMITMENTS

	 	 	 	 	 	 	 	 	 
	Lender	 	Commitment	 	Commitment Percentage
	Oxford Finance Corporation
	 	$	10,000,000	 	 	 	66.66	%
	Silicon Valley Bank
	 	$	5,000,000	 	 	 	33.34	%
	TOTAL
	 	$	15,000,000	 	 	 	100.00	%

1

 

EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:

     All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights
or rights to payment of money, leases, license agreements, (but excluding license agreements solely
for the use of Intellectual Property of a third party, with respect to which license Borrower is
the licensee), franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of
credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all
other investment property, supporting obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and

     all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests
in any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.

     Notwithstanding the foregoing, the Collateral does not include any of the following, whether
now owned or hereafter acquired: (i) any copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative work, whether
published or unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part
of the same, trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, and the goodwill of the business of Borrower
connected with and symbolized thereby, know-how, operating manuals, trade secret rights, clinical
and non-clinical data, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing; (collectively “Intellectual
Property”); provided, however, the Collateral shall include all Accounts, license and royalty fees
and other revenues, proceeds, or income arising out of or relating to any of the foregoing; and
(ii) any ownership interest in foreign subsidiary to the extent such ownership interest exceeds
sixty-five percent (65.0%) of the total outstanding ownership interests of such foreign subsidiary.

2

 

EXHIBIT B

Loan Payment/Advance Request Form

Deadline is Noon P.S.T.*

	 	 	 	 	 	 	 
	Fax To:

	 	Date:	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 	 	 
	LOAN PAYMENT:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	From Account #
 
 
	 	 	 	To Account # 
 	 	 
	 

	 	 

          (Deposit Account #)
	 	 	 	 	 	 

                    (Loan Account #)
	 	 
	Principal $
 

	 	 	 	and/or Interest
$ 
	 	 
	 

	 	 
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 
	Authorized
Signature: 
	 	 	 	Phone
Number: 
	 	 
	Print Name/Title:
 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 	 	 

Loan Advance:

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan
advance are for an outgoing wire.

	 	 	 	 	 	 	 	 	 	 	 
	From Account #
 
 
	 	 	 	To Account
# 
 	 	 
	 

	 	 

          (Loan Account #)
	 	 	 	 	 	 

                    (Deposit Account #)
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Amount
of Advance $
 
 
	 	 	 	 	 	 	 	 

All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct
and complete in all material respects on the date of the request for an advance; provided, however,
that such materiality qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date:

	 	 	 	 	 	 	 	 	 	 	 
	Authorized Signature:
 
 
	 	 	 	Phone
Number: 
 	 	 
	Print
Name/Title: 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 	 	 

Outgoing Wire Request:

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, P.S.T.

	 	 	 	 	 	 	 	 	 	 	 
	Beneficiary Name:
 

	 	 	 	Amount of Wire:
$ 
	 	 
	Beneficiary Lender:
 

	 	 	 	Account Number:
 
	 	 
	City and State:
 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 
	Beneficiary Lender Transit (ABA) #:
 

	 	 	 	Beneficiary Lender Code
(Swift, Sort, Chip,
etc.): 

	 

	 	 

	 	 	 	          (For International Wire Only)
	 	 

	 	 

	 	 	 	 	 	 	 	 	 	 	 
	Intermediary Lender:

	 	 	 	 	 	Transit (ABA) #:	 	 	 	 
	For Further Credit to:

	 	 

	 	 	 	 	 	 

	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Special
Instruction: 

	 	 
	 	 	 	 	 

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be
processed in accordance with and subject to the terms and conditions set forth in the agreements(s)
covering funds transfer service(s), which agreements(s) were previously received and executed by me
(us).

	 	 	 	 	 	 	 	 	 	 	 
	Authorized Signature:
 
 
	 	 	 	2nd
Signature (if required): 
 	 	 
	Print
Name/Title: 

	 	 	 	Print
Name/Title: 

	 	 
	Telephone
#: 

	 	 	 	Telephone
#: 

	 	 
	 

	 	 
	 	 	 	 	 	 	 	 

 

			
	*	 	Unless otherwise provided for an Advance bearing interest at
LIBOR.

3

 

EXHIBIT C

COMPLIANCE CERTIFICATE

	 	 	 	 	 	 	 	 	 
	TO:

	 	SILICON VALLEY BANK, as Collateral Agent
	 	Date:	 	 	 	 
	FROM:

	 	SOMAXON PHARMACEUTICALS, INC.
	 	 	 	 

	 	 

     The undersigned authorized officer of Somaxon Pharmaceuticals, Inc. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between Borrower, Collateral
Agent and the Lenders (the “Agreement”), (1) Borrower is in complete compliance for the period
ending                      with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further that those representations
and warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all
required tax returns and reports, and Borrower has timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted
pursuant to the terms of Section 5.8 of the Agreement, and (5) no Liens have been levied or claims
made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Collateral Agent. Attached are
the required documents supporting the certification. The undersigned certifies, in the capacity as
an officer of the Borrower, that these are prepared in accordance with GAAP consistently applied
from one period to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges, in the capacity as an officer of the Borrower, that no borrowings may be
requested at any time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given
them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

	 	 	 	 	 
	Reporting Covenant	 	Required	 	Complies
	10-Q, 10-K and 8-K

	 	Within 5 days after filing with SEC
	 	Yes No
	Board Approved Budget

	 	Annually within 60 days after FYE
	 	Yes No

	 	 	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	Maintain at all times prior to the Qualified Financing
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Minimum Cash at SVB

	 	 	 	 	$	 	 	Yes No

     The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)

 

 

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	COLLATERAL AGENT USE ONLY	 	 
	SOMAXON PHARMACEUTICALS, INC.	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	Received by:	 	 	 	 
	By:

	 	 	 	 	 	 	 	 	 

authorized signer
	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	Verified:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	authorized signer	 	 
	 

	 	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Compliance Status:                               Yes      No	 	 

1

 

EXHIBIT D

SECURED PROMISSORY NOTE

	 	 	 	 	 
	$                    

	 	 	 	Dated:                     , 2008

     FOR VALUE RECEIVED, the undersigned, SOMAXON PHARMACEUTICALS, INC., a                      corporation
(“Borrower”), HEREBY PROMISES TO PAY to the order of [SVB / OXFORD] (“Lender”) the
principal amount of                      Dollars ($                    ) or such lesser amount as shall equal the
outstanding principal balance of the Term Loan made to Borrower by Lender, plus interest on the
aggregate unpaid principal amount of Term Loan, at the rates and in accordance with the terms of
the Loan and Security Agreement by and between Borrower and Silicon Valley Bank, as Collateral
Agent, and the Lenders, including without limitation, Oxford Finance Corporation, and SVB (as
amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”).
If not sooner paid, the entire principal amount and all accrued interest hereunder and under the
Loan Agreement shall be due and payable on Term Loan Maturity Date as set forth in the Loan
Agreement.

Borrower agrees to pay any initial partial month interest payment from the date of this Note to the
first Payment Date (“Interim Interest”) on the first Payment Date.

Principal, interest and all other amounts due with respect to the Term Loan, are payable in lawful
money of the United States of America to Lender as set forth in the Loan Agreement and this Secured
Promissory Note. The principal amount of this Note and the interest rate applicable thereto, and
all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this Note.

The Loan Agreement, among other things, (a) provides for the making of a secured Term Loan to
Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of
certain stated events.

This Note may not be prepaid except as set forth in Section 2.1.1(d) and Section 2.1.1(e)
of the Loan Agreement.

This Note and the obligation of Borrower to repay the unpaid principal amount of the Term Loan,
interest on the Term Loan and all other amounts due Lender under the Loan Agreement is secured
under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in
connection with the execution, delivery, performance and enforcement of this Note are hereby
waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable
attorneys’ fees and costs, incurred by Lender in the enforcement or attempt to enforce any of
Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and
construed and interpreted in accordance with, the laws of the State of California.

Note Register; Ownership of Note. The ownership of an interest in this Note shall be
registered on a record of ownership maintained by Lender or its agent. Notwithstanding anything
else in this Note to the contrary, the right to the principal of, and stated interest on, this Note
may be transferred only if the transfer is registered on such record of ownership and the
transferee is identified as the owner of an interest in the obligation. Borrower shall be entitled
to treat the registered holder of this Note (as recorded on such record of ownership) as the owner
in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim
to or interest in this Note on the part of any other person or entity.

2

 

     IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers
thereunto duly authorized on the date hereof.

	 	 	 	 	 
	 	 	BORROWER:
	 
	 	 	 	 
	 	 	SOMAXON PHARMACEUTICALS, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

3exv10w2

Exhibit 10.2

     Execution Copy

COMMON STOCK PURCHASE AGREEMENT

by and between

KINGSBRIDGE CAPITAL LIMITED

and

SOMAXON PHARMACEUTICALS, INC.

dated as of May 21, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II PURCHASE AND SALE OF COMMON STOCK	 	 	5	 
	 
	 	Section 2.1	 	Purchase and Sale of Stock	 	 	5	 
	 
	 	Section 2.2	 	Closing	 	 	6	 
	 
	 	Section 2.3	 	Registration Statement and Prospectus	 	 	6	 
	 
	 	Section 2.4	 	Warrant	 	 	6	 
	 
	 	Section 2.5	 	Blackout Shares	 	 	6	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III DRAW DOWN TERMS	 	 	6	 
	 
	 	Section 3.1	 	Draw Down Notice	 	 	6	 
	 
	 	Section 3.2	 	Number of Shares	 	 	7	 
	 
	 	Section 3.3	 	Limitation on Draw Downs	 	 	7	 
	 
	 	Section 3.4	 	Trading Cushion	 	 	7	 
	 
	 	Section 3.5	 	Settlement	 	 	7	 
	 
	 	Section 3.6	 	Delivery of Shares; Payment of Draw Down Amount	 	 	7	 
	 
	 	Section 3.7	 	Failure to Deliver Shares	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	8	 
	 
	 	Section 4.1	 	Organization, Good Standing and Power	 	 	8	 
	 
	 	Section 4.2	 	Authorization; Enforcement	 	 	9	 
	 
	 	Section 4.3	 	Capitalization	 	 	9	 
	 
	 	Section 4.4	 	Issuance of Shares	 	 	10	 
	 
	 	Section 4.5	 	No Conflicts	 	 	10	 
	 
	 	Section 4.6	 	Commission Documents, Financial Statements	 	 	11	 
	 
	 	Section 4.7	 	No Material Adverse Change	 	 	11	 
	 
	 	Section 4.8	 	No Undisclosed Liabilities	 	 	12	 
	 
	 	Section 4.9	 	No Undisclosed Events or Circumstances	 	 	12	 
	 
	 	Section 4.10	 	Actions Pending	 	 	12	 
	 
	 	Section 4.11	 	Compliance with Law	 	 	12	 
	 
	 	Section 4.12	 	Certain Fees	 	 	12	 
	 
	 	Section 4.13	 	Disclosure	 	 	13	 
	 
	 	Section 4.14	 	Material Non-Public Information	 	 	13	 
	 
	 	Section 4.15	 	Exemption from Registration; Valid Issuances	 	 	13	 
	 
	 	Section 4.16	 	No General Solicitation or Advertising in Regard to this Transaction	 	 	13	 
	 
	 	Section 4.17	 	No Integrated Offering	 	 	13	 
	 
	 	Section 4.18	 	Acknowledgment Regarding Investor’s Purchase of Shares	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR	 	 	14	 
	 
	 	Section 5.1	 	Organization and Standing of the Investor	 	 	14	 

 i

 

	 	 	 	 	 	 	 	 	 
	 
	 	Section 5.2	 	Authorization and Power	 	 	14	 
	 
	 	Section 5.3	 	No Conflicts	 	 	14	 
	 
	 	Section 5.4	 	Financial Capability	 	 	15	 
	 
	 	Section 5.5	 	Information	 	 	15	 
	 
	 	Section 5.6	 	Trading Restrictions	 	 	15	 
	 
	 	Section 5.7	 	Statutory Underwriter Status	 	 	15	 
	 
	 	Section 5.8	 	Not an Affiliate	 	 	15	 
	 
	 	Section 5.9	 	Manner of Sale	 	 	16	 
	 
	 	Section 5.10	 	Prospectus Delivery	 	 	16	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI COVENANTS OF THE COMPANY	 	 	16	 
	 
	 	Section 6.1	 	Securities Compliance	 	 	16	 
	 
	 	Section 6.2	 	Reservation of Common Stock	 	 	16	 
	 
	 	Section 6.3	 	Registration and Listing	 	 	16	 
	 
	 	Section 6.4	 	Registration Statement	 	 	17	 
	 
	 	Section 6.5	 	Compliance with Laws	 	 	17	 
	 
	 	Section 6.6	 	Other Financing	 	 	17	 
	 
	 	Section 6.7	 	Prohibited Transactions	 	 	18	 
	 
	 	Section 6.8	 	Corporate Existence	 	 	19	 
	 
	 	Section 6.9	 	Non-Disclosure of Non-Public Information	 	 	19	 
	 
	 	Section 6.10	 	Notice of Certain Events Affecting Registration; Suspension of Right to Request a Draw Down	 	 	19	 
	 
	 	Section 6.11	 	Amendments to the Registration Statement	 	 	19	 
	 
	 	Section 6.12	 	Prospectus Delivery	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN	 	 	20	 
	 
	 	Section 7.1	 	Accuracy of the Company’s Representations and Warranties	 	 	20	 
	 
	 	Section 7.2	 	Performance by the Company	 	 	20	 
	 
	 	Section 7.3	 	Compliance with Law	 	 	20	 
	 
	 	Section 7.4	 	Effective Registration Statement	 	 	20	 
	 
	 	Section 7.5	 	No Knowledge	 	 	21	 
	 
	 	Section 7.6	 	No Suspension	 	 	21	 
	 
	 	Section 7.7	 	No Injunction	 	 	21	 
	 
	 	Section 7.8	 	No Proceedings or Litigation	 	 	21	 
	 
	 	Section 7.9	 	Sufficient Shares Registered for Resale	 	 	21	 
	 
	 	Section 7.10	 	Warrant	 	 	21	 
	 
	 	Section 7.11	 	 	 	 	21	 
	 
	 	Section 7.12	 	Accuracy of Investor’s Representation and Warranties	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VIII TERMINATION	 	 	22	 
	 
	 	Section 8.1	 	Term	 	 	22	 
	 
	 	Section 8.2	 	Other Termination	 	 	22	 
	 
	 	Section 8.3	 	Effect of Termination	 	 	22	 
	 
	 	 	 	 	 	 	 	 

 ii

 

	 	 	 	 	 	 	 	 	 
	ARTICLE IX INDEMNIFICATION	 	 	23	 
	 
	 	Section 9.1	 	Indemnification	 	 	23	 
	 
	 	Section 9.2	 	Notification of Claims for Indemnification	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE X MISCELLANEOUS	 	 	25	 
	 
	 	Section 10.1	 	Fees and Expenses	 	 	25	 
	 
	 	Section 10.2	 	Reporting Entity for the Common Stock	 	 	26	 
	 
	 	Section 10.3	 	Brokerage	 	 	26	 
	 
	 	Section 10.4	 	Notices	 	 	26	 
	 
	 	Section 10.5	 	Assignment	 	 	28	 
	 
	 	Section 10.6	 	Amendment; No Waiver	 	 	28	 
	 
	 	Section 10.7	 	Entire Agreement	 	 	28	 
	 
	 	Section 10.8	 	Severability	 	 	28	 
	 
	 	Section 10.9	 	Title and Subtitles	 	 	29	 
	 
	 	Section 10.10	 	Counterparts	 	 	29	 
	 
	 	Section 10.11	 	Choice of Law	 	 	29	 
	 
	 	Section 10.12	 	Specific Enforcement, Consent to Jurisdiction	 	 	29	 
	 
	 	Section 10.13	 	Survival	 	 	29	 
	 
	 	Section 10.14	 	Publicity	 	 	30	 
	 
	 	Section 10.15	 	Further Assurances	 	 	30	 

 iii

 

     This
COMMON STOCK PURCHASE AGREEMENT (this “Agreement”)
is entered into as of the 21st
day of May 2008, by and between Kingsbridge Capital Limited, an entity organized and existing under
the laws of the British Virgin Islands, whose registered address is Palm Grove House, 2nd Floor,
Road Town, Tortola, British Virgin Islands (the “Investor”) and Somaxon Pharmaceuticals,
Inc., a corporation organized and existing under the laws of the State of Delaware (the
“Company”).

     WHEREAS, the parties desire that, upon the terms and subject to the conditions and limitations
set forth herein, the Company may issue and sell to the Investor, from time to time as provided
herein, and the Investor shall purchase from the Company, up to $50 million worth of shares of
Common Stock (as defined below); and

     WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2)
(“Section 4(2)”) and Regulation D (“Regulation D”) of the United States Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities
Act”), and/or upon such other exemption from the registration requirements of the Securities
Act as may be available with respect to any or all of the investments in Common Stock to be made
hereunder; and

     WHEREAS, the parties hereto are concurrently entering into a Registration Rights Agreement in
the form of Exhibit A hereto (the “Registration Rights Agreement”) pursuant to
which the Company shall register the Common Stock issued and sold to the Investor under this
Agreement and issuable under the Warrant (as defined below), upon the terms and subject to the
conditions set forth therein; and

     WHEREAS, in consideration for the Investor’s execution and delivery of, and its performance of
its obligations under, this Agreement, the Company is concurrently issuing to the Investor a
Warrant in the form of Exhibit B hereto (the “Warrant”) pursuant to which the
Investor may purchase from the Company up to 165,000 shares of Common Stock, upon the terms and
subject to the conditions set forth therein;

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

     As used in this Agreement, the following terms shall have the meanings set forth below:

     “Alternative Draw Down Amount” means the product of (i) Average Trading Volume, (ii)
the Closing Price on the Trading Day preceding the issuance of the Draw Down Notice, (iii) eight
(8), and (iv) the Liquidity Ratio.

     “Average Trading Volume” means the average trading volume of the twenty (20) Trading
Days during the thirty (30) Trading Days prior to the issuance of the Draw Down Notice that results
from excluding the five (5) Trading Days with the highest trading volume and the five (5) Trading
Days with the lowest trading volume during such period.

 

 

     “Blackout Amount” shall have the meaning assigned to such term in the Registration
Rights Agreement.

     “Blackout Shares” shall have the meaning assigned to such term in the Registration
Rights Agreement.

     “Bylaws” shall have the meaning assigned to such term in Section 4.3 hereof

     “Certificate” shall have the meaning assigned to such term in Section 4.3 hereof.

     “Closing Date” shall have the meaning assigned to such term in Section 2.2 hereof.

     “Closing Price” as of any particular day shall mean the closing price per share of the
Company’s Common Stock as reported by Bloomberg L.P. on such day.

     “Commission” means the United States Securities and Exchange Commission.

     “Commission Documents” means all reports, schedules, forms, statements and other
documents required to be filed by the Company with the Commission pursuant to the reporting
requirements of the Exchange Act, including pursuant to Section 13(a) or 15(d) of the Exchange Act,
including filings incorporated by reference therein.

     “Commitment Period” means the period commencing on the Effective Date and expiring on
the earliest to occur of (i) the date on which the Investor shall have purchased Shares pursuant to
this Agreement for an aggregate purchase price equal to the Maximum Commitment Amount, (ii) the
date this Agreement is terminated pursuant to Article VIII hereof, and (iii) the date occurring
thirty-six (36) months from the Effective Date.

     “Common Stock” means the common stock of the Company, par value $0.0001 per share.

     “Condition Satisfaction Date” shall have the meaning assigned to such term in Article
VII hereof.

     “Damages” means any loss, claim, damage, liability, costs and expenses (including,
without limitation, reasonable attorneys’ fees and expenses and costs and reasonable expenses of
expert witnesses and investigation).

     “Draw Down” shall have the meaning assigned to such term in Section 3.1 hereof.

     “Draw Down Amount” means the actual dollar amount of a Draw Down paid to the Company.

     “Draw Down Discount Price” means (i) 88% of the VWAP on any Trading Day during a Draw
Down Pricing Period when the VWAP equals or exceeds $1.75 but is less than or equal to $2.50,
(ii) 90% of the VWAP on any Trading Day during the Draw Down Pricing Period when VWAP exceeds $2.50
but is less than or equal to $7.75, (iii) 92% of the VWAP on any Trading Day during a Draw Down
Pricing Period when the VWAP exceeds $7.75 but is less than or

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equal to $10.00, or (iv) 94% of the VWAP on any Trading Day during the Draw Down Pricing
Period when VWAP exceeds $10.00.

     “Draw Down Notice” shall have the meaning assigned to such term in Section 3.1 hereof.

     “Draw Down Pricing Period” shall mean, with respect to each Draw Down, a period of
eight (8) consecutive Trading Days beginning on the first Trading Day specified in a Draw Down
Notice.

     “DTC” shall mean the Depository Trust Company, or any successor thereto.

     “Effective Date” means the first Trading Day immediately following the date on which
the Registration Statement is declared effective by the Commission.

     “Exchange Act” means the United States Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

     “Excluded Merger or Sale” shall have the meaning assigned to such term in the Warrant.

     “FINRA” means the Financial Industry Regulatory Authority.

     “Knowledge” means the actual knowledge of the Company’s Chief Executive Officer and
Chief Financial Officer.

     “Liquidity Ratio” means fifty percent (50%).

     “Make Whole Amount” shall have the meaning specified in Section 3.7.

     “Market Capitalization” means, as of any Trading Day, the product of (i) the closing
sale price of the Company’s Common Stock as reported by Bloomberg L.P. using the AQR function and
(ii) the number of outstanding shares of Common Stock of the Company as reported by Bloomberg L.P.
using the DES function.

     “Material Adverse Effect” means any effect that is not negated, corrected, cured or
otherwise remedied within a reasonable period of time on the business, operations, properties or
financial condition of the Company and its consolidated subsidiaries that is material and adverse
to the Company and such subsidiaries, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the Company to perform any
of its obligations under this Agreement, the Registration Rights Agreement or the Warrant in any
material respect; provided, however, that none of the following shall constitute a “Material
Adverse Effect”: (i) the effects of conditions or events that are generally applicable to the
capital, financial, banking or currency markets or the biotechnology or pharmaceutical industries;
(ii) the effects of conditions or events that are reasonably expected to occur in the Company’s
ordinary course of business (such as, by way of example only, failed clinical trials, serious
adverse events involving the Company’s product candidates, delays in product development,
unfavorable regulatory determinations, difficulties involving collaborators or intellectual
property disputes); (iii) any changes or effects resulting from the announcement or consummation of
the transactions contemplated by this Agreement, including, without limitation,

- 3 -

 

any changes or effects associated with any particular Draw Down, and (iv) changes in the
market price of the Common Stock.

     “Maximum Commitment Amount” means the lesser of (i) $50 million in aggregate Draw Down
Amounts or (ii) 3,672,098 shares of Common Stock (as adjusted for stock splits, stock combinations,
stock dividends and recapitalizations that occur on or after the date of this Agreement); provided,
however, that in no event will the Maximum Commitment Amount equal or exceed the number of shares
of Common Stock which would require shareholder approval under the applicable rules and regulations
of the Principal Market.

     “Maximum Draw Down Amount” means 2% of the Company’s Market Capitalization at the time
of the Draw Down, or, at the Company’s option, the lesser of (A) 3% of the Company’s Market
Capitalization at the time of the Draw Down, and (B) the Alternative Draw Down Amount; provided,
however, that in no event may the Maximum Draw Down Amount exceed $10 million.

     “Permitted Transaction” shall have the meaning assigned to such term in Section 6.6
hereof.

     “Person” means any individual, corporation, partnership, limited liability company,
association, trust or other entity or organization, including any government or political
subdivision or an agency or instrumentality thereof.

     “Principal Market” means the NASDAQ Capital Market, the NASDAQ Global Select Market,
the NASDAQ Global Market, the American Stock Exchange or the New York Stock Exchange, whichever is
at the time the principal trading exchange or market for the Common Stock.

     “Prohibited Transaction” shall have the meaning assigned to such term in Section 6.7
hereof.

     “Prospectus” as used in this Agreement means the prospectus in the form included in
the Registration Statement, as supplemented from time to time pursuant to Rule 424(b) of the
Securities Act.

     “Qualified Financing” is any financing conducted by the Company after the Effective
Date in which the Company receives at least Twenty-Five Million Dollars ($25,000,000) in funds in
exchange for at least Twenty-Five Million Dollars ($25,000,000) in bona fide indebtedness. A
Qualified Financing may include, but is not limited to, a financing in which a royalty interest in
any of the Company’s products is provided to one or more third parties. .

     “Registrable Securities” means (i) the Shares, (ii) the Warrant Shares, and (iii) any
securities issued or issuable with respect to any of the foregoing by way of exchange, stock
dividend or stock split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular Registrable Securities,
once issued such securities shall cease to be Registrable Securities when (w) the Registration
Statement has been declared effective by the Commission and such Registrable Securities have been
disposed of pursuant to the Registration Statement, (x) such Registrable Securities have

- 4 -

 

been sold under circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act (“Rule 144”) are met, (y) such
time as such Registrable Securities have been otherwise transferred to holders who may trade such
shares without restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a restrictive legend or
(z) such Registrable Securities may be sold without registration and without any time, volume or
manner limitations pursuant to Rule 144(b) (or any similar provision then in effect) under the
Securities Act.

     “Registration Rights Agreement” shall have the meaning set forth in the recitals of
this Agreement.

     “Registration Statement” shall have the meaning assigned to such term in the
Registration Rights Agreement.

     “Regulation D” shall have the meaning set forth in the recitals of this Agreement.

     “Section 4(2)” shall have the meaning set forth in the recitals of this Agreement.

     “Securities Act” shall have the meaning set forth in the recitals of this Agreement.

     “Settlement Date” shall have the meaning assigned to such term in Section 3.5 hereof.

     “Shares” means the shares of Common Stock of the Company that are and/or may be
purchased hereunder.

     “Trading Day” means any day other than a Saturday or a Sunday on which the Principal
Market is open for trading in equity securities.

     “VWAP” means the volume weighted average price (the aggregate sales price of all
trades of Common Stock during each Trading Day divided by the total number of shares of Common
Stock traded during such Trading Day) of the Common Stock during any Trading Day as reported by
Bloomberg, L.P. using the AQR function.

     “Warrant” shall have the meaning set forth in the recitals of this Agreement.

     “Warrant Shares” means the shares of Common Stock issuable to the Investor upon
exercise of the Warrant.

ARTICLE II

PURCHASE AND SALE OF COMMON STOCK

     Section 2.1 Purchase and Sale of Stock. Upon the terms and subject to the conditions
set forth in this Agreement, the Company shall to the extent it elects to make Draw Downs in
accordance with Article III hereof, issue and sell to the Investor and the Investor shall purchase
Common Stock from the Company for an aggregate (in Draw Down Amounts) of up to the Maximum
Commitment Amount, consisting of purchases based on Draw Downs in accordance with Article III
hereof.

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     Section 2.2 Closing. In consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement, the Company agrees
to issue and sell to the Investor, and the Investor agrees to purchase from the Company, that
number of the Shares to be issued in connection with each Draw Down. The execution and delivery of
this Agreement (the “Closing”) shall take place at the offices of Stroock & Stroock & Lavan
LLP, 180 Maiden Lane, New York, NY 10038 at 5:00 p.m. local time on May 21, 2008, or at such other
time and place or on such date as the Investor and the Company may agree upon (the “Closing
Date”). Each party shall deliver at or prior to the Closing all documents, instruments and
writings required to be delivered at the Closing by such party pursuant to this Agreement.

     Section 2.3 Registration Statement and Prospectus. The Company shall prepare and file
with the Commission the Registration Statement (including the Prospectus) in accordance with the
provisions of the Securities Act and the Registration Rights Agreement.

     Section 2.4 Warrant. On the Closing Date, the Company shall issue and deliver the
Warrant to the Investor.

     Section 2.5 Blackout Shares. The Company shall deliver any Blackout Amount or issue
and deliver any Blackout Shares to the Investor in accordance with Section 1.1(e) of the
Registration Rights Agreement.

ARTICLE III

DRAW DOWN TERMS

     Subject to the satisfaction of the conditions hereinafter set forth in this Agreement, the
parties agree as follows:

     Section 3.1 Draw Down Notice. During the Commitment Period, the Company may, in its
sole discretion, issue a Draw Down Notice (as hereinafter defined) which shall specify the dollar
amount of Shares the Company elects to sell to the Investor (each such election, a “Draw
Down”) up to a Draw Down Amount equal to the Maximum Draw Down Amount, which Draw Down the
Investor shall be obligated to accept. The Company shall inform the Investor in writing by sending
a duly completed Draw Down Notice (as hereinafter defined) in the form of Exhibit C hereto
by e-mail to the addresses set forth in Section 10.4, as to such Draw Down Amount before
commencement of trading on the first Trading Day of the related Draw Down Pricing Period (the
“Draw Down Notice”). In addition to the Draw Down Amount, each Draw Down Notice shall
designate the first Trading Day of the Draw Down Pricing Period. In no event shall any Draw Down
Amount exceed the Maximum Draw Down Amount. Each Draw Down Notice shall be accompanied by a
certificate, signed by the Chief Executive Officer or Chief Financial Officer, dated as of the date
of such Draw Down Notice, in the form of Exhibit D hereof.

     Section 3.2 Number of Shares. Subject to Section 3.6(b), the number of Shares to be
issued in connection with each Draw Down shall be equal to the sum of the number of shares issuable
on each Trading Day of the Draw Down Pricing Period. The number of shares issuable on a Trading
Day during a Draw Down Pricing Period shall be equal to the quotient of one

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eighth (1/8th) of the Draw Down Amount divided by the Draw Down Discount Price for such
Trading Day.

     Section 3.3 Limitation on Draw Downs. Only one Draw Down shall be permitted for each
Draw Down Pricing Period.

     Section 3.4 Trading Cushion. Unless the parties agree in writing otherwise, there
shall be a minimum of three (3) Trading Days between the expiration of any Draw Down Pricing Period
and the beginning of the next succeeding Draw Down Pricing Period.

     Section 3.5 Settlement. The number of Shares purchased by the Investor in any Draw
Down shall be determined and settled on two separate dates. Shares purchased by the Investor
during the first four Trading Days of any Draw Down Pricing Period shall be determined and settled
no later than the sixth Trading Day of such Draw Down Pricing Period. Shares purchased by the
Investor during the second four Trading Days of any Draw Down Pricing Period shall be determined
and settled no later than the second Trading Day after the last Trading Day of such Draw Down
Pricing Period. Each date on which settlement of the purchase and sale of Shares occurs hereunder
being referred to as a “Settlement Date.” The Investor shall provide the Company with
delivery instructions for the Shares to be issued at each Settlement Date at least two Trading Days
in advance of such Settlement Date. The number of Shares actually issued shall be rounded down to
the nearest whole number of Shares.

     Section 3.6 Delivery of Shares; Payment of Draw Down Amount.

          (a) On each Settlement Date, the Company shall deliver the Shares purchased by the Investor to
the Investor or its designees exclusively via book-entry through the DTC to an account designated
by the Investor, and upon receipt of the Shares, the Investor shall cause payment thereof to be
made to the Company’s designated account by wire transfer of immediately available funds, if the
Shares are received by the Investor no later than 1:00 p.m. (Eastern Time), or next day available
funds, if the Shares are received thereafter.

          (b) For each Trading Day during a Draw Down Pricing Period where the VWAP is less than the
greater of (i) 90% of the Closing Price of the Company’s Common Stock on the Trading Day
immediately preceding the commencement of such Draw Down Pricing Period, or (ii) $1.75, such
Trading Day shall not be used in calculating the number of Shares to be issued in connection with
such Draw Down, and the Draw Down Amount in respect of such Draw Down Pricing Period shall be
reduced by one eighth (1/8th) of the initial Draw Down Amount specified in the Draw Down Notice.
If trading in the Company’s Common Stock is suspended for any reason for more than three (3)
consecutive or non-consecutive hours during any Trading Day during a Draw Down Pricing Period, such
Trading Day shall not be used in calculating the number of Shares to be issued in connection with
such Draw Down, and the Draw Down Amount in respect of such Draw Down Pricing Period shall be
reduced by one eighth (1/8th) of the initial Draw Down Amount specified in the Draw Down Notice.

     Section 3.7 Failure to Deliver Shares. If on any Settlement Date, the Company fails
to cause the delivery of the Shares purchased by the Investor, and such failure is not cured within
two (2) Trading Days following such Settlement Date, the Company shall pay to the Investor on

- 7 -

 

demand in cash by wire transfer of immediately available funds to an account designated by the
Investor the “Make Whole Amount;” provided, however, that in the event that the Company is
prevented from delivering Shares in respect of any such Settlement Date in a timely manner by any
fact or circumstance that is not reasonably within the control of, or directly attributable to, the
Company, or is otherwise reasonably within the control of, or directly attributable to, the
Investor, then such two (2) Trading Day period shall be automatically extended until such time as
such fact or circumstance is cured. As used herein, the Make Whole Amount shall be an amount equal
to the sum of (i) the Draw Down Amount actually paid by the Investor in respect of such Shares plus
(ii) an amount equal to the actual loss suffered by the Investor in respect of sales to subsequent
purchasers, pursuant to transactions entered into before the Settlement Date, of the Shares that
were required to be delivered by the Company, which shall be based upon documentation reasonably
satisfactory to the Company demonstrating the difference (if greater than zero) between (A) the
price per share paid by the Investor to purchase such number of shares of Common Stock necessary
for the Investor to meet its share delivery obligations to such subsequent purchasers minus (B) the
average Draw Down Discount Price during the applicable Draw Down Pricing Period. In the event that
the Make Whole Amount is not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest per annum compounded daily at a rate equal to
the greater of (i) the prime rate of interest then in effect as published by the Wall Street
Journal plus three percent (3%) and (ii) ten percent (10%) up to and including the date on which
the Make Whole Amount is actually paid. For the purposes of this Section 3.7 facts or
circumstances that are reasonably within the control of the Company include such facts and
circumstances solely attributable to acts or omissions of the Company, its officers, directors,
employees, agents and representatives, including, without limitation, any transfer agent(s),
accountant(s) and/or attorney(s) engaged by the Company in connection with the Company’s
performance of its obligations hereunder. Notwithstanding anything to the contrary set forth in
this Agreement, in the event that the Company pays the Make Whole Amount (plus interest, if
applicable) in respect of any Settlement Date in accordance with this Section 3.7, such payment
shall be the Investor’s sole remedy in respect of the Company’s failure to deliver Shares in
respect of such Settlement Date, and the Company shall not be obligated to deliver such Shares.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby makes the following representations and warranties to the Investor:

     Section 4.1 Organization, Good Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to own, lease and operate its properties and assets and to carry
on its business as now being conducted. Except as set forth in the Commission Documents (as
defined below), the Company does not own more than fifty percent (50%) of the outstanding capital
stock of or control any other business entity, other than any wholly-owned subsidiary that is not
“significant” within the meaning of Regulation S-X promulgated by the Commission. The
Company is duly qualified as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure to be so qualified or be in good
standing would not have a Material Adverse Effect.

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     Section 4.2 Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement and the Warrant and to issue the Shares, the Warrant, the Warrant
Shares and any Blackout Shares (except to the extent that the number of Blackout Shares required to
be issued exceeds the number of authorized shares of Common Stock under the Certificate); (ii) the
execution and delivery of this Agreement and the Registration Rights Agreement, and the execution,
issuance and delivery of the Warrant, by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all necessary corporate
action and no further consent or authorization of the Company or its Board of Directors or
stockholders is required (other than as contemplated by Section 6.5); and (iii) each of this
Agreement and the Registration Rights Agreement has been duly executed and delivered, and the
Warrant has been duly executed, issued and delivered, by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance with its terms,
except (A) as such enforceability may be limited by applicable bankruptcy, securities, insolvency,
or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and
remedies; (B) to the extent that provisions relating to indemnification or equitable remedies may
be restricted or limited by applicable law, and (C) as affected by other equitable principles of
general application.

     Section 4.3 Capitalization. The authorized capital stock of the Company and the
shares thereof issued and outstanding as of December 31, 2007 are set forth in the Commission
Documents. All of the outstanding shares of the Common Stock have been duly and validly authorized
and issued, and are fully paid and non-assessable. Except as set forth in this Agreement or in the
Commission Documents, as of December 31, 2007, no shares of Common Stock were entitled to
preemptive rights or registration rights and there were no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for or giving any right to subscribe for, any shares of
capital stock of the Company, except for stock options issued by the Company to its employees,
directors and consultants. Except as set forth in this Agreement or in the Commission Documents,
as of December 31, 2007, there were no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company. Except as described in the Commission
Documents or as previously disclosed to the Investor on a schedule previously delivered to the
Investor (the “Disclosure Schedule”, as of the date hereof the Company is not a party to
any agreement granting registration rights to any Person with respect to any of its equity or debt
securities. Except as set forth in the Commission Documents, or as previously disclosed to the
Investor in writing, as of the date hereof the Company is not a party to, and it has no Knowledge
of, any agreement restricting the voting or transfer of any shares of the capital stock of the
Company. The offer and sale of all capital stock, convertible securities, rights, warrants, or
options of the Company issued during the twenty-four month period immediately prior to the Closing
complied in all material respects with all applicable federal and state securities laws, and no
stockholder has a right of rescission or damages with respect thereto that would have a Material
Adverse Effect. The Company has furnished or made available to the Investor true and correct
copies of the Company’s Amended and Restated Certificate of Incorporation, as amended and in effect
on the date hereof (the

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“Certificate”), and the Company’s Amended and Restated Bylaws, as amended and in
effect on the date hereof (the “Bylaws”).

     Section 4.4 Issuance of Shares. Subject to Section 6.5, the Shares, the Warrant and
the Warrant Shares have been, and any Blackout Shares will be, duly authorized by all necessary
corporate action (except to the extent that the number of Blackout Shares required to be issued
exceeds the number of authorized shares of Common Stock under the Certificate) and, when issued and
paid for in accordance with the terms of this Agreement, the Registration Rights Agreement and the
Warrant, and subject to, and in reliance on, the representations, warranties and covenants made
herein by the Investor, the Shares and the Warrant Shares shall be validly issued and outstanding,
fully paid and non-assessable, and the Investor shall be entitled to all rights accorded to a
holder of shares of Common Stock.

     Section 4.5 No Conflicts. The execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Warrant and any other document or instrument contemplated
hereby or thereby, by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and shall not, in any material respect: (i) result in the
violation of any provision of the Certificate or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a default) under, or
give rise to any rights of termination, amendment, acceleration or cancellation of, any material
agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party that has not been waived, where such default or conflict
would constitute a Material Adverse Effect, (iii) create or impose a lien, charge or encumbrance on
any property of the Company under any agreement or any commitment to which the Company is a party
or by which the Company is bound or by which any of its respective properties or assets are bound
which would constitute a Material Adverse Effect, (iv) result in a violation of any federal, state,
local or foreign statute, rule, regulation, order, writ, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound or affected where
such violation would constitute a Material Adverse Effect, or (v) require any consent of any
third-party that has not been obtained pursuant to any material contract to which the Company is
subject or to which any of its assets, operations or management may be subject where the failure to
obtain any such consent would constitute a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrant, or issue and sell the Shares, the Warrant Shares or the Blackout Shares
(except to the extent that the number of Blackout Shares required to be issued exceeds the number
of authorized shares of Common Stock under the Certificate) in accordance with the terms hereof and
thereof (other than any filings that may be required to be made by the Company with the Commission,
the FINRA/NASDAQ or state securities commissions subsequent to the Closing, and, any registration
statement (including any amendment or supplement thereto) or any other filing or consent which may
be filed pursuant to this Agreement, the Registration Rights Agreement or the Warrant); provided
that, for purposes of the representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the Investor herein.

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     Section 4.6 Commission Documents, Financial Statements.

          (a) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
since April 1, 2007 the Company has timely filed all Commission Documents. Except as previously
disclosed to the Investor in writing, since April 1, 2007 the Company has maintained all
requirements for the continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on the NASDAQ Global Market. To the extent not available on the
Commission’s EDGAR filing system, the Company has made available to the Investor true and complete
copies of the Commission Documents filed with the Commission since April 1, 2007 and prior to the
Closing Date. The Company has not provided to the Investor any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions contemplated by this
Agreement. As of its date, the Company’s Annual Report on Form 10-K for the year ended December
31, 2007 complied in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder applicable to such document, and, as of
its date, after giving effect to the information disclosed and incorporated by reference therein,
to the Company’s Knowledge such Annual Report on Form 10-K did not 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 therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, to the Company’s Knowledge the financial statements,
together with the related notes and schedules thereto, of the Company included in the Commission
Documents filed with the Commission since April 1, 2007 complied as to form in all material
respects with all applicable accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such financial
statements, together with the related notes and schedules thereto, have been prepared in accordance
with generally accepted accounting principles (“GAAP”) applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present in all material
respects the financial condition of the Company and its subsidiaries as of the dates thereof and
the results of operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

          (b) The Company has timely filed with the Commission and made available to the Investor via
EDGAR or otherwise all certifications and statements required by (x) Rule 13a-14 or Rule 15d-14
under the Exchange Act or (y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002
(“SOXA”)) with respect to all relevant Commission Documents. The Company is in compliance
in all material respects with the provisions of SOXA applicable to it as of the date hereof. The
Company maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under
the Exchange Act.

     Section 4.7 No Material Adverse Change. Except as disclosed in the Commission
Documents or a press release of the Company, since December 31, 2007 no event or series of events
has or have occurred that would, individually or in the aggregate, have a Material Adverse Effect
on the Company.

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     Section 4.8 No Undisclosed Liabilities. To the Company’s Knowledge, neither the
Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that
would be required to be disclosed on a balance sheet of the Company or any subsidiary (including
the notes thereto) in conformity with GAAP and are not disclosed in the Commission Documents, other
than those incurred in the ordinary course of the Company’s or its subsidiaries respective
businesses since December 31, 2007 or which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company.

     Section 4.9 No Undisclosed Events or Circumstances. Except as previously disclosed to
the Investor in writing, to the Company’s Knowledge, no event or circumstance has occurred or
exists with respect to the Company or its subsidiaries or their respective businesses, properties,
operations or financial condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly announced or disclosed
and which, individually or in the aggregate, would have a Material Adverse Effect on the Company.

     Section 4.10 Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened against the Company or any
subsidiary which questions the validity of this Agreement or the transactions contemplated hereby
or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the
Commission Documents or in the Disclosure Schedule, there is no action, suit, claim, investigation
or proceeding pending or, to the Knowledge of the Company, threatened, against or involving the
Company, any subsidiary or any of their respective properties or assets, or to the Knowledge of the
Company involving any officers or directors, in their capacity as officers or directors, of the
Company or any of its subsidiaries, including, without limitation, any securities class action
lawsuit or stockholder derivative lawsuit, that would be reasonably expected to have a Material
Adverse Effect on the Company. Except as set forth in the Commission Documents or as previously
disclosed to the Investor in writing, no judgment, order, writ, injunction or decree or award has
been issued by or, to the Knowledge of the Company, requested of any court, arbitrator or
governmental agency which would be reasonably expected to result in a Material Adverse Effect.

     Section 4.11 Compliance with Law. The business of the Company and its subsidiaries
have been and are presently being conducted in accordance with all applicable federal, state, local
and foreign (if applicable) governmental laws, rules, regulations and ordinances, except as set
forth in the Commission Documents or such that would not reasonably be expected to cause a Material
Adverse Effect. Except as set forth in the Commission Documents, the Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now being conducted by
it, except for such franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, the failure to possess which, individually or in the aggregate, would
not be reasonably expected to have a Material Adverse Effect.

     Section 4.12 Certain Fees. Except as expressly set forth in this Agreement, no
brokers, finders or financial advisory fees or commissions will be payable by the Company or any of
its subsidiaries in respect of the transactions contemplated by this Agreement.

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     Section 4.13 Disclosure. To the Company’s Knowledge, neither this Agreement nor any
other documents, certificates or instruments furnished to the Investor by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements made herein or therein, in the light of the circumstances under which they
were made herein or therein, not misleading.

     Section 4.14 Material Non-Public Information. Except for this Agreement and the
transactions contemplated hereby, and the Disclosure Schedule, neither the Company nor its
employees have disclosed to the Investor, any material non-public information that, according to
applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the
date hereof but which has not been so disclosed.

     Section 4.15 Exemption from Registration; Valid Issuances. Subject to, and in
reliance on, the representations, warranties and covenants made herein by the Investor, the
issuance and sale of the Shares, the Warrant, the Warrant Shares and any Blackout Shares in
accordance with the terms and on the bases of the representations and warranties set forth in this
Agreement, may and shall be properly issued pursuant to Section 4(2), Regulation D and/or any other
applicable federal and state securities laws. Neither the sales of the Shares, the Warrant, the
Warrant Shares or any Blackout Shares pursuant to, nor the Company’s performance of its obligations
under, this Agreement, the Registration Rights Agreement, or the Warrant shall (i) result in the
creation or imposition of any liens, charges, claims or other encumbrances upon the Shares, the
Warrant Shares, any Blackout Shares, or (ii) except as previously disclosed to the Investor in
writing, entitle the holders of any outstanding shares of capital stock of the Company to
preemptive or other rights to subscribe to or acquire the shares of Common Stock or other
securities of the Company.

     Section 4.16 No General Solicitation or Advertising in Regard to this
Transaction.  Except for such registration statements filed as contemplated herein, Neither the
Company nor any of its affiliates or any Person acting on its or their behalf (i) has conducted any
general solicitation (as that term is used in Rule 502(c) of Regulation D) or general advertising
with respect to any of the Shares, the Warrant, the Warrant Shares or any Blackout Shares or
(ii) has made any offers or sales of any security or solicited any offers to buy any security under
any circumstances that would require registration of the Shares under the Securities Act.

     Section 4.17 No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, other than pursuant to this Agreement
and employee benefit plans, under circumstances that would require registration under the
Securities Act of shares of the Common Stock issuable hereunder with any other offers or sales of
securities of the Company.

     Section 4.18 Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
investor with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions

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contemplated hereunder and any advice given by the Investor or any of its representatives or
agents in connection with this Agreement and the transactions contemplated hereunder is merely
incidental to the Investor’s purchase of the Shares.

ARTICLE V

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

     The Investor hereby makes the following representations, warranties and covenants to the
Company:

     Section 5.1 Organization and Standing of the Investor. The Investor is a company duly
organized, validly existing and in good standing under the laws of the British Virgin Islands.

     Section 5.2 Authorization and Power. The Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Warrant and the
Registration Rights Agreement and to purchase the Shares, the Warrant and the Warrant Shares in
accordance with the terms hereof and thereof. The execution, delivery and performance of this
Agreement, the Warrant and the Registration Rights Agreement by Investor and the consummation by it
of the transactions contemplated hereby or thereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Investor, its Board of Directors
or stockholders is required. Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Investor and constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except (A) as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership, or similar laws relating to, or affecting generally the
enforcement of creditor’s rights and remedies, (B) to the extent that provisions relating to
indemnification or equitable remedies may be restricted or limited by applicable law, and (C) as
affected by other equitable principles of general application.

     Section 5.3 No Conflicts. The execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Warrant and any other document or instrument contemplated
hereby and thereby, by the Investor and the consummation of the transactions contemplated hereby
and thereby do not (i) violate any provision of the Investor’s charter documents or bylaws,
(ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Investor is a party, (iii) create
or impose a lien, charge or encumbrance on any property of the Investor under any agreement or any
commitment to which the Investor is a party or by which the Investor is bound or by which any of
its respective properties or assets are bound, (iv) result in a violation of any federal, state,
local or foreign statute, rule, regulation, order, writ, judgment or decree (including federal and
state securities laws and regulations) applicable to the Investor or by which any property or asset
of the Investor are bound or affected, or (v) require the consent of any third-party that has not
been obtained pursuant to any material contract to which Investor is subject or to which any of its
assets, operations or management may be subject. The Investor

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is not required under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its obligations under
this Agreement the Registration Rights Agreement or the Warrant or to purchase the Shares, the
Warrant or the Blackout Shares in accordance with the terms hereof or thereof, provided that, for
purposes of the representation made in this sentence, the Investor is assuming and relying upon the
accuracy of the relevant representations and agreements of the Company herein.

     Section 5.4 Financial Capability. The Investor has the financial capability to
perform all of its obligations under this Agreement, the Registration Rights Agreement and the
Warrant, including the capability to purchase the Shares, the Blackout Shares, the Warrant and the
Warrant Shares in accordance with the terms hereof and thereof. The Investor has such knowledge
and experience in business and financial matters that it is capable of evaluating the merits and
risks of an investment in Common Stock and the Warrant. The Investor is an “accredited
investor” as defined in Regulation D. The Investor is a “sophisticated investor” as
described in Rule 506(b)(2)(ii) of Regulation D. The Investor acknowledges that an investment in
the Common Stock and the Warrant is speculative and involves a high degree of risk.

     Section 5.5 Information. The Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Shares, the Blackout Shares, the Warrant and the Warrant
Shares which have been requested by the Investor. The Investor has reviewed or received copies of
the Commission Documents. The Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. The Investor has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment decision with respect to
its acquisition of the Shares, the Blackout Shares, the Warrant and the Warrant Shares. The
Investor understands that it (and not the Company) shall be responsible for its own tax liabilities
that may arise as a result of this investment or the transactions contemplated by this Agreement.

     Section 5.6 Trading Restrictions. The Investor covenants that neither the Investor
nor any of its affiliates nor any entity managed or controlled by the Investor will, or cause or
assist any Person to, enter into or execute any “short sale” (as such term is defined in
Rule 200 of Regulation SHO, or any successor regulation, promulgated by the Commission under the
Exchange Act) of any securities of the Company, and that the Investor and its affiliates shall
comply with all other applicable laws.

     Section 5.7 Statutory Underwriter Status. The Investor acknowledges that, pursuant to
the Commission’s current interpretations of the Securities Act, the Investor will be disclosed as
an “underwriter” within the meaning of the Securities Act in the Registration Statement
(and amendments thereto) and in any Prospectus contained therein to the extent required by
applicable law.

     Section 5.8 Not an Affiliate. The Investor is not an officer, director or
“affiliate” (as defined in Rule 405 of the Securities Act) of the Company.

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     Section 5.9 Manner of Sale. At no time was Investor presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement or any other form of
general solicitation or advertising.

     Section 5.10 Prospectus Delivery. The Investor agrees that unless the Shares and
Warrant Shares are eligible for resale pursuant to all the conditions of Rule 144 without volume or
manner of sale limitations, it will resell the Shares, the Blackout Shares and the Warrant Shares
only pursuant to the Registration Statement, in a manner described under the caption “Plan of
Distribution” in the Registration Statement, and in a manner in compliance with all applicable
securities laws, including, without limitation, any applicable prospectus delivery requirements of
the Securities Act and the insider trading restrictions of the Exchange Act.

ARTICLE VI

COVENANTS OF THE COMPANY

     The Company covenants with the Investor as follows, which covenants are for the benefit of the
Investor and its permitted assignees (as defined herein):

     Section 6.1 Securities Compliance. The Company shall notify the Commission and the
Principal Market, if and as applicable, in accordance with their respective rules and regulations,
of the transactions contemplated by this Agreement, and shall use commercially reasonable efforts
to take all other necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares, the Warrant Shares and
the Blackout Shares, if any, to the Investor. Each Commission Document to be filed with the
Commission after the Closing Date and incorporated by reference in the Registration Statement and
Prospectus, when such document becomes effective or is filed with the Commission, as the case may
be, shall comply in all material respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and other federal, state and local laws, rules and regulations
applicable to it, and shall not 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 therein,
in light of the circumstances under which they were made, not misleading; provided that in no event
shall the Company be under any obligation to the Investor to supplement the Prospectus to reflect
the issuance of any Shares pursuant to a Draw Down at any time prior to the day following the last
Settlement Date with respect to such Draw Down..

     Section 6.2 Reservation of Common Stock. As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free of preemptive rights
and other similar contractual rights of stockholders, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Shares in connection with all Draw
Downs contemplated hereunder and the Warrant Shares. The number of shares so reserved from time to
time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder.

     Section 6.3 Registration and Listing. During the Commitment Period, the Company shall
use commercially reasonable efforts to: (i) take all action necessary to cause its Common Stock to
continue to be registered under Section 12(b) or 12(g) of the Exchange Act, (ii) comply

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in all respects with its reporting and filing obligations under the Exchange Act, (iii)
prevent the termination or suspension of such registration, or the termination or suspension of its
reporting and filing obligations under the Exchange Act or Securities Act (except as expressly
permitted herein). The Company shall use commercially reasonable efforts to maintain the listing
and trading of its Common Stock and the listing of the Shares purchased by Investor hereunder on
the Principal Market (including, without limitation, maintaining sufficient net tangible assets)
and will comply in all material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the FINRA and the Principal Market. The Company will not be required
to carry out any action pursuant to this Agreement, the Registration Rights Agreement or the
Warrant that would adversely impact the listing of the Company’s securities on the Principal Market
as now in effect, and as may be changed by the Company in the future in the Company’s discretion.

     Section 6.4 Registration Statement. Without the prior written consent of the
Investor, the Registration Statement shall be used solely in connection with the transactions
between the Company and the Investor contemplated hereby.

     Section 6.5 Compliance with Laws.

          (a) The Company shall comply, and cause each subsidiary to comply, with all applicable laws,
rules, regulations and orders, noncompliance with which could reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing, neither the Company nor
any of its officers, directors or affiliates will take, directly or indirectly, any action designed
or intended to stabilize or manipulate the price of any security of the Company, or which would in
the future reasonably be expected to cause or result in, stabilization or manipulation of the price
of any security of the Company, in each case in contravention of applicable laws, rules,
regulations or orders.

          (b) Without the consent of its stockholders in accordance with FINRA and The NASDAQ Stock
Market LLC rules, the Company will not be obligated to issue, and the Investor will not be
obligated to purchase, any Shares or Blackout Shares which would result in the issuance under this
Agreement, the Warrant and the Registration Rights Agreement of Shares and Blackout Shares
(collectively) representing more than the applicable percentage under the rules of the FINRA and
The NASDAQ Stock Market LLC , including, without limitation, NASDAQ Marketplace Rule 4350(i), that
would require stockholder approval of the issuance thereof.

     Section 6.6 Other Financing. Nothing in this Agreement shall be construed to restrict
the right of the Company to offer, sell and/or issue securities of any kind whatsoever, provided
such transaction is not a Prohibited Transaction (as defined below) (any such transaction that is
not a Prohibited Transaction is referred to in this Agreement as a “Permitted
Transaction”). Without limiting the generality of the preceding sentence, the Company may,
without the prior written consent of the Investor, (i) establish stock option or other equity
incentive or award plans or agreements (for directors, employees, consultants and/or advisors),
stock purchase plans and rights plans, and amend such plans or agreements, including increasing the
number of shares available thereunder, or issue warrants and options (ii) issue equity securities
to finance, or otherwise in connection with, the acquisition, license or sale of one or more other
companies,

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equipment, technologies or lines of business, (iii) issue shares of Common Stock and/or
Preferred Stock in connection with the Company’s option, equity incentive or award plans or
agreements, stock purchase plans, rights plans, warrants or options, (iv) issue shares of Common
Stock and/or Preferred Stock in connection with the acquisition, license or sale of products,
licenses, equipment or other assets and strategic transactions or joint ventures; (v) issue shares
of Common and/or Preferred Stock to consultants and/or advisors as consideration for services
rendered or to be rendered, (vi) issue and sell equity or debt securities in a public offering,
(vii) issue and sell any equity or debt securities in a private placement (other than in connection
with any Prohibited Transaction), (viii) issue equity securities to equipment lessors, equipment
vendors, banks or similar lending institutions in connection with leases or loans, or in connection
with strategic commercial or licensing transactions, (ix) issue securities in connection with any
stock split, stock dividend, recapitalization, reclassification or similar event by the Company,
(x) issue shares of Common Stock to the Investor under any other agreement entered into between the
Investor and the Company and (xi) issue securities in connection with a Qualified Financing.

     Section 6.7 Prohibited Transactions. Except as set forth on Schedule 6.7 of the
Disclosure Schedule and as permitted by Section 6.6, during the term of this Agreement, the Company
shall not enter into any Prohibited Transaction without the prior written consent of the Investor,
which consent may be withheld at the sole discretion of the Investor. For the purposes of this
Agreement, the term “Prohibited Transaction” shall refer to the issuance by the Company of
any “future priced securities,” which shall mean the issuance of shares of Common Stock or
securities of any type whatsoever that are, or may become, convertible or exchangeable into shares
of Common Stock where the purchase, conversion or exchange price for such Common Stock is
determined using any floating discount or other post-issuance adjustable discount to the market
price of Common Stock, including, without limitation, pursuant to any equity line or other
financing that is substantially similar to the financing provided for under this Agreement;
provided that any future issuance by the Company of (i) a convertible security (including warrants,
“Convertible Security”) that (A) contains provisions that adjust the conversion or exercise price
of such Convertible Security (“Conversion Price”) solely in the event of stock splits, dividends,
distributions, reclassifications of the Company’s Common Stock, whether by merger, consolidation,
sale of assets or reorganization, or similar events shall not be a Prohibited Transaction for
purposes of this Section 6.7 so long as such Convertible Security does not contain a provision that
adjusts the Conversion Price as a result of any issuances of new securities after the issue date of
the Convertible Security at a price below the then effective Conversion Price of the Convertible
Security, or as a result of any decline in the market price of the Common Stock after the issue
date of the Convertible Security, other than a decline resulting directly from stock splits,
dividends, distributions or similar events or without limitation, containing other conversion price
adjustments customarily found in a firm commitment Rule 144A offering to qualified institutional
buyers, or (B) is issued in connection with the Company obtaining debt financing for research and
development purposes where the issuance of Convertible Securities is conditioned upon the Company
meeting certain defined clinical milestones, (ii) a registered direct public offering or an
unregistered private placement of the Company’s securities where the price per share of such
securities is fixed concurrently with the execution of definitive documentation relating to the
offering or placement, as applicable, (iii) securities issued in connection with a secured debt
financing and (iv) securities issued pursuant to a Qualified Financing shall not be a Prohibited
Transaction for purposes of this Section 6.7.

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     Section 6.8 Corporate Existence. The Company shall take all steps necessary to
preserve and continue the corporate existence of the Company; provided, however, that nothing in
this Agreement shall be deemed to prohibit the Company from engaging in any Excluded Merger or Sale
with another Person in accordance with the terms and conditions of the Warrant.

     Section 6.9 Non-Disclosure of Non-Public Information. Subject to Section 6.10 below,
except as otherwise expressly provided in this Agreement, the Registration Rights Agreement or the
Warrant, none of the Company, its officers, directors, employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives.

     Section 6.10 Notice of Certain Events Affecting Registration; Suspension of Right to
Request a Draw Down. The Company shall promptly notify the Investor upon the occurrence of any
of the following events in respect of the Registration Statement or the Prospectus related to the
offer, issuance and sale of the Shares and the Warrant Shares hereunder: (i) receipt of any request
for additional information by the Commission or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or the Prospectus; (ii) the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose; and (iii) receipt of
any notification with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the Company shall use
commercially reasonable efforts to obtain the withdrawal of such order at the earliest possible
time. The Company shall not be required to disclose to the Investor the substance or specific
reasons of any of the events set forth in clauses (i) through (ii) of the first sentence of this
Section 6.10, only that the event has occurred. The Company shall not request a Draw Down during
the continuation of any of the foregoing events.

     Section 6.11 Amendments to the Registration Statement. When the Registration
Statement is declared effective by the Commission, (a) the Company shall not file any amendment to
the Registration Statement or make any amendment or supplement to the Prospectus of which the
Investor shall not previously have been advised; provided, however, that the
Company shall, to the extent it deems advisable, and without the prior consent of or notice to
Investor, supplement the Prospectus within two Trading Days following the Settlement Date for each
Draw Down solely to reflect the issuance of Shares with respect to such Draw Down; and
provided, further, that the Company need not advise the Investor regarding any
supplement the purpose of which is to update the Registration Statement and the Prospectus to
include information the Company had previously filed with the Commission pursuant to Section 13 or
15(d) under the Exchange Act; and (b) so long as, in the reasonable opinion of counsel for the
Investor, a Prospectus is required to be delivered in connection with sales of the Shares by the
Investor, if the Company files any information, documents or reports that are incorporated by
reference in the Registration Statement pursuant to the Exchange Act, the Company shall, if
requested in writing by the Investor, deliver a copy of such information, documents or reports to
the Investor promptly following such filing to the extent such information, documents or reports
are not available on the Commission’s EDGAR filing system.

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     Section 6.12 Prospectus Delivery. From time to time for such period as in the
reasonable opinion of counsel for the Investor a prospectus is required by the Securities Act to be
delivered in connection with sales by the Investor, the Company will expeditiously deliver to the
Investor, without charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as the Investor may reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions of the Securities
Act and state securities laws in connection with the offering and sale of the Shares and the
Warrant Shares and for such period of time thereafter as the Prospectus is required by the
Securities Act to be delivered in connection with sales of the Shares and the Warrant Shares.
Notwithstanding the foregoing, in no event shall the Company be under any obligation to the
Investor to supplement the Prospectus or to reflect the issuance of any Shares pursuant to a Draw
Down or deliver any Prospectus as so supplemented at any time prior to the Trading Day following
the Settlement Date with respect to such Draw Down.

ARTICLE VII

CONDITIONS TO THE OBLIGATION OF THE INVESTOR

TO ACCEPT A DRAW DOWN

     The obligation of the Investor hereunder to accept a Draw Down Notice and to acquire and pay
for the Shares in accordance therewith is subject to the satisfaction or waiver, at each Condition
Satisfaction Date, of each of the conditions set forth below. Other than those conditions set
forth in Section 7.12 which are for the Company’s sole benefit and may be waived by the Company at
any time in its sole discretion, the conditions are for the Investor’s sole benefit and may be
waived by the Investor at any time in its sole discretion. As used in this Agreement, the term
“Condition Satisfaction Date” shall mean, with respect to each Draw Down, the date on which
the applicable Draw Down Notice is delivered to the Investor and each Settlement Date in respect of
the applicable Draw Down Pricing Period.

     Section 7.1 Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all material respects as
of the date when made as though made at that time except for representations and warranties that
are expressly made as of a particular date.

     Section 7.2 Performance by the Company. The Company shall have, in all material
respects, performed, satisfied and complied with all covenants, agreements and conditions required
by this Agreement, the Registration Rights Agreement and the Warrant to be performed, satisfied or
complied with by the Company.

     Section 7.3 Compliance with Law. The Company shall have complied in all respects with
all applicable federal, state and local governmental laws, rules, regulations and ordinances in
connection with the execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby except for any failures to so comply which could not
reasonably be expected to have a Material Adverse Effect.

     Section 7.4 Effective Registration Statement. Upon the terms and subject to the
conditions set forth in the Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective and (i) neither the Company nor the

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Investor shall have received notice that the Commission has issued or intends to issue a stop
order with respect to the Registration Statement or that the Commission otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or
intends or has threatened to do so (unless the Commission’s concerns have been addressed and the
Investor is reasonably satisfied that the Commission no longer is considering or intends to take
such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or the Prospectus shall exist.

     Section 7.5 No Knowledge. The Company shall have no Knowledge of any event that could
reasonably be expected to have the effect of causing the Registration Statement with respect to the
resale of the Registrable Securities by the Investor to be suspended or otherwise ineffective
(which event is reasonably likely to occur within eight Trading Days following the Trading Day on
which a Draw Down Notice is delivered) as of the Settlement Date.

     Section 7.6 No Suspension. Trading in the Company’s Common Stock shall not have been
suspended by the Commission, the Principal Market or the FINRA and trading in securities generally
as reported on the Principal Market shall not have been suspended or limited.

     Section 7.7 No Injunction. No statute, rule, regulation, order, decree, writ, ruling
or injunction shall have been enacted, entered, promulgated, endorsed or, to the Knowledge of the
Company, threatened by any court or governmental authority of competent jurisdiction which
prohibits the consummation of or which would materially modify or delay any of the transactions
contemplated by this Agreement.

     Section 7.8 No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced or, to the Knowledge of
the Company, threatened, and, to the Knowledge of the Company no inquiry or investigation by any
governmental authority shall have been threatened, against the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary seeking to enjoin, prevent
or change the transactions contemplated by this Agreement, or seeking damages in connection with
such transactions.

     Section 7.9 Sufficient Shares Registered for Resale. The Company shall have
sufficient Shares, calculated using the closing trade price of the Common Stock as of the Trading
Day immediately preceding such Draw Down Notice, registered under the Registration Statement to
issue and sell such Shares in accordance with such Draw Down Notice.

     Section 7.10 Warrant. The Warrant shall have been duly executed, delivered and issued
to the Investor, and the Company shall not be in default in any material respect under any of the
provisions thereof, provided that any refusal by or failure of the Company to issue and deliver
Warrant Shares in respect of any exercise (in whole or in part) thereof shall be deemed to be
material for the purposes of this Section 7.10.

     Section 7.11 Legal Opinion. The Investor shall have received the form of opinion
mutually agreed to between the parties on the date of this Agreement, it being acknowledged and
agreed that such opinion shall be in the form of a standard corporate opinion applicable to
transactions of the type contemplated hereby.

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     Section 7.12 Accuracy of Investor’s Representation and Warranties. Each of the
representations and warranties of the Investor shall be true and correct in all material respects
as of the date when made as though made at that time except for representations and warranties that
are made as of a particular date.

ARTICLE VIII

TERMINATION

     Section 8.1 Term. Unless otherwise terminated in accordance with Section 8.2 below,
this Agreement shall terminate upon the earlier to occur of (i) the expiration of the Commitment
Period or (ii) the issuance of Shares pursuant to this Agreement in an amount equal to the Maximum
Commitment Amount.

     Section 8.2 Other Termination.

          (a) The Investor may terminate this Agreement upon (x) one (1) business day’s notice if the
Company enters into any Prohibited Transaction as set forth in Section 6.7 without the Investor’s
prior written consent, or (y) one (1) business day’s notice if the Investor provides written notice
of a Material Adverse Effect to the Company, and such Material Adverse Effect continues for a
period of ten (10) Trading Days after the receipt by the Company of such notice.

          (b) The Investor may terminate this Agreement upon one (1) business day’s notice to the
Company at any time in the event that the Registration Statement is not initially declared
effective in accordance with the Registration Rights Agreement, provided, however, that in the
event the Registration Statement is declared effective prior to the delivery of such notice, the
Investor shall thereafter have no right to terminate this Agreement pursuant to this Section
8.2(b).

          (c) The Company may terminate this Agreement upon one (1) business day’s notice; provided,
however, that the Company shall not terminate this Agreement pursuant to this Section 8.2(c) during
any Draw Down Pricing Period; provided further, that, in the event of any termination of this
Agreement by the Company hereunder, so long as the Investor owns Shares purchased hereunder and/or
Warrant Shares, unless all of such shares of Common Stock may be resold by the Investor without
registration and without any time, volume or manner limitations pursuant to Rule 144(b) (or any
similar provision then in effect) under the Securities Act, the Company shall not suspend or
withdraw the Registration Statement or otherwise cause the Registration Statement to become
ineffective, or voluntarily delist the Common Stock from, the Principal Market without listing the
Common Stock on another Principal Market.

          (d) Each of the parties hereto may terminate this Agreement upon one (1) day’s notice if the
other party has breached a material representation, warranty or covenant to this Agreement and such
breach is not remedied within ten (10) Trading Days after notice of such breach is delivered to the
breaching party.

     Section 8.3 Effect of Termination. In the event of termination by the Company or the
Investor, written notice thereof shall forthwith be given to the other party and the transactions
contemplated by this Agreement shall be terminated without further action by either party. If

- 22 -

 

this
Agreement is terminated as provided in Section 8.1 or 8.2 herein, this Agreement shall become void
and of no further force and effect, except as provided in Section 10.13. Nothing in this Section
8.3 shall be deemed to release the Company or the Investor from any liability for any breach under
this Agreement occurring prior to such termination, or to impair the rights of the Company and the
Investor to compel specific performance by the other party of its obligations under this Agreement
arising prior to such termination.

ARTICLE IX

INDEMNIFICATION

     Section 9.1 Indemnification.

          (a) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.2, the Company agrees to indemnify, defend and hold harmless the Investor and its affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an “Investor Indemnified Party”), to the fullest extent
permitted by law from and against any and all Damages directly resulting from or directly arising
out of any breach of any representation or warranty, covenant or agreement (except as otherwise
specifically provided) by the Company in this Agreement, the Registration Rights Agreement or the
Warrant; provided, however, that the Company shall not be liable under this Article IX to an
Investor Indemnified Party to the extent that such Damages resulted or arose from the breach by an
Investor Indemnified Party of any representation, warranty, covenant or agreement of an Investor
Indemnified Party contained in this Agreement, the Registration Rights Agreement or the Warrant or
the negligence, recklessness, willful misconduct or bad faith of an Investor Indemnified Party.
The parties intend that any Damages subject to indemnification pursuant to this Article IX will be
net of insurance proceeds (which the Investor agrees to use commercially reasonable efforts to
recover or to cause any Investor Indemnified Party to recover). Accordingly, the amount which the
Company is required to pay to any Investor Indemnified Party hereunder (a “Company Indemnity
Payment”) will be reduced by any insurance proceeds actually recovered by or on behalf of any
Investor Indemnified Party in reduction of the related Damages. In addition, if an Investor
Indemnified Party receives a Company Indemnity Payment required by this Article IX in respect of
any Damages and subsequently receives any such insurance proceeds, then the Investor will pay or,
as applicable, will use commercially reasonable efforts to cause the Investor Indemnified Party to
pay to the Company an amount equal to the Company Indemnity Payment received less the amount of the
Company Indemnity Payment that would have been due if the insurance proceeds had been received,
realized or recovered before the Company Indemnity Payment was made.

          (b) Except as otherwise provided in this Article IX, unless disputed as set forth in Section
9.2, the Investor agrees to indemnify, defend and hold harmless the Company and its affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, a “Company Indemnified Party”), to the fullest extent
permitted by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or agreement by the Investor
in this Agreement, the Registration Rights Agreement or the Warrant; provided, however, that the
Investor shall not be liable under this Article IX to a Company Indemnified Party to the extent
that such Damages resulted or arose from the breach by a Company Indemnified Party of any

- 23 -

 

representation, warranty, covenant or agreement of a Company Indemnified Party contained in this
Agreement, the Registration Rights Agreement or the Warrant or the negligence, recklessness,
willful misconduct or bad faith of a Company Indemnified Party. The parties intend that any
Damages subject to indemnification pursuant to this Article IX will be net of insurance proceeds
(which the Company agrees to use commercially reasonable efforts to recover or to cause any Company
Indemnified Party to recover). Accordingly, the amount which the Investor is required to pay to
any Company Indemnified Party hereunder (an “Investor Indemnity Payment”) will be reduced
by any insurance proceeds theretofore actually recovered by or on behalf of any Company Indemnified
Party in reduction of the related Damages. In addition, if a Company Indemnified Party receives an
Investor Indemnity Payment required by this Article IX in respect of any Damages and subsequently
receives any such insurance proceeds, then the Company will pay or, as applicable, will use
commercially reasonable efforts to cause the Company Indemnified Party to pay to the Investor an
amount equal to the Investor Indemnity Payment received less the amount of the Investor Indemnity
Payment that would have been due if the insurance proceeds had been received, realized or recovered
before the Investor Indemnity Payment was made.

     Section 9.2 Notification of Claims for Indemnification. Each party entitled to
indemnification under this Article IX (an “Indemnified Party”) shall, promptly after the
receipt of notice of the commencement of any claim against such Indemnified Party in respect of
which indemnity may be sought from the party obligated to indemnify such Indemnified Party under
this Article IX (the “Indemnifying Party”), notify the Indemnifying Party in writing of the
commencement thereof. Any such notice shall describe the claim in reasonable detail. The failure
of any Indemnified Party to so notify the Indemnifying Party of any such action shall not relieve
the Indemnifying Party from any liability which it may have to such Indemnified Party (a) other
than pursuant to this Article IX or (b) under this Article IX unless, and only to the extent that,
such failure results in the Indemnifying Party’s forfeiture of substantive rights or defenses or
the Indemnifying Party is prejudiced by such delay. The procedures listed below shall govern the
procedures for the handling of indemnification claims.

          (a) Any claim for indemnification for Damages that do not result from a Third Party Claim as
defined in the following paragraph, shall be asserted by written notice given by the Indemnified
Party to the Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days
after the receipt of such notice within which to respond thereto. If such Indemnifying Party does
not respond within such thirty (30) day period, such Indemnifying Party shall be deemed to have
refused to accept responsibility to make payment as set forth in Section 9.1. If such Indemnifying
Party does not respond within such thirty (30) day period or rejects such claim in whole or in
part, the Indemnified Party shall be free to pursue such remedies as specified in this Agreement.

          (b) If an Indemnified Party shall receive notice or otherwise learn of the assertion by a
person or entity not a party to this Agreement of any threatened legal action or
claim (collectively a “Third Party Claim”), with respect to which an Indemnifying
Party may be obligated to provide indemnification, the Indemnified Party shall give such
Indemnifying Party written notice thereof within twenty (20) days after becoming aware of such
Third Party Claim.

- 24 -

 

          (c) An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has
specified any reservations or exceptions, to seek to settle or compromise) at such Indemnifying
Party’s own expense and by such Indemnifying Party’s own counsel, any Third Party Claim. Within
thirty (30) days after the receipt of notice from an Indemnified Party (or sooner if the nature of
such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnified Party
whether the Indemnifying Party will assume responsibility for defending such Third Party Claim,
which election shall specify any reservations or exceptions. If such Indemnifying Party does not
respond within such thirty (30) day period or rejects such claim in whole or in part, the
Indemnified Party shall be free to pursue such remedies as specified in this Agreement. In case
any such Third Party Claim shall be brought against any Indemnified Party, and it shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to assume
the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its
reasonable judgment; provided, however, that any Indemnified Party may, at its own expense, retain
separate counsel to participate in such defense at its own expense. Notwithstanding the foregoing,
in any Third Party Claim in which both the Indemnifying Party, on the one hand, and an Indemnified
Party, on the other hand, are, or are reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel and to control its own defense of such claim if, in
the reasonable opinion of counsel to such Indemnified Party, either (x) one or more significant
defenses are available to the Indemnified Party that are not available to the Indemnifying Party or
(y) a conflict or potential conflict exists between the Indemnifying Party, on the one hand, and
such Indemnified Party, on the other hand, that would make such separate representation advisable;
provided, however, that in such circumstances the Indemnifying Party (i) shall not be liable for
the fees and expenses of more than one counsel to all Indemnified Parties and (ii) shall reimburse
the Indemnified Parties for such reasonable fees and expenses of such counsel incurred in any such
Third Party Claim, as such expenses are incurred, provided that the Indemnified Parties agree to
repay such amounts if it is ultimately determined that the Indemnifying Party was not obligated to
provide indemnification under this Article IX. The Indemnifying Party agrees that it shall not,
without the prior written consent of the Indemnified Party, settle, compromise or consent to the
entry of any judgment in any pending or threatened claim relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a
party thereto) unless such settlement, compromise or consent includes an unconditional release of
such Indemnified Party from all liability arising or that may arise out of such claim. The
Indemnifying Party shall not be liable for any settlement of any claim effected against an
Indemnified Party without the Indemnifying Party’s written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. The rights accorded to an Indemnified Party
hereunder shall be in addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise; provided, however, that notwithstanding the foregoing or anything
to the contrary contained in this Agreement, nothing in this Article IX shall restrict or limit any
rights that any Indemnified Party may have to seek equitable relief.

- 25 -

 

ARTICLE X

MISCELLANEOUS

     Section 10.1 Fees and Expenses.

          (a) Each of the Company and the Investor agrees to pay its own expenses incident to the
performance of its obligations hereunder, except that the Company shall be solely responsible for
(i) all reasonable attorneys fees and legal expenses incurred by the Investor in connection with
the preparation, negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement and the Warrant, and review of the Registration Statement, and in connection with any
amendments, modifications or waivers of this Agreement, (ii) subject in all cases to Section
10.1(b) hereof, all reasonable fees and expenses incurred in connection with the Investor’s
enforcement of this Agreement, including, without limitation, all reasonable attorneys fees and
legal expenses, (iii) due diligence expenses incurred by the Investor during the term of this
Agreement equal to $12,500 per calendar quarter, and (iv) all stamp or other similar taxes and
duties, if any, levied in connection with issuance of the Shares pursuant hereto; provided,
however, that in each of the above instances the Investor shall provide customary supporting
invoices or similar documentation in reasonable detail describing such expenses (however, the
Investor shall not be obligated to provide detailed time sheets); and provided further, that the
maximum aggregate amount payable by the Company pursuant to clauses (i) and (ii) above shall be
$75,000 and the Investor shall bear all fees and expenses in excess of $75,000 in connection with
the events described in clauses (i) and (ii) above.

          (b) If any action at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Registration Rights Agreement or the Warrant, the prevailing party shall be entitled
to reasonable fees, costs and necessary disbursements in addition to any other relief to which such
party may be entitled.

     Section 10.2 Reporting Entity for the Common Stock. The reporting entity relied upon
for the determination of the trading price or trading volume of the Common Stock on any given
Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall be required to employ any other
reporting entity.

     Section 10.3 Brokerage. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will demand payment of
any fee or commission from the other party. The Company on the one hand, and the Investor, on the
other hand, agree to indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.

     Section 10.4 Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless otherwise specified
herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below
or to such other address as such party shall have specified most recently by written notice given
in accordance herewith, in each case with a copy to the e-mail address set forth beside the
facsimile number for the addressee below. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile

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machine, at the address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

If to the Company:

Somaxon Pharmaceuticals, Inc.

3721 Valley Centre Drive, Suite 500

San Diego, California 92130

Attn: Meg M. McGilley, Chief Financial Officer

Fax: (858) 509-1761

Email: mmcgilley@somaxon.com

with a copy (which shall not constitute notice):

Somaxon Pharmaceuticals, Inc.

3721 Valley Centre Drive, Suite 500

San Diego, California 92130

Attn: Matthew W. Onaitis, General Counsel

Fax: (858) 509-1761

Email: monaitis@somaxon.com

and another copy (which shall not constitute notice) to:

Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, California 92130

Attn: Cheston J. Larson, Esq.

Fax: (858) 523-5450

Email: cheston.larson@lw.com.

if to the Investor:

Kingsbridge Capital Limited

Attention: Mr. Tony Gardener-Hillman

P.O. Box 1075

Elizabeth House

9 Castle Street

St. Helier

Jersey

JE42QP

Channel Islands

Telephone: 011-44-1534-636-041

Facsimile: 011-44-1534-636-042

Email: admin@kingsbridgecap.com; and adamgurney@kingsbridgecap.com

- 27 -

 

with a copy (which shall not constitute notice) to:

Kingsbridge Corporate Services Limited

Kingsbridge House

New Abbey

Kilcullen, County Kildare

Republic of Ireland

Telephone: 011-353-45-481-811

Facsimile: 011-353-45-482-003

Email: adamgurney@kingsbridge.ie; emmagalway@kingsbridge.ie; and
pwhelan@kingsbridge.ie

and another copy (which shall not constitute notice) to:

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, NY 10038

Facsimile: (212) 806- 9238

Attention: Keith M. Andruschak, Esq. — kandruschak@stroock.com

     Either party hereto may from time to time change its address for notices under this Section by
giving at least ten (10) days’ prior written notice of such changed address to the other party
hereto.

     Section 10.5 Assignment. Neither this Agreement nor any rights of the Investor or the
Company hereunder may be assigned by either party to any other Person.

     Section 10.6 Amendment; No Waiver. No party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as specifically set
forth in this Agreement, the Warrant and the Registration Rights Agreement. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by both parties hereto. The
failure of either party to insist on strict compliance with this Agreement, or to exercise any
right or remedy under this Agreement, shall not constitute a waiver of any rights provided under
this Agreement, nor estop the parties from thereafter demanding full and complete compliance nor
prevent the parties from exercising such a right or remedy in the future.

     Section 10.7 Entire Agreement. This Agreement, the Registration Rights Agreement and
the Warrant set forth the entire agreement and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the subject matter hereof.

     Section 10.8 Severability. If any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall
continue in full force and effect without said provision; provided that, if the severance of
such provision materially changes the economic benefits of this Agreement to either party as such

- 28 -

 

benefits are anticipated as of the date hereof, then such party may terminate this Agreement on
five (5) business days prior written notice to the other party. In such event, the Registration
Rights Agreement will terminate simultaneously with the termination of this Agreement; provided
that in the event that this Agreement is terminated by the Company in accordance with this Section
10.8 and the Warrant Shares either have not been registered for resale by the Investor in
accordance with the Registration Rights Agreement or are otherwise not freely tradable (if and when
issued) in accordance with applicable law, then the Registration Rights Agreement in respect of the
registration of the Warrant Shares shall remain in full force and effect.

     Section 10.9 Title and Subtitles. The titles and subtitles used in this Agreement are
used for the convenience of reference and are not to be considered in construing or interpreting
this Agreement.

     Section 10.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which may be executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing such counterparts and
all of which together shall constitute one and the same instrument.

     Section 10.11 Choice of Law. This Agreement shall be construed under the laws of the
State of New York without regard to principles of conflict of laws that would result in the
application of any law other than the laws of the State of New York.

     Section 10.12 Specific Enforcement, Consent to Jurisdiction.

          (a) The Company and the Investor acknowledge and agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that either party shall be
entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement by the other party and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which either party may be entitled by law or
equity.

          (b) Each of the Company and the Investor (i) hereby irrevocably submits to the jurisdiction of
the United States District Court and other courts of the United States sitting in the State of New
York for the purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Investor consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section 10.12 shall affect
or limit any right to serve process in any other manner permitted by law.

     Section 10.13 Survival. The representations and warranties of the Company and the
Investor contained in Articles IV and V and the covenants contained in Articles V, VI and X

- 29 -

 

shall
survive the execution and delivery hereof and the Closing until the termination of this Agreement,
and the agreements and covenants set forth in Article VIII and Article IX of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder.

     Section 10.14 Publicity. Except as otherwise required by applicable law or
regulation, or NASDAQ rule or judicial process, prior to the Closing, neither the Company nor the
Investor shall issue any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the existence of this
Agreement. In the event the Company is required by law, regulation, NASDAQ rule or judicial
process, based upon reasonable advice of the Company’s counsel, to issue a press release or
otherwise make a public statement or announcement with respect to this Agreement prior to the
Closing, the Company shall consult with the Investor on the form and substance of such press
release, statement or announcement. Promptly after the Closing, each party may issue a press
release or otherwise make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided that, prior to
issuing any such press release, making any such public statement or announcement, the party wishing
to make such release, statement or announcement consults and cooperates in good faith with the
other party in order to formulate such press release, public statement or announcement in form and
substance reasonably acceptable to both parties.

     Section 10.15 Further Assurances. From and after the date of this Agreement, upon the
request of the Investor or the Company, each of the Company and the Investor shall execute and
deliver such instruments, documents and other writings as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.

[Remainder of this page intentionally left blank]

- 30 -

 

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

	 	 	 	 	 
	 	KINGSBRIDGE CAPITAL LIMITED

 	 
	 	By:  	/s/ Tony Gardner-Hillman
 	 
	 	 	Tony Gardner-Hillman 	 
	 	 	Director 	 
	 
	 	SOMAXON PHARMACEUTICALS, INC.

 	 
	 	By:  	/s/ Meg M. McGilley
 	 
	 	 	Name:  	Meg M. McGilley 	 
	 	 	Title:  	Vice President and Chief Financial Officer 	 

- 31 -

 

	 	 	 	 	 

Exhibit A

Form of Registration Rights Agreement

 

 

Exhibit B

Form of Warrant

 

 

Exhibit C

Form of Draw Down Notice

Kingsbridge Capital Limited

Attention: Mr. Tony Hillman

P.O. Box 1075

Elizabeth House

9 Castle Street

St. Helier

Jersey

JE42QP

Channel Islands

Facsimile: 011-44-1534-636-042

Email: admin@kingsbridgecap.com; and adamgurney@kingsbridgecap.com

Kingsbridge Corporate Services Limited

Kingsbridge House

New Abbey

Kilcullen, County Kildare

Republic of Ireland

Facsimile: 011-353-45-482-003

Email: adamgurney@kingsbridge.ie; and pwhelan@kingsbridge.ie

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, NY 10038

Facsimile: (212) 806-9238

Attention: Keith M. Andruschak, Esq. — kandruschak@stroock.com

Reference is hereby made to that certain Common Stock Purchase Agreement dated as of May 21, 2008
(the “Agreement”) by and between Somaxon Pharmaceuticals, Inc., a corporation organized and
existing under the laws of the State of Delaware (the “Company”), and Kingsbridge Capital Limited,
an entity organized and existing under the laws of the British Virgin Islands (the “Investor”).
Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in
the Agreement.

In accordance with and pursuant to Section 3.1 of the Agreement, the Company hereby issues this
Draw Down Notice to the Investor pursuant to the terms set forth below.

Draw Down Amount: $                    ; and

First Trading Day of Draw Down Pricing Period:                     , 200[ ].

 

 

Enclosed with this Draw Down Notice is an executed copy of the Officer’s Certificate described in
Section 3.1 of the Agreement, the base form of which is attached to such Agreement as Exhibit D.

 

 

Exhibit D

Officer’s Certificate

     I, [NAME OF OFFICER], do hereby certify to Kingsbridge Capital Limited (the
“Investor”), with respect to the common stock of Somaxon Pharmaceuticals, Inc. (the
“Company”) issuable in connection with the Draw Down Notice, dated                                          (the
“Notice”) attached hereto and delivered pursuant to Article III of the Common Stock
Purchase Agreement, dated May 21, 2008 (the “Agreement”), by and between the Company and
the Investor, as follows (capitalized terms used but undefined herein have the meanings given to
such terms in the Agreement):

     1. I am the duly elected [OFFICER] of the Company.

     2. The representations and warranties of the Company set forth in Article IV of the Agreement
are true and correct in all material respects as though made on and as of the date hereof (except
for such representations and warranties that are made as of a particular date).

     3. The Company has performed in all material respects all covenants and agreements to be
performed by the Company on or prior to the date hereof related to the Notice and has satisfied
each of the conditions to the obligation of the Investor set forth in Article VII of the Agreement.

     4. Assuming confirmation by the Investor of the representations and agreements contained in
Section 5.10 of the Agreement, the Shares issuable in respect of the Notice will be delivered
without restrictive legend via book entry through the Depositary Trust Company to an account
designated by the Investor.

     The undersigned has executed this Certificate this                      day of, 200[ ].

	 	 	 	 	 	 	 
	 

	 	Name:	 	 
	 	 
	 

	 	Title:

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