Document:

exv10w1

Exhibit 10.1

LOAN AND SECURITY AGREEMENT

     This LOAN AND SECURITY AGREEMENT (this “Agreement”) is dated as of April 17, 2010, by
and among Hospira, Inc., a Delaware corporation (“Parent”), Javelin Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”), and Innovative Drug Delivery Systems, Inc., a
Delaware corporation and wholly owned subsidiary of the Company (the “Subsidiary”). The
Company and the Subsidiary are sometimes referred to individually as a “Borrower” and
collectively as the “Borrowers”.

     A. Parent, the Company, Discus Acquisition Corporation and others are parties to that certain
Agreement and Plan of Merger, dated as of April 17, 2010, pursuant to which Parent shall acquire
the Company upon the terms and subject to the conditions set forth therein (the “Merger
Agreement”).

     B. In connection with the Merger Agreement, Parent has agreed to make loans to the Borrowers
upon the terms and subject to the conditions set forth in this Agreement.

     The parties agree as follows:

     1. DEFINITIONS

          1.1 Definitions. Capitalized terms used herein that are not otherwise defined herein
shall have the meanings respectively ascribed to them in the Merger Agreement. Terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided in the UCC to the
extent such terms are defined therein. In addition, in this Agreement:

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

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

     “Company Products” means all products being manufactured, distributed or developed by
or on behalf of the Company or the Subsidiary.

     “Collateral” means the property described on Exhibit A.

     “Equipment” means all “equipment” as defined in the UCC 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.

     “GAAP” is generally accepted accounting principles as applied in the United States.

 

 

     “General Intangibles” means all “general intangibles” as defined in the UCC in effect
on the date hereof with such additions to such term as may hereafter be made, and includes without
limitation, all Intellectual Property, Regulatory Approvals, Regulatory Submissions, payment
intangibles, royalties, contract rights, licenses, 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 Authority” means any foreign or domestic national, state, provincial,
municipal or local government, governmental, regulatory or administrative authority, agency,
instrumentality or commission or any court, tribunal, or judicial or arbitral body.

     “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” means all (a) patents, patent applications and invention
registrations of any type, (b) trademarks, service marks, trade dress, logos, trade names, domain
names, corporate names and other source identifiers, and registrations and applications for
registration thereof and all goodwill associated with any of the foregoing, (c) copyrightable
works, copyrights, and registrations and applications for registration thereof, (d) confidential
and proprietary information, including trade secrets, know-how, inventions, discoveries,
improvements and research and development information and (e) formulae, technical information,
specifications, data, technology, plans, drawings, software and computer programs (including source
code, executable code, data files, databases and related documentation) and other intellectual
property, including in case of clauses (a) through (e) all copies and tangible embodiments thereof
in whatever form or medium.

     “Inventory” means all “inventory” as defined in the UCC 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, including without limitation such inventory as is temporarily out of any
Borrower’s custody or possession or in transit and including any returned goods and any documents
of title representing any of the above.

     “Lien” means any mortgage, claim, pledge, security interest, assignment, deposit
arrangement, charge, encumbrance, lien, restriction, title defect or other adverse claim.

     “Market Development Initiatives” means commercial initiatives and activities, as set
forth on Schedule A hereto, related to Dyloject, the Company’s drug candidate for which a
new drug application has been filed with and accepted for formal review by the U.S. Food and Drug
Administration. At the Company’s request, Parent will assist the Company in the design, planning,
negotiation and implementation of the Market Development Initiatives.

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     “Market Development Initiative Funds” means the amount of any Loans (as defined below)
used for Market Development Initiatives in an amount not to exceed $500,000.

     “Maximum Loan Amount” means $17,234,767.19 (plus any additional interest owed on the
Myriad Loan Amount through the date of repayment thereof); provided, however, that (a) a maximum of
$8,334,767.19 of such amount may only be used by the Borrowers to repay the Myriad Loan Amount plus
any additional interest owed on the Myriad Loan Amount through the date of repayment thereof, (b) a
maximum of $4,400,000 of such amount may only be used by the Borrowers to make the Myriad
Termination Payments, (c) a maximum of $4,000,000 of such funds may only be used by the Borrowers
for working capital and general corporate purposes and (c) $500,000 of such funds may only be used
by the Borrowers for Market Development Initiatives.

     “Myriad” means Myriad Pharmaceuticals, Inc., a Delaware corporation.

     “Note Documents” means collectively, this Agreement, the Note, the Intellectual
Property Security Agreement and any other present or future agreement between or among the
Borrowers, and/or for the benefit of Parent in connection with Loans made pursuant to this
Agreement, as the same may be amended, modified, extended or replaced from time to time.

     “Obligations” means all principal, interest, and other amounts that the Borrowers owe
Parent now or later under this Agreement and the other Note Documents, including interest accruing
after Insolvency Proceedings begin, and all out-of-pocket costs and expenses (including reasonable
attorneys’ fees and costs and other third party costs) incurred by Parent in connection with the
perfection, administration or enforcement of this Agreement or the other Note Documents or the
collection, recovery, sale or other realization relating in any way to the Collateral.

     “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.

     “UCC” means the Uniform Commercial Code as the same may, from time to time, be in
effect in the State of Delaware.

     2. LOANS AND TERMS OF PAYMENT

          2.1 Bridge Loans. Subject to the terms and conditions hereinafter set forth, upon
written request of the Company given at least one (1) Business Day prior to the date on which the
Borrowers seek a loan from Parent, which date shall be specified in such written request, Parent
will make loans (each a “Loan” and collectively, the “Loans”) to the Borrowers from
time to time; provided, however, that (a) the aggregate original principal of all
Loans to be made hereunder shall not exceed the Maximum Loan Amount, (b) up to $8,334,767.19 of the
Maximum Loan Amount shall be available to the Borrowers plus any additional interest owed on the
Myriad Loan Amount through the date of repayment thereof, subject to the terms of this Agreement,
on or immediately following the date of this Agreement solely for purposes of permitting the
Borrowers to repay the Myriad Loan Amount, (c) up to $4,400,000 of the Maximum Loan Amount shall be
available to Borrowers, subject to the terms of this Agreement,

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on or immediately following the date of this Agreement solely for purposes of permitting
Borrowers to make the Myriad Termination Payments, (d) Loans for working capital and other general
corporate purposes shall be in an amount not to exceed $2,000,000 per month and (e) and no Loans
shall be made after July 2, 2010. Notwithstanding, anything contained herein to the contrary,
Loans used for Market Development Initiatives shall be available to Borrowers, subject to the terms
and conditions set forth herein, immediately following the date of this Amendment until the earlier
of (a) the date of termination of the Merger Agreement and (b) July 2, 2010.

          2.2 Note. The Loans shall be evidenced by that certain Secured Promissory Note dated
of even date herewith made by Borrowers and payable to the order of the Parent in the form attached
hereto as Exhibit B (the “Note”). Each Borrower hereby irrevocably authorizes
Parent to make or cause to be made, on a schedule attached to the Note or on the books of Parent,
at or following the time of making each loan and of receiving any payment of principal balance of
the Loans the designation of the amount of such Loan and payment. The amount so noted shall
constitute prima facie evidence as to the amount owed by the Borrowers with respect to the
principal amount of the Loans. Failure of Parent to make any such notation shall not, however,
affect any obligation of the Borrowers or any right of Parent hereunder or under the Note.

          2.3 Interest. Principal amounts outstanding under the Loans shall bear interest at a
rate per annum equal to ten percent (10%). Interest shall accrue daily from the Loan Date, shall
be calculated on the basis of actual days elapsed over a year of 365 days and shall be payable as
provided in Section 2.4 below. “Loan Date” means the date that a Loan is disbursed
to the Borrowers.

          2.4 Payment of Principal and Interest. The principal amount of the Loans (other than
the Market Development Initiative Funds, including any interest thereon), all accrued interest
thereon and all other amounts due under this Agreement and the other Note Documents shall be repaid
in full on the first to occur of (a) the Closing Date, (b) if the Merger Agreement is terminated
pursuant to Section 10.01(g) or Section 10.01(h) thereof, two (2) Business Days following the
Termination Date, provided, however, that if a Termination Fee and/or Parent Stipulated Expenses
shall be payable under Section 10.03(b) of the Merger Agreement within 90 days of termination of
the Merger Agreement, then the two (2) Business Days referred to in this clause (b) shall be
extended to ninety (90) days following the Termination Date, (c) if the Merger Agreement is
terminated pursuant to any other subsection of Section 10.01 thereof (other than Sections 10.01(g)
or 10.01(h)), ninety (90) days following the Termination Date or (d) acceleration as provided in
Section 8.1 below. The principal amount of the Loans relating to the Market Development
Market Development Initiative Funds, including any interest thereon, shall be repaid in full if the
Merger Agreement is terminated pursuant to Section 10.01(g)(iii), Section 10.01(g)(v) or Section
10.01(h) thereof and otherwise the Borrowers shall have no obligation to repay the Loans relating
to the Market Development Initiative Funds or any interest or other amounts owed thereon. The
Borrowers may, at any time and from time to time, prepay the Loans in whole or in part without
premium or penalty upon at least three (3) Business Days’ prior written notice to the Parent.

          2.5 Parent Right to Offset. If the Merger Agreement is terminated pursuant to any
provision of Section 10.01 thereof pursuant to which Parent is obligated to pay the Company

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a Termination Fee and/or Company Stipulated Expenses (collectively, the “Parent
Termination Payment Obligation”), Parent shall have the right to reduce such Parent Termination
Payment Obligation by the principal amount of the Loans (other than any Loans relating to the
Market Development Initiative Funds and any interest thereon unless the Merger Agreement is
terminated pursuant to Section 10.01(g)(iii), Section 10.01(g)(v) or Section 10.01(h) thereof), all
accrued interest thereon and all other amounts due under this Agreement and the other Note
Documents, regardless of when such amounts are payable under the terms hereof or thereof.

     3. CONDITIONS OF LOANS

          3.1 Conditions Precedent to Loan. Parent’s obligation to make the Loans is subject to
the following conditions precedent:

               (a) Parent shall have received this Agreement, fully executed by the Borrowers;

               (b) Parent shall have received the Merger Agreement, fully executed by the Borrowers;

               (c) Parent shall have received the Note, fully executed by the Borrowers;

               (d) Parent shall have received a properly completed Form W-9, fully executed by the Borrowers;

               (e) Parent shall have received the Intellectual Property Security Agreement, fully executed by
each Borrower;

               (f) the Company shall have terminated the Myriad Merger Agreement in accordance with Section
10.03(c) thereof;

               (g) Parent shall have received, in form and substance satisfactory to Parent, such other
documents, and completion of such other matters, as Parent may deem reasonably necessary;

               (h) the Merger Agreement shall not have been terminated for any reason;

               (i) there shall be no breach or inaccuracy of any representation, warranty, covenant or
agreement of the Company under the Merger Agreement that is curable such that pursuant to the
provisions of Section 10.01(f) thereof, Parent is unable to terminate the Merger Agreement prior to
the date of such Loan;

               (j) all statements, representations and warranties of the Borrowers made in this Agreement
shall continue to be correct and complete in all material respects as of the date of such Loan;
provided, however, that such materiality qualifier shall not apply to any statements,
representations and warranties in this Agreement that are already qualified by materiality;

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               (k) each Borrower shall be in full compliance in all material respects with all of the
provisions of the Note Documents (as applicable);

               (l) if the Company shall have received a Company Acquisition Proposal (that was not solicited
in violation of Section 8.03(a) of the Merger Agreement) and Parent has requested that the Company
Board reaffirm its approval and recommendation of the Merger and the Merger Agreement, the Company
Board shall have done so;

               (m) no Event of Default under Section 7.3 shall have occurred and be continuing;

               (n) Parent shall have received a reasonably detailed summary of the Borrowers’ intended use of
the proceeds of the Loan, in form and substance reasonably satisfactory to Parent; and;

               (o) at least three (3) Business Days prior to any Loan Date, Parent shall have received, in
form and substance reasonably satisfactory to Parent, a request for loan advance, substantially in
the form attached hereto as Exhibit C (the “Advance Certificate”). The Advance
Certificate shall include, among other things, statements to the effect that the conditions set
forth in Sections 3.1 (h), (i), (j), (k), (l) and
(m) have been duly satisfied.

     4. SECURITY AGREEMENT

	          4.1 Grant of Security Interest. As security for the payment and performance of the
Obligations, each Borrower hereby pledges, assigns and grants to Parent a continuing first priority
security interest in all of such Borrower’s right, title and interest in and to the Collateral
wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products
thereof. Each Borrower represents, warrants, and covenants that the security interest granted
herein is and shall at all times continue to be a first priority security interest in the
Collateral. Each Borrower represents and warrants that subject to the filing or recordings
referred to herein, such security interest constitutes a perfected security interest in all
Collateral (a) in which a security interest may be perfected by filing, recording or registering a
financing statement or analogous document in the United States (or any political subdivision
thereof) and its territories and possessions pursuant to the Uniform Commercial Code and (b) in
which a security interest may be perfected upon the receipt and recording of the relevant IP
Security Agreement with the United States Patent and Trademark Office and the United States
Copyright Office, as applicable. Within 5 Business Days of the date of this Agreement, the Company
shall deliver to Parent originals of all stock certificates representing its equity interests in
the Subsidiary (the “Pledged Stock”) with accompanying stock powers endorsed in blank and
upon such delivery the Company represents and warrants that pledge effected hereby is effective to
vest in Parent the rights of Parent in the Pledged Stock as set forth herein. If any Borrower
shall acquire a commercial tort claim, such Borrower shall promptly notify Parent in a writing
signed by such Borrower of the general details thereof and if requested by Parent, shall grant to
Parent in such writing a security interest therein and in the proceeds thereof, all upon the terms
of this Agreement, with such writing to be in form and substance reasonably satisfactory to Parent.

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	          4.2 Financing Statements, Etc. Each Borrower hereby authorizes Parent to file, at any
time and from time to time thereafter, all financing statements, financing statement assignments,
continuation financing statements, UCC filings and filings of notices with the U.S. Copyright
Office and the U.S. Patent and Trademark Office, in form reasonably satisfactory to Parent. Such
financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar
effect, or as being of an equal or lesser scope, or with greater detail, all in Parent’s
discretion. Each Borrower shall execute and deliver and shall take all other action, as Parent may
reasonably request, to perfect and continue perfected, maintain the priority of or provide notice
of the security interest of Parent in the Collateral and to accomplish the purposes of this
Agreement. Without limiting the generality of the foregoing, each Borrower ratifies and authorizes
the filing by Parent of any financing statements filed prior to the date hereof that accomplish the
purposes of this Agreement.

     5. REPRESENTATIONS AND WARRANTIES

     Each Borrower represents and warrants as follows:

          5.1 Organization and Qualification; Authority. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware. Each
Borrower (a) is duly qualified or licensed to do business as a foreign corporation and is in good
standing under the laws of any other jurisdiction in which the character of the properties owned,
leased or operated by it therein or in which the transaction of its business makes such
qualification or licensing necessary and (b) has the requisite corporate power and authority to
own, operate and lease its properties and carry on its business as now conducted, except where the
failure to be so qualified, licensed or in good standing or have such corporate power and authority
would not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.

          5.2 Authority Relative to this Agreement; Validity and Effect of Agreements. Each
Borrower has all necessary corporate power and authority to execute and deliver this Agreement and
the other Note Documents, to perform its obligations hereunder and thereunder and transactions
contemplated hereunder and thereunder. The execution, delivery and performance by each Borrower of
this Agreement and the Note Documents and the consummation of the transactions contemplated
hereunder and thereunder have been duly and validly authorized by all necessary corporate action on
behalf of each Borrower. Each of this Agreement and each of the other Note Documents has been duly
and validly executed and delivered by each Borrower and, assuming the due authorization, execution
and delivery by the Parent, constitutes a legal, valid and binding obligation of each Borrower,
enforceable against each Borrower in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors’ rights or by general equity
principles.

          5.3 No Conflict; Required Filings and Consents.

               (a) The execution and delivery by each Borrower of this Agreement and the Note Documents do
not, and the performance of its obligations hereunder and thereunder will not, (i) conflict with or
violate its charter or bylaws, (ii) conflict with or violate any Law

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applicable to any Borrower or by which any property or asset of any Borrower is bound, (iii)
except as described in Section 5.3(b), require any consent, notice or waiver under or
result in any violation or breach of or constitute (with or without notice or lapse of time or
both) a default (or give rise to any right of termination, amendment, acceleration, prepayment or
cancellation or to a loss of any benefit to which any Borrower) under, or result in the triggering
of any payments pursuant to (A) any written agreement, lease, license, contract, loan, note,
mortgage, indenture, undertaking or other commitment or obligation to which any Borrower is a party
or by which it or any of its properties or assets may be bound or (B) any Permit affecting, or
relating in any way to, the assets or business of any Borrower or (iv) result in the creation or
imposition of any Lien or other encumbrance (except for Permitted Liens) on any property or asset
of any Borrower, with respect to clauses (ii), (iii) and (iv) such triggering of payments, Liens,
encumbrances, filings, notices, Permits, authorizations, consents, approvals, violations,
conflicts, breaches or defaults which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

               (b) The execution and delivery by the Borrowers of this Agreement and the other Note Documents
do not, and the performance of its obligations hereunder and thereunder will not, require any
consent, approval, authorization of, or filing with or notification to, any Governmental Authority,
except (i) filings necessary to perfect the Liens on the Collateral granted in favor of the Parent,
(ii) the approvals, consents, exceptions, authorizations, notices and filings which have been duly
obtained, taken, given or made and are in full force and effect and (iii) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such filings or
notifications would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

          5.4 Security Interest. This Agreement creates a valid security interest that is
enforceable against the Collateral in which each Borrower now has rights and will create a security
interest that is enforceable against the Collateral in which each Borrower hereafter acquires
rights at the time each Borrower acquires any such rights. Each Borrower has the right and power
to grant the security interests in the Collateral to the Parent, and each Borrower is the sole and
complete owner of the Collateral, free from any Lien other than (a) Liens in favor of the Parent in
respect of the Obligations hereunder, (b) statutory Liens for Taxes not yet delinquent and Liens
for Taxes being contested in good faith or for which there are adequate reserves on the financial
statements of the Borrowers (if such reserves are required pursuant to GAAP), (c) inchoate
mechanics’ and materialmen’s Liens for construction in progress, (d) workmen’s, repairmen’s,
warehousemen’s and carriers’ Liens arising in the ordinary course of business of any Borrower, (e)
zoning restrictions, utility easements, rights of way and similar Liens that are imposed by any
Governmental Authority having jurisdiction thereon or otherwise are typical for the applicable
property type and locality and that, individually or in the aggregate, would not reasonably be
expected to materially interfere with the Borrowers’ ability to conduct their businesses as
currently conducted, (f) matters that would be disclosed on current title reports or surveys that
arise or have arisen in the ordinary course of business, (g) Liens reflected in the Company SEC
Reports, (h) the Lien described on Section 5.17 of the Company Disclosure Schedule to the Merger
Agreement and (i) Liens (x) of a collection bank arising under Section 4—210 of the Uniform
Commercial Code on items in the course of collection, (y) relating to the establishment of
depository relations with banks, and (z) in favor of banking institutions arising

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as a matter of law encumbering deposits (including the right of set-off) and which are within
the general parameters customary in the banking industry.

          5.5 Enforceability. This Agreement has been duly executed and delivered by the
Borrowers and is a legal, valid and binding obligation of the Borrowers, enforceable against such
Borrowers in accordance with its respective terms, except as may be limited by (a) the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights generally and (b) general principles of equity.

          5.6 Investment Company. Each Borrower, is not an “investment company” within the
meaning of the Investment Company Act of 1940, as amended, or a “holding company,” or a “subsidiary
company” of a “holding company,” or an “affiliate” of a “holding company,” or of a “subsidiary
company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of
1935, as amended.

          5.7 Solvency. Immediately following the making of the Loans and after giving effect
to the application of the proceeds of the Loans: (a) the value of the assets of the Borrowers and
their subsidiaries, taken as whole, at a fair valuation, will exceed their debts and liabilities,
subordinated, contingent or otherwise and (b) the present fair saleable value of the property of
the Borrowers and their subsidiaries, taken as whole, will be greater than the amount that will be
required to pay the probable liability of their debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and matured.

          5.8 Required Payments to Myriad. The Myriad Loan Amount as of April 19, 2010 is
$8,335,690.85 (the “Loan Repayment Amount”). The Borrowers are not required to pay any
prepayment premium or penalty or make any similar payment in connection with their repayment of the
Myriad Loan Amount and termination or cancellation of the Myriad Note Documents. The maximum
amount of the Myriad Termination Payments required to be paid by the Company in accordance with the
Myriad Merger Agreement is $4,400,000 (the “Myriad Termination Fee”). The Borrowers are not
contractually obligated to make any additional payments to Myriad or its Affiliates in connection
with the termination of the Myriad Merger Agreement, the repayment of the Myriad Loan Amount or the
termination or cancellation of the Myriad Note Documents other than the Loan Repayment Amount (plus
any additional interest accrued through the date of repayment), the Myriad Termination Fee and
payment of the expenses of Myriad related to the administration of the payoff of the Loan Repayment
Amount.

     6. COVENANTS

     Each Borrower shall do all of the following (as applicable):

          6.1 Merger Agreement Compliance. Until the earliest of (a) Merger is consummated, (b)
the Merger Agreement is terminated or (c) the Obligations have been repaid or otherwise satisfied
in full, the Company shall continue to perform its obligations as required under the Merger
Agreement including, Section 7.01 thereof.

          6.2 Use of Proceeds. The Borrowers shall use the proceeds of the Loans solely (a) to
repay the Myriad Loan Amount, (b) to make the Myriad Termination Payments and

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(c) for working capital and general corporate purposes (including Market Development
Initiatives).

          6.3 No Liens. The Borrowers shall keep the Collateral free of all Liens other than
Permitted Liens.

          6.4 Inspection. Following termination of the Merger Agreement, each Borrower shall
permit Parent and its representatives to inspect the books of such Borrower for purposes reasonably
related to this Agreement at any time during business hours following reasonable advance notice.

          6.5 No Margin Stock. No proceeds of any Loan shall be used directly or indirectly to
purchase or carry any margin security or margin stock, as such terms are used in Regulations U and
X of the Board of Governors of the Federal Reserve System, 12 CFR parts 221 and 224.

          6.6 Notice of Changes. The Borrowers shall give at least fifteen (15) days’ prior
written notice to Parent of: (a) any change in any Borrower’s name; (b) any changes in any
Borrower’s identity or structure in any manner which might make any financing statement filed
hereunder incorrect or misleading; and (c) any change in jurisdiction of organization.

          6.7 No Transfer of Collateral. The Borrowers shall not surrender or lose possession
of, sell, lease, license, assign, rent or otherwise dispose of or transfer any of the Collateral or
any right or interest therein, except in the ordinary course of business consistent with past
practice or except as permitted by the Merger Agreement.

          6.8 Insurance. The Borrowers shall use commercially reasonable efforts to provide
Parent with certificates of insurance with respect to the insurance maintained by the Borrowers
pursuant to the Merger Agreement which designate Parent as a lender loss payee or additional
insured, as applicable. Parent agrees that absent a continuation of an Event of Default, any
insurance proceeds shall be remitted to the Borrowers.

          6.9 Account Control Agreements. The Borrowers shall use commercially reasonable
efforts to obtain account control agreements in form and substance reasonably satisfactory to
Parent on all deposit and securities accounts. Parent agrees that any notification and exercise of
control over such deposit accounts will only be exercised during the continuation of an Event of
Default.

          6.10 Myriad Loans and Note Documents. The Borrowers shall use commercially reasonable
efforts to obtain as promptly as practicable after the date of this Agreement appropriate
agreements and instruments in form and substance reasonably satisfactory to Parent evidencing the
repayment of the Myriad Loan Amount, the termination or cancellation of the Myriad Note Documents
and the release of all collateral securing the borrowings by the Borrowers pursuant to the Myriad
Note Documents.

          6.11 Further Assurances. Each Borrower shall execute any further instruments and take
further action as Parent reasonably requests to effect the purposes of this Agreement and the other
Note Documents.

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     7. EVENTS OF DEFAULT

     Any one of the following is an Event of Default:

          7.1 Payment Default. Any Borrower fails to pay any of the Obligations on their due
date;

          7.2 Covenant Default. Any Borrower shall default in the performance or observance of
any agreement, covenant or obligation under this Agreement or the other Note Documents and solely
with respect to any default which is capable of being remedied, such failure continues for thirty
(30) days after notice thereof by the Parent to the Company; provided, however, that a default
pursuant to Section 6.1 hereof, shall not be deemed an Event of Default, if (a) such default is
curable under the terms of the Merger Agreement and has been cured within thirty (30) days or (b)
such default has been waived in writing by Parent under the Merger Agreement or under this Loan
Agreement; or

          7.3 Insolvency. (a) any Borrower begins an Insolvency Proceeding; or (b) an
Insolvency Proceeding is begun against any Borrower and not dismissed or stayed within thirty (30)
days.

     8. PARENT’S RIGHTS AND REMEDIES

          8.1 Rights and Remedies. While an Event of Default occurs and continues Parent 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 7.3 occurs all Obligations are immediately due and payable without any action by
Parent);

               (b) stop advancing money or extending credit for the Borrowers’ benefit under this Agreement
or under any other agreement between the Company and Parent;

               (c) settle or adjust disputes and claims directly with account debtors for amounts on terms
and in any order that Parent considers advisable, notify any Person owing any Borrower money of
Parent’s 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. Each Borrower shall assemble the
Collateral if Parent requests and make it available as Parent designates. Parent 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. Each Borrower grants Parent a
license to enter and occupy any of its premises, without charge, to exercise any of Parent’s rights
or remedies;

11

 

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

               (f) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Parent is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, each 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, in completing production of, advertising
for sale, and selling any Collateral and, in connection with Parent’s exercise of its rights under
this Section, each Borrower’s rights under all licenses and all franchise agreements inure to
Parent’s benefit;

               (g) 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 each Borrower’s Books; and

               (i) exercise all rights and remedies available to Parent under the Note Documents or at law or
equity, including all remedies provided under the UCC (including sale, assignment, transfer or
other disposal of the Collateral pursuant to the terms thereof);

     provided, however, that except with respect to (i) an Insolvency Proceeding or (ii) an Event
of Default that does not immediately trigger Parent’s right to terminate the Merger Agreement under
the provisions thereof, Parent shall not exercise its rights and remedies under this Section
8.1 unless and until the Merger Agreement has been terminated in accordance with its terms.

          8.2 Power of Attorney. Each Borrower hereby irrevocably appoints Parent as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse such Borrower’s name on any checks or other forms of payment or security;
(b) sign such 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 Parent determines reasonable; (d) make, settle, and adjust all
claims under such 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) sell, transfer,
assign or otherwise dispose of the Collateral to Parent or a third party as the UCC permits. Each
Borrower hereby appoints Parent as its lawful attorney-in-fact to sign such Borrower’s name on any
documents necessary to perfect or continue the perfection of Parent’s security interest in the
Collateral regardless of whether an Event of Default has occurred until all Obligations have been
satisfied in full. Parent’s foregoing appointment as each Borrower’s attorney in fact, and all of
Parent’s rights and powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Parent’s obligation to provide Loans terminates.

12

 

          8.3 Protective Payments. If any Borrower fails to maintain the insurance called for
by Section 7.01(r) of the Merger Agreement or fails to pay any premium thereon or fails to pay any
other amount which such Borrower is obligated to pay under this Agreement or any other Loan
Document, Parent may obtain such insurance or make such payment, and all amounts so paid by Parent
are immediately due and payable, bearing interest at the then highest applicable rate charged by
Parent, and secured by the Collateral. Parent will make reasonable efforts to provide the Borrower
with notice of Parent obtaining such insurance at the time it is obtained or within a reasonable
time thereafter. No payments by Parent are deemed an agreement to make similar payments in the
future or Parent’s waiver of any Event of Default.

          8.4 Application of Payments and Proceeds. The Borrower shall have no right to specify
the order or the accounts to which Parent shall allocate or apply any payments required to be made
by each Borrower to Parent or otherwise received by Parent 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, Parent may apply any funds in its possession, whether from the
Borrowers’ 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
Parent shall determine in its sole discretion. Any surplus shall be paid to the Borrowers or other
Persons legally entitled thereto; the Borrowers shall remain liable to Parent for any deficiency.
If Parent, 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, Parent 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 Parent
of cash therefore.

          8.5 Parent’s Liability for Collateral. So long as Parent complies with customary
practices regarding the safekeeping of the Collateral in the possession or under the control of
Parent, Parent 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. While under the control of
the Company, the Company bears all risk of loss, damage or destruction of the Collateral.

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

          8.7 Demand Waiver. Each Borrower waives demand, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,

13

 

release, compromise, settlement, extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees held by Parent on which the Company is liable.

          8.8 Costs and Expenses. The Company agrees to pay on demand all out-of-pocket costs
and expenses (including, without limitation, the reasonable fees and expenses of legal counsel)
incurred by Parent in connection with the administration of this Agreement and the other Note
Documents, the enforcement and exercise of any rights or remedies under this Agreement and the
other Note Documents and the administration and perfection of the Collateral.

     9. TERMINATION OR RELEASE

          9.1 This Agreement and all security interests granted hereby shall terminate with respect to
all Obligations when all the outstanding Obligations have been paid in full in cash or offset as
permitted hereunder and Parent has no further obligation to lend under this Agreement in accordance
with the provisions hereof.

          9.2 Upon any sale or other transfer by the Company of any Collateral that is permitted
hereunder. Parent shall release its security interest in such Collateral.

          9.3 In connection with any such termination or release pursuant to Sections 9.1 or
9.2, Parent shall promptly execute and deliver to the Borrowers, at the Borrowers’ expense,
all documents that the Borrowers shall reasonably request to evidence such termination.

     10. NOTICES

     Any notice or other communication herein required or permitted to be given shall be in writing
and shall be given in accordance with Section 11.02 of the Merger Agreement.

     11. GENERAL PROVISIONS

          11.1 Indemnification. Each Borrower agrees to indemnify, defend and hold Parent and
its directors, officers, employees, agents, attorneys, or any other Person affiliated with or
representing Parent (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 Note Documents; and (b) all losses or costs and expenses
incurred, or paid by such Indemnified Person from, following, or arising from transactions between
any Borrower and Parent in connection with the Note Documents (including reasonable attorneys’ fees
and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross
negligence or willful misconduct.

          11.2 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy or the application of
this Agreement to any person or circumstance is invalid or incapable of being enforced by any rule
of law or public policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of the transactions
contemplated by this Agreement is not affected in any manner materially adverse to any party. To
such end, the provisions of this Agreement are agreed to be severable. Upon such

14

 

determination that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually acceptable manner in order
that the transactions contemplated by this Agreement be consummated as originally contemplated to
the fullest extent possible.

          11.3 Entire Agreement; Assignment. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof, and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with respect to the subject
matter hereof. This Agreement shall not be assigned (whether pursuant to a merger, by operation of
law or otherwise); provided that Parent may assign any of its rights and obligations hereunder, in
whole or in part, to any Subsidiary of Parent without obtaining the consent of the Company and any
such assignment shall not relieve Parent of its obligations hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the
parties hereto and their respective successors and permitted assigns. Any purported assignment not
permitted under this Section 11.3 shall be null and void ab initio and of no force and
effect.

          11.4 Governing Law; Forum.

               (a) All disputes, claims or controversies arising out of or relating to this Agreement, or the
negotiation, validity or performance of this Agreement, or the transactions contemplated hereby
shall be governed by and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws.

               (b) Except as set out below, each of the Borrowers and Parent hereby irrevocably and
unconditionally consents to submit to the sole and exclusive jurisdiction of any court of the State
of Delaware or of the United States located in New Castle County, Delaware (the “Delaware Courts”)
for any litigation arising out of or relating to this Agreement, or the negotiation, validity or
performance of this Agreement, or the transactions contemplated hereby (and agrees not to commence
any litigation relating thereto except in such courts), waives any objection to the laying of venue
of any such litigation in the Delaware Courts and agrees not to plead or claim in any Delaware
Court that such litigation brought therein has been brought in any inconvenient forum. Process in
any such suit, action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any Delaware Court.

          11.5 Waiver of Jury Trial. Each of the parties hereto hereby waives to the fullest
extent permitted by applicable Law any right it may have to a trial by jury with respect to any
litigation directly or indirectly arising out of, under or in connection with this Agreement or the
transactions contemplated by this Agreement. Each of the parties hereto (a) certifies that no
representative, agent or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce that foregoing waiver and
(b) acknowledges that it and the other party hereto have been induced to enter into this Agreement
and the transactions contemplated by this Agreement, as applicable, by, among other things, the
mutual waivers and certifications in this Section 11.5.

15

 

          11.6 Headings. The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or interpretation of this
Agreement.

          11.7 Counterparts. This Agreement may be executed and delivered (including by
facsimile transmission) in two or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.

          11.8 Joint and Several Liability. Each Borrower expects to receive substantial direct
and indirect benefits from the extension of the Loans established pursuant to this Agreement. In
consideration of the foregoing, each Borrower hereby irrevocably and unconditionally agrees that it
is jointly and severally liable for all of the liabilities, obligations, covenants and agreements
of the Borrowers hereunder and under the other Note Documents, whether now or hereafter existing or
due or to become due. The obligations of the Borrowers under the Note Documents may be enforced by
Parent against any Borrower or all Borrowers in any manner or order selected by Parent in its sole
discretion. Each Borrower hereby irrevocably waives (a) any rights of subrogation and (b) any
rights of contribution, indemnity or reimbursement, in each case, that it may acquire or that may
arise against any other Borrower due to any payment or performance made under this Agreement, in
each case until all Obligations shall have been fully satisfied.

[Signature Page Follows]

16

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed
instrument as of the date first above written.

	 	 	 	 	 	 	 

	Witnessed by:

	 	 	 	HOSPIRA, INC.

	 
	
/s/ Michael B. Johannensen

	 	 	 	By:
	 	
/s/ Brian J. Smith
	 

	 	 	 	 	 	 
	Name: Michael B. Johannesen

	 	 	 	 	 	Name: Brian J. Smith
	 

	 	 	 	 	 	Title: Senior Vice President
	 
	 	 	 	 	 	 
	Witnessed by:	 	 	 	JAVELIN PHARMACEUTICALS, INC.
	 
	 	 	 	 	 	 
	/s/ Stephen J. Tulipano

	 	 	 	By:
	 	/s/ Martin J. Driscoll
	 

	 	 	 	 	 	 
	Name: Stephen J. Tulipano

	 	 	 	 	 	Name: Martin J. Driscoll
	 

	 	 	 	 	 	Title: Chief Executive Officer
	 
	 	 	 	 	 	 
	Witnessed by:	 	 	 	INNOVATIVE DRUG DELIVERY SYSTEMS, INC.
	 
	 	 	 	 	 	 
	/s/ Stephen J. Tulipano

	 	 	 	By:
	 	/s/ Martin J. Driscoll
	 

	 	 	 	 	 	 
	Name: Stephen J. Tulipano

	 	 	 	 	 	Name: Martin J. Driscoll
	 

	 	 	 	 	 	Title: Chief Executive Officer

 

 

EXHIBIT A

COLLATERAL DESCRIPTION

     DEBTORS: Javelin Pharmaceuticals, Inc. and Innovative Drug Delivery Systems, Inc.

     SECURED PARTY: Hospira, Inc.

     All personal property of each Borrower whether presently existing or hereafter created or
acquired, and wherever located, including, but not limited to:

     All cash, goods, Accounts (including health-care receivables), Equipment, Inventory, contract
rights or rights to payment of money, leases, license agreements, franchise agreements, General
Intangibles, Company Products, 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 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.

 

 

EXHIBIT B

FORM OF SECURED PROMISSORY NOTE

			
	$____________
	 	April ___, 2010

     FOR VALUE RECEIVED, the undersigned Javelin Pharmaceuticals, Inc., a Delaware corporation (the
“Company”) and Innovative Drug Delivery Systems, Inc., a Delaware corporation (the
“Subsidiary”) (the Company and the Subsidiary collectively, the “Borrowers”) hereby
promise to pay to Hospira, Inc. or its registered assigns (the “Holder”), in accordance
with the provisions of the Agreement (as hereinafter defined), the principal amount of $                    
or such amount as is advanced from time to time by the Holder to the Borrowers under that certain
Loan and Security Agreement, dated as of April ___, 2010 (as amended, restated, extended,
supplemented or otherwise modified in writing and in effect from time to time, the
“Agreement”), among the Borrowers and the Holder. Capitalized terms used herein without
definition shall have the respective meanings provided therefor in the Agreement.

     The Company promises to pay interest on the unpaid principal amount of each Loan from the date
of such Loan until such principal amount is paid in full, at such interest rate and at such times
as provided in the Agreement. All payments of principal and interest shall be made to the Holder
in Dollars in immediately available funds.

     This Secured Promissory Note is the Note referred to in the Agreement, is entitled to the
benefits thereof and may be prepaid in whole or in part subject to the terms and conditions
provided therein. This Note is secured by the Collateral. Upon the occurrence and continuation of
one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid
on this Note shall become, or may be declared to be, immediately due and payable all as provided in
the Agreement and subject to the terms thereof.

     The Borrowers hereby waive diligence, presentment, protest and demand and notice of protest,
demand, dishonor and non-payment of this Note. Each Borrower’s obligation hereunder is joint and
several as provided in the Agreement.

     THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE.

 

 

	 	 	 	 	 	 	 	 	 	 	 

	Witnessed:	 	 	 	 	 	JAVELIN PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	 	 	 
	Name:

	 	 	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Witnessed:	 	 	 	 	 	INNOVATIVE DRUG DELIVERY SYSTEMS, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 	 	Title:	 	 

 

 

EXHIBIT C

FORM OF ADVANCE CERTIFICATE

     Reference is hereby made to that certain Loan and Security Agreement dated as of April ___,
2010 by and among Hospira, Inc., Javelin Pharmaceuticals, Inc. and Innovative Drug Delivery
Systems, Inc. (the “Loan Agreement”). Capitalized terms used herein that are not otherwise
defined herein shall have the meanings respectively ascribed to them in the Loan Agreement.
Pursuant to the Loan Agreement, the undersigned hereby state as follows:

     1. The Borrowers request that a Loan in the amount of $                be made to the Borrowers on
              . The Borrowers certify that attached hereto as Exhibit A is a reasonably detailed
summary of the Borrowers’ intended use of the proceeds of the Loan.

     2. The Borrowers hereby represent and warrant as of the date of this Advance Certificate,
which statements are and shall be correct and complete as of the date hereof and on the date the
Loan is made after giving effect to such Loan:

          (a) the Merger Agreement has not been terminated for any reason;

          (b) all statements, representations and warranties of the Borrowers made in the Loan Agreement
are correct and complete in all material respects; provided, however, that such materiality
qualifier shall not apply to any statements, representations and warranties in the Loan Agreement
that are already qualified by materiality;

          (c) each Borrower is in full compliance in all material respects with all of the provisions of
the Note Documents;

          (d) the Company has not have received a Company Acquisition Proposal (that was not solicited
in violation of Section 8.03(a) of the Merger Agreement) following which Parent has requested that
the Company Board reaffirm its approval and recommendation of the Merger and the Merger Agreement;
and

          (e) no Event of Default under Section 7.3 of the Loan Agreement has occurred and is
continuing.

     Executed as a sealed instrument as of .

	 	 	 	 	 
	 	JAVELIN PHARMACEUTICALS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	INNOVATIVE DRUG DELIVERY SYSTEMS, INC.

 	 
	 	By:  	 	 
	 	 	Name: 	 
	 	 	Title:  		 

 

 

	 	 	 	 	 

EXHIBIT A

USE OF PROCEEDS

 

 

SCHEDULE A

Market Development Initiatives

“Commercial Initiatives” shall include the following commercial initiatives and activities:

	•	 	planning, preparation, sponsorship and implementation of continuing medical education
programs;
	 
	•	 	planning, preparation, sponsorship and implementation of an anesthesiology medical advisory
board meeting and a pharmacy advisory board meeting; and
	 
	•	 	selection and engagement of qualified professional services or consultants to engage in
activities related to:

	 	•	 	market research;
	 
	 	•	 	sales force planning and training support;
	 
	 	•	 	ad agency search and selection;
	 
	 	•	 	national accounts support;
	 
	 	•	 	supply chain and 3rd party logistics planning;
	 
	 	•	 	manufacturing site audits; and
	 
	 	•	 	medical affairs.exv4w2

Exhibit 4.2

 

FORM OF THIRD SUPPLEMENTAL INDENTURE

among

TELEFÓNICA EMISIONES, S.A.U.,

as Issuer,

TELEFÓNICA, S.A.,

as Guarantor

and

THE BANK OF NEW YORK MELLON,

as Trustee and Paying Agent

April [•], 2010

$1,200,000,000

FIXED RATE SENIOR NOTES DUE 2013

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	ARTICLE 1

	Definitions and Other Provisions of General Application

	 
	 	 	 	 
	Section 1.01. Definitions
	 	 	1	 
	Section 1.02. Conflict with Trust Indenture Act
	 	 	5	 
	Section 1.03. Effect of Headings and Table of Contents
	 	 	5	 
	Section 1.04. Successors and Assigns
	 	 	5	 
	Section 1.05. Separability Clause
	 	 	5	 
	Section 1.06. Benefits of Supplemental Indenture
	 	 	6	 
	Section 1.07. Governing Law
	 	 	6	 
	Section 1.08. Execution in Counterparts
	 	 	6	 
	Section 1.09. Recitals by the Issuer and the Guarantor
	 	 	6	 
	Section 1.10. Ratification and Incorporation of Original Indenture
	 	 	6	 
	 
	 	 	 	 
	ARTICLE 2

	Designated Securities

	 
	 	 	 	 
	Section 2.01. Creation of Designated Securities
	 	 	6	 
	Section 2.02. Limitation on Aggregate Principal Amount of Designated
Securities
	 	 	7	 
	Section 2.03. Payment of Principal
	 	 	7	 
	Section 2.04. Interest and Interest Rate
	 	 	7	 
	Section 2.05. Paying Agent
	 	 	8	 
	Section 2.06. Place of Payment
	 	 	11	 
	Section 2.07. Denominations
	 	 	11	 
	Section 2.08. Listing
	 	 	12	 
	Section 2.09. Security Certificates
	 	 	12	 
	Section 2.10. Defeasance and Covenant Defeasance
	 	 	12	 
	Section 2.11. Additional Amounts
	 	 	13	 
	Section 2.12. Redemption
	 	 	14	 
	Section 2.13. Applicable Procedures and Tax Certification Procedures
	 	 	15	 
	Section 2.14. Maintenance of Tax Certification Procedures
	 	 	15	 
	 
	 	 	 	 
	EXHIBIT A Form of Security Certificate Representing Designated Securities
	 	 	A-1	 

i

 

     THIS THIRD SUPPLEMENTAL INDENTURE, dated as of April [•], 2010, among Telefónica Emisiones,
S.A.U., a sociedad anónima unipersonal incorporated under the laws of the Kingdom of Spain (the
“Issuer”), Telefónica, S.A., a sociedad anónima incorporated under the laws of the Kingdom of Spain
(the “Guarantor”), and The Bank of New York Mellon, a New York banking corporation, as trustee (the
“Trustee”, which term includes any successor Trustee) and paying agent (the “Paying Agent”, which
term includes any successor Paying Agent).

     WHEREAS, the Issuer has heretofore entered into an Indenture, dated as of May 8, 2009 (as
amended and supplemented, the “Original Indenture”), with the Guarantor and the Trustee;

     WHEREAS, the Original Indenture is incorporated herein by reference and the Original
Indenture, as supplemented by this Supplemental Indenture, is herein called the “Indenture”;

     WHEREAS, the Issuer proposes to create a new series of Securities under the Indenture;

     WHEREAS, Mr. Miguel Escrig Meliá, as Director (Administrador Solidario) of the Issuer and
exercising the delegation to issue debt securities approved by the Guarantor as sole shareholder of
the Issuer on May 4, 2009 in favor of the Directors (Administradores Solidarios) of the Issuer,
hereby resolves to issue the Designated Securities (as this term is defined in Section 2.01 below)
in an aggregate principal amount of $1,200,000,000 and with the terms and conditions referred to in
this Supplemental Indenture; and

     WHEREAS, all things necessary to make this Supplemental Indenture a valid agreement of the
Issuer and the Guarantor, in accordance with its terms, have been done;

     NOW, THEREFORE, for and in consideration of the premises and the purchases of the Designated
Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of Designated Securities, as follows:

ARTICLE 1

Definitions and Other Provisions of General Application

     Section 1.01. Definitions. For all purposes of this Supplemental Indenture, except as
otherwise expressly provided or unless the context otherwise requires:

1

 

     (a) the terms defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular;

     (b) all other terms used herein which are defined in the Trust Indenture Act, either directly
or by reference therein, have the meanings assigned to them therein;

     (c) all accounting terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles, and, except as otherwise herein expressly
provided, the term “generally accepted accounting principles”, or “GAAP”, with respect to any
computation required or permitted hereunder shall mean (i) in the case of the Issuer’s and the
Guarantor’s unconsolidated financial statements, the accounting principles generally accepted in
the Kingdom of Spain and (ii) in the case of the Guarantor’s consolidated financial statements,
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board, which do not differ from IFRS as adopted by the European Union, in each case as in
effect at the date of such computation and as applied by the Issuer or the Guarantor, as the case
may be;

     (d) unless the context otherwise requires, any reference to an “Article” or a “Section” refers
to an Article or a Section, as the case may be, of this Supplemental Indenture;

     (e) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to
this Supplemental Indenture as a whole and not to any particular Article, Section or other
subdivision; and

     (f) all terms used but not defined in this Supplemental Indenture, which are defined in the
Original Indenture, shall have the meanings assigned to them in the Original Indenture.

     “Business Day” means a day other than a Saturday, a Sunday or any other day on which banking
institutions in New York, New York or the city of Madrid, Spain, are authorized or required by law
or executive order to close.

     “Comparable Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term (“Remaining
Life”) of the Designated Securities to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Designated Securities being
redeemed.

2

 

     “Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of the
Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker
obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such
Quotations or, if only one such Quotation is obtained, such Quotation.

     “Depositary” means The Depository Trust Company and its successors.

     “Designated Guarantee” means that certain guarantee dated April [•], 2010, executed and
delivered by the Guarantor and endorsed on each Security Certificate representing Designated
Securities, pursuant to which, among other things, the Guarantor shall unconditionally and
irrevocably guarantee to the Holders of the Designated Securities the due and punctual payment of
principal of, premium, if any, and interest and all other amounts due under the Indenture and the
Designated Securities.

     “Designated Securities” has the meaning ascribed in Section 2.01.

     “Fixed Rate Business Day” means a day other than a Saturday, a Sunday or any other day on
which banking institutions in New York, New York, London, England or the city of Madrid, Spain are
authorized or required by law or executive order to close.

     “Guarantor” means the Person named as “Guarantor” in the first paragraph of this Supplemental
Indenture.

     “Independent Investment Banker” means an independent investment banking institution of
national standing appointed by the Issuer and the Guarantor.

     “Interest Payment Date” has the meaning ascribed in Section 2.04(b).

     “Issuer” means the Person named as “Issuer” in the first paragraph of this Supplemental
Indenture.

     “Letter of Appointment” means the letter of appointment dated as of April [•], 2010 among the
Issuer, the Guarantor and the Tax Certification Agent.

     “New York Business Day” means a day other than a Saturday, a Sunday or any other day on which
banking institutions in New York, New York are authorized or required by law or executive order to
close.

     “Paying Agent” means the Person named as “Paying Agent” in the first paragraph of this
Supplemental Indenture.

     “Redemption Date” has the meaning ascribed in Section 2.12.

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     “Redemption Price” has the meaning ascribed in Section 2.12.

     “Reference Treasury Dealer” means each of (1) Banc of America Securities LLC, Credit Suisse
Securities (USA) LLC, J.P. Morgan Securities Inc., UBS Securities LLC and their affiliates or their
respective successors, provided that if any of the foregoing shall cease to be a primary U.S.
government securities dealer in New York City (a “Primary Treasury Dealer”), the Issuer and the
Guarantor will substitute therefor another Primary Treasury Dealer and (2) any other Primary
Treasury Dealer selected by the Issuer and the Guarantor.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker by the Reference
Treasury Dealer at 5:00 p.m. on the third New York Business Day preceding such Redemption Date.

     “Regular Record Date” means the tenth New York Business Day prior to the applicable Interest
Payment Date.

     “Stated Maturity” means April 26, 2013.

     “Supplemental Indenture” means this instrument as originally executed or as it may from time
to time be supplemented or amended in accordance with the terms of the Indenture.

     “Tax Certification Agency Agreement” means that certain Tax Certification Agency Agreement
dated as of June 20, 2006 among the Issuer, the Guarantor, the Paying Agent (as successor to
JPMorgan Chase Bank, N.A.) and the Tax Certification Agent (as defined below), as amended,
supplemented, modified, replaced or restated from time to time in accordance with its terms.

     “Tax Certification Agent” means Acupay System LLC, a New York limited liability corporation,
or any successor Tax Certification Agent appointed in accordance with the terms of the Tax
Certification Agency Agreement.

     “Tax Certification Procedures” means those certain procedures to collect certain information
with respect to the Designated Securities or the Beneficial Owners thereof specified in the Letter
of Appointment, as such procedures may be amended, supplemented, modified or replaced from time to
time in accordance with the terms of the Tax Certification Agency Agreement.

     “Treasury Rate” means, with respect to any Redemption Date, (1) the yield, under the heading
which represents the average for the immediately

4

 

preceding week, appearing in the most recently
published statistical release designated “H. 15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant maturity under the
caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), (2) if the period from the Redemption
Date to the maturity date of the Designated Securities to be redeemed is less than one year, the
weekly average yield on actually traded United States Treasury securities adjusted to a constant
maturity of one year, or (3) if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a
price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated by
the Independent Investment Banker on the third New York Business Day preceding the Redemption Date.

     “Trustee” means the Person named as “Trustee” in the first paragraph of this Supplemental
Indenture.

     Section 1.02. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies
or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a
part of and govern the Indenture, the provision of the Trust Indenture Act shall control. If any
provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture
Act that may be so modified or excluded, the provision of the Trust Indenture Act shall be deemed
to apply to this Supplemental Indenture as so modified or to be excluded, as the case may be.

     Section 1.03. Effect of Headings and Table of Contents. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect the construction
hereof.

     Section 1.04. Successors and Assigns. All covenants and agreements in this Supplemental
Indenture by the Issuer or the Guarantor shall bind their respective successors and assigns,
whether so expressed or not.

     Section 1.05. Separability Clause. In case any provision in this Supplemental Indenture
shall be invalid, illegal or unenforceable, the validity,

5

 

legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

     Section 1.06. Benefits of Supplemental Indenture. Nothing in the Indenture, the Designated
Securities or the Designated Guarantee, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder and the Holders of Designated Securities, any
benefit or any legal or equitable right, remedy or claim under the Indenture.

     Section 1.07. Governing Law. Pursuant to Section 5-1401 of the General Obligations Law of
the State of New York, this Supplemental Indenture, the
Designated Securities and the Designated Guarantee shall be governed by, and construed in
accordance with, the laws of the State of New York.

     Section 1.08. Execution in Counterparts. This Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

     Section 1.09. Recitals by the Issuer and the Guarantor. The recitals in this Supplemental
Indenture are made by the Issuer and the Guarantor only and not by the Trustee, and all of the
provisions contained in the Original Indenture in respect of the rights, privileges, immunities,
powers and duties of the Trustee shall be applicable in respect of the Designated Securities, the
Designated Guarantee and of this Supplemental Indenture as fully and with like effect as if set
forth herein in full.

     Section 1.10. Ratification and Incorporation of Original Indenture. As supplemented hereby,
the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and
this Supplemental Indenture shall be read, taken and construed as one and the same instrument.

ARTICLE 2

Designated Securities

     Section 2.01. Creation of Designated Securities. There is hereby created a new series of
Securities to be issued under the Indenture, to be designated as Fixed Rate Senior Notes due 2013
(the “Designated Securities”). The Designated Securities have been designated as series J of the
Issuer in the public deed of issuance executed by one of the Directors (Administradores Solidarios)
of the Issuer on April 14, 2010 and registered with the Mercantile Registry of Madrid on April [•], 2010.

6

 

     Section 2.02. Limitation on Aggregate Principal Amount of Designated Securities. The
aggregate principal amount of the Designated Securities shall initially be limited to
$1,200,000,000 (except for Designated Securities represented by any Security Certificate
authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Designated Securities pursuant to Section 2.4, 2.5, 2.7, 9.6 or 11.7 of the Original
Indenture and except for any Designated Securities which, pursuant to Section 2.3 of the Original
Indenture, are deemed never to have been authenticated and delivered under the Indenture). The
Issuer may from time to time, without the consent of the Holders of Designated Securities, create
and issue further securities having the same terms and conditions as the previously issued
Designated Securities in all respects (or in all respects except for the issue date, the first
payment of interest thereon and/or the issue price), so that such further issue shall be
consolidated and form a single series with the Outstanding Designated Securities; provided,
however, that any such further issuance will only be made if either such additional securities
are issued with no more than de minimis original issue discount for U.S. federal income tax
purposes or any such further issuance is a “qualified reopening” as such term is defined under
Treasury Regulations Section 1.1275-2(k)(3) promulgated under the Internal Revenue Code of 1986, as
amended.

     Section 2.03. Payment of Principal. The principal of the Outstanding Designated Securities
shall be due and payable at the Stated Maturity.

     Section 2.04. Interest and Interest Rate.

     (a) The Designated Securities will bear interest from April [•], 2010 or from the most recent
date through which the Issuer has paid or provided for interest on the Designated Securities at an
annual rate of 2.582%.

     (b) Subject to and in accordance with the Tax Certification Procedures, the Issuer or the
Guarantor, as the case may be, will pay interest on the Designated Securities semi-annually on
April 26 and October 26 of each year, beginning on October 26, 2010 until the Stated Maturity, and
on the Stated Maturity (each an “Interest Payment Date”).

     (c) Interest on the Designated Securities will be computed on the basis of a 360-day year of
twelve 30-day months. Except as described below for the first Interest Payment Date, on each
Interest Payment Date, the Issuer or the Guarantor, as the case may be, will pay interest on the
Designated Securities for the period commencing on and including the immediately preceding Interest
Payment Date and ending on and including the day immediately preceding that Interest Payment Date.

     (d) On the first Interest Payment Date, the Issuer or the Guarantor, as the case may be, will
pay interest for the period beginning on and including the

7

 

issue date of the Designated Securities
and ending on and including October 25, 2010.

     (e) If any Interest Payment Date would fall on a day that is not a Fixed Rate Business Day,
the interest payment shall be postponed to the next day that is a Fixed Rate Business Day, and no
interest on such payment shall accrue for the period from and after such Interest Payment Date.

     (f) If the Stated Maturity of any Designated Security is not a Fixed Rate Business Day,
payment of principal and interest on the applicable Designated Security will be made on the next
succeeding day that is a Fixed Rate Business Day, and no interest will accrue for the period from
and after such Stated Maturity.

     (g) Subject to and in accordance with the Tax Certification Procedures, interest on each
Designated Security will be paid only to the Person in whose
name such Designated Security was registered at the close of business on the Regular Record
Date for the applicable Interest Payment Date.

     Section 2.05. Paying Agent.

     (a) Upon the terms and subject to the conditions contained herein, the Issuer hereby appoints
The Bank of New York Mellon as the initial Paying Agent under the Indenture for the purpose of
performing the functions of the Paying Agent with respect to the Designated Securities.

     (b) The Paying Agent shall exercise due care in performing the functions of the Paying Agent
for the Designated Securities.

     (c) The Paying Agent accepts its obligations set forth herein, upon the terms and subject to
the conditions hereof, including the following, to all of which the Issuer and the Guarantor agree:

     (i) The Paying Agent shall be entitled to such compensation as may be agreed in
writing with the Issuer and the Guarantor for all services rendered by the Paying Agent,
and the Issuer and the Guarantor promise to pay such compensation and to reimburse the
Paying Agent for the reasonable out-of-pocket expenses (including reasonable counsel fees
and expenses) incurred by it in connection with the services rendered by it hereunder upon
receipt of such invoices as the Issuer and the Guarantor shall reasonably require. The
Issuer and the Guarantor agree to indemnify the Paying Agent for, and to hold it harmless
against, any and all loss, liability, damage, claims or expenses (including the costs and
expenses of defending against any claim of liability) incurred by the Paying Agent that
arises out of or in connection with its acting as Paying Agent hereunder, except such as
may result from the negligence, willful misconduct or bad

8

 

faith of the Paying Agent or any
of its agents or employees. The Paying Agent shall incur no liability and shall be
indemnified and held harmless by the Issuer and the Guarantor for, or in respect of, any
actions taken, omitted to be taken or suffered to be taken in good faith by the Paying
Agent in reliance upon (A) the written opinion of counsel satisfactory to it and upon
obtaining the prior written consent of the Issuer or the Guarantor or (B) written
instructions from the Issuer and the Guarantor. The provisions of this paragraph shall
survive the termination of this Supplemental Indenture.

     (ii) In acting under the Indenture and in connection with the Designated Securities,
the Paying Agent is acting solely as agent of the Issuer and the Guarantor and does not
assume any obligations to, or relationship of agency or trust for or with, any of the
Holders of the Designated Securities.

     (iii) The Paying Agent shall be protected and shall incur no liability for or in
respect of any action taken or omitted to be taken or anything suffered by it in reliance
upon the terms of the Designated Securities, any notice, direction, certificate,
affidavit, statement or other paper, document or communication reasonably believed by it
to be genuine and to have been approved or signed by the proper party or parties.

     (iv) The Paying Agent shall be obligated to perform only such duties as are herein
specifically set forth and any duties necessarily incidental thereto, and no implied
duties or obligations shall be read into the Indenture against the Paying Agent.

     (v) Unless herein otherwise specifically provided, any order, certificate, notice,
request, direction or other communication from the Issuer or the Guarantor made or given
by it under any provision of the Indenture shall be sufficient if signed by any proper
officer or an authorized person of the Issuer or the Guarantor, as the case may be.

     (vi) The Paying Agent may, upon obtaining the prior written consent of the Issuer and
the Guarantor, perform any duties hereunder either directly or by or through agents or
attorneys, and the Paying Agent shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed with due care by it hereunder.

     (vii) Under no circumstances will any party to this Supplemental Indenture be liable
to any other party to this Supplemental Indenture for any special, indirect, punitive or
consequential loss or damage (including, but not limited to, the loss of business,
goodwill, opportunity or profit) whether or not foreseeable and even if advised of the
possibility of such

9

 

loss or damage and regardless of whether the claim for loss or damage
is made in negligence, for breach of contract, breach of trust, breach of fiduciary
obligation or otherwise.

     (d) (i) The Paying Agent may at any time resign as Paying Agent by giving written notice to
the Issuer and the Guarantor of such intention on its part, specifying the date on which its
desired resignation shall become effective; provided, however, that such date shall not be earlier
than 60 days after the receipt of such notice by the Issuer and the Guarantor, unless the Issuer
and the Guarantor agree in writing to accept less notice. The Paying Agent may be removed (with or
without cause) at any time by the filing with it of any instrument in writing signed on behalf of
the Issuer and the Guarantor by any proper officer or an authorized person thereof and specifying
such removal and the date when it is intended to become effective, subject to (if such Paying Agent
is not the Trustee) the written consent of the Trustee, which consent shall not be unreasonably
withheld. Such resignation or removal shall take effect only upon the date of the appointment by
the Issuer and the Guarantor, as hereinafter provided, of a successor Paying Agent. If within 60
days after notice of
resignation or removal has been given, a successor Paying Agent has not been appointed, the
Paying Agent may petition a court of competent jurisdiction to appoint a successor Paying Agent. A
successor Paying Agent shall be appointed by the Issuer and the Guarantor by an instrument in
writing signed on behalf of the Issuer and the Guarantor, as the case may be, by any proper officer
or an authorized person thereof and the successor Paying Agent. Upon the appointment of a successor
Paying Agent and acceptance by it of such appointment, the Paying Agent so superseded shall cease
to be such Paying Agent hereunder. Upon its resignation or removal, the Paying Agent shall be
entitled to the payment by the Issuer and the Guarantor of its compensation, if any is owed to it,
for services rendered hereunder and to the reimbursement of all reasonable out-of-pocket expenses
incurred in connection with the services rendered by it hereunder.

     (ii) Any successor Paying Agent appointed hereunder shall execute and deliver to its
predecessor and to the Issuer and the Guarantor an instrument accepting such appointment
hereunder, and thereupon such successor Paying Agent, without any further act, deed or
conveyance, shall become vested with all the authority, rights, powers, trusts,
immunities, duties and obligations of such predecessor with like effect as if originally
named as such Paying Agent hereunder, and such predecessor, upon payment of its charges
and disbursements then unpaid, shall thereupon become obliged to transfer and deliver, and
such successor Paying Agent shall be entitled to receive, copies of any relevant records
maintained by such predecessor Paying Agent.

     (iii) Any Person into which the Paying Agent may be merged or converted or with which
the Paying Agent may be consolidated, or any

10

 

Person resulting from any merger, conversion
or consolidation to which the Paying Agent shall be a party, or any Person succeeding to
all or substantially all of the assets and business of the Paying Agent, or all or
substantially all of the corporate trust business of the Paying Agent shall, to the extent
permitted by applicable law and provided that it shall have an established place of
business in The City of New York, be the successor Paying Agent under the Indenture
without the execution or filing of any paper or any further act on the part of any of the
parties hereto. Notice of any such merger, conversion, consolidation or sale shall
forthwith be given to the Issuer and the Guarantor within 30 days of such merger,
conversion, consolidation or sale.

     (iv) Any notice required to be given by the Paying Agent to any person hereunder
other than the Tax Certification Agent shall be given in accordance with Section 1.5 of
the Original Indenture. Any notice required to be given to the Tax Certification Agent
shall be delivered in person, sent by letter or communicated by telephone (subject, in the
case of communication by telephone, to confirmation dispatched within twenty-four hours by
letter), to the following address (or to any other address of which the Tax Certification
Agent shall have notified the others in writing
as herein provided): Acupay System LLC, Attn: Marian Guerrero, 30 Broad Street, 46th
Floor, New York, NY 10004, telephone: (212) 422-1222, facsimile: (212) 422-0790. Any
notice to be given to the Paying Agent shall be delivered in person, sent by letter or
communicated by telephone (subject, in the case of communications by telephone, to
confirmation dispatched within twenty-four hours by letter), to the following address (or
to any other address of which the Paying Agent shall have notified the others in writing):
The Bank of New York Mellon, 101 Barclay Street, 4E, New York, New York 10286, Attention:
International Corporate Trust. Any notice hereunder given by telephone or letter shall be
deemed to be received when in the ordinary course of transmission or post, as the case may
be, it would be received.

     Section 2.06. Place of Payment. The place or places where, subject to the provisions of
Section 10.2 of the Original Indenture, the principal of, and any premium and interest on, and any
Additional Amounts in respect of, the Designated Securities shall be payable, Security Certificates
representing the Designated Securities may be surrendered for exchange or conversion of the
Designated Securities represented thereby and notices and demands to or upon the Issuer or the
Guarantor in respect of the Designated Securities and this Indenture may be served shall be the
Corporate Trust Office of the Trustee.

     Section 2.07. Denominations. The Designated Securities may be issued in denominations of
$1,000.

11

 

     Section 2.08. Listing. From and including the issue date of the Designated Securities to
and including the first Interest Payment Date in respect of the Designated Securities, the Issuer
will use its reasonable best efforts to obtain or maintain, as applicable, a listing of the
Designated Securities on the New York Stock Exchange or another organized market in an OECD
country.

     Section 2.09. Security Certificates.

     (a) The Designated Securities shall initially be represented by one or more Global
Certificates substantially in the form of Exhibit A, which shall be deposited with a custodian for
the Depositary and the Designated Securities represented thereby will be registered in the name of
a nominee of the Depositary, for the accounts of participants in the Depositary.

     (b) Designated Securities represented by a Global Certificate may be transferred, in whole and
not in part, only: (i) by the Depositary to a nominee of the Depositary, (ii) by a nominee of the
Depositary to the Depositary or to another nominee of the Depositary, or (iii) by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor Depositary.

     (c) Beneficial interests in any Designated Securities represented by a Global Certificate will
be exchangeable for Designated Securities represented by
Definitive Certificates only if: (i) the Depositary notifies the Issuer that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing agency registered
under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuer
within 120 days after the date of such notice from the Depositary, (ii) the Issuer notifies the
Trustee in writing that it has reasonably elected to cause the issuance of Designated Securities
represented by Definitive Certificates or (iii) there shall have occurred and be continuing an
Event of Default with respect to the Designated Securities and the Designated Securities will be
accelerated in accordance with their terms and the terms of the Indenture.

     (d) Upon the occurrence of any of the events specified in (i), (ii) or (iii) of (c) above,
Designated Securities represented by Definitive Certificates shall be (i) delivered by the Trustee
in exchange for beneficial interest in Designated Securities represented by Global Certificates and
(ii) registered in such names, and issued in such authorized denominations, as shall be requested
by or on behalf of the Depositary in accordance with its customary procedures.

     Section 2.10. Defeasance and Covenant Defeasance. The provisions of Sections 4.3 and 10.8
of the Original Indenture will apply to the Designated Securities, except that the opinion of
counsel to be provided under Section 4.3(c) of the Original Indenture must state that it is based
on a change in law or a ruling received from the U.S. Internal Revenue Service.

12

 

     Section 2.11. Additional Amounts.

     (a) Except as otherwise provided in this Section 2.11, the provisions of Section 10.4 of the
Original Indenture will apply to the Designated Securities; provided, however, that the Issuer and
the Guarantor will not be required to pay any Additional Amounts in respect of any Designated
Security:

     (i) to a Holder of such Designated Security who is liable for such taxes, duties,
assessments or governmental charges in respect of such Designated Security by reason of it
(or the Beneficial Owner for whose benefit it holds such Designated Security) having some
connection with the Kingdom of Spain other than the mere holding of such Designated
Security (or such beneficial interest);

     (ii) to a Holder of such Designated Security in respect of whom the Issuer or the
Guarantor does not receive such information (which may include a tax residence
certificate) concerning such Holder’s identity and tax residence (or the identity and tax
residence of the Beneficial Owner for whose benefit it holds such Designated Security) as
it may require in order to comply with Law 13/1985 of May 25, as amended, Royal Decree
1065/2007 of July 27 and any implementing legislation or regulation;

     (iii) presented for payment (where presentation is required) more than 30 days after
the Relevant Date (as defined below), except to the extent that the relevant Holder would
have been entitled to such Additional Amounts on presenting the same for payment on the
expiry of such period of 30 days;

     (iv) where the withholding or deduction is imposed on a payment to or for the benefit
of an individual and is required to be made pursuant to European Council Directive
2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council
meeting of November 26-27, 2000 or any law implementing or complying with, or introduced
in order to conform to, such directives

     (v) presented for payment (where presentation is required) by or on behalf of a
Holder (or Beneficial Owner) who would have been able to avoid such withholding or
deduction by presenting the relevant Designated Security to another paying agent;

     (vi) to or for the benefit of individuals resident for tax purposes in the Kingdom of
Spain;

     (vii) to or for the benefit of a Spanish-resident legal entity subject to Spanish
Corporate Income Tax if (a) the Spanish-resident legal

13

 

entity fails to identify itself as
such to the Issuer and the Guarantor in accordance with article 59.q or 59.s of the
Corporate Income Tax Regulations approved by Royal Decree 1777/2004 of July 30 or (b) the
Spanish tax authorities determine that the Designated Securities do not comply with
exemption requirements specified in the Reply to a Consultation of the Directorate General
for Taxation (Dirección General de Tributos) dated July 27, 2004 or otherwise and require
a withholding to be made; or

     (viii) in the event that the Designated Securities are redeemed pursuant to Section
2.12. (b) hereof.

     (b) In the event of an early redemption of the Designated Securities for the reasons set forth
in Section 11.8(b) of the Original Indenture, the Issuer or the Guarantor, as the case may be, may
be required to withhold tax and will pay interest in respect of the principal amount of the
Designated Securities redeemed net of the withholding tax applicable to such payments. If this were
to occur, Beneficial Owners would have to either follow the “Quick Refund Procedures” set forth in
Article II of Annex A or Article II of Annex B, as applicable, to the Letter of Appointment or
follow the “Direct Refund from Spanish Tax Authorities Procedure” set forth in Annex C to the
Letter of Appointment.

     Section 2.12. Redemption. (a) The provisions of Article 11 of the Original Indenture will
apply to the Designated Securities. The “Redemption
Price” means: (A) with respect to any Designated Securities to be redeemed other than pursuant
to Section 11.8 of the Original Indenture, an amount equal to the greater of: (x) 100% of the
principal amount of such Designated Securities to be redeemed plus accrued and unpaid interest
thereon to, but excluding, the Redemption Date (as defined below) of such Designated Securities and
(y) as determined by the Independent Investment Banker, the sum of the present values of the
remaining scheduled payments of principal thereof and interest thereon (exclusive of interest
accrued thereon to the Redemption Date) discounted to the Redemption Date of the Designated
Securities being redeemed on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate plus 15 basis points for the Designated Securities being
redeemed, plus accrued and unpaid interest on the principal amount of such Designated Securities
(or any portion thereof) being redeemed to, but excluding, the Redemption Date of the Designated
Securities (or any portion thereof) being redeemed; and (B) with respect to any Designated
Securities to be redeemed pursuant to Section 11.8 of the Original Indenture or Section 2.12(b) of
this Supplemental Indenture, an amount equal to their principal amount, together with accrued and
unpaid interest, if any, thereon to but excluding the Redemption Date. The “Redemption Date” of any
Designated Securities to be redeemed will be any Fixed Rate Business Day fixed by the Issuer for
redemption of such Designated Securities and specified in the applicable notice of redemption
provided by the

14

 

Issuer to the Trustee pursuant to Section 11.2 of the Original Indenture; provided,
however, that the Redemption Date of any Designated Securities to be redeemed pursuant to Section
11.8(a) of the Original Indenture shall be an Interest Payment Date.

     (b) In addition, if the Designated Securities are not listed on an organized market in an OECD
country no later than 45 days prior to the initial Interest Payment Date, the Issuer or the
Guarantor, as the case may be, may, at its option and having given no less than 15 days’ notice
(ending on a day which is no later than the Business Day immediately preceding such Interest
Payment Date) to the Holders of the Designated Securities and upon proper notice as provided in
this Indenture (which notice shall be irrevocable) redeem all of the outstanding Designated
Securities at the applicable Redemption Price specified in Section 2.12(a)(B) of this Supplemental
Indenture; provided that from and including the issue date of the Designated Securities to and
including such Interest Payment Date, the Issuer will use its reasonable best efforts to obtain or
maintain such listing, as applicable.

     Section 2.13. Applicable Procedures and Tax Certification Procedures. The Trustee and
Paying Agent shall comply with the Applicable Procedures and Tax Certification Procedures with
respect to any Designated Securities (and any beneficial interest therein).

     Section 2.14. Maintenance of Tax Certification Procedures. So long as any principal amount
of the Designated Securities remains outstanding, the Issuer and the Guarantor shall, insofar as it
is practicable, maintain, implement or
arrange for the implementation of Tax Certification Procedures that will facilitate the
collection of information concerning the Designated Securities or the Beneficial Owners thereof so
long as such collection is required under Spanish law to allow payment of interest on the
Designated Securities free and clear of Spanish withholding tax.

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     IN
WITNESS WHEREOF, each of the parties hereto has caused this Third Supplemental Indenture to be
duly executed on its behalf as of the date first above written.

	 	 	 	 	 
	 	TELEFÓNICA EMISIONES, S.A.U.,

as Issuer

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	Director (Administrador Solidario) 	 
	 
	 	TELEFÓNICA, S.A.,

as Guarantor

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	Authorized Officer 	 
	 
	 	THE BANK OF NEW YORK MELLON,

as Trustee and Paying Agent

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

THIRD SUPPLEMENTAL INDENTURE

 

 

EXHIBIT A

FORM OF SECURITY CERTIFICATE REPRESENTING DESIGNATED SECURITIES

TELEFÓNICA EMISIONES, S.A.U.

Fixed Rate Senior Notes due 2013

Guaranteed by

TELEFÓNICA, S.A.

			
	 	 	 
	No. [•]
	 	CUSIP No. 87938W AK9
	 
	 	ISIN No. US87938WAK99

     UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR DEFINITIVE CERTIFICATES, THIS GLOBAL
CERTIFICATE MAY BE TRANSFERRED, IN WHOLE AND NOT IN PART, ONLY: (I) BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY, (II) BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR TO ANOTHER NOMINEE OF
THE DEPOSITARY, OR (III) BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY, AND TRANSFERS OF THE SECURITIES REPRESENTED BY THIS GLOBAL
CERTIFICATE AND ANY BENEFICIAL INTERESTS IN ANY SECURITIES REPRESENTED BY THIS GLOBAL CERTIFICATE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO BELOW.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

     TELEFÓNICA EMISIONES, S.A.U., a sociedad anónima unipersonal incorporated under the laws of
the Kingdom of Spain (herein called the “Issuer”, which term includes any successor Person under
the Indenture referred to

A-1

 

hereinafter), for value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal sum of $1,200,000,000 on April 26, 2013 and, subject to and in accordance with the
Tax Certification Procedures, to pay interest thereon from April [•], 2010, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, in arrears on April 26
and October 26 of each year, beginning on October 26, 2010, at the rate of 2.582% per annum until the
Stated Maturity, and on the Stated Maturity.

     Interest will be computed on the basis of a 360-day year of twelve 30-day months. Except as
provided below for the first Interest Payment Date, on each Interest Payment Date, the Issuer or
the Guarantor (as defined herein), as the case may be, will pay interest on the Designated
Securities (as defined herein) for the period commencing on and including the immediately preceding
Interest Payment Date and ending on and including the day immediately preceding that Interest
Payment Date. On the first Interest Payment Date, the Issuer or the Guarantor (as defined herein),
as the case may be, will pay interest for the period beginning on and including the issue date and
ending on and including October 25, 2010. If any Interest Payment Date falls on a day that is not a
Fixed Rate Business Day, the interest payment shall be postponed to the next day that is a Fixed
Rate Business Day, and no interest on such payment shall accrue for the period from and after such
Interest Payment Date. If the Stated Maturity of the Designated Securities is not a Fixed Rate
Business Day, payment of principal and interest on the Designated Securities will be made on the
next succeeding day that is a Fixed Rate Business Day and no interest will accrue for the period
from and after the Stated Maturity.

     The interest so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Indenture, be paid to the Person in whose name the Designated
Securities represented hereby (or one or more Predecessor Securities) are registered at the close
of business on the Regular Record Date for such Interest Payment Date, which shall be the tenth New
York Business Day prior to the applicable Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name the Designated Securities
represented hereby (or one or more Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Designated Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Designated Securities may be listed, and
upon such notice as may be required by such exchange, all as more fully provided in the Indenture.

     For informational purposes only, without any substantive effect whatsoever and solely in order
to comply with Article 291, letter (d) of the

A-2

 

Spanish Corporations Law (Ley de Sociedades Anónimas), approved by Royal Decree (Real Decreto
Legislativo) 1564/1989, of December 22, as amended, it is hereby noted that the aggregate principal
amount of the Designated Securities was equivalent to €[•], based on the Noon Buying Rate as
determined and published by the Federal Reserve, as of [•], for the Euro of $[•] per €1.00.
Amounts due under the Designated Securities shall not under any circumstances whatsoever be payable
in any currency other than U.S. dollars or such coin or currency of the United States as at the
time of payment shall be legal tender for the payment of public and private debts.

     The Bank of New York Mellon shall initially act as Trustee and Paying Agent with respect to
the Designated Securities.

     Reference is hereby made to the further provisions of the Designated Securities set forth on
the reverse of this Security Certificate, which further provisions shall for all purposes have the
same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the Trustee referred to
on the reverse hereof, directly or through an Authenticating Agent, by manual signature of an
authorized signatory, the Designated Securities represented by this Security Certificate shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

     The public deed of issuance (escritura de emisión) related to the Designated Securities
represented hereby was executed on [•], 2010 before Mr. Jesús Martinez Roa with the number 337 of
his files.

A-3

 

     IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed manually or in
facsimile.

	 	 	 	 	 
	Dated: April [•], 2010 	TELEFÓNICA EMISIONES, S.A.U.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	Director (Administrador Solidario) 	 
	 

CERTIFICATE OF AUTHENTICATION

     This is one of the Security Certificates representing the Securities of the series designated
thereon referred to in the within-mentioned Indenture.

	 	 	 	 	 
	Dated: April [•], 2010 	THE BANK OF NEW YORK MELLON

as Trustee

 	 
	 	Manually  By:  	
 	 
	 	Name:
	 	 	 
	 	Title:
	 	Authorized Officer 	 
	 

     The Designated Securities represented by this Security Certificate are unconditionally and
irrevocably guaranteed by Telefónica, S.A. on the terms set forth in the within-mentioned
Designated Guarantee pursuant to the Indenture.

	 	 	 	 	 
	Dated: April [•], 2010 	TELEFÓNICA, S.A.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	Authorized Officer 	 

A-4

 

	 	 	 	 	 

REVERSE OF SECURITY CERTIFICATE

     This Security Certificate is one of the Security Certificates representing a duly authorized
issue of Fixed Rate Senior Notes due 2013 (the “Designated Securities”), issued under an Indenture,
dated as of May 8, 2009 (as amended and supplemented, the “Original Indenture”), among the Issuer,
Telefónica, S.A., a sociedad anónima incorporated under the laws of the Kingdom of Spain (herein
called the “Guarantor”, which term includes any successor Person under the Indenture referred to
herein), and The Bank of New York Mellon, a New York banking corporation, as Trustee (herein called
the “Trustee”, which term includes any other successor trustee under the Indenture), as
supplemented with respect to the Designated Securities by the Third Supplemental Indenture, dated
as of April [•], 2010, among the Issuer, the Guarantor and The Bank of New York Mellon, as Trustee
and Paying Agent (the “Third Supplemental Indenture” and, together with the Original Indenture, as
supplemented, the “Indenture”) and reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of the Issuer, the
Guarantor, the Trustee and the Holders of the Designated Securities and of the terms upon which
each Security Certificate representing the Designated Securities is, and is to be, authenticated
and delivered.

     The Designated Securities will be subject to redemption at any time, as a whole or in part, at
the election of the Issuer at a Redemption Price which is equal to the greater of: (i) 100% of the
principal amount of the Designated Securities to be redeemed plus accrued and unpaid interest
thereon to, but excluding, the Redemption Date of the Designated Securities to be redeemed; and
(ii) as determined by the Independent Investment Banker, the sum of the present values of the
remaining scheduled payments of principal thereof and interest thereon (exclusive of interest
accrued thereon to the Redemption Date) discounted to the Redemption Date of such Designated
Securities being redeemed on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate plus 15 basis points for the Designated Securities being
redeemed, plus accrued and unpaid interest on the principal amount of such Designated Securities
(or any portion thereof) being redeemed to, but excluding, the Redemption Date of the Designated
Securities (or any portion thereof) being redeemed. Any such redemption will be made in accordance
with the terms of the Indenture.

     “Comparable Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term (“Remaining
Life”) of the Designated Securities to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Designated Securities being
redeemed.

A-5

 

     “Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of the
Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker
obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such
Quotations or, if only one such Quotation is obtained, such Quotation.

     “Independent Investment Banker” means an independent investment banking institution of
national standing appointed by the Issuer and the Guarantor.

     “Reference Treasury Dealer” means each of (1) Banc of America Securities LLC, Credit Suisse
Securities (USA) LLC, J.P. Morgan Securities Inc., UBS Securities LLC and their affiliates or their
respective successors, provided that if any of the foregoing shall cease to be a primary U.S.
government securities dealer in New York City (a “Primary Treasury Dealer”), the Issuer and the
Guarantor will substitute therefor another Primary Treasury Dealer and (2) any other Primary
Treasury Dealer selected by the Issuer and the Guarantor.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker by the Reference
Treasury Dealer at 5:00 p.m. on the third New York Business Day preceding such Redemption Date.

     “Treasury Rate” means, with respect to any Redemption Date, (1) the yield, under the heading
which represents the average for the immediately preceding week, appearing in the most recently
published statistical release designated “H. 15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant maturity under the
caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), (2) if the period from the Redemption Date to
the maturity date of the Designated Securities to be redeemed is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a constant maturity
of one year, or (3) if such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price
for the Comparable Treasury Issue (expressed as a

A-6

 

percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption
Date. The Treasury Rate shall be calculated by the Independent Investment Banker on the third New
York Business Day preceding the Redemption Date.

     The Issuer may from time to time, without the consent of the Holders of Designated Securities,
create and issue further Securities having the same terms and conditions as the previously issued
Designated Securities in all respects (or in all respects except for the issue date, the first
payment of interest thereon and/or the issue price), so that such further issue shall be
consolidated and form a single series with the outstanding Designated Securities; provided,
however, that, any such further issuance will only be made if either such additional securities are
issued with no more than de minimis original issue discount for U.S. federal income tax purposes,
or any such further issuance is a “qualified reopening” as such term is defined under Treasury
Regulations Section 1.1275-2(k)(3) promulgated under the Internal Revenue Code of 1986, as amended.

     The Designated Securities may be redeemed upon not less than 30 nor more than 60 days’ notice
(ending on an Interest Payment Date) given as provided in the Indenture, if (i) as a result of any
change in the laws or regulations of the Kingdom of Spain or any political subdivision thereof or
any authority or agency therein or thereof having power to tax, or in the interpretation or
administration of any such laws or regulations which becomes effective on or after the date of
issuance of the Designated Securities, (x) the Issuer or the Guarantor, as the case may be, is or
would be required to pay any Additional Amounts (y) the Guarantor is or would be required to deduct
or withhold tax on any payment to the Issuer to enable the Issuer to make any payment of principal,
premium, if any, or interest on the Designated Securities and such payment cannot with reasonable
effort by the Guarantor be structured to avoid such deduction or withholding and (ii) such
circumstances are evidenced by the delivery by the Issuer or the Guarantor, as the case may be, to
the Trustee of a certificate signed by an authorized officer or director of the Issuer or the
Guarantor, as the case may be, stating that such circumstances prevail and describing the facts
leading to such circumstances, together with an opinion of independent legal advisers of recognized
standing to the effect that such circumstances prevail, at a Redemption Price equal to their
principal amount, together with accrued interest, if any, thereon to but excluding the Redemption
Date.

     If the Designated Securities are not listed on an organized market in an OECD country no later
than 45 days prior to the initial Interest Payment Date on such Designated Securities, the Issuer
or the Guarantor, as the case may be, may, at its option and having given no less than 15 days’
notice (ending on a day which is no later than the Business Day immediately preceding such Interest
Payment Date) to the Holders of such Designated Securities and upon proper notice as provided in
the Indenture, which notice shall be irrevocable, redeem all of the

A-7

 

outstanding Designated Securities at their principal amount, together with accrued interest,
if any, thereon to but not including the Redemption Date; provided that from and including the
issue date of such Designated Securities to and including such Interest Payment Date, the Issuer
will use its reasonable best efforts to obtain or maintain such listing, as applicable. In the
event of an early redemption of the Designated Securities for the reason set forth in the
immediately preceding sentence, the Issuer or the Guarantor, as the case may be, may be required to
withhold tax and will pay interest in respect of the principal amount of the Designated Securities
redeemed net of the withholding tax applicable to such payments. If this were to occur, Beneficial
Owners would have to either follow the “Quick Refund Procedures” set forth in Article II of Annex A
or Article II of Annex B, as applicable, to the Letter of Appointment or follow the “Direct Refund
from Spanish Tax Authorities Procedure” set forth in Annex C to the Letter of Appointment.

     In the event of redemption of the Designated Securities represented by this Security
Certificate in part only, a new Security Certificate representing the unredeemed portion of the
Designated Securities represented hereby will be issued and registered in the name of the Holder of
the Designated Securities represented hereby upon the cancellation hereof.

     All amounts payable (whether in respect of principal, redemption amount, interest or
otherwise) in respect of the Designated Securities and the Designated Guarantee by the Issuer or
the Guarantor will be made free and clear of and without withholding or deduction for or on account
of any present or future taxes, duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of the Kingdom of Spain or any political subdivision thereof or
any authority or agency therein or thereof having power to tax, unless the withholding or deduction
of such taxes, duties, assessments or governmental charges is required by law. In the event that
such withholding or deduction is required by law, the Issuer or the Guarantor shall pay such
Additional Amounts as will result in receipt by the Holders of the Designated Securities of such
amounts as would have been received by them had no such withholding or deduction been required;
provided, however, that the Issuer and the Guarantor will not be required to pay any Additional
Amounts in respect of any Designated Security:

     (1) to a Holder of such Designated Security who is liable for such taxes, duties,
assessments or governmental charges in respect of such Designated Security by reason of it
(or the Beneficial Owner for whose benefit it holds such Designated Security) having some
connection with the Kingdom of Spain other than the mere holding of such Designated
Security (or such beneficial interest);

     (2) to a Holder of such Designated Security in respect of whom the Issuer or the
Guarantor does not receive such information

A-8

 

(which may include a tax residence certificate) concerning such Holder’s identity and
tax residence (or the identity and tax residence of the Beneficial Owner for whose benefit
it holds such Designated Security) as it may require in order to comply with Law 13/1985
of May 25, as amended, Royal Decree 1065/2007 of July 27 and any implementing legislation
or regulation;

     (3) presented for payment (where presentation is required) more than 30 days after
the Relevant Date (as defined below), except to the extent that the relevant Holder would
have been entitled to such Additional Amounts on presenting the same for payment on the
expiry of such period of 30 days;

     (4) where the withholding or deduction is imposed on a payment to or for the benefit
of an individual and is required to be made pursuant to European Council Directive
2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council
meeting of November 26-27, 2000 or any law implementing or complying with, or introduced
in order to conform to, such directives;

     (5) presented for payment (where presentation is required) by or on behalf of a
Holder (or Beneficial Owner) who would have been able to avoid such withholding or
deduction by presenting the relevant Designated Security to another paying agent;

     (6) to or for the benefit of individuals resident for tax purposes in the Kingdom of
Spain;

     (7) to or for the benefit of a Spanish-resident legal entity subject to Spanish
Corporate Income Tax if (a) the Spanish-resident legal entity fails to identify itself as
such to the Issuer and the Guarantor in accordance with article 59.q or 59.s of the
Corporate Income Tax Regulations approved by Royal Decree 1777/2004 of July 30 or (b) the
Spanish tax authorities determine that the Designated Securities do not comply with
exemption requirements specified in the Reply to a Consultation of the Directorate General
for Taxation (Dirección General de Tributos) dated July 27, 2004 or otherwise and require
a withholding to be made; or

     (8) in the event that the Designated Securities are redeemed pursuant to Section 2.12
(b) of the Third Supplemental Indenture;

provided further that Additional Amounts in respect of the Designated Securities will also not be
paid with respect to any payment to a Holder of any Designated

A-9

 

Securities who is a fiduciary, a partnership, a limited liability company or other than the sole
Beneficial Owner of that payment, to the extent that payment would be required by the laws of the
Kingdom of Spain (or any political subdivision thereof or any authority or agency therein or
thereof having power to tax) to be included in the income, for tax purposes, of a beneficiary or
settlor with respect to the fiduciary, a member of that partnership, an interest holder in that
limited liability company or a Beneficial Owner who would not have been entitled to the Additional
Amounts had it been the Holder.

     “Relevant Date” means, in respect of any payment, the date on which such payment first becomes
due and payable, but if the full amount of the moneys payable has not been received by the Paying
Agent on or prior to such due date, it means the first date on which the full amount of such moneys
having been so received and being available for payment to Holders, notice to that effect shall
have been duly given to the Holders in accordance with the Indenture.

     The foregoing provisions shall apply mutatis mutandis to any withholding or deduction for or
on account of any present or future taxes, assessments or governmental charges of whatever nature
of any jurisdiction in which any successor Person to the Issuer or the Guarantor, as the case may
be, is organized, or any political subdivision or taxing authority thereof or therein.

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Issuer and the Guarantor and the rights of
the Holders of the Securities of each series to be affected under the Indenture at any time by the
Issuer, the Guarantor and the Trustee with the consent of the Holders of a majority in principal
amount of the Securities at the time Outstanding of each series to be affected. The Indenture also
contains provisions permitting the Holders of specified percentages in principal amount of the
Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of
such series, to waive compliance by the Issuer or the Guarantor with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of the Designated Securities represented by this Security Certificate shall be
conclusive and binding upon such Holder and upon all future Holders of the Designated Securities
represented by this Security Certificate and of the Designated Securities represented by any
Security Certificate issued upon the registration of transfer of the Designated Securities
represented by this Security Certificate or in exchange thereof or in lieu thereof, whether or not
notation of such consent or waiver is made upon this Security Certificate.

     As set forth in, and subject to, the provisions of the Indenture, if any Event of Default
shall occur in relation to the Designated Securities (taking into account any applicable grace
period), the Trustee or the Holders of not less than 25% in principal amount of the Outstanding
Designated Securities may, by written notice

A-10

 

to the Issuer, at the Corporate Trust Office (and to the Trustee if given by the Holders),
declare that the Designated Securities including principal, and all interest then accrued and
unpaid on, the Designated Securities shall be immediately due and payable, whereupon the same shall
become immediately due and payable, at their principal amount together with all interest, if any,
accrued and unpaid thereon and Additional Amounts, if any, payable in respect thereof without
presentment, demand, protest or other notice of any kind, all of which the Issuer or the Guarantor,
as the case may be, will expressly waive, unless, prior thereto, all Events of Default in respect
of such Designated Securities shall have been cured.

     No reference herein to the Indenture and no provision of the Designated Securities or of the
Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional,
to pay the principal of and interest and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal or premium on any overdue interest, on the
Designated Securities at the rate or rates herein prescribed.

     Except as set forth in the Indenture, the Designated Securities represented hereby may be
transferred, in whole and not in part, only: (i) by the Depositary to a nominee of the Depositary,
(ii) by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or
(iii) by the Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Beneficial interests in a Designated Security represented by a Global
Certificate will be exchangeable for Certificated Securities of this series only if: (a) the
Depositary notifies the Issuer that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in either case, a
successor Depositary is not appointed by the Issuer within 120 days after the date of such notice
from the Depositary, (b) the Issuer notifies the Trustee in writing that it has reasonably elected
to cause the issuance of Certificated Securities of this series or (c) there shall have occurred
and be continuing an Event of Default with respect to the Designated Securities and the Designated
Securities will be accelerated in accordance with their terms and the terms of the Indenture. Upon
the occurrence of any of the events specified in (a), (b) or (c) above, Certificated Securities of
this series shall be (x) delivered by the Trustee in exchange for beneficial interest in Designated
Securities represented by Global Certificates and (y) registered in such names, and issued in such
authorized denominations, as shall be requested by or on behalf of the Depositary in accordance
with its customary procedures.

     As provided in the Indenture, the Issuer shall cause to be kept at the Corporate Trust Office
of the Trustee a Register in which, subject to such reasonable regulations as it may prescribe, the
Issuer shall provide for the registration of Designated Securities and of transfers of Designated
Securities.

A-11

 

     No service charge shall be made for any such registration of transfer or exchange, but the
Issuer or the Trustee may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith other than as set forth in the Indenture.

     Prior to due presentment of this Security Certificate for registration of transfer of any
Designated Security represented hereby, the Issuer, the Guarantor, the Trustee and any agent of the
Issuer, the Guarantor or the Trustee may treat the Person in whose name such Designated Security is
registered as the owner of such Designated Security for the purpose of receiving payment of
principal of and any premium and (subject to Section 2.8 of the Original Indenture) any interest on
such Designated Security and for all other purposes whatsoever, whether or not such Designated
Security be overdue, and neither the Issuer, the Guarantor, the Trustee nor any agent of the
Issuer, the Guarantor or the Trustee shall be affected by notice to the contrary.

     Pursuant to Section 5-1401 of the General Obligations Law of the State of New York, the
Indenture, the Designated Securities and the Designated Guarantee shall be governed by, and
construed in accordance with, the laws of the State of New York.

     All terms used in this Security Certificate which are not otherwise defined herein shall have
the meanings assigned to them in the Indenture.

A-12

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