Document:

Exhibit 10.2

STOCK PURCHASE AGREEMENT

by and between

BIOVAIL LABORATORIES INCORPORATED

and

DEPOMED, INC.

Dated as of
May 28, 2002

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
  ARTICLE I

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ISSUE OF SHARES
  AND GRANT OF OPTION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  2.01.

  	
  Purchase and
  Sale of New Shares

  	
  7

  
	
  SECTION 2.02.

  	
  Purchaser’s
  Option

  	
  7

  
	
  SECTION 2.03.

  	
  Delivery

  	
  10

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE III

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RIGHTS OF
  PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Rights Granted
  at Closing

  	
  10

  
	
  SECTION
  3.02.

  	
  Rights Granted
  Upon the Exercise of the Purchaser’s Option

  	
  14

  
	
  SECTION 3.03.

  	
  Board Approval

  	
  15

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IV

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  4.01.

  	
  Organization and
  Qualification; Subsidiaries

  	
  16

  
	
  SECTION
  4.02.

  	
  Authority
  Relative to this Agreement

  	
  16

  
	
  SECTION
  4.03.

  	
  No Conflict;
  Required Filings and Consents

  	
  17

  
	
  SECTION 4.04.

  	
  Brokers

  	
  18

  
	
  SECTION 4.05.

  	
  Capitalization

  	
  18

  
	
  SECTION
  4.06.

  	
  SEC Reports and
  Financial Statements

  	
  20

  
	
  SECTION 4.07.

  	
  Litigation

  	
  21

  
	
  SECTION
  4.08.

  	
  Compliance with
  Applicable Laws; Permits

  	
  22

  
	
  SECTION 4.09.

  	
  Employee Benefit
  Plans

  	
  25

  
	
  SECTION 4.10.

  	
  Intellectual
  Property

  	
  28

  
	
  SECTION 4.11.

  	
  Environmental
  Matters

  	
  30

  
	
  SECTION 4.12.

  	
  Material Adverse
  Change

  	
  32

  
	
  SECTION 4.13.

  	
  Taxes

  	
  33

  

 

-i-

 

	
  SECTION 4.14.

  	
  Material
  Contracts

  	
  35

  
	
  SECTION 4.15.

  	
  Insurance

  	
  36

  
	
  SECTION 4.16.

  	
  Takeover
  Statutes

  	
  36

  
	
  SECTION 4.17.

  	
  Private Offering

  	
  37

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  5.01.

  	
  Organization and
  Qualification

  	
  37

  
	
  SECTION
  5.02.

  	
  Authority
  Relative to this Agreement

  	
  37

  
	
  SECTION 5.04.

  	
  Financing

  	
  38

  
	
  SECTION 5.05.

  	
  Brokers

  	
  38

  
	
  SECTION 5.06.

  	
  Restricted
  Securities

  	
  38

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Access to
  Information

  	
  39

  
	
  SECTION 6.02.

  	
  Reasonable
  Efforts

  	
  40

  
	
  SECTION 6.03.

  	
  Public
  Announcements

  	
  41

  
	
  SECTION
  6.04.

  	
  Notification of
  Certain Matters

  	
  42

  
	
  SECTION
  6.05.

  	
  Confidentiality
  of Board Proceedings

  	
  42

  
	
  SECTION
  6.06.

  	
  Reservation of Shares Issuable Upon Exercise of Purchaser’s Option

  	
  42

  
	
  SECTION 6.07.

  	
  Rule 144
  Reporting

  	
  43

  
	
  SECTION 6.08.

  	
  Conditional
  Option

  	
  43

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CONDITIONS TO
  CONSUMMATION OF THE TRANSACTIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  7.01.

  	
  Conditions to
  Each Party’s Obligation to Effect the Transactions

  	
  44

  
	
  SECTION
  7.02.

  	
  Conditions to
  the Obligations of Purchaser

  	
  44

  
	
  SECTION
  7.03.

  	
  Conditions to
  the Obligations of the Company

  	
  45

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
  Termination

  	
  46

  

 

-ii-

 

	
  SECTION 8.02.

  	
  Termination by
  Purchaser

  	
  47

  
	
  SECTION 8.03.

  	
  Termination by the
  Company

  	
  47

  
	
  SECTION 8.04.

  	
  Procedure for
  Termination

  	
  48

  
	
  SECTION 8.05.

  	
  Extension;
  Waiver

  	
  48

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CLOSING

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Time and Place

  	
  48

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE X

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XI

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  11.01.

  	
  Non-Survival of
  Representations and Warranties

  	
  51

  
	
  SECTION
  11.02.

  	
  Entire
  Agreement; Assignment

  	
  51

  
	
  SECTION 11.03.

  	
  Validity

  	
  51

  
	
  SECTION 11.04.

  	
  Notices

  	
  51

  
	
  SECTION
  11.05.

  	
  Governing Law;
  Jurisdiction

  	
  52

  
	
  SECTION 11.06.

  	
  Descriptive
  Headings

  	
  53

  
	
  SECTION 11.07.

  	
  Counterparts

  	
  53

  
	
  SECTION 11.08.

  	
  Parties in
  Interest

  	
  53

  
	
  SECTION 11.09.

  	
  Remedies

  	
  53

  
	
  SECTION 11.10.

  	
  EIS Right of
  Participation

  	
  53

  

 

 

	
  ANNEX I—

  	
  Form of Registration Rights Agreement

  	
   

  
	
  ANNEX II

  	
  Form of Nominee Voting Commitment

  	
   

  
	
  ANNEX III

  	
  Committed Voters

  	
   

  
	
   

  	
   

  	
   

  

 

-iii-

 

STOCK
PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT dated as of May 28, 2002, by
and between Biovail Laboratories Incorporated, a corporation organized under
the laws of Barbados (“Purchaser”), and Depomed, Inc., a California
corporation (the “Company”).

WHEREAS, Purchaser wishes to subscribe for and the
Company wishes to issue, sell and transfer to Purchaser 2,465,878 shares of
Company Common Stock (the “New Shares”) to Purchaser at a subscription
price of US$5.00 per share, in cash (the “Initial Share Consideration”);
and

WHEREAS, in connection with and conditioned upon the
aforementioned sale, transfer and issuance, the Company wishes to grant and
Purchaser wishes to accept the Purchaser’s Option and, subject to the terms
hereof, the Conditional Option and the Company and Purchaser each wish to enter
into the Registration Rights Agreement; and

WHEREAS, Purchaser and the Company desire to make
certain representations, warranties, covenants and agreements in connection
with the transactions contemplated herein and in the other Transaction
Documents and also to prescribe various conditions to each such transaction;

NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and agreements set forth
herein, Purchaser and the Company agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01.  Definitions. 
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Article have the meanings assigned to them in this Article:

“affiliate”, as applied to any person, means
any other person directly or indirectly controlling, controlled by, or under common
control with, that person.  For the
purposes of this definition, “control” (including, with correlative meanings,
the terms “controlling,” “controlled by” and “under common control with”), as
applied to any person, means the possession,

 

 

directly or indirectly, of the power to direct or
cause the direction of the management and policies of that person, whether
through the ownership of voting securities, by contract or otherwise.

“Bankruptcy Exceptions” has the meaning set
forth in Section 4.02(a).

“Business Day” means any day on which
commercial banks are not required or authorized to close in the City of New
York or the City of Toronto.

“Closing” has the meaning set forth in Section
9.01.

“Closing Date” has the meaning set forth in
Section 9.01.

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

“Company” has the meaning set forth in the
recitals hereto.

“Company Articles of Incorporation” has the
meaning set forth in Section 4.03(b).

“Company Balance Sheet” has the meaning set
forth in Section 4.06(c).

“Company Change of Control” means an event
whereby (1) any person or group (as defined in Section 13(d)(3) or 14(d)(2) of
the Exchange Act has become the direct or beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the voting stock of the
Company, (ii) the Company is merged with or into or amalgamated or consolidated
with another corporation and, immediately after giving effect to the merger,
amalgamation or consolidation, less than 50% of the outstanding voting stock of
the surviving or resulting entity are then beneficially owned (within the
meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x) the
stockholders of the Company immediately prior to such merger, amalgamation or
consolidation, or (y) if the record date has been set to determine the stockholders
of the Company entitled to vote on such merger, amalgamation or consolidation,
the stockholders of Company as of such a record date, (iii) the sale, lease,
transfer, conveyance or other distribution (other than by way of merger,
amalgamation or consolidation), in one or a series of related transactions, of
all or substantially all of the assets

 

-2-

 

of the Company and its Subsidiaries, taken as a whole,
to any Person or group of related persons for purposes of Section 13(d) of the
Exchange Act, or (iv) the adoption of a plan relating to the liquidation or
dissolution of the Company (which for the avoidance of doubt shall not include
the adoption of any plan relating to an internal restructuring of the Company
or a change in the jurisdiction of organization of the Company).

“Company Common Stock” means the common stock,
no par value, of the Company.

“Company Disclosure Statement” has the meaning
set forth in the preamble to Article IV.

“Conditional Option” shall have the meaning set
forth in Section 6.08.

“Confidentiality Agreement” has the meaning set
forth in Section 11.02(a).

“Consent” has the meaning set forth in Section
4.03(a).

“Convertible Note” has the meaning set forth in
Section 4.05.

“Designee” shall mean a person designated by
the Purchaser that is reasonably acceptable to the Company.

“Environmental Laws” has the meaning set forth
in Section 4.11.

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

“FDA” means the U.S. Food and Drug
Administration.

“GAAP” has the meaning set forth in Section
4.06(b).

“Governmental Entity” has the meaning set forth
in Section 4.03(a).

“HSR Act” means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.

“Initial Share Consideration” has the meaning
set forth in the recitals hereto.

 

-3-

 

“Intellectual Property” has the meaning set
forth in Section 4.10(b).

“knowledge” shall mean the actual knowledge or
such knowledge as would exist after reasonable inquiry directed to employees
who would reasonably be expected to have knowledge of relevant matters, with
respect to the Company, the Company’s executive officers and, with respect to
Purchaser, Purchaser’s executive officers.

“Law” has the meaning set forth in Section
4.08(b).

“Lien” has the meaning set forth in Section
4.05.

“Material Adverse Effect on the Company” means
any change in, or effect on, the business, results of operations, assets, financial
condition or prospects of the Company or any of the Subsidiaries that is or
would reasonably be expected to be materially adverse to the Company and the
Subsidiaries taken as a whole, other than any change or effect (i) relating to
the economy in general or (ii) relating to the industry in which the Company
operates in general and not specifically relating to the Company.

“Material Contracts” means (i) agreements of
the Company or any of the Subsidiaries containing an unexpired covenant not to
compete applying to the Company or any of the Subsidiaries;
(ii) employment or consulting agreements, or arrangements; (iii) collective
bargaining agreements; (iv) interest rate, currency or commodity hedging, swap
or similar derivative transactions to which the Company or any of the
Subsidiaries is a party; (v) material agreements providing for payment
based on revenues, sales or profits; (vi) agreements between the Company
or any of the Subsidiaries, on the one hand, and any affiliate of the Company,
on the other hand; (vii) other material agreement not entered into in the
ordinary course of business or; (viii) other contracts or amendments
thereto that would be required to be filed and have not been filed as a exhibit
to a Form 10-K filed by the Company with the SEC as of the date of this
Agreement.

“New Shares” has the meaning set forth in the
recitals hereto.

“Option Delivery Date” has the meaning set
forth in Section 2.03.

 

-4-

 

“Permitted Encumbrance” means such of the
following as to which no enforcement, collection, execution, levy or foreclosure
proceeding shall have been commenced: (a) liens for taxes, assessments and
governmental charges or levies not yet due and payable which are not in excess
of $50,000 in the aggregate; (b) Liens imposed by law, such as materialmen’s,
mechanics’, carriers’, workmen’s and repairmen’s liens and other similar liens
arising in the ordinary course of business securing obligations that (i)are not
overdue for a period of more than 30 days and (ii) are not in excess of $5,000
in the case of a single property or $50,000 in the aggregate at any time; (c)
pledges or deposits to secure obligations under workers’ compensation laws or
similar legislation or to secure public or statutory obligations; and (d) minor
survey exceptions, reciprocal easement agreements and other customary Liens on
title to real property that (i) were not incurred in connection with any
indebtedness, (ii) do not render title to the property encumbered thereby
unmarketable and (iii) do not, individually or in the aggregate, materially
adversely affect the value or use of such property for its current and
anticipated purposes.

“person” shall include individuals,
corporations, partnerships, trusts, other entities and groups (which term shall
include a “group” as such term it defined in Section 13(d)(3) of the Exchange
Act).

“Purchaser” has the meaning set forth in the recitals
hereto.

“Purchaser Nominees” has the meaning set forth
in Section 3.02.

“Purchaser’s Option” has the meaning set forth
in Section 2.02.

“Registration Rights Agreement” means the
Registration Rights Agreement, to be dated the Closing Date, between Purchaser
and the Company, a form of which is attached hereto as Annex I.

“Regulatory Law” means the Sherman Act, as
amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission
Act, as amended, and all other federal, state and non-U.S., if any, statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines and
other laws that are designed or intended to prohibit, restrict or regulate (i)
non-U.S. investment or (ii) actions having the purpose or

 

-5-

 

effect of monopolization or restraint of trade or
lessening of competition.

“SEC” means the Securities and Exchange
Commission.

“SEC Reports” has the meaning set forth in
Section 4.06(a).

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

“Subsidiary” or “Subsidiaries” has the
meaning set forth in Section 4.01.

“subsidiary” or “subsidiaries” means,
with respect to any party, any person of which such party (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
stock or other equity interests the holders of which are generally entitled to
more than 50% of the votes for the election of the board of directors or other
governing body of such person.

“Tax” means (i) all federal, state, provincial,
local or non-U.S. taxes, charges, fees, imposts, levies or other assessments, including,
without limitation, all income, alternative minimum, gross receipts, capital,
sales, use, ad valorem, value added, transfer, franchise, profits, inventory,
capital stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation, property and estimated
taxes, customs duties, fees, assessments and charges of any kind whatsoever,
(ii) all interest, penalties, fines, additions to tax or other additional
amounts imposed by any taxing authority in connection with any item described
in clause (i), and (iii) all transferee, successor, joint and several,
contractual or other liability (including, without limitation, liability
pursuant to Treas. Reg. § 1.1502-6 (or any similar state, local or
non-U.S. provision)) in respect of any items described in clause (i) or (ii).

“Tax Return” means all returns, declarations,
reports, estimates, information returns and statements filed or required to be
filed in respect of any Taxes.

“Transaction Documents” has the meaning set
forth in Section 4.02.

“Warrants” has the meaning set forth in Section
4.05.

 

-6-

ARTICLE II

ISSUE OF SHARES AND GRANT OF OPTION

SECTION 2.01.  Purchase and Sale of New Shares. 
Subject to the terms and conditions set forth herein, the Company agrees
that it will sell to Purchaser, and Purchaser agrees that it will, at the
Closing Date, purchase from the Company, the New Shares at the Initial Share
Consideration per share of Company Common Stock purchased.

SECTION 2.02.  Purchaser’s Option.  (a) The Company hereby grants the
Purchaser or its Designee, subject to the Closing occurring on the Closing
Date, the right (the “Purchaser’s Option”) to purchase up to such number
of additional shares of Company Common Stock as shall cause the Purchaser (and
its subsidiaries and its Designee, if any, taken together) to (directly or
indirectly) have purchased or been granted pursuant to the provisions of this
Agreement up to (but not exceeding) 20.0% of the Company’s issued and
outstanding Common Stock (calculated immediately after exercise of the
Purchaser’s Option). The option exercise price shall be payable on the Option
Delivery Date in accordance with the provisions of Section 2.03.  The Purchaser’s rights to exercise the
Purchaser’s Option shall expire on the date that is three years from the
Closing Date.  Notwithstanding anything
to the contrary herein, the Purchaser’s Option (i) shall expire immediately
upon any sale or transfer to a party other than a Designeee or affiliate or
other disposition by the Purchaser, Designee or any affiliate of the Purchaser
of any of the shares of Company Common Stock purchased hereunder and (ii) may
only be exercised once during the duration of the Purchaser’s Option.

 

(b)           Subject to the adjustments set forth
in subsection (c) below, the Option exercise price per share purchased pursuant
to exercise of the Purchaser’s Option shall equal the Initial Share
Consideration plus, beginning one year from the date hereof, an additional
20.0% per annum, compounded monthly.

(c)(I)  If, prior to
the expiration of the Purchaser’s Option, the Company shall issue any Company Common
Stock as a share dividend or subdivide the number of outstanding shares of
Company Common Stock, the Option exercise price per share purchasable pursuant
to the Purchaser’s Option in effect at the time of such action shall be
proportionately reduced and the number of shares of

 

-7-

 

Company Common Stock purchasable upon exercise of the
Purchaser’s Option shall be proportionately increased.  If the Company shall, at any time during the
life of the Purchaser’s Option, declare a dividend payable in cash on Company
Common Stock and shall at substantially the same time offer to its shareholders
a right to purchase new Company Common Stock from the proceeds of such dividend
or for an amount substantially equal to the dividend, all Company Common Stock
so issued shall, for the purpose of the Purchaser’s Option, be deemed to have
been issued as a share dividend.  Any
dividend paid or distributed upon Company Common Stock in shares of any other
class of securities convertible into Company Common Stock shall be treated as a
dividend paid in Company Common Stock to the extent that Company Common Stock
is issuable upon the conversion thereof.

                    (II)      If, prior to the expiration of the
Purchaser’s Option by exercise or by its terms, the Company desires to  recapitalize by reclassifying the
outstanding Company Common Stock, or the Company or a successor corporation
desires to consolidate or merge with or convey all or substantially all of its
or any successor corporation’s property and assets to any other corporation or
corporations (any such corporation being included within the meaning of the
term “successor corporation” used above in the event of any consolidation or
merger of any such corporation with, or the sale of all or substantially all of
the property of any such corporation, to another corporation or corporations),
then the Company shall deliver to the holder of the Purchaser’s Option prior
written notice from the Company stating that the Company intends to engage in
certain of the foregoing transactions set out in this Section 2.02(C)(II), and
the Purchaser shall have the right to exercise the Purchaser’s Option within 30
days of receipt of the foregoing notice failing which the Purchaser’s Option
shall terminate.

                   (III)      If: 
(i) the Company shall take a record of holders of Company Common
Stock for the purpose of entitling them to receive a dividend payable otherwise
than in cash, or any other distribution in respect of the Company Common Stock
(including cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of the Company’s assets; or (ii) the Company shall take a
record of the holders of Company Common Stock for the purpose of entitling them
to subscribe for or purchase any shares of

 

-8-

 

any class or to receive any other rights; or
(iii) in the event of any classification, reclassification or other
reorganization of the securities which the Company is authorized to issue,
consolidation or merger by the Company with or into another corporation, or
conveyance of all or substantially all of the assets of the Company; or
(iv) in the event of any voluntary or involuntary dissolution, liquidation
or winding up of the Company; then, and in any such case, the Company shall
mail to the holder of the Purchaser’s Option, at least 15 days prior thereto, a
notice stating the date or expected date on which a record is to be taken for
the purpose of such dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up, as the case may be, will be
effected.  Such notice shall also
specify the date or expected date, if any is to be fixed, as to which holders
of Company Common Stock of record shall be entitled to participate in such
dividend, distribution or rights, or shall be entitled to exchange their
Company Common Stock or securities or other property deliverable upon such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up, as the case may be.

                   (IV)      If the Company, at any time while the
Purchaser’s Option shall remain unexpired, shall sell all or substantially all
of its property, dissolve, liquidate or wind up its affairs, the holder of the
Purchaser’s Option may thereafter receive upon exercise thereof, in lieu of
each Company Common Share which it would have been entitled to receive, the
same kind and amount of any securities or assets as may be issuable,
distributable or payable upon any such sale, dissolution, liquidation or
winding up with respect to each share of Company Common Stock purchased upon
exercise of the Purchaser’s Option.

                    (V)      The Company shall as promptly as
practicable after the occurrence of any of the events set forth in Section
2.02(c)(I)-(IV) notify the Purchaser in writing of the occurrence of such event
or events.

(d)  No fractional shares or scrip representing
fractional shares shall be issued pursuant to any provision of this
Agreement.  With respect to any fraction
of a share of Company Common Stock called for upon exercise of the Purchaser’s
Option or upon exercise of the rights granted in Section 3.01(d), the

 

-9-

 

Company shall issue to the party so exercising cash in
lieu of such fractional share.

SECTION 2.03.  Delivery. 
Delivery of the Company Common Stock constituting the New Shares to be
purchased by Purchaser pursuant to this Agreement shall be made at the Closing,
and delivery of the Company Common Stock to be issued upon exercise of the
Purchaser’s Option shall be made within three Business Days of the Purchaser’s
notice to the Company of any exercise of the Purchaser’s Option (such date, the
“Option Delivery Date”), by the Company delivering certificates
representing such Company Common Stock to the Purchaser or the Designee, as
applicable, against payment therefor in immediately available same day funds to
an account designated by the Company. 
The Company will bear all expenses of shipping such Company Common Stock
(including, without limitation, insurance expenses) to such places within the
United States of America, Canada or Barbados as Purchaser or the Designee, as
applicable, shall specify.

ARTICLE III

RIGHTS OF PURCHASER

SECTION 3.01.  Rights Granted at Closing. 
At and from the Closing Date:

(a)           So long as the Purchaser (together with its subsidiaries)
holds, directly or indirectly, not less than 10% of the of the issued and
outstanding shares of Company Common Stock, the Purchaser shall be entitled,
but not obligated, to have a non-voting observer (the “Purchaser Observer”)
in attendance at each meeting of the Board of Directors of the Company and each
meeting of any committee thereof (each such meeting, a “Board Meeting”).  The Purchaser, and if the Purchaser has
notified the Company that it has appointed a Purchaser Observer, the Purchaser
Observer, shall receive notice of each Board Meeting at least five Business
Days prior to such meeting.  Such notice
shall specify the time, date, location and purpose of such meeting.  The Purchaser, and the Purchaser Observer,
if any, shall also be provided with the same agenda and other information
provided to board or committee members, as the case may be, in connection with
such meeting and at the same time such materials are provided to such board or
committee members, as the case may be; the Purchaser shall be entitled to
appoint,

 

 

-10-

 

dismiss or replace the Purchaser Observer at
its sole discretion; provided, however, that the Board of Directors of the
Company may exclude the Purchaser Observer from access to any meeting or
portion thereof if the Company reasonably believes, upon advice of counsel,
that such exclusion is advisable:  (i)
to preserve attorney-client privilege, (ii) to protect such proprietary
information relating to DepoMed Development, Ltd. or (iii) due to a conflict of
interest between the Company and the Purchaser.

 

(b)           So long as the Purchaser (together
with its subsidiaries) holds, directly or indirectly, not less than 5% of the
of the issued and outstanding shares of Company Common Stock (calculated on a
fully diluted basis), whether or not the Company is subject to Section 13 or
15(d) of the Exchange Act, the Company shall provide the Purchaser with audited
annual financial information prepared in accordance with GAAP and quarterly
financial information prepared on a basis substantially consistent with the
audited annual financial information and provide the Purchaser with access to
executives of the Company responsible for the preparation of such financial
information; such information shall be provided in a timely manner and shall be
in such form as will allow the Purchaser to include such relevant financial
information regarding the Company as may be reasonably necessary for the
Purchaser to comply with any and all requirements related to the Purchaser’s
regulatory filings or for the Purchaser to determine its pro rata share of the
Company’s income or loss, including the amount, if any, of adjustments to such
income or loss for the Purchaser to apply SAB 101 and reflect an in-process
research and development write-off.

(c)           So long as the Purchaser (together
with its subsidiaries) holds, directly or indirectly, not less than 10% of the
of the issued and outstanding shares of Company Common Stock, in the event that
the Company receives a bona fide offer from any person other than the Purchaser
relating to the sale of substantially all of the Company’s assets or relating
to any amalgamation, merger or business combination with, or recapitalization
or restructuring or similar transaction involving, the Company and a person
unaffiliated with the Company (each, a “Proposed Transaction”), or where
the Company elects to initiate a Proposed Transaction, then, prior to the
Company entering into any agreements with respect to the Proposed Transaction,
including without limitation any exclusive negotiation agreement, letter of intent
or definitive agreement providing for a Proposed Transaction, the Company shall
deliver to the Purchaser

 

-11-

 

written notice of such Proposed Transaction setting
forth all of the terms and conditions of the Proposed Transaction (an “Offer
Notice”).  Upon receipt of the Offer
Notice, representatives of the parties shall meet in person as soon is
reasonably practicable and discuss the terms set out in the Offer Notice.  If the parties, acting reasonably, are
unable to conclude a binding agreement within 15 Business Days of receipt of
the Offer Notice with respect to the Proposed Transaction more particularly
described in the Offer Notice, or if the Purchaser provides the Company with
written notice that it does not wish to pursue the Proposed Transaction within
that 15 Business Day Period, then the Company shall be free to pursue the
Proposed Transaction without again providing the Purchaser with further notice
so long as the terms upon which the Company closes such Proposed Transaction
are not less favourable, taken as a whole, than those, if any, offered to the
Company by the Purchaser in the course of the discussions between the Company
and the Purchaser contemplated by this Section 3.01(c); and

(d) (1) until the date that
is three (3)  years from the Closing Date, at any time that the Company
offers for sale Company Common Stock or securities convertible or exchangeable
into, or exercisable for, Company Common Stock, whether newly issued or not and
whether registered pursuant the Securities Act or not (such securities offered,
the “Offered Securities”), the Purchaser or its Designee shall be given
the opportunity to participate in such offering, on terms identical to those
offered to other offerees of the Offered Securities, and purchase, at its
discretion, up to such number of Offered Securities that, upon the completion
of such offering, shall cause the Purchaser (taken together with its
subsidiaries and the Designee) to own the same percentage  of issued and outstanding Company Common
Stock (such percentage, the “Pre-Offering Ownership Percentage”)
purchased pursuant to any provision of this Agreement (calculated on an issued
and outstanding basis) as the Purchaser (and its subsidiaries, taken together)
owned immediately prior to the completion of such offering;

 

(2) the foregoing rights set
out in Section 3.01(d)(1) shall not apply to any:  (i) offering or issuance of securities under an option plan or
other stock plan; (ii) asset or company acquisition paid for, in whole or in
part, in shares of stock; (iii) issuances of warrants to purchase shares of
stock as part of an equipment financing; (iv) underwritten or registered direct
public offering of securities of the Company; or (v) in connection with a strategic
licensing transaction (each, a “Qualified Offering”);

 

 

-12-

 

 

(3) notwithstanding the
issuance of stock or other securities pursuant to Section 3.01(d)(2), in no
event shall securities issued in any Qualified Offering be included for the
purposes of calculating the Pre-Offering Ownership Percentage, provided that if
the Company offers for sale or issuance further securities in which the
Purchaser is entitled to participate pursuant to Section 3.01(d)(1) (a “Post-Qualified
Offering”) subsequent to a Qualified Offering, the Purchaser shall be
entitled to purchase in such Post-Qualified Offering a sufficient number of
securities to cause the Purchaser (taken together with its subsidiaries and the
Designee) to own the Pre-Offering Ownership Percentage as the Purchaser (and
its subsidiaries, taken together) owned by the Purchaser immediately prior to
the completion of such Qualified Offering;

 

(4) if the Purchaser is
unable to purchase a sufficient number of securities in a Post-Qualified
Offering due to the number of shares offered for sale in such offering in no
event shall such Qualified Offering be included for the purposes of calculating
the Pre-Offering Ownership Percentage until such time as a Post-Qualified
Offering provides the Purchaser with a sufficient number of securities to cause
the Purchaser (taken together with its subsidiaries and the Designee) to own
the Pre-Offering Ownership Percentage as the Purchaser (and its subsidiaries,
taken together) owned by the Purchaser immediately prior to the completion of
such Qualified Offering; and

 

(5) where the Purchaser
declines to purchase in a Post-Qualified Offering, or where in a Post-Qualified
Offering there are sufficient securities available to cause the Purchaser
(taken together with its subsidiaries and the Designee) to own the Pre-Offering
Percentage as the Purchaser (and its subsidiaries, taken together) owned
immediately prior to the completion of such Qualified Offering and the
Purchaser declines to purchase such securities (a “Non-Purchase Event”),
then immediately subsequent to the Non-Purchase Event the shares issued in the
Qualified Offering shall be included in calculating the Pre-Offering Ownership
Percentage.

 

(6) The Company shall give
written notice to the Purchaser indicating the number of Offered Securities
available to the Purchaser pursuant to this Section 3.01(d) specifying the per
share price and other terms upon which it proposes to offer the Offered Shares
and shall provide to the Purchaser the information proposed to be supplied to
any third party offeree.  Within 15 days
of the receipt of such notice, the Purchaser

 

 

-13-

 

shall deliver a response notice to the
Company.  If the Purchaser shall state
in such notice that it intends to participate in such offering, the parties
shall take all actions necessary to consummate the offering of the Offered
Securities.

 

SECTION 3.02.  Rights Granted Upon the Exercise of the
Purchaser’s Option.  (a)Provided that the
Purchaser has purchased at least 2,400,000 New Shares under this Agreement, as
soon as reasonably practicable, but in no event later than 15 Business Days
following, the time of the exercise of the Purchaser’s Option by the Purchaser
or an affilate of the Purchaser, the Company shall take all action necessary to
cause to be appointed to the Board of Directors of the Company such number of
Designees identified by the Purchaser (the “Purchaser Nominees”) as is
set forth in the table below.  At each
annual meeting of shareholders of the Company following the exercise of the
Purchaser’s Option:  if at the time of
such nomination the Purchaser (and its subsidiaries, taken together) holds,
directly or indirectly, not less than 20% of the of the issued and outstanding
shares of Company Common Stock (calculated on an issued and outstanding basis)
the Company shall nominate the Purchaser Nominees for election to the Board of
Directors of the Company set forth in the following table under “Number of
Purchaser Nominees at 20.0% or more”; and (ii) pursuant to following
table:  if at the time of such
nomination the Purchaser (and its subsidiaries, taken together) holds, directly
or indirectly, not less than 10.0%, and less than 20.0%, of the of the issued
and outstanding shares of Company Common Stock (calculated on an issued and
outstanding basis), the Company shall nominate the Purchaser Nominees for
election to the Board of Directors of the Company set forth in the following
table under “Number of Purchaser Nominees at 10% - 20%”:

	
  Number of Directors

  	
   

  	
  Number of Purchaser

  Nominees at 20% or more

  	
   

  	
  Number of Purchaser

  Nominees at 10% — 20%

  	
   

  
	
  1 — 4

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
  5 — 9

  	
   

  	
  2

  	
   

  	
  1

  	
   

  
	
  10 — 15

  	
   

  	
  3

  	
   

  	
  2

  	
   

  
	
  For each additional 5

  Directors beyond 15

  	
   

  	
  1 additional Director

  	
   

  	
  1 additional Director

  	
   

  

 

(b)           Provided that the Company fulfills
its obligations under Section 3.02(a), the Purchaser shall not, and shall cause
its affiliates not to:  (i) nominate for
election, or solicit proxies in favor of the election, to the Board of
Directors

 

-14-

 

of the Company any person other than nominees
designated by the Board of Directors of the Company; or (ii) cumulate its votes
in the election of directors of the Company as permitted by the Company’s
by-laws except in favor of Purchaser Nominees.

(c)           The
Board of Directors of the Company may exclude the Purchaser Nominees from
access to any meeting or portion thereof if the Company reasonably believes,
upon advice of counsel, that such exclusion is advisable:  (i) to protect proprietary information
relating to DepoMed Development, Ltd. or (ii) due to a conflict of interest
between the Company and the Purchaser.

SECTION 3.03.  Board
Approval.  The parties hereto agree, that so long as at
least one Purchaser Nominee is a member of the Board of Directors of the
Company, the Board of Directors of the Company shall duly approve, either at a
meeting or by unanimous written consent, each of the following corporate
actions:

(a)           approval
of capital expenditures by the Company or any of its Subsidiaries in excess of
$20 million;

(b)           approval
of any incurrence of any material indebtedness or material change in the
capital structure of the Company;

(c)           approval
of any sale, lease, exchange, other disposition of, or the creation of any
pledge, hypothecation, encumbrance or lien on, any material asset of the
Company or the Subsidiaries;

(d)           the
execution or of any material licensing agreement with respect to Intellectual
Property of the Company or a Subsidiary;

(e)           the
approval of a material acquisition of the of stock or assets or the making of a
material investment in another person;

(f)            the
provision of financial assistance to a third party in an amount in excess of
$250,000;

(g)           the
placement of loans or other incurrence of indebtedness in an amount in excess
of $250,000 not negotiated in an arms-length transaction, including loans to
directors and officers of the Company and its Subsidiaries;

 

-15-

 

(h)           the
adoption of a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of the Subsidiaries; or

(i)            a
Company Change of Control (structured in a form that would permit board
approval).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Purchaser that
except as set forth in the section or subsection of the Company Disclosure
Statement corresponding to the section or subsection of this Article IV
delivered to Purchaser prior to the execution hereof (the “Company
Disclosure Statement”):

SECTION 4.01.  Organization and Qualification;
Subsidiaries.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California.  Each subsidiary of the
Company (together, the “Subsidiaries”) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.  The Company and each of
the Subsidiaries has the requisite corporate power and authority to own,
operate or lease its properties and to carry on its business as it is now being
conducted, and is duly qualified or licensed to do business, and is in good standing,
in each jurisdiction in which the nature of its business or the properties
owned, operated or leased by it makes such qualification, licensing or good
standing necessary, other than such jurisdictions where the failure to be so
qualified or licensed and to be so in good standing would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.  The Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation (other than a Subsidiary), partnership, joint venture or other
business association or entity.

SECTION 4.02.  Authority Relative to this Agreement. 
(a)  The Company has the requisite corporate power and
authority to execute and deliver each of this Agreement and the Registration
Rights Agreement (collectively, the “Transaction 

 

-16-

 

Documents”) and to consummate the transactions contemplated
hereby and thereby.  The execution and
delivery of each of this Agreement and the other Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly and validly authorized and approved by the
Board of Directors of the Company and no other corporate proceedings on the
part of the Company are necessary to authorize or approve this Agreement or the
any other Transaction Document or to consummate the transactions contemplated
hereby or thereby.  This Agreement has
been, and each other Transaction Document will be upon execution, duly and
validly executed and delivered by the Company and, assuming the due and valid
authorization, execution and delivery by the other parties thereto, if any,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except that such enforceability
(i) may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting or relating to the enforcement of creditors’ rights generally
(the “Bankruptcy Exceptions”) and (ii) is subject to general
principles of equity.

(b)           The Board of Directors of the
Company, by resolutions duly adopted by unanimous vote of those voting at a
meeting duly called and held and not subsequently rescinded or modified in any
way (the “Company Board Approval”), has duly approved each of this
Agreement and the transactions contemplated hereby.

(c)           Other than as set forth on Section
4.02 of the Company Disclosure Statement, the Company Board Approval is the
only vote, approval or consent of any Person or entity necessary to approve
this Agreement or any Transaction Document and the transactions contemplated
hereby or thereby.

SECTION 4.03.  No Conflict; Required Filings and
Consents.  (a)   None of the execution and
delivery of this Agreement or the other Transaction Documents, the consummation
by the Company of the transactions contemplated hereby or thereby or compliance
by the Company with any of the provisions hereof or thereof will require any
consent, waiver, approval, authorization or permit of, or registration or
filing with or notification to (any of the foregoing being a “Consent”),
any government, subdivision thereof, or any administrative, governmental,
regulatory or self-regulatory authority, agency, commission, tribunal or body,
domestic, non-U.S. or supranational (a “Governmental Entity”) or person
who is not a Governmental Entity, except for (i) compliance with any applicable
requirements of

 

-17-

 

the Exchange Act, the American Stock Exchange, the
Securities Act or applicable state securities “Blue Sky” laws in connection
with the registration rights granted pursuant to the Registration Rights Agreement
and (ii) compliance with the HSR Act, if required.

(b)           Except as set forth in clause (a) of
this Section 4.03, none of the execution and delivery of this Agreement or the
other Transaction Documents by the Company, the consummation by the Company of
the transactions contemplated hereby and thereby or compliance by the Company
with any of the provisions hereof or thereof will (i) conflict with or
violate the Articles of Incorporation of the Company as in effect on the date
hereof (the “Company Articles of Incorporation”) or by-laws of the
Company as in effect on the date hereof or the comparable organizational
documents of any of the Subsidiaries, (ii) conflict with or violate any
statute, ordinance, rule, regulation, order, judgment or decree applicable to
the Company or the Subsidiaries, or by which any of them or any of their
respective properties or assets may be bound or affected, or (iii) result
in a violation or breach of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or result in any loss of any material benefit or the creation of any Lien on
any of the property or assets of the Company or any of the Subsidiaries (any of
the foregoing referred to in clause (ii) or this clause (iii) being a “Violation”)
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries or any of their respective properties may be bound or
affected, except, in the case of clause (ii) and (iii), for any such Violation
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.

SECTION 4.04.  Brokers. 
None of the Company, any of the Subsidiaries or any of their respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finder’s fees in
connection with the transactions contemplated by this Agreement.

SECTION 4.05.  Capitalization. 
The Company has heretofore made available to Purchaser complete and
correct copies of the Company Articles of Incorporation and the by-laws, in

 

-18-

 

effect on the date hereof, of the Company.  The authorized capital stock of the Company
as of the date of this Agreement consists of 13,973,309 shares of Company
Common Stock and 12,015 shares of Series A Preferred Stock, no par value (“Preferred
Stock”).  As of the close of
business on May 21, 2002 there were (i) 13,973,309 shares of Company
Common Stock issued and outstanding, of which no shares were owned by the
Company or a wholly-owned Subsidiary and (ii) 12,015 shares of Preferred
Stock issued and outstanding, of which no shares were owned by the Company or a
wholly-owned Subsidiary.  As of the
close of business on May 21, 2002, there were issued and outstanding Common
Stock Purchase Warrants, no par value (“Warrants”) to purchase 3,215,270
shares of Company Common Stock with a weighted average exercise price of
$5.89.  The Company has no capital stock
reserved for issuance, except that, as of the day prior to execution of this
Agreement, there were (i) 2,562,540 shares of Company Common Stock
reserved for issuance pursuant to options outstanding on the date hereof
pursuant to the Company’s  option plan, (ii) 3,215,270
shares of Company Common Stock reserved for issuance upon exercise of Warrants,
(iii) 1,323,396 shares of Company Common Stock reserved for issuance upon
conversion of the Preferred Stock and (iv) 641,741 shares of Company
Common Stock reserved for issuance upon conversion of the Convertible
Promissory Note of the Company dated January 21, 2000 (the “Convertible
Note”).  Since the day prior to
execution of this Agreement, the Company has not issued any options, Warrants
or capital stock except pursuant to the exercise of Options or Warrants or the
conversion of the outstanding Preferred Stock or the outstanding Convertible
Note outstanding as of such date and in accordance with their terms.  The  New Shares and the Company Common
Stock to be issued upon exercise of the Purchaser’s Option have been duly
authorized and, when issued, will be validly issued, fully paid and
non-assessable and, with respect to (iii), upon exercise, will be validly
issued, fully paid and non-assessable. 
All the outstanding Company Common Stock and Preferred Stock are, and
all Company Common Stock which may be issued pursuant to the exercise of
outstanding options or Warrants or the conversion of the outstanding Preferred
Stock or the outstanding Convertible Note will be, when issued in accordance
with the respective terms thereof, duly authorized, validly issued, fully paid
and nonassessable.  Except for the
Convertible Note, there are no bonds, debentures, notes or other indebtedness
having general voting rights (or convertible into securities having such
rights) (“Voting Debt”) of the Company or any of the Subsidiaries issued
and outstanding.  Except as stated
above, there are no existing options, warrants, calls, subscriptions or other

 

-19-

 

rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of the Subsidiaries, obligating the Company or any of the Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any capital
stock or Voting Debt of, or other equity interest in, the Company or any of the
Subsidiaries or securities convertible into or exchangeable for such shares or
equity interests or obligations of the Company or any of the Subsidiaries to
grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment.  There are no outstanding contractual obligations of the Company
or any of the Subsidiaries to repurchase, redeem or otherwise acquire any
capital stock of the Company or any of the Subsidiaries and the issuance of
Company Common Stock pursuant to any provision of this Agreement will not give
rise to any preemptive rights or rights of first refusal on behalf of any
person, other than as set forth in Section 4.05 of the Company Disclosure
Statement.  Each of the outstanding
capital stock of each of the Company’s Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and such shares of the Subsidiaries as
are owned by the Company or by a wholly owned Subsidiary are free and clear of
any lien, claim, option, charge, security interest, limitation, encumbrance and
restriction of any kind (any of the foregoing being a “Lien”), except
for Permitted Encumbrances.

SECTION 4.06.  SEC Reports and Financial Statements. 
(a)  The Company has filed with the SEC all forms, reports,
schedules, registration statements and definitive proxy statements required to
be filed by the Company with the SEC through the date hereof (the “SEC Reports”).  As of their respective dates and except as
subsequently amended prior to the date hereof, the SEC Reports complied in all
material respects with the requirements of the Exchange Act or the Securities
Act and the rules and regulations of the SEC promulgated thereunder applicable,
as the case may be, to such SEC Reports, and none of the SEC Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

(b) (i)  The
balance sheets as of December 31, 2000 and 2001 and the related statements
of operations, shareholders’ equity and cash flows (including the notes
thereto) for each of the three years in the period ended December 31, 2001
and for the period from inception (August 7, 1995) to 

 

-20-

 

December 31, 2001 (including the related notes
and schedules thereto) of the Company contained in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2001 (the “Form
10-K”) included in the SEC Reports present fairly the financial position
and the results of operations and cash flows of the Company as of the dates or
for the periods presented therein in conformity with United States generally
accepted accounting principles applied on a consistent basis as of and during
the periods involved (“GAAP”).

                     (ii)      The balance sheet as of December 31,
2001 and the related statements of operations, shareholders’ deficit and cash
flows (including the notes thereto) for the period from formation
(November 30, 1999) to December 31, 2001 of Depomed Development, Ltd.
contained in the Form 10-K included in the SEC Reports present fairly the
financial position and the results of operations and cash flows of Depomed
Development, Ltd. as of the dates or for the periods presented therein in
conformity with GAAP.

(c)           The Company and the Subsidiaries have
no liabilities or obligations of any nature (whether absolute, accrued,
contingent, unliquidated, conditional or otherwise) except for liabilities or
obligations (i) reflected or reserved against on the balance sheet as at
December 31, 2001 included in the Form 10-K (the “Company Balance Sheet”)
or (ii) which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.

SECTION 4.07.  Litigation. 
There is no suit, action, proceeding or governmental investigation
before any commission or other administrative authority pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
the Subsidiaries, with respect to or affecting the Company’s or any of the
Subsidiaries’ operations, business, products, sales practices or financial
condition, except for suits, actions and proceedings that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company, nor is
there any judgment, decree, injunction or order of any Governmental Entity or
arbitrator outstanding against the Company or any of the Subsidiaries, except
for judgments, decrees, injunctions and orders that would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.  There are no facts known to the Company
which, if known by a potential claimant or any Governmental Entity, would
reasonably give rise to a claim or proceeding which, if asserted or conducted
would

 

-21-

 

be reasonably likely to have a Material Adverse Effect
on the Company.

SECTION 4.08.  Compliance with Applicable Laws; Permits. 
(a)  The Company and the Subsidiaries are and have been in
compliance with all Laws, regulations and orders of any Governmental Entity
applicable to the Company or the Subsidiaries, except for such failures so to
comply which, individually or in the aggregate, would not have a Material
Adverse Effect on the Company.  The
business operations of the Company and the Subsidiaries have not been conducted
in violation of any Law, ordinance or regulation of any Governmental Entity,
except for possible violations which, individually or in the aggregate, would
not have a Material Adverse Effect on the Company.

(b)           Each
of the Company and the Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates, approvals
and orders of any Governmental Entity, including, without limitation, the FDA,
the United States Drug Enforcement Administration (the “DEA”), and
similar authorities in any U.S. and non-U.S. jurisdictions, necessary for the
Company or any Subsidiary to own, lease and operate its properties or to
produce, store, distribute and market its products or otherwise to carry on its
business as it is now being conducted (the “Company Permits”), and, as
of the date of this Agreement, no suspension or cancellation of any of the
Company Permits is pending or, to the knowledge of the Company, threatened,
except, with regard to any Company Permits about which a representation and
warranty is given by the Company in any other section in this Article IV and
such other representation and warranty expressly includes a qualification as to
Material Adverse Effect on the Company, where the failure to have, or the
suspension or cancellation of, such Company Permits would not individually or
in the aggregate have a Material Adverse Effect on the Company.  Neither the Company nor any Subsidiary is in
conflict with, or in default or violation of, (i) any Law applicable to the
Company or any Subsidiary or by which any property or asset of the Company or
any Subsidiary is bound or affected except for such conflict, default or
violation as would not individually or in the aggregate have a Material Adverse
Effect on the Company or (ii) any Company Permits.  As used in this Agreement, “Law” means any federal, state
or local statute, law, ordinance, regulation, rule, code, order, other
requirement or rule of law of the United States or any other U.S. or non-U.S.
jurisdiction, including, without limitation, the Federal Food, Drug, and
Cosmetic

 

-22-

 

Act (the “FDCA”), the Controlled
Substances Act, and any other similar act or law.

 

                     (c)      Except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company:

                      (i)      all manufacturing operations of the Company and the
Subsidiaries are being conducted in substantial compliance with applicable good
manufacturing practices;

                     (ii)      all necessary clearances or approvals from governmental
agencies for all drug and device products which are manufactured or sold by the
Company and the Subsidiaries have been obtained, and the Company and the
Subsidiaries are in substantial compliance with the most current form of each
applicable clearance or approval with respect to the manufacture, storage,
distribution, promotion and sale by the Company and the Subsidiaries of such
products;

                    (iii)      to the Company’s knowledge, all of the clinical studies which
have been, or are being, conducted by or for the Company and the Subsidiaries
are being conducted in substantial compliance with generally accepted good
clinical practices and all applicable government regulatory requirements;

                    (iv)      as of the date of this Agreement, neither the Company nor any
of the Subsidiaries has received written notice of any petition or other
attempt by a brand name drug company to have the therapeutic equivalence rating
of a product of the Company or a Subsidiary withheld or altered;

                     (v)      none of the Company, the Subsidiaries or, to the knowledge of
the Company, any of their respective officers, employees or agents (during the
term of such person’s employment by the Company or a Subsidiary or while acting
as an agent of the Company or a Subsidiary) has made any untrue statement of a
material fact or fraudulent statement to the FDA or any similar governmental
agency (including, without limitation, non-U.S. regulatory agencies), failed to
disclose a material fact required to be disclosed to the FDA or any similar
governmental agency (including, without limitation, non-U.S. regulatory
agencies), or committed an act, made a statement or failed to make a statement
that could reasonably be expected to provide a basis for the FDA or any similar
governmental

 

-23-

 

agency
(including, without limitation, non-U.S. regulatory agencies) to invoke its
policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991)
or similar governmental policy or regulation (including, without limitation,
non-U.S. policies or regulations), rule, regulation or law;

                    (vi)      neither the Company nor any of the Subsidiaries has received
any written notice that the FDA or any similar governmental agency (including,
without limitation, non-U.S. regulatory agencies) has commenced, or threatened
to initiate, any action to withdraw its approval or request the recall of any
product of the Company or any of the Subsidiaries, or commenced, or overtly
threatened to initiate, any action to enjoin production at any facility of the
Company or any of the Subsidiaries;

                   (vii)      as to each article of drug, device, cosmetic or vitamin
manufactured and/or distributed by the Company or any of the Subsidiaries, such
article is not adulterated or misbranded within the meaning of the FDCA or any
similar governmental act or Law of any jurisdiction (including, without
limitation, non-U.S. jurisdictions); and

                  (viii)      none of the Company, the Subsidiaries or, to the knowledge of
the Company, any of their respective officers, employees or agents (during the
term of such person’s employment by the Company or a Subsidiary or while acting
as an agent of the Company or a Subsidiary, subsidiaries or affiliates has been
convicted of any crime or engaged in any conduct for which debarment or similar
punishment is mandated or permitted by any applicable Law.

(d)           As
to each product subject to FDA’s jurisdiction under the FDCA and the
jurisdiction of the Drug Enforcement Agency under the Comprehensive Drug Abuse
Prevention and Control Act of 1970 (“CSA”) which is manufactured,
tested, distributed, held, and/or marketed by the Company, such product is
being manufactured, held and distributed in compliance with all applicable
requirements under the FDCA and the CSA, if applicable, including, but not
limited to, those relating to investigational use, premarket clearance, good
manufacturing practices, labeling, advertising, record keeping, filing of
reports, and security.

 

-24-

(e)           None
of the Company, any of the Subsidiaries or any product manufactured, tested,
distributed, held, developed and/or marketed by the Company or any of the
Subsidiaries is subject to the jurisdiction of the Health Protection Branch of
the Ministry of Health Canada.

(f)            The
Company will promptly provide Purchaser with copies of any document that is
issued, prepared, or otherwise becomes available from the date of this
Agreement until the Closing Date which bears on the regulatory status under the
FDCA or the CSA of the Company, any Subsidiary or any product of the Company or
any Subsidiary, including, but not limited to, any deficiency letter, warning
letter, non-approvable letter/order, and withdrawal letter/order, except for
documents reflecting such matters which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company.

(g)           Section
4.08(g) of the Company Disclosure Statement sets forth a complete and accurate
list of (A) each investigational new drug filing made by the Company or
any of the Subsidiaries with the FDA or similar U.S. or non-U.S. governmental
agency, (B) each clinical trial protocol submitted by the Company or any
of the Subsidiaries to the FDA or similar U.S. or non-U.S. governmental agency,
(C) each new drug application and abbreviated or supplemental new drug
application filed by the Company or any of the Subsidiaries pursuant to the
FDCA, or any non-U.S. equivalents, (D) each product license application
filed by the Company or any of the Subsidiaries pursuant to the Public Health
Service Act, as amended, or any non-U.S. equivalents and (E) each
establishment license application filed with respect to any product of the
Company or any of the Subsidiaries under the Public Health Service Act, as
amended, or any non-U.S. equivalents.

SECTION
4.09.  Employee Benefit Plans.  (a)  Except
as set forth in Section 4.09(a) of the Company Disclosure Statement there are
no “employee pension benefit plans” as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) (“Pension
Plans”), “welfare benefit plans” as defined in Section 3(1) of ERISA (“Welfare
Plans”) or stock bonus, stock option, restricted stock, stock appreciation
right, stock purchase, bonus, incentive, deferred compensation, severance, or
vacation plans, employment or consulting agreement, or any other employee
benefit plan, program, policy or arrangement, covering employees (or former
employees) employed in the United States, maintained or contributed to by the Company
or any of the Subsidiaries or any

 

-25-

 

ERISA Affiliates (as
hereinafter defined), or to which the Company or any of the Subsidiaries or any
of their ERISA Affiliates contributes or is obligated to make payments
thereunder or otherwise may have any liability (collectively, the “Employee
Benefit Plans”).  For purposes of
this Agreement, “ERISA Affiliate” shall mean any person (as defined in
Section 3(9) of ERISA) that is or has been a member of any group of
persons described in Section 414(b), (c), (m) or (o) of the Code including
the Company or a Subsidiary.

(b)           The
Company and each of the Subsidiaries, and any Pension Plans and Welfare Plans,
are in compliance in all material respects with the applicable provisions of
ERISA, the Code and other applicable Laws.

(c)           All
contributions to, and payments from, any Pension Plans that are required to
have been made in accordance with the Pension Plans have been timely made.

(d)           Any
Pension Plans intended to qualify under Section 401 of the Code have been
determined by the Internal Revenue Service (“IRS”) to be so qualified
and no event has occurred and no condition exists with respect to the form or
operation of such Pension Plans that would cause the loss of such qualification
or exemption therefrom or the imposition of any material liability, penalty or
Tax under ERISA or the Code.

(e)           Each
Pension Plan that is not qualified under Code section 401(a) or 403(a) is
exempt from Part 2, 3 and 4 of Title I of ERISA as an unfunded plan that is
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees, pursuant to
Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.  No assets of the Company are allocated to or held in a “rabbi
trust” or similar funding vehicle.

(f)            There
are (i) no investigations pending by any governmental entity (including
the Pension Benefit Guaranty Corporation (“PBGC”)) involving the Pension
Plans or Welfare Plans, and (ii) no pending or threatened claims (other
than routine claims for benefits), suits or proceedings against any Pension
Plan or Welfare Plan, against the assets of any of the trusts under any Pension
Plan or Welfare Plan or against any fiduciary of any Pension Plan or Welfare
Plan with respect to the operation of such plan or asserting any rights or
claims to benefits under any Pension Plan or against the assets of any trust
under such plan, nor, to the knowledge of the Company,

 

-26-

 

are there any facts
that would give rise to any material liability.

(g)           None
of the Company, any of the Subsidiaries or any employee of the foregoing, nor
any trustee, administrator, other fiduciary or any other “party in interest” or
“disqualified person” with respect to the Pension Plans or Welfare Plans, has
engaged in a “prohibited transaction” (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) that could result
in a material tax or penalty on the Company or any of the Subsidiaries under
Section 4975 of the Code or Section 502(i) of ERISA.

(h)           None
of the Company, any of the Subsidiaries, or any of their ERISA Affiliates
maintain or contribute to, nor have they ever maintained or contributed to, any
pension plan subject to Title IV of ERISA or Sections 412 of the Code or
302 of ERISA.

(i)            Neither
the Company, any Subsidiary of the Company nor any ERISA Affiliate has
incurred, or is reasonably likely to incur liability under Title IV of ERISA.

(j)            Neither
the Company nor any ERISA Affiliates has liability (including any contingent
liability under Section 4204 of ERISA) with respect to any multiemployer
plan, within the meaning of Section 3(37) of ERISA, covering employees (or
former employees) employed in the United States.

(k)           With
respect to each of the Employee Benefit Plans, true, correct and complete
copies of the following documents have been made available to Purchaser:  (i) the plan document and any related
trust agreement, including amendments thereto, (ii) any current summary
plan descriptions and other material communications to participants relating to
the Employee Benefit Plans, (iii) the most recent Forms 5500, if
applicable, (iv) the most recent IRS determination letter, if applicable
and (v) the most recent actuarial report or valuation with respect to each
Pension Plan subject to Title IV of ERISA.

(l)            None
of the Welfare Plans maintained by the Company or any of the Subsidiaries
provide for continuing benefits or coverage for any participant or any
beneficiary of a participant following termination of employment, except as may
be required under Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA (“COBRA”), or except at the
expense of the participant or the participant’s beneficiary.  The Company, the Subsidiaries, and any ERISA
Affiliates which maintain

 

-27-

 

a “group health
plan” within the meaning of Section 5000(b)(1) of the Code have complied in all
material respects with the “COBRA” notice and continuation requirements.

(m)          As
of the Closing, the Company, the Subsidiaries and any entity with which the
Company or the Subsidiaries could be considered a single employer under
29 U.S.C. Section 2101(a)(1) or under any relevant case-law, has not
incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act, as it may be amended from time to time, and within the 90-day
period immediately following the Closing, will not incur any such liability or
obligation if, during such 90-day period, only terminations of employment in
the normal course of operations occur.

(n)           The
consummation of the transactions contemplated by this Agreement will not result
in an increase in the amount of compensation or benefits or accelerate the
vesting or timing of payment of any benefits or compensation payable to or in
respect of any employee of the Company or any of the Subsidiaries.

(o)           The
consummation of the transactions contemplated by this Agreement will not result
in or satisfy a condition to the payment of compensation that would, in
combination with any other payment, result in an “excess parachute payment”
within the meaning of Section 280G(b) of the Code.

(p)           The
Company and the Subsidiaries do not maintain or contribute to any plan,
program, policy, arrangement or agreement with respect to employees (or former
employees) employed outside the United States.

SECTION
4.10.  Intellectual Property.  (a)  Except
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Company, (i) the Company and each of the Subsidiaries owns, has the
right to acquire or is licensed or otherwise has the right to use and has
maintained in good standing (in each case, clear of any Liens of any kind other
than Permitted Encumbrances), all Intellectual Property used in or necessary
for the conduct of its business as currently conducted; (ii) no claims are
pending or, to the knowledge of the Company, threatened that the Company or any
of the Subsidiaries is infringing on or otherwise violating the rights of any
person with regard to any Intellectual Property; (iii) to the knowledge of
the Company, no person is infringing on or otherwise violating any right of the
Company or any of the Subsidiaries

 

-28-

 

with respect to any
Intellectual Property owned by and/or licensed to the Company or the
Subsidiaries; (iv) to the knowledge of the Company, no other firm, corporation,
association or person claims the right to use in connection with similar or
closely related goods and in the same geographic area, any mark which is
identical or confusingly similar to any of the Intellectual Property; (v) the
Company has no knowledge of any claim that any third party asserts ownership
rights in any of the Intellectual Property; (vi) the Company has no knowledge
of any claim or knowledge of any facts that would give the Company any reason
to reasonably believe that the Company’s or the Subsidiaries’ use of any
Intellectual Property infringes any right of any third party or would result in
the breach of any contract or other obligation to which the Company or any
Subsidiary is a party; (vii) the Company has no knowledge and there are no
facts known to the Company that would give the Company any reasonable basis to
believe that any third party is infringing on any of the Company’s or the
Subsidiaries’ rights in any of the Intellectual Property; (viii) the Company
has no knowledge and there are no facts known to the Company that would give
the Company any reasonable basis to believe that any of its actions or the
actions of the Subsidiaries has infringed or is infringing on any third party’s
Intellectual Property rights; (ix) to the knowledge of the Company, there are
no undisclosed government restrictions, domestic or non-U.S., which
specifically limit the manner in which any of the Intellectual Property may be
used or licensed; (x) to the knowledge of the Company, none of the Company, the
Subsidiaries or any of their respective officers or directors has disclosed any
confidential information of the Company or any of the Subsidiaries which would
constitute trade secrets, except in the ordinary course of business of the
Company and the Subsidiaries or with the authority of the Company or the
Subsidiaries; and (xi) to the knowledge of the Company, none of the Company,
the Subsidiaries or any of their respective officers or directors has used any
confidential information or trade secrets of any Third Party in any manner or
any purpose not permitted by that Third Party.

(b)           For
purposes of this Agreement, “Intellectual Property” shall mean all
inventions, whether patentable or not and whether patented or unpatented,
patents, copyrights, trademarks (registered or unregistered), service marks, brand
names, trade dress, trade names, computer software programs and applications
(including imbedded software), and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing; trade secrets and
rights in any jurisdiction to limit the use or disclosure thereof by any
person; all

 

-29-

 

technical advances
and other improvements made by or used in the operation or business of the
Company; and, with respect to products under development and all intermediates
useful in the manufacture of those products, all unpatented know-how, formulae,
formulations, test procedures and protocols, processes, test results and data,
and clinical data.

SECTION
4.11.  Environmental Matters.  Except as
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company, (i) no Hazardous Materials are present at, on or under any
real property or facility currently, or to the knowledge of the Company,
formerly owned, leased or operated by the Company or any Subsidiary which now
require investigation, response, or other corrective action by the Company or
any Subsidiary or for which the Company or any Subsidiary is financially
responsible, or that would reasonably be expected to result in liability of, or
costs to, the Company or any of the Subsidiaries, in each case under any
Environmental Law; (ii) there is currently no civil, criminal or
administrative action, suit, demand, hearing, proceeding, notice of violation, investigation,
notice or demand letter, or request for information pending or to the knowledge
of the Company, threatened, under any Environmental Law against the Company or
any of the Subsidiaries; (iii) the Company and the Subsidiaries have not
received any written claims or notices alleging liability under any
Environmental Law currently pending, and the Company has no knowledge of any
circumstances that would reasonably be expected to result in such claims or
notices; (iv) to the knowledge of the Company, the Company and each of the
Subsidiaries are currently in compliance, and within the period of applicable
statutes of limitation have complied, with all, and have no liability under
any, applicable Environmental Laws; (v) to the knowledge of the Company,
no property or facility currently or formerly owned, leased or operated by the
Company or any of the Subsidiaries or any of their respective
predecessors-in-interest, or at which Hazardous Materials have been
manufactured, handled, tested, formulated, prepared, encapsulated, packaged,
bottled or stored for the Company or any of the Subsidiaries, or at which
Hazardous Materials of the Company or any of the Subsidiaries have been stored,
treated or disposed of, is listed or proposed for listing on the National Priorities
List or the Comprehensive Environmental Response, Compensation and Liability
Information System, both promulgated under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or on any
comparable list established under any Environmental Law; (vi) the execution,
delivery and performance of this Agreement 

 

-30-

 

 

and the consummation
of the transactions contemplated hereby will not affect the validity of any
Environmental Permits held by the Company or any of the Subsidiaries, and will
not require any filing, notice, or remediation under any Environmental Law;
(vii) to the knowledge of the Company, no friable asbestos is present in,
on, or at any property, facility or equipment of the Company or any of the
Subsidiaries; (viii) to the knowledge of the Company, there are no past or
present events, conditions, activities, or practices, including, without
limitation, the disposal, emission or release of any Hazardous Materials, which
would reasonably be expected to prevent the Company’s and the Subsidiaries’
compliance with any Environmental Law, or which would reasonably be expected to
give rise to any liability of the Company or any of the Subsidiaries under any
Environmental Law; (ix) no Lien has been asserted or recorded, or to the
knowledge of the Company threatened, under any Environmental Law with respect
to any assets, facility, inventory, or property currently owned, leased or
operated by the Company or any of the Subsidiaries; (x) neither the Company nor
any of the Subsidiaries has assumed by contract, agreement or otherwise any
liabilities or obligations arising under any Environmental Law, or is currently
performing any investigation, response or other corrective action under any
Environmental Law; (xi) neither the Company nor any of the Subsidiaries
has entered into or agreed to any judgment, decree or order by any judicial or
administrative tribunal or agency and neither the Company nor any of the Subsidiaries
is subject to any judgment, decree order or agreement, in each case relating to
compliance with any Environmental Law or requiring the Company or any of the
Subsidiaries to conduct any investigation, response, corrective or other action
under any Environmental Law; and (xii) to the knowledge of the Company,
there are no underground storage tanks or related piping, or impoundments, at
any real property owned, operated or leased by the Company or any of the
Subsidiaries, and any former such tanks, piping, or impoundments, on any such
property which have been removed or closed, have been removed or closed in
accordance with applicable Environmental Laws.

For purposes of this
Agreement, the term “Environmental Laws” means the common law and all
applicable federal, state, local and non-U.S. Laws, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder relating to
pollution or protection of human health safety or the environment (including,
without limitation, ambient air, indoor air, surface water, ground water, land
surface, subsurface strata, and natural resources such as wetlands, flora,
fauna),

 

-31-

 

including
without limitation, laws relating to experimental use of animals or disposal of
animal carcasses, emissions, discharges, releases or threatened releases of
Hazardous Materials into the environment, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.  For purposes of this Agreement, the term “Hazardous
Materials” means any pollutant, contaminant, substance, constituent or
waste, including without limitation, medical, biohazardous, or infectious
waste, animal carcass, any toxin, virus, infectious disease or disease-causing
agent, or any other chemical, compound or material, including without
limitation, petroleum or any petroleum product, including crude oil or any
fraction thereof, subject to regulation or that can give rise to liability
under any Environmental Law.  For
purposes of this Agreement, the term “Environmental Permit” means any
permit, license, approval, consent or other authorization provided or issued by
any Governmental Entity pursuant to an Environmental Law.

The Company has made
available to Purchaser all records and files, including, but not limited to,
all assessments, reports, studies, audits, analyses, and data in the
possession, custody or control of the Company or any Subsidiary relating to the
existence of Hazardous Materials at facilities or properties currently or
formerly owned, operated, leased or used by the Company or any of the
Subsidiaries or concerning compliance by the Company and any Subsidiaries with,
or liability of any of them under, any Environmental Law.

SECTION
4.12.  Material Adverse Change.  (a)  Since
March 31, 2002, there has not been any change, or any development that is
reasonably likely to result in a change, that would have a Material Adverse
Effect on the Company.  Since March 31,
2002, the Company and the Subsidiaries have conducted their businesses only in
the ordinary course of business consistent with past practices and there has
not been, directly or indirectly:

                      (i)      any declaration, setting aside or payment
of any dividend or other distribution with respect to any capital stock of the
Company;

                     (ii)      any split, combination or reclassification
of any of its capital stock or any issuance or the authorization of any
issuance of any other securities in respect

 

-32-

 

of, in lieu of or in substitution for the
Company’s capital stock;

                    (iii)      any payment or granting by the Company or
any of the Subsidiaries of any increase in compensation to any director,
officer or, other than in the ordinary course of business consistent with past
practice, employee of the Company or any of the Subsidiaries;

                    (iv)      any granting by the Company or any of the
Subsidiaries to any director, officer or, other than in the ordinary course of
business consistent with past practice, employee of any increase in severance
or termination pay;

                     (v)      any entry by the Company or any of the
Subsidiaries into any employment, consulting, severance or termination
agreement with any such director or officer, other than in the ordinary course
of business consistent with past practice;

                    (vi)      any adoption or increase in payments to or
benefits under any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or with any
employees of the Company or any of the Subsidiaries;

                   (vii)      any change in accounting methods,
principles or practices by the Company or any of the Subsidiaries, except
insofar as may have been required by changes in GAAP;

                  (viii)      any cancellation of any Material Contract
by any person a party thereto;

                    (ix)      any resignation of one or more key
employees of the Company;

                     (x)      any material litigation instituted against
the Company or the Subsidiaries; or

                    (xi)      any agreement to do any of the things
described in the preceding clauses (i) through (x).

SECTION 4.13.  Taxes.  (a)  Except as disclosed in Section 4.13 of the
Company Disclosure Statement, (i) the Company and each of the Subsidiaries have
prepared and timely filed with the appropriate governmental agencies all Tax
Returns required to be filed on or before the date hereof, taking into account
any extension of time to file granted to or obtained

 

 

-33-

 

on behalf of the
Company and/or the Subsidiaries, and each such Tax Return is complete and
accurate in all material respects; (ii) the Company and each of the
Subsidiaries have timely paid all Taxes due and payable by them through the
date hereof and have made adequate accruals for any Taxes attributable to any
taxable period or portion thereof of the Company and/or the Subsidiaries ending
on or prior to the date hereof that are not yet due and payable; (iii) all
asserted Tax deficiencies or Tax assessments against the Company or any of the
Subsidiaries have been paid or finally settled and no issue previously raised
by any taxing authority reasonably could be expected to result in a proposed
deficiency or assessment for any prior, parallel or subsequent period
(including periods subsequent to the Closing Date); (iv) no Tax audit or
Tax examination of the Company or any of the Subsidiaries is in progress or
pending or, to the knowledge of the Company, threatened by any taxing
authority; (v) no extension of the period for assessment or collection of
any Tax of the Company or any of the Subsidiaries is currently in effect and no
extension of time within which to file any Tax Return has been requested, which
Tax Return has not since been filed; (vi) no Liens have been filed with
respect to any Taxes of the Company or any of the Subsidiaries other than in
respect of property taxes that are not yet due and payable; (vii) neither
the Company nor any of the Subsidiaries has made, or is or will be required to
make, any change in its accounting methods for any period (or portion thereof)
ending on or before the Closing Date that would result in an adjustment for any
period (or portion thereof) ending on or after the Closing Date under
Section 481 of the Code (or any similar provision of state, provincial,
local or non-U.S. law); (viii) the Company and each of the Subsidiaries
have made timely payments of all Taxes required to be deducted and withheld
from the wages paid to their employees and from all other amounts paid to third
parties; (ix) neither the Company nor any of the Subsidiaries is a party to any
tax sharing, tax matters, tax indemnification or similar agreement;
(x) neither the Company nor any of the Subsidiaries owns any interest in
any “controlled foreign corporation” (within the meaning of Section 957 of
the Code) or “passive foreign investment company” (within the meaning of
Section 1296 of the Code); (xi) neither the Company nor any of the
Subsidiaries has made an election under Section 341(f) of the Code;
(xii) neither the Company nor any of the Subsidiaries is a party to any
agreement or arrangement that provides for the payment of any amount, or the
provision of any other benefit, that could constitute a “parachute payment”
within the meaning of Section 280G of the Code; (xiii) no claim has ever been
made in writing by a taxing

 

-34-

 

authority in a
jurisdiction where the Company or any of the Subsidiaries does not file Tax
Returns that such entity is or may be subject to taxation by that jurisdiction;
(xiv) none of the assets of the Company or any of the Subsidiaries is
“tax-exempt use property” (as defined in Section 168(h)(1) of the Code),
“tax-exempt bond financed property” (as defined in Section 168(g)(5) of
the Code) or may be treated as owned by any other person pursuant to
Section 168(f)(8) of the Internal Revenue Code of 1954 (as in effect
immediately prior to the enactment of the Tax Reform Act of 1986);
(xv) the Company is not and will not be at the Closing Date a “United
States real property holding corporation,” within the meaning of
Section 897 of the Code; (xvi) neither the Company nor any of the
Subsidiaries has made any elections under Sections 108, 168, 338, 441, 472,
1017, 1033 or 4977 of the Code; (xvii) neither the Company nor any of the Subsidiaries
has accounted or is accounting for any transaction pursuant to Section 467
of Code; (xviii) there are no “excess loss accounts” (as defined in Treas.
Reg. § 1.1502-19) with respect to any stock of any Subsidiary; and (xix) neither
the Company nor any of the Subsidiaries has any (a) deferred gain or loss (1)
arising from any deferred intercompany transactions (as described in Treas.
Reg. §§ 1.1502-13 and 1.1502-13T prior to amendment by Treasury Decision
8597 (issued July 12, 1995)) or (2) with respect to the stock or obligations of
any other member of any affiliated group (as described in Treas. Reg.
§§ 1.1502-14 and 1.1502-14T prior to amendment by Treasury Decision 8597)
or (b) any gain subject to Treas. Reg. § 1.1502-13, as amended by Treasury
Decision 8597.

(b)           Depomed
Development, Ltd. operates only in Bermuda and is not subject to U.S. taxation.

SECTION
4.14.  Material Contracts.    Assuming
each Material Contract constitutes a valid and binding obligation of each other
party thereto, each Material Contract is a valid and binding obligation of the
Company or the applicable Subsidiary, as the case may be.  To the knowledge of the Company, each
Material Contract is a valid and binding obligation of each other party
thereto, and each such Material Contract is in full force and effect and is
enforceable by the Company or the applicable Subsidiary in accordance with its
terms, except as such enforcement may be limited by the Bankruptcy Exceptions
and subject to general principles of equity. 
To the knowledge of the Company, there are no existing defaults (or
circumstances or events that, with the giving of notice or lapse of time or
both would become defaults) of the Company, any Subsidiary or any third party
under any of the Material Contracts.  Neither
the

 

-35-

 

Company nor any of
the Subsidiaries is a party to, or bound by any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage,
debenture, note or other instrument under the terms of which performance by the
Company or the Subsidiaries according to the terms of this Agreement will be a
default of a material provision under or an event of acceleration, or grounds
for termination, or whereby timely performance by the Company of this Agreement
may be prohibited or delayed.

SECTION 4.15.  Insurance.  The Company
and the Subsidiaries have obtained and maintained in full force and effect
insurance with responsible and reputable insurance companies or associations in
such amounts, on such terms and covering such risks, as is in the Company’s
judgment adequate to insure against risks to which the Company is normally
exposed in its day-to-day operations, consistent with industry practice for
companies (i) engaged in similar businesses and (ii) of at least
similar size to that of the Company and the Subsidiaries, and have maintained
in full force and effect public liability insurance, insurance against claims
for personal injury or death or property damage occurring in connection with
any of the activities of the Company or the Subsidiaries or any of the
properties owned, occupied or controlled by the Company or any of the
Subsidiaries, in such amount as reasonably deemed necessary by the Company.  To the knowledge of the Company, each such
policy is in full force and effect, no notice of termination, cancellation or
reservation of rights has been received with respect to any such policy, there
is no default with respect to any provision contained in any such policy, and
there has not been any failure to give any notice or present any claim under
any such policy in a timely fashion or in the manner or detail required by any
such policy, except for any such failures to be in full force and effect, any
such terminations, cancellations, reservations or defaults, or any such
failures to give notice or present claims which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.  The Company Balance Sheet reflects adequate
reserves for any insurance programs which require (or have required) the
Company or any of the Subsidiaries to retain a portion of each loss, including,
but not limited to, deductible and self-insurance programs.

SECTION
4.16.  Takeover Statutes.  No “fair
price,” “moratorium,” “control share acquisition” or any other anti-takeover or
similar statute or regulation enacted under the laws of any state or the
federal laws of the United States is

 

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applicable to any of
the transactions contemplated by this Agreement or the other Transaction
Documents, except for such statutes or regulations as to which all necessary
action has been taken by the Company and its board of directors to permit the
consummation of the transactions contemplated hereby in accordance with the
terms hereof.

SECTION
4.17.  Private Offering.  Assuming the
representations and warranties of the Purchaser in this Agreement are true and
accurate as of the date hereof, the offer, sale and issuance of the Company Common
Stock as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act, and the qualification or registration
requirements of applicable blue sky laws. 
Neither the Company nor any authorized agent acting on behalf of it has
offered or will offer or sell any securities, or has taken or will take any
other action (including any offering of any securities of the Company under
circumstances that would required under the Securities Act, the integration of
such offering with the offering and sale of the Company Common Stock being
acquired hereunder),that would cause the loss of such exemptions.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF PURCHASER

Purchaser represents and
warrants to the Company as follows:

SECTION
5.01.  Organization and Qualification.  Purchaser is
a corporation duly organized and validly existing under the laws of Barbados.

SECTION
5.02.  Authority Relative to this
Agreement.  Purchaser has all necessary corporate power
and authority to execute and deliver this Agreement and the other Transaction
Documents and to consummate the transactions contemplated hereby and
thereby.  The execution and delivery of
this Agreement and the other Transaction Documents by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby and thereby
have been duly and validly authorized and approved by the board of directors of
Purchaser, and no other corporate proceedings on the part of Purchaser are
necessary to authorize or approve this Agreement or the other Transaction

 

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Documents or to
consummate the transactions contemplated hereby and thereby.  This Agreement has been, and the other
Transaction Documents Agreement will, upon execution be, duly executed and
delivered by Purchaser and, assuming the due and valid authorization, execution
and delivery by the Company, constitute valid and binding obligations of
Purchaser enforceable against each of them in accordance with their terms,
except that such enforceability (i) may be limited by the Bankruptcy
Exceptions and (ii) is subject to general principles of equity.

SECTION
5.03.  No Conflict; Required Filings
and Consents.  (a)  Based on the representations
and warranties of the Company set out in Section 4.03, none of the execution
and delivery of this Agreement or the other Transaction Documents by Purchaser,
the consummation by Purchaser of the transactions contemplated hereby or
thereby or compliance by Purchaser with any of the provisions hereof or thereof
will require any Consent of any Governmental Entity or person who is not a
Governmental Entity, except for compliance with the HSR Act, if required.

SECTION 5.04.  Financing.  Purchaser
will have available funds sufficient to deliver the Initial Share Consideration
and the Purchaser’s Option at the Closing.

SECTION 5.05.  Brokers.  Except for
the engagement of Lazard Freres & Co. LLC, none of Purchaser, any of the
other its subsidiaries or any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finder’s fees in connection with he transactions
contemplated by this Agreement.

SECTION 5.06.  Restricted Securities.

(a)           The
Purchaser is an investor in securities and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Company Common Stock.

(b)           The
Purchaser is an “accredited investor” within the meaning of SEC Rule 501 of
Regulation D, as presently in effect.

(c)           The
Purchaser understands that the shares of Company Common Stock it is purchasing
are characterized as “restricted

 

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securities” under
the federal securities laws inasmuch as they are being acquired from an
“affiliate” (as defined in SEC Rule 144) of the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Company Common Stock may be resold without registration under the Act only
pursuant to an exemption from registration under the Act.  In the absence of an effective registration
statement covering the Common Stock or an available exemption from registration
under the Act, the Common Stock must be held indefinitely.  In this connection, such Investor represents
that it is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Act, including without
limitation the Rule 144 condition that current information about the Company be
available to the public.

(d)           The
Purchaser understands that the certificates evidencing the Company Common Stock
acquired pursuant to this Agreement may bear legends to the following effect,
which legends shall be removed, upon the request of the Purchaser and to the
extent permitted by applicable securities laws, upon the effectiveness of a
registration statement filed with the SEC pursuant to the Registration Rights
Agreement:

“The securities
represented hereby have not been registered under the Securities Act of 1933,
as amended or any state securities laws and neither the securities nor any
interest therein may be  offered, sold,
transferred, pledged, hypothecated or otherwise disposed of except pursuant to
an effective registration under such act or an available exemption therefrom.”

ARTICLE VI

COVENANTS

SECTION
6.01.  Access to Information.  (a)  From and after the date hereof and provided
that the Purchaser (and its subsidiaries, taken together) holds, directly or
indirectly not less than 10% of the issued and outstanding Company Common Stock
(calculated on a fully diluted basis), the Company will, and will cause the
Subsidiaries, and each of its and their respective officers, directors,
employees, counsel, advisors and representatives (collectively, the “Company
Representatives”)

 

-39-

 

to, provide
Purchaser and its officers, employees, counsel, advisors and representatives
(collectively, the “Purchaser Representatives”) reasonable access,
during normal business hours and upon reasonable notice, to the officers,
employees, offices and other facilities and to the books and records of the
Company and the Subsidiaries, as will permit Purchaser to make inspections of
such as any of them may reasonably require and will cause the Company
Representatives and the Subsidiaries to furnish Purchaser and the Purchaser
Representatives to the extent available with such other information with
respect to the business, operations and prospects of the Company and the
Subsidiaries as Purchaser may from time to time reasonably request; provided,
however, that the Company shall not be required to provide the Purchaser or the
Purchaser Representatives access to any such information if the Company
reasonably believes, upon advice of counsel, that not providing such
information to the Purchaser or the Purchaser Representatives is advisable:  (i) to preserve attorney-client privilege,
(ii) to protect proprietary information relating to DepoMed Development, Ltd.
or (iii) due to a conflict of interest between the Company and the Purchaser.  In the event of termination of this
Agreement for any reason, Purchaser will, and will cause the Purchaser
Representatives to, return to the Company or destroy all copies of written
information furnished by the Company or any of the Company Representatives to
Purchaser or the Purchaser Representatives and destroy all memoranda, notes and
other writings prepared by Purchaser or the Purchaser Representatives based
upon or including the information furnished by the Company or any of the
Company Representatives to Purchaser or the Purchaser Representatives (and Purchaser
will certify to the Company that such destruction has occurred).  Subject to Section 3.01(b) hereof, Purchaser
shall, and shall cause the Purchaser Representatives to, hold the information
provided by the Company pursuant to this Section 6.01 in confidence in
accordance with the terms of the Confidentiality Agreement.

(b)           From
the date hereof until the Closing Date, Purchaser will, and will cause its
Subsidiaries, and each of the Purchaser Representatives to, provide the Company
and any Company Representatives access to Purchaser’s publicly available
documents.

SECTION
6.02.  Reasonable Efforts.  (a)  Subject
to the terms and conditions of this Agreement, each party will use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under this
Agreement and the other

 

-40-

 

Transaction
Documents and applicable laws and regulations to consummate the transactions contemplated
hereby and thereby as soon as practicable after the date hereof, including
(i) preparing and filing as promptly as practicable all documentation to
effect all necessary applications, notices, petitions, filings and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the transactions contemplated by
this Agreement and the other Transaction Documents and (ii) taking all
reasonable steps as may be necessary to obtain all such material consents,
waivers, licenses, registrations, permits, authorizations, orders and
approvals. In furtherance and not in limitation of the foregoing, (i) each
party hereto agrees to make appropriate filings as required pursuant to the HSR
Act and any other Regulatory Law with respect to the transactions contemplated
hereby as promptly as practicable after the date hereof and to supply as
promptly as practicable any additional information and documentary material
that may be requested pursuant to the HSR Act and any other Regulatory Law and
to take all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable and (ii)
subject to the terms and conditions of this Agreement, the Company will use
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to obtain
all waivers with respect to each and every preemptive right and right of first
refusal to which the issuance of Company Common Stock pursuant to this
Agreement would, if not for such waivers, give rise.

SECTION 6.03.  Public Announcements.  (a)  So
long as this Agreement is in effect, Purchaser and the Company agree to consult
with each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by this Agreement
except as may be required in securities regulatory filings or otherwise
required by law.

(b)           So
long as this Agreement is in effect, the Company agrees to provide Purchaser
under an obligation of Confidentiality Agreement with notice and copies of any
press release or any public statement at least 24 hours prior to issuance that
involve directly or indirectly the Purchaser, unless, on the advice of counsel,
the Company has a legal obligation to issue such press release or make such
public statement prior to

 

-41-

 

the expiration of
such 24 hour period, in which case the Company agrees to provide Purchaser with
such notice and copies at the earliest practicable time.  The 24 hour period shall commence at
8:00 a.m. New York time on the next Business Day following the day notice
was received if such day was not a Business Day.  Subject to Section 3.01(b), Purchaser shall, and shall cause the
Purchaser Representatives to, hold the information provided by the Company
pursuant to this Section 6.03 in confidence in accordance with the terms of the
Confidentiality Agreement.

SECTION
6.04.  Notification of Certain
Matters.  Purchaser on the one hand and the Company on
the other shall promptly notify each other of (a) the occurrence or
non-occurrence of any fact or event which would (i) cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the Closing
Date or (ii) cause any covenant, condition or agreement hereunder not to
be complied with or satisfied in all material respects and (b) any failure
of the Company or Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder in any material respect; provided, however, that no
such notification shall affect the representations or warranties of any party
or the conditions to the obligations of any party hereunder.

SECTION
6.05.  Confidentiality of Board
Proceedings.  The Company shall use commercially
reasonable efforts to ensure that any member of, or observer to, the Company’s
Board of Directors is excluded from access to any meeting or portion thereof if
the Company reasonably believes, upon advice of counsel, that exclusion of such
member or observer is advisable:  (x)
with respect to any board member or observer designated by the Purchaser, to
protect proprietary information relating to DepoMed Development, Ltd. and (y)
with respect to any board member or observer designated by EIS or any of its
affiliates, to protect proprietary information related to the Company’s
Metformin GR product or any other project or business being pursued by the
Company and the Purchaser, Designee, or an affiliate of Purchaser.

SECTION
6.06.  Reservation of Shares Issuable
upon Exercise of Purchaser’s Option.  At all times until the expiration of the
Purchaser’s Option, the Company will reserve and keep available out of its
authorized Company Common Stock, solely for issuance upon exercise of the
Purchaser’s Option

 

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such number of shares of Company Common Stock as may
be issuable upon exercise of the Purchaser’s Option.

SECTION 6.07.  Rule 144 Reporting.  With a view
to making available to the Purchaser the benefits of Rule 144 promulgated by
the SEC under the Securities Act, the Company agrees and covenants to:

(a)           make and keep adequate current public
information with respect to the Company available, as such terms are used
within the meaning of Rule 144, at all times after the Closing;

(b)           file with the SEC in a timely manner
all reports and other documents required of the Company under the Exchange Act,
if any; and

(c)           furnish to the Purchaser promptly
upon request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as the Purchaser may reasonably request in order to
permit the Purchaser to avail itself of any rule or regulation of the SEC
allowing the Purchaser to sell its shares of Company Common Stock without an
effective registration statement.

SECTION 6.08.  Conditional Option. The Company hereby grants the Purchaser a
Conditional Option (the “Conditional Option”) to purchase additional Company
Common Stock in an amount equal to one third of the New Shares rounded up or
down, as the case may be, to the nearest whole share.  The exercise price of the Conditional Option shall be equal to
the Initial Share Consideration plus $0.125. 
All other terms of the Conditional Option with respect to, adjustments
in the exercise price and number of shares of Company Common Stock purchasable
pursuant to the Conditional Option shall be the same as set forth in the
Purchaser’s Option.  The Conditional
Option shall be exercisable for 120 days from the Closing Date.

SECTION 6.09.  Use of Proceeds.  The Company shall use the net proceeds from the issuance of the
New Shares in furtherance of its business as described in the Form 10-K,
including research and development of pharmaceutical products, protection of
intellectual property rights and compliance with obligations under the
Convertible Note.

 

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ARTICLE VII

CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS

SECTION
7.01.  Conditions to Each Party’s
Obligation to Effect the Transactions.  The respective obligations of
each party to effect the transactions contemplated in this Agreement to be
consummated at the Closing shall be subject to the satisfaction or waiver at or
prior to the Closing of each of the following conditions:

(a)           No Injunctions or Restraints;
Illegality.  No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect having the effect of making
the transactions contemplated hereby illegal or other wise prohibiting consummation
of the transactions contemplated hereby.

(b)           HSR Act.  To the extent applicable, the waiting period
(and any extension thereof) applicable to the transactions contemplated hereby
under the HSR Act shall have been terminated or shall have expired.

(c)           Approval in Authorized Share
Increase.  The Company’s
shareholders shall have approved of an increase in the number of authorized
shares of Company Common Stock by 75,000,000 shares to 100,000,000 shares at
the Company’s annual meeting of shareholders to be held on May 30, 2002, or at
any postponement or adjournment thereof.

SECTION
7.02.  Conditions to the Obligations
of Purchaser.  The obligation of Purchaser to perform its
obligations pursuant to this Agreement to be performed at or subsequent to the
Closing shall be subject to the satisfaction at or prior to the Closing of the
following additional conditions, any one or more of which may be waived by
Purchaser:

(a)           Performance.  The Company shall have performed and
complied in all material respects with all agreements, obligations and
conditions required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.

 

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(b)           Representations and Warranties.  Each of the representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) at and as of
the Closing Date as if made at and as of such time or, if made as of a
specified date other than the date hereof, as of such date.

(c)           Consents, Waivers and Approval.  The Company shall have received all
consents, approvals and waivers necessary for the consummation of the
transactions contemplated hereby, including, without limitation, all waivers
with respect to each and every preemptive right, with the exception of the
preemptive right granted to EIS as set out in that certain EIS Securities
Purchase Agreement as more particularly described in Section 11.10 of this
Agreement, and right of first refusal to which the issuance of Company Common
Stock pursuant to this Agreement would, if not for such waiver, give rise.

(d)           Officer’s Certificate.  Purchaser shall have received a certificate,
dated the Closing Date, of the chief executive officer of the Company to the
effect that the conditions specified in paragraphs (a) through (c) above have
been satisfied.

(e)           Purchaser Nominees Approval
Commitment.  The Purchaser shall
have received the written voting commitment (substantially in the form of Annex
II attached hereto) of each of the persons set forth in Annex III attached
hereto.

(f)            Registration Rights Agreement.  The Company shall have executed the
Registration Rights Agreement for the benefit of the Purchasers.

(g) Listing of
Company Common Stock. The Company shall have received approval from the
American Stock Exchange for listing of all Company Common Stock that may be
purchased by the Purchaser hereunder.

SECTION
7.03.  Conditions to the Obligations
of the Company.  The obligations of the Company under this
Agreement to effect the transactions contemplated hereby shall be subject to
the satisfaction on or before the Closing Date of each of

 

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the following
additional conditions, any one or more of which may be waived by the Company:

(a)           Performance.  Purchaser shall have performed and complied
in all material respects with all agreements, obligations and conditions
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date except for those failures to so perform or comply that,
individually or in the aggregate, would not impair the ability of Purchaser to
consummate the transactions contemplated hereby.

(b)           Representations and Warranties.  Each of the representations and warranties
of Purchaser set forth in this Agreement shall be true and correct in all
material respects (except where any statements in a representation or warranty
expressly includes a standard of materiality, such statement shall be true in
all respects giving effect to such standard) at and as of the Closing Date as
if made at and as of such time or, if made as of a specified date other than
the date hereof, as of such date.

(c)           Officer’s Certificate.  The Company shall have received a
certificate, dated the Closing Date, of an executive officer of Purchaser to
the effect that the conditions specified in paragraphs (a) and (b) above are
fulfilled.

ARTICLE VIII

TERMINATION

SECTION 8.01.  Termination.  This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned any time prior to the Closing Date:

(a)           by the written agreement of Purchaser
and the Company duly authorized by their respective boards of directors;

(b)           by either Purchaser or the Company
if, without fault of such terminating party, the Closing shall not have been
consummated on or before July 31, 2002, which date may be extended by mutual
consent of the parties hereto; or

 

-46-

 

(c)           by either Purchaser or the Company,
if any court of competent jurisdiction or other governmental body shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby, and such order, decree, ruling or other
action shall have become final and nonappealable.

SECTION
8.02.  Termination by Purchaser.  This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned by action of the board of directors of Purchaser, at any time prior
to the Closing Date, if:

(a)           the Company shall have failed to
perform in all material respects its covenants or agreements contained in this
Agreement which failure would have a Material Adverse Effect on the Company or
materially adversely affect (or materially delay) the ability of Purchaser or
the Company to consummate the transactions contemplated hereby, and the Company
has not cured such breach within ten Business Days after notice by Purchaser
thereof; or

(b)           the representations and warranties of
the Company contained in this Agreement shall not be true and correct in any
respect that is reasonably likely to have a Material Adverse Effect on the
Company (or if such representations and warranties are qualified by reference
to materiality or a Material Adverse Effect on the Company) and the Company has
not cured such breach within 10 Business Days after notice by Purchaser.

SECTION
8.03.  Termination by the Company.  This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing Date by action of the Board of
Directors of the Company, if:

(a)           Purchaser shall have failed to
perform in all material respects its covenants or agreements contained in this
Agreement which would materially adversely affect (or materially delay) the
ability of Purchaser or the Company to consummate the transactions contemplated
hereby, and Purchaser has not cured such breach within 10 Business Days after
notice by the Company thereof; or

(b)           the representations and warranties of
Purchaser contained in this Agreement shall not be true and correct in any
respect, the effect of which is that the consummation of the transactions
contemplated is reasonably likely

 

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to
have a Material Adverse Effect on the Company and Purchaser has not cured such
breach within 10 Business Days after notice by the Company.

SECTION
8.04.  Procedure for Termination.  In the event
of termination and abandonment of the transactions contemplated herein by
Purchaser or the Company pursuant to this Article VIII, written notice thereof
shall forthwith be given to the other.

SECTION
8.05.  Extension; Waiver.  At any time
prior to the Closing Date, the parties hereto may (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein by any other party or in any document, certificate or writing delivered
pursuant hereto by any other party or (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own
obligations.  Any agreement on the part
of any party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.

ARTICLE IX

CLOSING

SECTION 9.01.  Time and Place.  Subject to
the provisions of Articles VII and VIII, the closing of the transactions
contemplated hereby (the “Closing”) shall take place at the offices of
Heller Ehrman White & McAuliffe LLP, 275 Middlefield Road, Menlo Park,
California on June 3, 2002 or on such date and time to be agreed upon by the
parties, but in no event later than 9:00 A.M., local time, on the first
Business Day after the date on which each of the conditions set forth in Articles
VII and VIII have been satisfied or waived by the party or parties entitled to
the benefit of such conditions; or at such other place, at such other time, or
on such other date as Purchaser and the Company may mutually agree.  The time and date on which the Closing
actually occurs is herein referred to as the “Closing Date.”

 

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ARTICLE X

INDEMNIFICATION

SECTION 10.01  Indemnification.  In addition to all rights and remedies
available to the parties hereto at law or in equity, the Company shall
indemnify the Purchaser, its stockholders, officers, directors, employees,
agents, representatives, successors and assigns, its affiliates, and it’s
affiliates’ stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the “Indemnified
Persons”), and save and hold each Indemnified Person harmless from and
against and pay on behalf of or reimburse each such Indemnified Person, as and
when incurred, for any and all loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not
arising out of any claims by or on behalf of such Indemnified Person or any
third party, including interest, penalties, reasonable attorneys’ fees and
expenses and all amounts paid in investigation, defense or settlement of any of
the foregoing (collectively, “Losses”), that any such Indemnified Person
may suffer, sustain incur or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of: 
(i) any misrepresentation or breach of warranty on the part of the
Company under this Agreement; or (ii) any nonfulfillment, default or breach of
any covenant or agreement on the part of the Company under this Agreement or
any of the other Transaction Documents.

 

10.02  Maximum Recovery.  Notwithstanding anything in this Agreement
to the contrary, in no event shall the Company be liable for indemnification
under this Article X in an amount in excess of the purchase price of the New
Shares and the shares of Company Common Stock issued upon exercise of the
Purchaser’s Option and the Conditional Option.

 

10.03  Exception.  Notwithstanding the foregoing, upon judicial determination that
is final and no longer appealable, that the act or omission giving rise to the
indemnification set forth above resulted primarily out of or was based
primarily upon the Indemnified Person’s negligence (unless such Indemnified
Person’s negligence was based upon the Indemnified Person’s reliance in good
faith upon any of the representations, warranties, covenants or promises made
by the Company herein or in any of the other Transaction Documents) the Company
shall not be responsible for any Losses sought to be indemnified

 

 

-49-

 

in connection therewith, and
the Company shall be entitled to recover from the Indemnified Person all
amounts previously paid in full or partial satisfaction of such indemnity,
together with all costs and expenses (including reasonable attorneys fees) of
the Company reasonably incurred in connection with the Indemnified Persons
claim for indemnity, together with interest at the rate per annum publicly
announced by Citibank, N.A. as its prime rate from the time of payment of such
amounts to the Indemnified Person until repayment to the Company.

 

10.04  Investigation.  All indemnification rights hereunder shall
survive the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby to the extent provided in Section 10.06
below, irrespective of any investigation, inquiry or examination made for or on
behalf of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.

 

10.05  Contribution.  If the indemnity provided for in this
Section 10.01 shall be, in whole or in part, unavailable to any Indemnified
Person, due to Section 10.01 being declared unenforceable by a court of
competent jurisdiction based upon reasons of public policy, so that Section
10.01 shall be insufficient to hold each such Indemnified Person harmless from
Losses which would otherwise be indemnified hereunder, then the Company and the
Indemnified Person shall each contribute to the amount paid or payable for such
Loss in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Indemnified Person on
the other, but also the relative fault of the Company and be in addition to any
liability that the Company may otherwise have. 
The indemnity, contribution and expense reimbursement obligations that
the Company has under this Article X shall survive the expiration of the
Transaction Documents.  The parties
hereto further agree that the indemnification and reimbursement commitments set
forth in this Agreement shall apply whether or not the Indemnified Person is a
formal party to any such lawsuit, claims or other proceedings.

 

10.06       Limitation. 
Except as set forth in Section 10.02 above with respect to
indemnification, this Article X is not intended to limit the rights or remedies
otherwise available to any party hereto with respect to this Agreement or the
other Transaction Documents.

 

-50-

 

ARTICLE XI

MISCELLANEOUS

SECTION
11.01. Survival of Representations and Warranties.  Other than
the representations and warranties set out in Sections 4.11 and 4.13, the
representations and warranties made in this Agreement shall survive for a
period of three years beyond the Closing Date. 
The representations and warranties set out in Sections 4.11 and 4.13
shall until the expiration of the applicable statutory period.

SECTION
11.02.  Entire Agreement; Assignment.  (a)  This
Agreement (including the documents and the instruments referred to herein) and
the confidentiality agreement executed by Purchaser and the Company dated
April 5, 2001 and the confidentiality provision set forth in numbered
paragraph 8 of the letter between Purchaser and the Company dated
August 24, 2001 (together, the “Confidentiality Agreement”)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.

(b)           Neither
this Agreement nor any of the rights, interests or obligations hereunder will
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties; provided,
however, that Purchaser may assign this Agreement and any of its rights,
interests and obligations hereunder to an affiliate of such party without such
consent.  Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.

SECTION 11.03.  Validity.  The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
each of which shall remain in full force and effect.

SECTION 11.04.  Notices.  All notices,
requests, claims, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
by overnight courier or facsimile (with receipt confirmed) to the respective
parties as follows:

 

-51-

 

If to Purchaser:

 

Biovail Laboratories
Incorporated

Chelston Park, Building 2, Ground Floor, Collymore Rock, St. Michael, Barbados,
West Indies

and copies to:

 

Biovail Corporation

2488 Dunwin Drive

Mississauga, Ontario

Canada L5L 1J9

Attention:  General Counsel

Fax:  (416) 285-6499

 

Cahill Gordon & Reindel

80 Pine Street

New York, New York  10005

Attention:  Roger Andrus, Esq.

Fax:  (212) 269-5420

If to the Company:

 

Depomed, Inc.

1360 O’Brien Drive

Menlo Park, California  94025

Attention:  Chief Financial Officer

Fax:  (650) 462-9991

with a copy to:

 

Heller Ehrman White &
McAuliffe LLP

275 Middlefield Road

Menlo Park, California 94025

Attention:  Julian N. Stern, Esq.

Fax:  (650) 324-0638

or to such other address
as the person to whom notice is given may have previously furnished to the
other in writing in the manner set forth above (provided that notice of any
change of address shall be effective only upon receipt thereof).

SECTION
11.05.  Governing Law; Jurisdiction.  (a)  This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof; provided, however,
that issues

 

-52-

 

involving the
corporate governance of any of the parties hereto shall be governed by their
respective jurisdictions.

(b)           In
addition, each of the parties hereto agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated hereby in
any court other than a federal or state court sitting in New York, New York.

SECTION
11.06.  Descriptive Headings.  The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.

SECTION 11.07.  Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same
agreement.

SECTION
11.08.  Parties in Interest.  This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and, except with respect to Sections 2.02, 3.01(d), nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.

SECTION 11.09.  Remedies.  Except as
set forth below, the parties hereto agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached, and,
accordingly, it is agreed that the parties shall be entitled to an injunction
or injunctions to prevent such breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.

SECTION 11.10     EIS
Right of Participation.

 

(a)                                  The Purchaser and the Company acknowledge that Elan
International Services, Ltd. (“EIS”) may elect to purchase securities of
the Company on the same terms and subject to the same conditions as those set
forth herein in accordance with that certain Securities Purchase Agreement,
dated as of January 21, 2000, between the Company and EIS (the “EIS
Securities Purchase Agreement”).  In
the event that Elan elects to exercise its preemptive right under the EIS
Securities Purchase

 

 

-53-

 

Agreement, the Company shall
enter into a Stock Purchase Agreement with EIS on the same terms and conditions
as those set forth herein; provided that the number of shares of Company Common
Stock to be purchased by EIS shall be no greater than the number of shares of
Common Stock which EIS is entitled to purchase under the EIS Securities
Purchase Agreement and the number of shares of Company Common Stock subject to
the Purchaser’s Option and Conditional Option provided for in such agreement
shall be proportionately adjusted as more particularly described below. Any
such agreement shall provide, with respect to the restriction of access to
proprietary information, that proprietary information will include information
relating to the Company’s Metformin GR product or any other project or business
being pursued by the Company and the Purchaser, Designee, or an affiliate of
Purchaser in lieu of proprietary information relating to DepoMed Development,
Ltd.

 

(b)                                 If pursuant to the EIS Securities Purchase Agreement
EIS chooses to exercise its pre-emptive right in respect of any proposed
issuances of Company Common Stock issued to the Purchaser pursuant to the terms
of this Agreement (the “Issuance”), then the number of Company Common Stock to
be issued by the Company to the Purchaser on such Issuance shall be increased
to the number of Company Common Stock that results in the Purchaser owning the
same percentage of (i) the total number of issued and outstanding Company
Common Stock immediately subsequent to the Issuance of Company Common Stock to
the Purchaser and to EIS; as (ii) the total number of issued and outstanding
Company Common Stock calculated as if EIS had not exercised its pre-emptive
right in respect of the Issuance of Company Common Stock to the Purchaser.

 

(c)                                  If EIS chooses to exercise its pre-emptive right in
respect of the Issuance, the number of Company Common Stock to be issued by the
Company to the Purchaser will be calculated as the amount determined as Y by
the formulae in Part B-2 of Schedule 11.10, where:

 

(1)                                  B is the number of Company Common Stock owned by the
Purchaser prior to the Issuance;

 

 

-54-

 

(2)                                  B% is the percentage of the issued and outstanding
Company Common Stock that the Purchaser would own upon the Issuance (calculated
without reference to any Company Common Stock that may be issued to EIS should
it exercise its pre-emptive right);

 

(3)                                  E is the number of Company Common Stock owned by EIS
prior to the Issuance;

 

(4)                                  E% is the percentage of issued and outstanding
Company Common Stock that EIS is entitled to own upon the acquisition of
Company Common Stock on the exercise of its pre-emptive right and the Issuance;
and

 

(5)                                   T is the total number of issued and outstanding
Company Common Stock prior to the Issuance and the issuance of any Company
Common Stock to EIS on the exercise of its pre-emptive right.

 

The
number of shares to be issued to EIS on the exercise of its pre-emptive right
is the number determined as X by the formulae in Part B-2 of Schedule 11.10.

 

 

[The remainder of this page has been left
intentionally blank]

 

-55-

 

IN WITNESS WHEREOF, each of
the parties has caused this Agreement to be executed on its behalf by its
respective officer thereunto duly authorized, all as of the day and year first
above written.

	
   

  	
  BIOVAIL LABORATORIES INCORPORATED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eugene Melnyk

  
	
   

  	
   

  	
  Name:  Eugene Melnyk

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  DEPOMED, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John W. Fara

  
	
   

  	
   

  	
  Name:  John
  W. Fara

  
	
   

  	
   

  	
  Title: President

  

 

 

-56-

ANNEX
I

Form of Registration Rights Agreement

THIS
REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of May   , 2002 by and between Depomed, Inc., a California
corporation (“Depomed” or the “Company”), and Biovail
Laboratories Incorporated, a corporation organized under the laws of
Barbados (“Biovail”).

R E C I T A L S:

A.            Pursuant
to a Stock Purchase Agreement dated as of May  
, 2002 by and between Depomed and Biovail (the “Purchase Agreement”),
Biovail has agreed to acquire or cause its designee to acquire, and may acquire
in the future, certain shares of common stock, no par value, of Depomed (the “Common
Stock”).

B.            It
is a condition to the closing of the transactions contemplated by the Purchase
Agreement that the parties execute and deliver this Agreement.

C.            The
parties desire to set forth their agreement as to the terms and conditions
related to the granting of certain registration rights to the Holders (as
defined below) relating to the Common Stock held by such Holders.

A G R E E M E N T:

The parties hereto agree as follows:

1.             Certain Definitions.  As used in this Agreement, the following
terms shall have the following respective meanings:

“Commission” shall mean the U.S. Securities and
Exchange Commission.

“Exchange Act” shall mean the U.S. Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.

 

 

“Holders” shall mean Biovail, any Person as a
designee of Biovail who shall have acquired Registrable Securities and any
Person who shall have acquired Registrable Securities from Biovail or its
designee, in each case as permitted herein, in a transaction pursuant to which
registration rights are transferred pursuant to Section 10 hereof.

“Person” shall mean an individual, a
partnership, a company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental or quasi-governmental
entity, or any department, agency or political subdivision thereof.

“Prospectus” shall mean the prospectus included
in any Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective Registration Statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the prospectus, including post-effective amendments, and all
documents and materials incorporated by reference in such prospectus.

“Registrable Securities” means (i) any
shares of Common Stock acquired pursuant to the Purchase Agreement, including,
without limitation, the Purchaser’s Option and Conditional Option (each as
defined in the Purchase Agreement) contemplated thereby, and (ii) any shares of
Common Stock issued or issuable in respect of the securities referred to in clause
(i) above upon any stock split, stock dividend, recapitalization,
consolidation, merger, spin-off, split-off or similar event; excluding in all
cases, however, any Registrable Securities that (a) have been sold, exchanged
or otherwise transferred by a holder thereof pursuant to an effective
Registration Statement, (b) that are eligible to be sold, exchanged or
otherwise transferred without compliance with the registration requirements of
Rule 144 (including, without limitation, Rule 144(k)) promulgated under the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission, and (c) Registrable
Securities sold by a Person in a transaction (including a transaction pursuant
to a Registration Statement under this Agreement and a transaction pursuant to
Rule 144 promulgated under

 

-2-

 

the Securities Act) in
which registration rights are not transferred pursuant to Section 10 hereof.

The terms “register,” “registered” and “registration”
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act.

“Registration Expenses” shall mean all
expenses, other than Selling Expenses, incurred by the Company in complying
with Sections 2 or 3 hereof, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration.

“Registration Statement” shall mean any
registration statement of the Company that covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement,
including post-effective amendments, all exhibits, and all material
incorporated by reference in such registration statement.

“Securities Act” shall mean the Securities Act
of 1933, as amended.

“Selling Expenses” shall mean all underwriting
discounts, selling commissions and stock transfer taxes and the costs, fees and
expenses of any accountants, attorneys or other experts retained by the Holders
or Holder.

2.             Demand Registrations.

(a)           Requests for Registration.  In the event that at any time on or after
the date hereof the Company receives from the Holder(s) a written request that
the Company file a Registration Statement on Form S-1 or Form S-3 (or any
successor form or short form Registration Statement) for a public offering of
Registrable Securities (a “Demand Registration”), the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would be at least $3,000,000, within 5 days after
receipt of any such request the Company will give written notice of such
requested registration to all other Holders of Registrable Securities.  The Holders in aggregate will be entitled to
request two Demand Registrations hereunder. 
A

 

-3-

 

registration will not count as a Demand Registration
until it has become effective (unless such Demand Registration has not become
effective due solely to the fault of the Holders requesting such registration,
including a request by such Holders that such registration be withdrawn).  Notwithstanding anything in this Section 2
to the contrary, the rights of the Holders under this Section 2 shall be subject
to the piggyback registration rights, including rights of priority and rights
related to the selection of underwriters, of certain security holders of the
Company to pursuant to Section 3 of the Registration Rights Agreement, dated as
of January 21, 2000 between the Company and Elan International Services, Inc.,
as in effect as of the date hereof (the “EIS Registration Rights Agreement”.

(b)           Priority on Demand Registrations.  If a Demand Registration is an underwritten
offering and the managing underwriters advise the Company in writing that in
their opinion the number of Registrable Securities requested to be included in
such offering exceeds the number of Registrable Securities which can be sold in
such offering without adversely affecting the marketability of the offering,
the Company will include in such registration (x) such number of Registrable
Securities pro
rata among the selling Holders based upon the number of Registrable
Securities proposed to be sold by each such Holder and (y) then, any other
shares of Common Stock proposed to be sold by the Company or other
Persons.  No securities other than
Registrable Securities hereunder shall be included in such Demand Registration
without the prior written consent of Biovail, or, in the event that Biovail
(taken together with its subsidiaries) at such time holds less than 25% of the
Registrable Securities, Holders who collectively hold Registrable Securities
representing at least 50% of the Registrable Securities then outstanding.

(c)           Restrictions on Demand
Registration.  The Company may
postpone the filing or the effectiveness of a Registration Statement for a
Demand Registration one time for up to 90 days if the Company determines in
good faith that such Demand Registration would reasonably be expected to have a
material adverse effect on any proposal or plan by the Company to engage in any
financing, acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction or would require disclosure of any information that the board of
directors of the Company determines in good faith the disclosure of which would
be detrimental to the

 

-4-

 

Company; provided, that in such event, the
Holders initially requesting such Demand Registration will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as a permitted Demand Registration hereunder and
the Company will pay any Registration Expenses in connection with such registration.

(d)           Selection of Underwriters.  Biovail, or, in the event that Biovail
(taken together with its subsidiaries) at such time holds less than 25% of the
Registrable Securities, the Holders of a majority of the Registrable Securities
participating therein, will have the right to select the investment banker(s)
and manager(s) to administer an offering pursuant to the Demand Registration,
subject to the Company’s prior written approval, which will not be unreasonably
withheld or delayed.

(e)           Other Registration Rights.  Except as provided in this Agreement, so
long as any Holder owns any Registrable Securities, the Company will not grant
to any Persons the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into
or exercisable for such securities, which conflicts with the rights granted to
the Holders hereunder, without the prior written consent of the Holders of at
least 50% of the Registrable Securities.

3.             Piggyback Registrations.

(a)           Right to Piggyback.  If at any time the Company shall propose to
register Common Stock under the Securities Act (other than in a registration
statement on Form S-3 relating to sales of securities to participants in a
Company dividend reinvestment plan, or Form S-4 or S-8 or any successor form or
in connection with an acquisition or exchange offer or an offering of
securities solely to the existing shareholders or employees of the Company),
the Company (i) shall give prompt written notice to all Holders of its
intention to effect such a registration and, (ii) subject to Section 3(b)
and the other terms of this Agreement, will include in such registration all
Registrable Securities which are permitted under applicable securities laws to
be included in the form of Registration Statement selected by the Company and
with respect to which the Company has received written requests for inclusion
therein within 15 days after the receipt of the Company’s notice (each, a “Piggyback
Registration”).  A Holder will be
permitted to withdraw all or any part of the

 

-5-

 

Registrable Securities requested by such Holder to be
included therein from a Piggyback Registration at any time prior to the
effective date of such Piggyback Registration. 
Notwithstanding anything in this Section 3 to the contrary, the rights
of the Holders under this Section 3 shall be subject to the rights, including
rights of priority and rights related to the selection of underwriters, of
certain security holders of the Company to cause the Company to effect a demand
registration pursuant to Section 2 of the EIS Registration Rights Agreement, as
in effect as of the date hereof.

(b)           Priority on Piggyback
Registrations.  If a Piggyback
Registration is to be an underwritten offering, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Company shall include in such Piggyback Registration, only as may
be permitted in the reasonable business judgment of the managing underwriters
for such Piggyback Registration:

(i)            first,
up to that number of securities that the Company proposes to sell for its own
account, if any;

(ii)           second,
up to that number of Registrable Securities requested to be included in such
registration by the Holders and that number of securities requested to be
included in such registration by any other Person with registration rights
applicable to such Piggyback Registration under agreements existing as of the
date hereof, pro rata among the Holders of such Registrable Securities
and such other Persons, on the basis of the number of shares owned; and

(iii)          third,
up to that number of other securities requested to be included in such
registration.

The Holders of any Registrable Securities included in
such an underwritten offering must execute an underwriting agreement, in
customary form and in form and substance satisfactory to the managing
underwriters.

(c)           Right to Terminate Registration.  If, at any time after giving written notice
of its intention to register any of its securities as set forth in Section 3(a)
and prior to the effective date of the Registration Statement filed in
connection

 

-6-

 

with such registration, the Company shall determine
for any reason not to register such securities, the Company may, at its
election, give written notice of such determination to each Holder and
thereupon be relieved of its obligation to register any Registrable Securities
in connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith as provided herein).

(d)           Selection of Underwriters.  The Company will have the right to select
the investment banker(s) and manager(s) to administer an offering pursuant to a
Piggyback Registration, subject to the approval of Biovail, or, in the event
that Biovail (taken together with its subsidiaries) at such time holds less
than 25% of the Registrable Securities, the Holders of a majority of the
Registrable Securities, which approval will not be unreasonably withheld or
delayed.

4.             Expenses of Registration.  Except as otherwise provided herein or as
may otherwise be prohibited by applicable law, all Registration Expenses
incurred in connection with all registrations pursuant to Sections 2 and 3
shall be borne by the Company.  All
Selling Expenses relating to securities registered on behalf of the Holders
shall be borne by such Holders.

5.             Standstill Agreements.

(a)           The Company agrees (i) not to effect
any public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and during the 90-day period beginning on the effective
date of any underwritten Demand Registration or any underwritten Piggyback
Registration (except (x) as part of such underwritten registration, (y)
pursuant to registration statements on Form S-4 or Form S-8 or any successor
form or (z) as required under any existing contractual obligation of the
Company), unless the underwriters managing the registered public offering
otherwise agree, and (ii) to use its reasonable efforts to cause each officer
and director of the Company and each holder of at least 5% (calculated on a
fully-diluted basis) of its outstanding shares of Common Stock, or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock, to agree not to effect any sale or distribution (including sales
pursuant to Rule 144) of any such securities during such periods (except as
part of such underwritten registration, if otherwise

 

-7-

 

permitted), unless the underwriters managing the
registered public offering otherwise agree.

(b)           Each Holder agrees, in the event of a
public offering by the Company of Common Stock under a registration statement
on Form S-1, S-3 or S-4, not to effect any offer, sale, distribution or
transfer of Registrable Securities, including a sale pursuant to Rule 144 (or
any similar provision then effect) under the Securities Act (except as part of
such underwritten registration), beginning on the date of receipt of a written
notice from the Company notifying the Holders of the initial filing of such
registration statement with the Commission and ending on the earlier of (i) 180
days from the date of receipt of such written notice or (ii) 90 days from the
effective date of such registration statement; provided, that the
Company and each of its officers and directors and each holder of not less than
5% (calculated on a fully diluted basis) of the Company’s outstanding Common
Stock is subject to the same restrictions.

6.             Registration Procedures.  Whenever the Holders have requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its reasonable efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will as expeditiously as
possible:

(a)           subject to Section 2(c) and 3(a)
hereof, prepare and file with the Commission a Registration Statement on any
appropriate form for which the Company qualifies with respect to such
Registrable Securities and use its reasonable efforts to cause such
Registration Statement to become effective (provided that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company will (i) furnish to the counsel selected by the Holders copies of
all such documents proposed to be filed, which documents will be subject to the
review of such counsel, and (ii) notify each Holder covered by such
registration of any stop order issued or threatened by the Commission against
any registration statement of the Company);

(b)           subject to Section 2(c), 3(b) and
6(e) hereof, prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be reasonably necessary

 

-8-

 

to keep such Registration Statement effective for a
period equal to the shorter of (i) 180 days and (ii) the time by which all
securities covered by such Registration Statement have been sold, and comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement;

(c)           furnish to each seller of Registrable
Securities such number of copies of such Registration Statement, each amendment
and supplement thereto, the Prospectus included in such Registration Statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;

(d)           use its reasonable efforts to
register or qualify such Registrable Securities under the securities or blue
sky laws of such jurisdictions as any seller reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that nothing contained in
this provision shall require the Company to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 6(d), (ii) subject itself to taxation in any
jurisdiction, or (iii) take any action that would subject it to general service
of process in any such jurisdiction);

(e)           notify each seller of such
Registrable Securities, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the Prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were
made, and, at the request of any such seller, the Company will prepare a
supplement or amendment to such Prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such Prospectus will not contain
an untrue statement of a material fact or

 

-9-

 

omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company shall not be required to amend the Registration
Statement or supplement the Prospectus for a period of up to sixty days if the
board of directors of the Company determines in good faith that to do so would
reasonably be expected to have a material adverse effect on any proposal or
plan by the Company to engage in any financing, acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or similar transaction or would require the
disclosure of any information that the board of directors of the Company
determines in good faith the disclosure of which would be detrimental to the
Company, it being understood that the period for which the Company is obligated
to keep the Registration Statement effective shall be extended for a number of
days equal to the number of days the Company delays amendments or supplements
pursuant to this provision.  Upon
receipt of any notice pursuant to this Section 6(e), the Holders shall suspend
all offers and sales of securities of the Company and all use of any Prospectus
until advised by the Company that offers and sales may resume, and shall keep
confidential the fact and content of any notice given by the Company pursuant
to this Section 6(e);

(f)            cause all such Registrable
Securities to be listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed;

(g)           provide a transfer agent and
registrar for all such Registrable Securities not later than the effective date
of such Registration Statement;

(h)           enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the Holders of a majority of the Registrable Securities being sold
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;

(i)            make available for inspection by a
representative of the Holders of Registrable Securities included in the
Registration Statement, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
agent retained by any such

 

-10-

 

seller or underwriter, all pertinent financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company’s officers, directors, employees and independent accountants
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such Registration Statement;

(j)            otherwise use its reasonable efforts
to comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months beginning with the
first day of the Company’s first full calendar quarter after the effective date
of the Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(k)           in the event of the issuance or
threat of any stop order suspending the effectiveness of a Registration
Statement, or of any order suspending or preventing the use of any related
Prospectus or suspending the qualification of any shares Common Stock included
in such Registration Statement for sale in any jurisdiction, notify the Holders
in writing of such issuance or threat;

(l)            in the event of the issuance of any
stop order suspending the effectiveness of a Registration Statement, or of any
order suspending or preventing the use of any related Prospectus or suspending
the qualification of any shares Common Stock included in such Registration
Statement for sale in any jurisdiction, use its reasonable efforts to promptly
obtain the withdrawal of such order; and

(m)          if the registration is an underwritten
offering, use all reasonable efforts to obtain a so-called “cold comfort”
letter from the Company’s independent public accountants in customary form and
covering such matters of the type customarily covered by cold comfort letters.

7.             Obligations of Holders.  Whenever the Holders sell any Registrable
Securities pursuant to a Demand Registration or a Piggyback Registration, such
Holders shall be obligated to comply with the applicable provisions of the
Securities Act, including

 

-11-

 

the prospectus delivery requirements thereunder, and
any applicable state securities or blue sky laws.

8.             Indemnification.

(a)           In connection with any Registration
Statement for a Demand Registration or Piggyback Registration in which a Holder
is participating, the Company agrees to indemnify, to the fullest extent
permitted by applicable law, each Holder, its officers and directors and each
Person who controls such Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities, expenses or any amounts paid
in settlement of any litigation, investigation or proceeding commenced or
threatened (collectively, “Claims”) to which each such indemnified party
may become subject under the Securities Act insofar as such Claim arose out of
(i) any untrue or alleged untrue statement of material fact contained, on the
effective date thereof, in any Registration Statement, Prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or (ii)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to the Company by such Holder expressly for use therein by
such Holder’s failure to deliver a copy of the Registration Statement or
Prospectus or any amendments or supplements thereto after the Company has
furnished such Holder with a sufficient number of copies of the same or by such
Holder’s failure to comply with applicable securities laws.  In connection with an underwritten offering,
the Company will indemnify the underwriters, their officers and directors and
each Person who controls the underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification
of the Holders.

(b)           In connection with any Registration
Statements in which a Holder is participating, each such Holder will, furnish
to the Company in writing such customary information as the Company reasonably
requests for use in connection with any such Registration Statement or
Prospectus (the “Seller’s
Information”) and, to the fullest extent permitted by applicable
law, indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any and
all Claims to which each such indemnified party may become subject under the
Securities Act insofar as such Claim

 

-12-

 

arose out of (i) any untrue or alleged untrue
statement of material fact contained, on the effective date thereof, in any
Registration Statement, Prospectus or preliminary prospectus or any amendment
thereof or supplement thereto (ii) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements regarding Seller’s Information 
therein not misleading or (iii) any failure on the part of the Holder to
comply with applicable securities laws other than a failure arising out of a
material misstatement or omission in the Prospectus other than Seller’s
Information; provided that with respect to a Claim arising pursuant to
clause (i) or (ii) above, the material misstatement or omission is contained in
such Seller’s Information; provided, further, that the obligation
to indemnify will be individual to each such Holder and will be limited to the
amount of proceeds received by such Holder from the sale of Registrable
Securities pursuant to such Registration Statement.

(c)           Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(but the failure to provide such notice shall not release the indemnifying
party of its obligation under paragraphs (a) and (b) unless, and then only to
the extent that, the indemnifying party has been prejudiced by such failure to
provide such notice) and (ii) unless, in such indemnified party’s reasonable
judgment, based on written advice of counsel, a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party.  An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim in any one jurisdiction, unless
in the reasonable judgment of any indemnified party, based on written advice of
counsel, a conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such claim.

(d)           The indemnifying party shall not be
liable to indemnify an indemnified party for any settlement, or consent to
judgment of any such action effected without the indemnifying party’s written
consent (but such consent will not be unreasonably

 

-13-

 

withheld, delayed or conditioned).  Furthermore, the indemnifying party shall
not, except with the prior written approval of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to each
indemnified party of a release from all liability in respect of such claim or
litigation without any payment or consideration provided by each such
indemnified party.

(e)           If the indemnification provided for
in this Section 8 is unavailable to an indemnified party under clauses (a) and
(b) above in respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities in such proportion
as is appropriate to reflect not only the relative benefits received by the
Company, the underwriters, the sellers of Registrable Securities and any other
sellers participating in the Registration Statement from the sale of shares
pursuant to the registered offering of securities for which indemnity is sought
but also the relative fault of the Company, the underwriters, the sellers of
Registrable Securities and any other sellers participating in the Registration
Statement in connection with the statement or omission which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations.  The relative benefits
received by the Company (if any), the underwriters, the sellers of Registrable
Securities and any other sellers participating in the Registration Statement
shall be deemed to be based on the relative relationship of the total net
proceeds from the offering (before deducting expenses) to the Company, the
total underwriting commissions and fees from the offering (before deducting
expenses) to the underwriters and the total net proceeds from the offering
(before deducting expenses) to the sellers of Registrable Securities and any
other sellers participating in the Registration Statement.  The relative fault of the Company, the
underwriters, the sellers of Registrable Securities and any other sellers
participating in the Registration Statement shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the sellers of Registrable
Securities and the parties’ relative

 

-14-

 

intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

(f)            The indemnification provided for
under this Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling person of such indemnified party and will survive the transfer of
the Registrable Securities.

9.             Participation in Underwritten
Registrations.  No Holder may
participate in any registration hereunder which is underwritten unless such
Holder (a) agrees to sell such Holder’s securities on the basis provided in any
underwriting arrangements approved by the Holder or Holders entitled hereunder
to approve such arrangements, (b) as expeditiously as possible notifies the
Company of the occurrence of any event as to it as a result of which any
prospectus contains an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (c) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.

10.           Transfer of Registration Rights.  The rights granted to any Holder under this
Agreement may be assigned to any transferee of Registrable Securities in
connection with any transfer or assignment of Registrable Securities by a
Holder; provided, however, that: 
(a) such transfer is otherwise effected in accordance with applicable
securities laws, (b) if not already a party hereto, the assignee or
transferee agrees in writing prior to such transfer to be bound by the
provisions of this Agreement applicable to the transferor, and (c) Biovail
shall act as agent and representative for such Holder for the giving and
receiving of notices hereunder.

11.           Information by Holder.  Each Holder shall furnish to the Company
such written information regarding such Holder and any distribution proposed by
such Holder as the Company may reasonably request in writing in connection with
any registration, qualification or compliance referred to in this Agreement and
shall promptly notify the Company of any changes in such information.

 

-15-

12.           Exchange Act Compliance.  The Company shall comply with all of the
reporting requirements of the Exchange Act then applicable to it and shall
comply with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Registrable Securities.  The Company
shall cooperate with each Holder in supplying such information as may be
necessary for such Holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of Rule 144.

13.           Termination of Registration Rights.  All registration rights granted under this
Agreement shall terminate and be of no further force and effect, as to any
particular Holder, at such time as all Registrable Securities held by such
Holder are eligible to be sold without compliance with the registration
requirements of the Securities Act pursuant to Rule 144 (including Rule 144(k))
promulgated thereunder or have been resold pursuant to a Registration Statement
hereunder.

14.           Miscellaneous.

(a)           No Inconsistent Agreements.  The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Holders in this Agreement without the prior
written consent of a majority in interest of such Registrable Securities.

(b)           Remedies.  Any Person having rights under any provision
of this Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.  The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.

(c)           Amendments and Waivers.  Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only with the prior
written consent of the Company and Holders of at least 50% of the Registrable Securities
and, if at such time Biovail (taken together with its subsidiaries) holds at

 

-16-

 

least 25% of the original Registrable Securities,
Biovail; provided, that without the prior written consent of all the
Holders, no such amendment or waiver shall reduce the foregoing percentage
required to amend or waive any provision of this Agreement.

(d)           Successors and Assigns.  This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns. 
This Agreement may be transferred by Biovail to any of its
affiliates.  In addition, whether or not
any express assignment has been made, the provisions of this Agreement which
are for the benefit of Holders are also for the benefit of, and enforceable by,
any permitted transferee of Securities or Registrable Securities, in accordance
with Section 10 hereof.

(e)           Severability.  Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be in any way affected or impaired thereby.

(f)            Counterparts and Facsimile.  This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute one
agreement.  This Agreement may be signed
and delivered to the other party by facsimile transmission; such transmission
shall be deemed a valid signature.

(g)           Descriptive Headings.  The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.

(h)           Governing Law; Disputes.  All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
without giving effect to principles of conflicts of laws.  Any dispute under this Agreement that is not
settled by mutual consent shall be finally adjudicated by any federal or state
court sitting in the City, County and State of New York, and each party
consents to the exclusive jurisdiction of such courts (or any appellate court
therefrom) over any such dispute.

 

-17-

 

(i)            Notices.  All notices, demands and requests of any
kind to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally or hand
delivered or if sent by internationally-recognized overnight courier or by
registered or certified airmail, return receipt requested and postage prepaid,
or by facsimile transmission, addressed as follows:

if to Depomed, to:

Depomed, Inc.

1360 O’Brien Drive

Menlo Park, California  94025

Attention:  Chief Financial Officer

Fax:  (650) 462-9991

with a copy to:

 

Heller Ehrman
White & McAuliffe LLP

275 Middlefield Road

Menlo Park, California 94025

Attention:  Julian N. Stern, Esq.

Fax:  (650) 324-0638

if to Biovail, to:

Biovail Laboratories
Incorporated

[Address]

and copies to:

Biovail Corporation

2488 Dunwin Drive

Missisaugua, Ontario

Canada L5L 1J9

Attention:  Brian Crombie

Fax:  (416) 285-6499

 

Cahill Gordon &
Reindel

80 Pine Street

New York, New York  10005

Attention:  Roger Andrus, Esq.

Fax:  (212) 269-5420

 

-18-

 

or to such other address as the party to whom notice
is to be given may have furnished to the other party hereto in writing in
accordance with provisions of this Section 14(i).  Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery courier, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted and (iv) in the case of
facsimile transmission, on the date of telephone confirmation of receipt.

(j)            Entire Agreement.  This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof and supersedes all prior agreements and understandings
among the parties with respect thereto.

[Signature page follows]

 

-19-

 

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

	
   

  	
  DEPOMED, INC.

  
	
   

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  BIOVAIL LABORATORIES
  INCORPORATED

  
	
   

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

ANNEX II

Form of Nominee Voting Commitment Letter

Reference is hereby made
to the Stock Purchase Agreement, dated May [ 
], 2002  (the “Stock Purchase
Agreement”), by and between Depomed, Inc., a California corporation (the
“Company”), and Biovail Laboratories Incorporated, a corporation organized
under the laws of Barbados (“Purchaser”). 
This letter shall be effective as of the Closing (as defined in the
Stock Purchase Agreement).

                In consideration of the Purchaser’s agreement to
enter into the Stock Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
undersigned hereby commits to vote or cause to be voted all shares of Company
Voting Stock owned or beneficially owned by the undersigned in favor of the
election of the Purchaser Nominees (as defined in the Stock Purchase
Agreement), if any, designated by the Purchaser in accordance with Section 3.02
of the Stock Purchase Agreement as in effect on the date hereof, to the Board
of Directors of the Company at each election of the Board of Directors of the
Company with respect to which the Purchaser is entitled to designate Purchaser
Nominees.

                For purposes of this letter, “Company Voting Stock”
means any and all shares, interests, participations or other equivalents
(however designated) of corporate stock of the Company entitling the holders
thereof to vote in an election of the Board of Directors of the Company.

	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name
  of Shareholder:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title
  of Signatory if

  	
   

  	
   

  
	
  Shareholder
  is an entity:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
						

 

 

ANNEX III

 

Committed Voters

1.                                       Orbimed
Advisors LLC

2.                                       Easton Hunt
Capital Partners

3.                                       John W. Shell,
Ph.D.

4.                                       John N. Shell<Page>

                                                                    EXHIBIT 4.1

NUMBER                                                                   SHARES

INCORPORATED UNDER THE LAWS                            OF THE STATE OF DELAWARE

                                  COLLEGIS, INC.

THIS CERTIFIES THAT _______________________________________ IS THE OWNER OF
__________________________________________________ FULL PAID AND NON-ASSESSABLE

TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE
CORPORATION,

THIS ________________________ DAY, OF _________________A.D._____

_________________________________                 _____________________________
                        SECRETARY                                     PRESIDENT
<Page>

            FOR VALUE RECEIVED,____HEREBY SELL, ASSIGN AND TRANSFER
            UNTO ___________________________________________________
            __________________________________________________SHARES
            REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
            IRREVOCABLY CONSTITUTE AND APPOINT
            ________________________________________________ATTORNEY
            TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN
            NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN
            THE PREMISES.
                DATED_____________________
                     IN PRESENCE OF

            ______________________________    _____________________

                   NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
              MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
             FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
              ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.

                             THIS SPACE IS NOT TO BE
                               COVERED IN ANY WAY
<Page>

-------------------------------------------------------------------------------

<Table>
<Caption>

                              (RESERVE THIS SPACE TO PASTE BACK CANCELLED STOCK CERTIFICATE)

-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                         <C>         <C>        <C>            <C>
                                                                IF NOT AN ORIGINAL ISSUE SHOW DETAILS OF TRANSFER BELOW
                                                   --------------------------------------------------------------------------------
                                                                               ORIGINAL CERTIFICATE   NO. OF ORIGL.  NO. OF SHRS.
CERTIFICATE NO. __________FOR_______________SHARES   TRANSFERRED FROM             NO.      DATE          SHARES         TRANSF'D
                                                                               --------------------   -------------  --------------

            ______________________________________   ______________________________________________________________________________

                     DATED________________________   ______________________________________________________________________________

ISSUED TO ________________________________________   ______________________________________________________________________________

          ________________________________________   ______________________________________________________________________________

          ________________________________________   ______________________________________________________________________________
                                                             IF THIS CERTIFICATE IS SURRENDERED FOR TRANSFER SHOW DETAILS
          ________________________________________   ______________________________________________________________________________
                                                                                      NO. OF NEW             NO. OF SHARES
                                                       NEW CERTIFICATE ISSUED TO     CERTIFICATE              TRANSFERRED
                                                                                   ----------------   -----------------------------

DATE CERTIFICATE RECEIVED ________________________   ______________________________________________________________________________

         _________________________________________   ______________________________________________________________________________

DATE CERTIFICATE SURRENDERED _____________________   ______________________________________________________________________________

         _________________________________________   ______________________________________________________________________________

         _________________________________________   ______________________________________________________________________________
</Table>

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