Document:

Exhibit
10.5

 

OPTION
AND PUT AGREEMENT

 

This OPTION AND PUT AGREEMENT (this “Agreement”),
dated as of April 3, 2008, is by and among VIVUS, Inc., a Delaware
corporation (the “Company”), Deerfield ED Corporation, a Delaware
corporation (“ED”), and the entities listed on Exhibit 1
hereto (each a “Stockholder” and together the “Stockholders”).

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, the Stockholders own all of the issued and
outstanding capital stock of ED;

 

WHEREAS, concurrently with the execution of this
Agreement, the Company and ED are entering into a Funding and Royalty Agreement
(the “Funding and Royalty Agreement”) pursuant to which ED has agreed to
provide the Company with funding for the development of certain products and
the Company has granted ED the right to receive a Royalty with respect to sales
of MUSE and Avanafil; and

 

WHEREAS, the Stockholders have agreed to grant the
Company an option to purchase from the Stockholders all of the outstanding
shares of common stock of ED on the terms and conditions set forth herein, and
the Company has agreed to grant to the Stockholders an option to require the
Company to purchase from the Stockholders all of the outstanding shares of
common stock of ED on the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of mutual agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

 

ARTICLE I

DEFINITIONS

 

1.1                                 Definitions.

 

“Avanafil” has the meaning set forth in the
Funding and Royalty Agreement.

 

“Arrangement Fee” shall have the meaning set
forth in Section 4.8.

 

“Base Option Price” means $25,000,000 if the
Option Closing Date occurs on or prior to the third anniversary of the date
hereof and $28,000,000 if the Option Closing Date occurs subsequent to the
third anniversary of the date hereof.

 

“Base Put Price” means (x) $23,000,000 in
the case of a Put Closing that occurs on or prior to the third anniversary of
the date hereof pursuant to a Major Transaction Notice, (y) $26,000,000 in
the case of a Put Closing that occurs subsequent to the third anniversary of
the date hereof pursuant to a Major Transaction Notice and (z) $17,000,000
in all other cases.

 

 

“Business Day” means a day other than a
Saturday, Sunday or day on which banks in the City of New York are authorized
or required to be closed.

 

“Cash” and “Cash Equivalents” means (a) unrestricted
funds in bank accounts; (b) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (c) certificates
of deposit, time deposits, eurodollar time deposits or overnight bank deposits;
(d) securities with maturities of one year or less issued or fully
guaranteed by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by Standard &
Poor’s Rating Service (“S&P”) or A by Moody’s Investors Service, Inc.
(“Moody’s”); (e) money market mutual or similar funds that invest
exclusively in assets satisfying the requirements of clauses (a) through (d) of
this definition; (f) money market funds that (i) comply with the
criteria set forth in SEC Rule 2a-7 under the Investment Company Act of
1940, as amended, and (ii) are rated AAA by S&P and Aaa by Moody’s or (g) available
for sale securities which are rated AAA by S&P and Aaa by Moody’s.

 

“Cash Adjustment” means the amount of Cash and
Cash Equivalents held by ED as of the Option Closing Date or the Put Closing
Date, as the case may be.

 

“Cash and Cash Equivalent Notice” has the
meaning set forth in Section 3.3(b).

 

“Closing” shall have the meaning set forth in Section 8.2.

 

“Company Documents” has the meaning set forth
in Section 6.2.

 

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

 

“Contract” means any note, bond, mortgage,
indenture, contract, agreement, guaranty, lien, pledge, lease, purchase order,
sales order, arrangement or other commitment, obligation or understanding,
written or oral, to which a Person is a party or by which a Person or its
assets or properties are bound.

 

“Damages” means any loss, liability, claim,
damage or expense (including reasonable attorneys’ fees).

 

“Encumbrance” means any security interest,
mortgage, lien, pledge, charging order, warrant, option, conversion right,
purchase right or other encumbrance of any sort.

 

“Funding Adjustment” means the amount of any
Funding Payments that have not been made under the Funding and Royalty
Agreement.

 

“Funding and Royalty Agreement” has the meaning
set forth in the Recitals to this Agreement.

 

“Funding Payment” has the meaning set forth in
the Funding and Royalty Agreement.

 

 

“GAAP” means generally accepted accounting
principles as recognized by the American Institute of Certified Public
Accountants.

 

“Governmental Authority” means any nation or
government, any state or other political subdivision thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

 

“Governmental Authorization” means any
approval, consent, license, permit, waiver or other authorization issued,
granted or given by or under the authority of any Governmental Authority.

 

“Indemnified Party” has the meaning set forth
in Section 9.4(a).

 

“Indemnifying Party” has the meaning set forth
in Section 9.4(a).

 

“Law” means any foreign, federal, national,
supranational, state, provincial, local or similar statute, law, ordinance,
regulation, rule, code, Order, requirement or rule of law (including
common law), as amended and in effect from time to time.

 

“Legal Requirement” means any federal, state,
local or foreign statute, law, treaty, rule, regulation, Order, decree, writ,
injunction or determination of any arbitrator, court or Governmental Authority
and, with respect to any Person, includes all such Legal Requirements
applicable or binding upon such Person, its business or the ownership or use of
any of its assets.

 

“Liabilities” means any and all debts,
liabilities and obligations of any sort, whether accrued or fixed, absolute or
contingent, matured or unmatured, determined or determinable, including those
arising under any Legal Requirement or Contract or otherwise.

 

“Major Transaction” means (A) a
consolidation, merger, exchange of shares, recapitalization, reorganization,
business combination or similar event (1) following which the holders of
common stock of the Company immediately preceding a consolidation, merger,
exchange of shares, recapitalization, reorganization, business combination or
similar event either (a) no longer hold a majority of the shares of the
common stock of the Company or (b) no longer have the ability to elect a
majority of the board of directors of the Company or (2) as a result of
which shares of common stock of the Company are changed into (or the shares of
common stock become entitled to receive) the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity (collectively, a “Change in Control Transaction”),
(B) a sale or transfer of assets of the Company in one transaction or a
series of related transactions where the consideration to be payable at and
within thirty (30) days of closing of such transaction or transactions has a
value of more than $350,000,000, or a sale, transfer or license of all or
substantially all assets or proprietary rights of the Company that relate
specifically to MUSE or Avanafil, or (C) a purchase, tender or exchange
offer made to the holders of outstanding shares of the Company’s common stock,
such that following such purchase, tender or exchange offer a Change in Control
Transaction shall have occurred; or (D) an issuance or series of issuances
by the Company in related transactions of an aggregate number of shares of
common stock in excess of 20% of the Company’s outstanding common stock on the 

 

 

date hereof if, immediately prior to such issuance or
series of issuances, the Market Capitalization of the Company is less than
$300,000,000.

 

“Major Transaction Notice” has the meaning set
forth in Section 3.3.

 

“Market Capitalization of the Company” means
the aggregate of the value of all of the Company’s outstanding shares of common
stock based on the volume weighted average price of such shares on the NASDAQ
Global Market as reported by Bloomberg Financial Markets or an equivalent
reliable reporting source (“Bloomberg”) or if NASDAQ is not the principal
trading market for such shares, the volume weighted average price of such
shares on the principal securities exchange or the trading market whose such
shares are listed or traded as reported by Bloomberg.

 

“MUSE” has the meaning set forth in the Funding
and Royalty Agreement.

 

“Net Sales” shall have the meaning ascribed to
that term in the Funding and Royalty Agreement.

 

“Option” has the meaning set forth in Section 2.1.

 

“Option Closing” has the meaning set forth in Section 2.5.

 

“Option Closing Date” has the meaning set forth
in Section 2.4.

 

“Option Period” has the meaning set forth in Section 2.4.

 

“Option Premium” has the meaning set forth in Section 2.2.

 

“Option Purchase Price” has the meaning set
forth in Section 2.3.

 

“Order” means any binding order, judgment,
ruling, subpoena or verdict rendered by any Governmental Authority or by any
arbitrator.

 

“Party” means the Company, ED and the
Stockholders, and “Parties” means all such Persons.

 

“Permitted Encumbrances” means (i) all
Encumbrances approved in writing by the Company; (ii) mechanics’,
materialmen’s, carriers’, workmen’s, warehousemen’s, repairmen’s and landlords’
liens or other like Encumbrances arising or incurred in the ordinary course of
business for amounts which are not material and not yet due and payable; (iii) Encumbrances
for Taxes and other governmental charges that are not due and payable or
delinquent or which are being contested in good faith through appropriate
Proceedings and (iv) Encumbrances arising under Contracts with third
parties entered into in the ordinary course of business in respect of amounts
still owing.

 

“Person” means any corporation, association,
joint venture, partnership, limited liability company, organization, business,
individual, trust, Governmental Authority or other legal entity.

 

 

“Proceeding” means any action, arbitration,
audit, hearing, investigation, litigation or suit (whether civil, criminal or
administrative) commenced, conducted, or heard by or before any Governmental
Authority or arbitrator.

 

“Put Closing” has the meaning set forth in Section 3.6.

 

“Put Closing Date” means the date on which the
Shares are sold to the Company pursuant to the Put Right.

 

“Put Exercise Notice” has the meaning set forth
in Section 3.5.

 

“Put Period” has the meaning set forth in Section 3.2.

 

“Put Purchase Price” has the meaning set forth
in Section 3.4.

 

“Put Right” has the meaning set forth in Section 3.1.

 

“Royalty” has the meaning set forth in the
Funding and Royalty Agreement.

 

“Royalty Adjustment” means the amount of
accrued and unpaid Royalties for all periods of time ending on the Option
Closing Date or the Put Closing Date, as the case may be.  For purposes of determining the amount of
Royalties payable with respect to the quarterly period during which an Option
Closing or Put Closing occurs, it shall be assumed that Net Sales of MUSE were
made at the same rate as Net Sales in the comparable period of the prior year
and that Net Sales of PDE-5I were made at the same rate as Net Sales in the
immediately preceding quarter.

 

“Royalty Default Notice” shall have the meaning
set forth in Section 3.2.

 

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

 

“Security Agreement” has the meaning set forth
in Section 3.1A.

 

“Shares” shall have the meaning set forth in Section 4.2.

 

“Stockholder Documents” has the meaning set
forth in Section 5.2.

 

“Stockholders” has the meaning set forth in the
first paragraph of the Agreement.

 

“Straddle Period” means any Taxable Period that
begins on or before, and ends after, the Option Closing Date or the Put Closing
Date, as applicable.

 

“Subscription Agreements” has the meaning set
forth in Section 4.2.

 

“Tax Adjustment” means the amount of accrued
Taxes of ED for all periods up to the Option Closing or the Put Closing, as the
case may be, to the extent such Taxes have not been paid by ED as of the
applicable Closing.

 

 

“Taxable Period” shall mean any taxable year or
any other period that is treated as a taxable year (or other period, or portion
thereof, in the case of a Tax imposed with respect to such other period; e.g.,
a quarter) with respect to which any Tax may be imposed under any applicable
statute, rule, or regulation.

 

“Taxes” means any and all U.S. federal, state
and local taxes, assessments and other governmental charges, duties,
impositions, levies and liabilities, including, without limitation, taxes based
upon or measured by gross receipts, income profits, sales, use and occupation,
and value added, goods and services, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment, insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with any interest, penalties and
additions imposed with respect to such amounts. 
For purposes of this Agreement, “Taxes” also includes any obligations
under any agreements or arrangements with any Person with respect to the
liability for, or sharing of, Taxes.

 

“Tax Return” means any return, statement, declaration,
report, estimate, notice, form, schedule or other document (including estimated
Tax returns and reports, withholding Tax returns and reports, any schedule or
attachment, information returns and reports and any amendment to any of the
foregoing) relating to Taxes.

 

ARTICLE II

OPTION

 

2.1                                 Option.  On the terms and subject to the conditions of
this Agreement, the Stockholders hereby grant the Company an option (the “Option”)
which, when exercised, shall obligate each of the Stockholders to sell the
Shares to the Company, and the Company to purchase the Shares from each of the
Stockholders.

 

2.2                                 Option
Premium.  In consideration of the
grant by the Stockholders to the Company of the Option, the Company shall
simultaneously with the payment of the first Funding Payment under the Funding
and Royalty Agreement pay to the Stockholders Two Million Dollars ($2,000,000)
(the “Option Premium”) by wire transfer of immediately available funds
to the account listed in Exhibit 2 hereto.  Such amount shall be allocated between the
Stockholders as provided in Exhibit 2 hereto.  If the Option is exercised by the Company,
upon closing of the sale of the Shares the Option Premium shall be applied
against the Option Purchase Price in accordance with Section 2.3
below.  In all other circumstances,
including but not limited to the sale of the Shares pursuant to the Put Right,
the Stockholders shall be entitled to retain the Option Premium.

 

2.3                                 Option
Purchase Price.  If the Company
exercises the Option, the aggregate consideration to be paid by the Company
(the “Option Purchase Price”) to the Stockholders for the Shares shall
be equal to the sum of the Base Option Price plus the Cash Adjustment plus the
Royalty Adjustment, and minus the Option Premium, the Tax Adjustment, the
Funding Adjustment and any other outstanding liabilities of ED.  The Stockholders shall provide written notice
of the amount of the Cash Adjustment, the Tax Adjustment and any other
outstanding 

 

 

liabilities of ED, and the Company shall provide written
notice of the amount of the Royalty Adjustment, no later than five (5) Business
Days prior to the Option Closing Date. 
At the Option Closing, the Company shall pay the Option Purchase Price
to the Stockholders by wire transfer of immediately available funds to an
account or accounts designated in writing by the Stockholders.  The Option Purchase Price shall be allocated
between the Stockholders pro rata in accordance with the percentage of the
Shares held by the Stockholders.

 

2.4                                 Term
and Method of Exercise of Option. 
The Option shall commence on the date of this Agreement and terminate at
5:00 p.m. Eastern time on the fourth anniversary of the date of this
Agreement (the “Option Period”). 
Except as hereafter provided, at any time prior to the expiration of the
Option Period, the Company may exercise the Option by delivery to the
Stockholders of a written notice (the “Option Exercise Notice”)
substantially in the form of Exhibit 3 hereto.  The Option Exercise Notice shall constitute a
binding obligation of the Company to purchase, and the Stockholders to sell,
all of the Shares pursuant to the terms and conditions of this Agreement.  The Option Exercise Notice may be delivered
on any Business Day during the Option Period that is at least twenty (20) days
prior to the expiration of the Option Period and shall specify a closing date
(the “Option Closing Date”) for the sale of the Shares pursuant to the
Option, which shall be a Business Day not earlier than ten (10) nor later
than twenty (20) days, after the date of the Option Exercise Notice.

 

2.5                                 Option
Closing.  The closing of the sale of
Shares pursuant to the Option (the “Option Closing”) shall take place at
the offices of Katten Muchin Rosenman LLP, in New York, New York, commencing at
10:00 a.m., local time, on a Business Day within the Option Period.  The Option Closing shall be effective as of
5:00 p.m., local time, on the Option Closing Date, and all actions
scheduled in this Agreement for the Option Closing Date shall be deemed to
occur simultaneously at that time, except as otherwise contemplated hereby or
as expressly agreed in writing by the Parties. 
At the Option Closing the Stockholders shall deliver to the Company
certificates representing the Shares, duly endorsed in blank (or accompanied by
duly executed stock powers in blank), and the Company shall deliver to the
Stockholders the Option Purchase Price by wire transfer of immediately
available funds to an account or accounts specified by the Stockholders.

 

ARTICLE III

PUT RIGHT

 

3.1                                 Put
Right.  On the terms and subject to
the conditions of this Agreement, the Company hereby grants the Stockholders an
option (the “Put Right”) which, when exercised, shall obligate the
Company to purchase the Shares from each of the Stockholders, and obligate each
of the Stockholders to sell the Shares to the Company.

 

3.2                                 The
Put Period.  The Put Right shall
commence on the earliest of (a) the third anniversary of the date of this
Agreement, (b) any date on which (i) the Market Capitalization of the
Company falls below $50,000,000 or (ii) the amount of Cash and Cash
Equivalents held by the Company falls below $15,000,000, (c) the fifteenth
day following the delivery of written notice to the Company (a “Royalty
Default Notice”) that the Company has failed to pay 

 

 

Royalties in accordance with the provisions of the
Funding and Royalty Agreement which failure constitutes a breach of the Funding
and Royalty Agreement, unless the Company shall have paid such Royalties prior
to such fifteenth day and (d) the closing of a Major Transaction.  The Put Right shall terminate on the tenth
anniversary of the date hereof.  The
period during which the Shares may be sold pursuant to the Put Right is
referred to as the “Put Period.”

 

3.3                                 Major
Transaction Notice and Cash and Cash Equivalent Notice.  (a) At least twenty (20) days prior to
the consummation of any Major Transaction, but, in any event, not later than
the date of the public announcement of such Major Transaction, the Company
shall deliver to the Stockholders a written notice setting forth the terms of
such Major Transaction (a “Major Transaction Notice”).  If, subsequent to the delivery of the Major
Transaction Notice, the Stockholders shall have delivered a Put Exercise Notice
(as defined below) then, not less than three (3) Business Days prior to
the consummation of such Major Transaction, the Company shall deliver to the
Stockholders a dated written notice specifying the anticipated closing date for
such Major Transaction.

 

(b)                                 Not
less than two (2) Business Days after any date on which the amount of Cash
and Cash Equivalents of the Company falls below $15,000,000, the Company shall
deliver written notice (a “Cash and Cash Equivalent Notice”) thereof to
the Stockholders.

 

3.4                                 Put
Purchase Price.  If the Stockholders
exercise the Put Right, the aggregate consideration to be paid by the Company
(the “Put Purchase Price”) to the Stockholders for the Shares shall be
equal to the Base Put Price plus the Cash Adjustment and the Royalty Adjustment
and minus the Tax Adjustment, the Funding Adjustment and any other outstanding
liabilities of ED.  The Stockholders
shall provide written notice of the amount of the Cash Adjustment, the Tax
Adjustment and any other outstanding liabilities of ED, and the Company shall
provide written notice of the amount of the Royalty Adjustment, no later than
five (5) Business Days prior to the Put Closing Date.  At the Put Closing, the Company shall pay the
Put Purchase Price to the Stockholders by wire transfer of immediately
available funds to an account or accounts designated in writing by the
Stockholders.  The Put Purchase Price
shall be allocated among the Stockholders pro rata in accordance with the
number of the Shares held respectively by the Stockholders.

 

3.5                                 Method
of Exercise.  Except as hereinafter
provided, at any time during the Put Period, all, but not less than all, of the
Stockholders may exercise the Put Right by delivery to the Company of a written
notice executed by each of the Stockholders (the “Put Exercise Notice”)
substantially in the form of Exhibit 3 hereto.  The Put Exercise Notice shall constitute a
binding obligation of the Company to purchase, and the Stockholders to sell,
all of the Shares pursuant to the terms and conditions of this Agreement.  The Put Exercise Notice may be delivered on
any Business Day during the Put Period that is at least twenty (20) days prior
to the expiration of the Put Period.  In
addition, the Put Exercise Notice given in respect of (a) the Put Right
provided for in Section 3.2(a) may also be given on any date
that is no more than twenty (20) days prior to the third anniversary of the
date hereof, (b) the Put Right provided for in Section 3.2(b)(ii) and
3.2(d) may also be given at any time after the delivery of a Cash and
Cash Equivalent Notice or a Major Transaction Notice, as the case may be, and (c) the
Put Right provided for in Section 3.2(c) may be given simultaneously
with or at any time after the delivery of a Royalty Default Notice.  The Put Exercise Notice in respect of all Put
Rights other than the Put Right provided for in Section 3.2(d) shall
specify a closing date 

 

 

for the sale of Shares pursuant to the Put Right,
which shall be a Business Day not earlier than ten (10), nor later than twenty
(20), days after the date of the Put Exercise Notice.  The Put Exercise Notice in respect of the Put
Right provided for in Section 3.2(d) shall specify that the closing
date for the sale of the Shares shall take place simultaneously with the
closing of the Major Transaction or on a date that is mutually agreeable to the
Stockholders and the Company that is prior to the closing of the Major
Transaction.

 

3.6                                 Put
Closing.  The closing of the purchase
of the Shares pursuant to the Put Right (the “Put Closing”) shall take
place at the offices of Katten Muchin Rosenman LLP, in New York, New York,
commencing at 10:00 a.m., local time on a Business Day within the Put
Period.  The Put Closing shall be
effective as of 5:00 P.M., local time, on the Put Closing Date, and all
actions scheduled in this Agreement for the Put Closing Date shall be deemed to
occur simultaneously at that time, except as otherwise contemplated hereby or
as expressly agreed in writing by the Parties. 
At the Put Closing the Stockholders shall deliver to the Company
certificates representing the Shares, duly endorsed in blank (or accompanied by
duly executed stock powers in blank), and the Company shall deliver to the
Stockholders the Put Purchase Price, by wire transfer of immediately available
funds to an account or accounts specified by the Stockholders in writing to the
Company.

 

3.7                                 Major
Transaction Closing.  Notwithstanding
anything to the contrary contained herein, the Company shall not consummate a
Major Transaction if the Stockholders have previously delivered a Put Exercise
Notice unless the Put Purchase Price is paid to the Stockholders in full prior
to or simultaneously with the consummation of such Major Transaction.

 

ARTICLE IIIA

 

SECURITY AGREEMENT

 

3.1A                       Security
Agreement.  As security for the
performance of its obligations with respect to the Put Right, simultaneously
with the execution of this Agreement the Company has entered into the Security
Agreement (the “Security Agreement”) annexed hereto as Exhibit 4.

 

ARTICLE IV

REPRESENTATIONS RELATING TO ED

 

The Stockholders and ED jointly and severally
represent to the Company that:

 

4.1                                 ED
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.  ED
has the requisite corporate power and authority to own the assets that it owns
and to conduct its business. The current officers of ED are as follows: Peter
Steelman, President; Alexander Karnal, Secretary and Jeffrey Kaplan, Treasurer.
The Stockholders shall notify the Company as soon as practicable following any
change in the 

 

 

officers of ED that occurs prior to the earlier of (x) the
exercise of the Option or the Put Right and (y) the expiration of the
Option and the Put Right.

 

4.2                                 The
authorized capital stock of ED consists of 21,000 shares of common stock having
a par value of $0.001 per share.  As of
the date of this Agreement, none of such authorized shares are
outstanding.  All of the foregoing shares
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive and similar rights.  Except as expressly contemplated by this
Agreement and except for shares of common stock which are the subject of the
Subscription Agreements (the “Subscription Agreements”), dated on or
about the date hereof, between ED and the respective Stockholders, there are no
outstanding (i) shares of capital stock, debt securities or other voting
securities of ED; (ii) securities of ED which are or may become
convertible into or exchangeable for shares of capital stock, debt securities
or voting securities or ownership interests in ED; (iii) Contracts that
grant or may grant the right to acquire from ED, or obligations of ED to issue
any capital stock, debt securities, voting securities or other ownership
interests in, or any securities convertible into or exchangeable or exercisable
for any capital stock, voting securities, debt securities or ownership
interests in, ED, or obligations of ED to grant, extend or enter into any such
agreement or commitment; or (iv) obligations of ED to repurchase, redeem
or otherwise acquire any outstanding securities of ED, or to vote or to dispose
of any shares of the capital stock of ED. 
All of the outstanding equity securities of ED have been offered and
issued in compliance with all applicable federal and state securities laws,
including “blue sky” laws.  Any
outstanding shares of capital stock of ED, including the shares of common stock
issuable pursuant to the Subscription Agreements, are referred to as the “Shares.”

 

4.3                                 There
are no agreements, arrangements, proxies or understandings that restrict or
otherwise affect the transfer of any of the Shares except as set forth in this
Agreement.

 

4.4                                 ED
has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement, and the execution and delivery of this
Agreement and the performance of all of its obligations hereunder have been
duly authorized by ED and the Stockholders. 
This Agreement has been duly executed and delivered by ED and
constitutes the legal, valid and binding obligation of ED, enforceable against
ED in accordance with its terms, except as enforceability may be limited or
affected by applicable bankruptcy, insolvency, moratorium, reorganization or
other laws of general application relating to or affecting creditors’ rights
generally.

 

4.5                                 The
signing, delivery and performance of this Agreement by ED is not prohibited or
limited by, and will not result in the breach of or a default under, any
provision of the certificate of incorporation or bylaws of ED, or of any
applicable Law, Order, writ, injunction or decree of any Governmental
Authority, except for such prohibition, limitation or default as would not
prevent consummation by ED of the transactions contemplated hereby.

 

4.6                                 There
is no Proceeding pending or threatened, directly or indirectly, involving ED or
the transactions contemplated hereby or ED’s ability to perform its obligations
hereunder.  ED is not a party or subject
to or in default under any Order applicable to ED

 

 

4.7                                 No
insolvency Proceeding of any character, including, without limitation,
bankruptcy, receivership, reorganization, composition or arrangement with
creditors, voluntary or involuntary, has been commenced by or against ED or any
of its assets, nor is any such Proceeding threatened.  Neither the Stockholders nor ED contemplates,
nor has ED or either Stockholder taken any action in contemplation of, the
institution of any such insolvency Proceedings.

 

4.8                                 No
broker, investment banker, agent, finder or other intermediary acting on behalf
of ED or under the authority of ED is or will be entitled to any broker’s or
finder’s fee or any other commission or similar fee directly or indirectly in
connection with any of the transactions contemplated hereby, except for the
arrangement fee payable to Deerfield Management Company, L.P. pursuant to Section 6(a) of
the Securities Purchase Agreement of even date herewith among VIVUS, the
Stockholders and Deerfield Management Company, L.P. (the “Arrangement Fee”).

 

4.9                                 As
of the date of this Agreement, ED’s sole assets consist of Cash and Cash
Equivalents and its rights under the Subscription Agreements and the Funding
and Royalty Agreement.  ED has no
Liabilities, other than those Liabilities that are incidental to the permitted
activities of ED or are otherwise created by the Funding and Royalty Agreement
or this Agreement or relate to the payment of Taxes.  ED has timely filed all material Tax Returns
required to be filed by it and has timely paid all material Taxes required to
be paid by it.  ED does not own any
interest in any other Person.

 

4.10                           There
are no Encumbrances upon any of the Shares other than those created by this
Agreement.

 

4.11                           None
of the Shares has been issued in violation of any Legal Requirement or the
certificate of incorporation or bylaws of ED or in violation of any preemptive,
subscription or similar rights.

 

4.12                           ED
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement and the Funding and Royalty Agreement.  ED has not owned, operated or conducted and,
other than its receipt of Royalties and subscription payments under the
Subscription Agreements, will not own any assets other than Cash and Cash
Equivalents or operate or conduct any assets, businesses or activities other
than in connection with its organization, the negotiation and execution of this
Agreement and the consummation of the transactions contemplated hereby and by
the Funding and Royalty Agreement.

 

4.13                           No
Governmental Authorization is required by ED in connection with the execution
or delivery by ED of this Agreement or the performance by ED of ED’s
obligations under this Agreement. 
Neither the execution and delivery of this Agreement by ED nor the
performance of ED’s obligations hereunder shall (with or without notice or
lapse of time) (i) result in the creation of any Encumbrance upon the
Shares or (ii) conflict with or violate any Legal Requirement applicable
to ED.

 

 

4.14                           The
Board of Directors of ED and the Stockholders have approved this Agreement and
the Funding and Royalty Agreement and the transactions contemplated hereby and
thereby.

 

4.15                           ED
is not, and does not intend to conduct its business in a manner in which it
would be, required to be registered as an “investment company” as defined in Section 3(a) of
the Investment Company Act of 1940, as amended.

 

4.16                           EXCEPT
AS EXPRESSLY SET FORTH IN THIS ARTICLE IV AND IN ARTICLE V,
NEITHER THE STOCKHOLDERS NOR ED MAKES, AND NO PARTY SHALL BE ENTITLED TO RELY
UPON, ANY REPRESENTATION OR WARRANTY AS TO ANY FACT OR MATTER ABOUT ED UNDER
THIS AGREEMENT.

 

ARTICLE V

REPRESENTATIONS RELATING TO THE STOCKHOLDERS

 

Each Stockholder represents to the Company, solely
with respect to itself, that:

 

5.1                                 Organization.  Such Stockholder is a limited partnership and
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.

 

5.2                                 Authority;
Enforceability.  Such Stockholder has
the requisite legal power and authority to (i) execute and deliver this
Agreement and each certificate, document and agreement to be executed by such
Stockholder in connection herewith (collectively, the “Stockholder Documents”)
and (ii) perform its obligations hereunder and thereunder, and such
execution, delivery and performance have been duly and validly authorized by
such Stockholder.  This Agreement has
been duly and validly executed and delivered by such Stockholder and
constitutes, and upon execution and delivery by such Stockholder of each
Stockholder Document to which such Stockholder is a party, each such
Stockholder Document will constitute, a legal, valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with its
terms, except as the enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws relating to or
limiting creditors’ rights generally or by general principles of equity.

 

5.3                                 No
Violation; Enforceability.  The
signing, delivery and performance of this Agreement by such Stockholder is not
prohibited or limited by, and will not result in the breach of or a default
under, any provision of the limited partnership agreement or other formation
documents of such Stockholder, or of any material agreement or instrument
binding on such Stockholder, or of any applicable law or Order, except for such
prohibition, limitation or default as would not prevent consummation by such
Stockholder of the transactions contemplated hereby.  The execution, delivery and performance of
this Agreement by such Stockholder and such Stockholder’s compliance with the
terms and provisions hereof do not and will not conflict with or result in a
breach of any of the terms and provisions of or constitute a default, with or
without the passage of time and the giving of notice, under any material
Contract binding or affecting such Stockholder or such Stockholder’s property.

 

 

5.4                                 No
Proceedings.  There is no Proceeding
pending or threatened involving such Stockholder that would materially affect
such Stockholder’s ability to perform its obligations hereunder.

 

5.5                                 Financial
Condition.  No insolvency Proceeding
of any character, including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, has been
commenced by or against such Stockholder or any of its assets or properties,
nor is any such Proceeding threatened. 
Such Stockholder does not contemplate, and has not taken any action in
contemplation of, the institution of any such insolvency Proceedings.

 

5.6                                 Sufficient
Funds.  Such Stockholder has
sufficient capital commitments to be capable of funding its subscription
obligations on the terms and conditions set forth in the Subscription Agreement
to which such Stockholder is a party.

 

5.7                                 Consents
and Approvals; No Violation.

 

(a)                                  No
Governmental Authorization is required by such Stockholder in connection with
the execution or delivery by such Stockholder of this Agreement or the
Stockholder Documents to which such Stockholder is a party, or the performance
by such Stockholder of the Stockholder’s obligations under this Agreement or
the Stockholder Documents to which such Stockholder is a party, except for any
Governmental Authorizations that are not material.

 

(b)                                 Neither
the execution and delivery of this Agreement and the Stockholder Documents by
such Stockholder nor the performance of such Stockholder’s obligations
hereunder or thereunder shall (with or without notice or lapse of time)
conflict with or violate any Legal Requirement applicable to such Stockholder,
except for any Legal Requirements that are not material.

 

5.8                                 Capital
Stock.  As of the date of this
Agreement, such Stockholder has subscribed for the number of Shares pursuant to
the Subscription Agreement to which such Stockholder is a party, and upon
issuance of such Shares such Stockholder shall be the sole record and
beneficial owner thereof, free and clear of any Encumbrances (other than restrictions
on transfer under applicable Legal Requirements).

 

5.9                                 Brokers,
Etc.  No broker, investment banker,
agent, finder or other intermediary acting on behalf of such Stockholder or
under the authority of such Stockholder is or will be entitled to any broker’s
or finder’s fee or any other commission or similar fee directly or indirectly
in connection with any of the transactions contemplated hereby, except for the
Arrangement Fee.

 

5.10                           Investment
Company Act of 1940.  Such
Stockholder is not, and does not intend to conduct its business in a manner in
which it would be, required to be registered as an “investment company” as
defined in Section 3(a) of the Investment Company Act of 1940, as
amended.

 

5.11                           No
Other Representations or Warranties. 
EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE IV AND THIS ARTICLE V,
NEITHER THE STOCKHOLDERS NOR 

 

 

ED MAKES, AND NO PARTY SHALL BE ENTITLED TO RELY UPON,
ANY REPRESENTATION OR WARRANTY AS TO ANY FACT OR MATTER ABOUT THE STOCKHOLDERS
UNDER THIS AGREEMENT.

 

ARTICLE VI

REPRESENTATIONS RELATING TO THE COMPANY

 

The Company represents to the Stockholders and ED:

 

6.1                                 Organization.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization.  The Company has the
requisite power and authority to own, lease and use the properties and assets
that it owns, leases and uses and to conduct its business as presently
conducted.

 

6.2                                 Authority;
Enforceability.  The Company has the
requisite power and authority to (i) execute and deliver this Agreement,
the Security Agreement, the Funding and Royalty Agreement and each certificate,
document and agreement to be executed by the Company in connection herewith and
therewith (collectively, the “Company Documents”) and (ii) perform
its obligations hereunder and thereunder. 
The execution and delivery of this Agreement, the Security Agreement,
the Funding and Royalty Agreement and the Company Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of the
Company, and no other Proceedings on the part of the Company are necessary to
authorize this Agreement, the Security Agreement, the Funding and Royalty
Agreement or any of the Company Documents or to consummate the transactions
contemplated hereby or thereby.  This
Agreement, the Security Agreement and the Funding and Royalty Agreement have
been duly and validly executed and delivered by the Company and constitute, and
upon execution and delivery by the Company of each Company Document, each
Company Document will constitute, a legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws relating to or limiting creditors’
rights generally or by general principles of equity.

 

6.3                                 Consents
and Approvals; No Violation.

 

(a)                                  No
Governmental Authorization is required by the Company in connection with the
execution or delivery by the Company of this Agreement, the Security Agreement
the Funding and Royalty Agreement or the Company Documents, or the performance
of the Company’s obligations under this Agreement, the Security Agreement, the
Funding and Royalty Agreement or the Company Documents.

 

(b)                                 Neither
the execution and delivery of this Agreement, the Security Agreement, the
Funding and Royalty Agreement and the Company Documents by the Company nor the
performance of the Company’s obligations hereunder or thereunder shall (with or
without notice or lapse of time):  (i) conflict
with or violate any provision of the certificate of incorporation or bylaws of
the Company or any resolution adopted by the board of directors or stockholders
of the 

 

 

Company, (ii) conflict with or breach any of the
terms or provisions of, or give any Person a right to declare a default or
exercise any remedy under, any material Contract binding on the Company or (iii) conflict
with or violate any Legal Requirement applicable to the Company, but excluding
from the foregoing clauses (ii) and (iii) conflicts, breaches,
defaults, remedies and violations that would not be reasonably likely, either
individually or in the aggregate, to adversely affect the Company’s ability to
consummate the transactions contemplated by this Agreement.

 

6.4                                 Compliance
With Laws.  The Company is in
compliance with all material Legal Requirements applicable to the Company.  The Company has not received any written
notice from any Governmental Authority regarding any violation of, or failure
to comply with, any material Legal Requirement.

 

6.5                                 Litigation.  There are no Proceedings that are pending
against or threatened against the Company that would adversely affect its
ability to consummate the transactions contemplated by this Agreement.  The Company is not subject to any Order that
could affect the enforceability of this Agreement against the Company or that
would adversely affect the Company’s ability to consummate the transactions
contemplated by this Agreement.

 

6.6                                 Investment
Interest.  The Company is an “accredited
investor” within the meaning of Regulation D promulgated under the Securities
Act and will be acquiring the Shares for its own account for investment
purposes only and not with a view to, or for sale or resale in connection with,
any distribution within the meaning of Section 2(11) of the Securities
Act.  The Company understands that the
Shares are characterized as “restricted securities” under the federal
securities laws inasmuch as they are being acquired from the Stockholders in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances.

 

6.7                                 Brokers.  No broker, investment banker, agent, finder
or other intermediary acting on behalf of the Company or under the authority of
the Company is or will be entitled to any broker’s or finder’s fee or any other
commission or similar fee directly or indirectly in connection with any of the
transactions contemplated hereby, except for the Arrangement Fee.

 

6.8                                 No
Other Representations.  EXCEPT AS
EXPRESSLY SET FORTH IN THIS ARTICLE VI, THE COMPANY DOES NOT MAKE, AND
NO PARTY SHALL BE ENTITLED TO RELY UPON, ANY REPRESENTATION AS TO ANY FACT OR
MATTER ABOUT THE COMPANY.

 

ARTICLE VII

COVENANTS

 

7.1                                 Tax.

 

(a)                                  From
the date that the Option or Put Right is exercised to the Option Closing Date
or Put Closing Date, as the case may be, ED will not:

 

 

(1)                                  make
any new Tax election except as described in Section 7.1(a)(3) below;

 

(2)                                  consent
to any claim or assessment relating to any material Taxes or any waiver of the
statute of limitations for any such claim or assessment; and

 

(3)                                  make
any material change in a Tax accounting method (except as required below)
without the Company’s prior written consent (which consent may not be
unreasonably withheld, conditioned or delayed).

 

(b)                                 From
the date the Option or Put Right is exercised to the Option Closing Date or Put
Closing Date, as the case may be:

 

(1)                                  ED
will promptly notify the Company of any Tax Proceeding initiated against ED
where an adverse determination could result in a material Tax Liability or
materially and adversely affect the Tax attributes of ED; and

 

(2)                                  for
purposes of apportioning a Tax to any pre-Closing portion of a Straddle Period,
the Parties shall treat such Straddle Period as if it were two Tax Periods, one
ending with the Option Closing or the Put Closing, as the case may be, and the
other beginning immediately following such Option Closing or Put Closing; the
Parties shall elect to do so if permitted by applicable law.

 

(c)                                  From
the date hereof to the Option Closing Date or Put Closing Date, as the case may
be, ED will timely file all Tax Returns required to be filed by it during such
period and will pay when due all Taxes due and payable by ED during such
period.

 

7.2                                 Operations
During Purchase Period.  From the
date of this Agreement through the first to occur of (a) the expiration or
termination of the Option and the Put Right or (b) the Option Closing Date
or the Put Closing Date, ED shall, and the Stockholders shall cause ED to,
engage in no other business other than the payment of the Funding Payments
pursuant to the Funding and Royalty Agreement, the receipt of the Royalties,
the investment of Royalties in Cash and the distribution of Cash to the
Stockholders.  Without limiting the
foregoing, ED shall not, and the Stockholders shall not cause ED to, do any of
the following without the prior written consent of the Company:

 

(a)                                  amend
its Certificate of Incorporation or By-laws;

 

(b)                                 issue
any capital stock or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for any shares of capital stock,
equity securities or other equity interests other than pursuant to this
Agreement or the Subscription Agreements.

 

(c)                                  permit,
allow or suffer any of its assets to be subject to any Encumbrance other than
Permitted Encumbrances;

 

(d)                                 sell,
transfer or lease rights to the Royalties;

 

(e)                                  acquire
or agree to acquire any assets other than (A) Royalties and (B) Cash
and Cash Equivalents;

 

 

(f)                                    agree
to any of the foregoing.

 

7.3                                 Preservation
of Shares.  No Stockholder shall (a) sell,
lease or otherwise dispose of any Shares or (b) permit, allow or suffer
any Shares to be subject to any Encumbrance, in each case until the expiration
or termination of the Option and the Put Right.

 

7.4                                 Further
Assurances.  Upon the terms and
subject to the conditions of this Agreement, each Party shall 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 applicable
Legal Requirements to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, including, without
limitation, the prompt preparation and filing of all forms, registrations and
notices required to be filed to consummate the transactions contemplated by
this Agreement and the taking of such commercially reasonable actions as are
necessary to obtain any requisite consents, Orders, exemptions or waivers by
any Governmental Authority or any other Person. 
Each Party shall promptly consult with the other Parties with respect
to, provide the other Parties any necessary information with respect to and
provide the other Parties (or their respective counsel) copies of, all filings
made by such Party with any Governmental Authority or any other Person or any
other information supplied by such Party to a Governmental Authority or any
other Person in connection with this Agreement and the transactions
contemplated by this Agreement.  From time
to time after the Option Closing or Put Closing, without additional
consideration, each Party will execute and deliver such further instruments and
take such other action as may be necessary or reasonably requested by each
other Party to make effective the transactions contemplated by this Agreement
and to provide each other Party with the benefits of this Agreement.

 

ARTICLE VIII

CLOSING CONDITIONS

 

8.1                                 Mutual
Condition.  The obligation of the
Parties to consummate the Option Closing or the Put Closing, as applicable,
shall be subject to the satisfaction (or waiver, if permissible under
applicable Legal Requirements) of the following conditions:

 

(a)                                  No
Legal Requirement, temporary restraining Order, preliminary injunction or
permanent injunction, judgment or ruling enacted, promulgated, issued, entered,
amended or enforced by any Governmental Authority shall be in effect enjoining,
restraining, preventing or prohibiting the consummation of such Option Closing
or Put Closing, as applicable.

 

(b)                                 The
Company shall have delivered to the Stockholders the Option Exercise Notice or
the Stockholders shall have delivered to the Company the Put Exercise Notice,
as applicable.

 

8.2                                 The
Company’s Conditions.  The obligation
of the Company to consummate the Option Closing or the Put Closing (each, a “Closing”),
as applicable, shall be subject to the satisfaction (or waiver, if permissible
under applicable Legal Requirements) of the following conditions:

 

 

(a)                                  Each
of the representations and warranties of ED and each Stockholder set forth in
this Agreement, shall be true and correct in all material respects, in each
case as of (i) the date of this Agreement; and (ii) the Closing, as
though made on and as of the Closing, except for representations and warranties
that are made as of the date of this Agreement (which shall be true and correct
as of the date of this Agreement) and except where the failure or failures to
be true and correct would not in the aggregate reasonably be expected to
materially and adversely affect the Company.

 

(b)                                 ED
and each Stockholder shall have performed in all material respects all
obligations and complied with all covenants required to be performed by it
under this Agreement at or prior to the Closing.

 

(c)                                  The
Stockholders shall have delivered to the Company a certificate certifying the
matters set forth in Sections 8.2(a) and (b).

 

8.3                                 Stockholders’
Conditions.  The obligation of ED and
the Stockholders to consummate any Closing shall be subject to the satisfaction
(or waiver, if permissible under applicable Legal Requirements) of the
following conditions:

 

(a)                                  Each
of the representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects, in each case as
of (i) the date of this Agreement and (ii) the Closing, as though made
on and as of the Closing, except for representations and warranties that are
made as of the date of this Agreement (which shall be true and correct as of
the date of this Agreement) and except where the failure or failures to be true
and correct would not in the aggregate reasonably be expected to materially and
adversely affect the Stockholders.

 

(b)                                 The
Company shall have performed in all material respects all obligations and
complied with all covenants required to be performed by it under this Agreement
at or prior to the Closing.

 

(c)                                  The
Company shall have delivered to the Stockholders a certificate certifying the
matters set forth in Sections 8.3(a) and (b) executed by a
duly authorized officer of the Company.

 

ARTICLE IX

INDEMNIFICATION

 

9.1                                 Survival.  All representations and warranties made by
the Stockholders, ED and the Company in this Agreement and the documents to be
executed in connection with this Agreement shall survive the Closing until the
earlier of the expiration of the applicable statute of limitations with respect
to such matters or the payment of all Royalty obligations by the Company under
the Funding and Royalty Agreement.  All
covenants and agreements contained in this Agreement and the documents to be
executed in connection with this Agreement shall survive the Closing in
accordance with their respective terms.

 

 

9.2                                 Indemnification
by the Stockholders.  Subject to the
limitations set forth in this Article IX, after the Closing the
Stockholders shall jointly and severally indemnify and hold harmless the
Company from, and shall pay to the Company, any and all Damages arising,
directly or indirectly, from or in connection with:

 

(a)                                  the
breach of any of the representations, warranties, covenants or agreements of
any Stockholder or ED contained in this Agreement;

 

(b)                                 any
Liability of ED arising prior to the Closing Date other than (i) obligations
arising solely from ED’s right to receive the Royalties, (ii) Liabilities
that have been reflected in the computation of the Option Purchase Price or the
Put Purchase Price, as the case may be, and (iii) Liabilities caused by
the acts or omissions of the Company, but only to the extent such Liabilities
are caused by the acts or omissions of the Company; and

 

(c)                                  the
violation by ED or any Stockholder of any Legal Requirement, or any gross
negligence or willful misconduct of ED or any Stockholder, or the performance
by ED or any Stockholder of its obligations under this Agreement.

 

9.3                                 Indemnification
by the Company.  Subject to the
limitations set forth in this Article IX, after the Closing the
Company shall indemnify and hold harmless the Stockholders from, and shall pay
to the Stockholders, any and all Damages arising, directly or indirectly, from
or in connection with:

 

(a)                                  the
breach of any of the representations, warranties, covenants or agreements of
the Company contained in this Agreement; and

 

(b)                                 the
violation by the Company of any Legal Requirement, or any gross negligence or
willful misconduct of the Company, or the failure by the Company of its
obligations under this Agreement.

 

9.4                                 Procedure
for Indemnification – Third Party Claims.

 

(a)                                  If
any Person shall claim indemnification hereunder arising from any claim or
demand of a third party, the Party seeking indemnification (the “Indemnified
Party”) shall notify the Party from whom indemnification is sought (the “Indemnifying
Party”) in writing of the basis for such claim or demand and such notice
shall set forth the nature of the claim or demand in reasonable detail.  The failure of the Indemnified Party to so
notify the Indemnifying Party shall not relieve the Indemnifying Party of any
indemnification obligation hereunder except to the extent that the defense of
such claim or demand is prejudiced by the failure to give such notice.

 

(b)                                 If
any Proceeding is brought by a third party against an Indemnified Party and the
Indemnified Party gives notice to the Indemnifying Party pursuant to Section 9.4(a),
the Indemnifying Party may assume the defense and control the settlement of
such Proceeding.  The Indemnified Party
shall, in its sole discretion, have the right to employ separate counsel (who
may be selected by the Indemnified Party in its sole discretion) in any such
Proceeding and to participate in the defense thereof, and the fees and expenses
of such counsel shall be paid by such Indemnified Party.  If the Indemnified Party assumes the defense
of such Proceeding pursuant to Section 9.4(c) because of the
failure of the Indemnifying Party to conduct such 

 

 

defense in good faith, the fees and expenses of such
counsel shall be paid by the Indemnifying Party.  The Indemnified Party shall cooperate fully
with the Indemnifying Party and its counsel in the defense or settlement of
such Proceeding.  If the Indemnifying
Party assumes the defense of a Proceeding, no compromise or settlement of such
claims may be effected by the Indemnifying Party without the Indemnified Party’s
consent unless (i) there is no finding or admission of any violation of
Legal Requirements or the rights of any Person by the Indemnified Party and no
material adverse effect on the Indemnified Party with respect to any other
claims that may be made against it, and (ii) the sole relief provided is
monetary damages that are paid in full by the Indemnifying Party.

 

(c)                                  If
(i) notice is given to the Indemnifying Party of the commencement of any
third party Proceeding and the Indemnifying Party does not, within ten (10) days
after the Indemnified Party’s notice is given, give notice to the Indemnified
Party of its election to assume the defense of such Proceeding, or (ii) having
assumed the defense of such Proceeding, the Indemnifying Party fails to conduct
such defense in good faith, then the Indemnified Party shall (upon notice to
the Indemnifying Party) have the right to undertake the defense, compromise or
settlement of such Proceeding; provided that no compromise or settlement of
such Proceeding may be affected by the Indemnified Party without the
Indemnifying Party’s consent, if (A) the Indemnifying Party will be liable
for any amounts to be paid to compromise or settle the Proceeding, (B) there
is a finding or admission of any violation by the Indemnifying Party of any
Legal Requirement or the rights of any Person, or (C) the compromise or
settlement would have a material adverse effect on the Indemnifying Party with
respect to any other claims that may be made against it.  The Indemnifying Party shall reimburse the
Indemnified Party for the costs and expenses of defending against the third
party Proceeding (including reasonable attorneys’ fees and expenses) and the
Indemnifying Party shall remain responsible for any Damages arising from or
related to such third party Proceeding to the extent provided in this Article IX.  The Indemnifying Party may elect to
participate in such Proceedings, negotiations or defense at any time at its own
expense.

 

9.5                                 Limitation
on Damages.

 

(a)                                  The
Stockholders’ aggregate liability for Damages under this Agreement shall be
limited to the amount of the Option Purchase Price or the Put Purchase Price,
as the case may be.

 

(b)                                 The
Company’s aggregate liability for Damages under this Agreement shall be limited
to the amount of the Option Purchase Price or the Put Purchase Price, as the
case may be.

 

(c)                                  Upon
any payment of Damages to or on behalf of an Indemnified Party, the
Indemnifying Party shall be subrogated to all rights of the Indemnified Party
with respect to the Damages to which such indemnification relates to the extent
of the amount of such payment.

 

(c)                                  The
Indemnified Party shall have no right to recover consequential, punitive or
multiplied damages pursuant to this Article IX except to the extent
the Indemnified Party is liable to a third party for such damages.

 

9.6                                 Tax
Treatment of Indemnity. 
Notwithstanding anything to the contrary in this Article IX,
any Tax or other amount for which indemnification is provided under this
Agreement 

 

 

shall be treated as an adjustment to the Option
Purchase Price or the Put Purchase Price, as the case may be.

 

ARTICLE X

MISCELLANEOUS PROVISIONS

 

10.1                           No
Joint Venture.  The relationship
between the Parties is that of independent contractors.  The Parties are not joint venturers,
partners, principal and agent, master and servant, employer or employee, and
have no relationship other than as independent contracting parties.  No Party shall have the power to bind or
obligate any other in any manner.

 

10.2                           Expenses.  Each Party shall pay all costs and expenses
incurred by such Party in connection with this Agreement and the transactions
contemplated hereby, including in each case all fees and expenses of investment
bankers, finders, brokers, agents, representatives, consultants, counsel and
accountants.

 

10.3                           Amendment
and Modification.  This Agreement may
be amended, modified or supplemented only by an agreement in writing signed by
the Party against whom such amendment, modification or supplement is sought to
be enforced.

 

10.4                           Waiver
of Compliance; Consents.  The rights
and remedies of the Parties are cumulative and not alternative and may be
exercised concurrently or separately.  No
failure or delay by any Party in exercising any right, power or privilege under
this Agreement shall operate as a waiver of such right, power or privilege, and
no single or partial exercise of any such right, power or privilege shall
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege.  To the maximum extent permitted by applicable
law, (i) no claim or right arising out of this Agreement can be discharged
by one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other Parties; (ii) no waiver that
may be given by a Party shall be applicable except in the specific instance for
which it is given; and (iii) no notice to or demand on one Party shall be
deemed to be a waiver of any obligation of such Party or of the right of the
Party giving such notice or demand to take further action without notice or
demand as provided in this Agreement. 
Any consent required or permitted by this Agreement is binding only if
in writing.

 

10.5                           Notices.  All notices, consents, waivers and other
communications hereunder shall be in writing and shall be (i) delivered by
hand, (ii) sent by facsimile transmission, or (iii) sent by certified
mail or by a nationally recognized overnight delivery service, charges prepaid,
to the address set forth below (or such other address for a Party as shall be
specified by like notice):

 

If to the Stockholders or ED, to:

 

c/o Deerfield Capital, L.P.

780 Third Avenue, 37th Floor

New York, New York 
10017

Attention:  James E. Flynn

Facsimile:  (212) 573-8111

 

 

	
  Copies to:

  	
  Katten Muchin
  Rosenman LLP

  
	
   

  	
  575 Madison
  Avenue

  
	
   

  	
  New York, New
  York 10022

  
	
   

  	
  Attention: Mark
  I. Fisher

  
	
   

  	
  Facsimile: (212)
  894-5877

  
	
   

  	
   

  
	
  If to the Company, to:

  	
  VIVUS, Inc.

  
	
   

  	
  1172 Castro
  Street

  
	
   

  	
  Mountain View,
  California  94040

  
	
   

  	
  Attention:  Leland F. Wilson

  
	
   

  	
  Facsimile:  (650) 934-5389

  

 

	
  Copy to:

  	
  Wilson Sonsini
  Goodrich & Rosati

  
	
   

  	
  650
  Page Mill Road

  
	
   

  	
  Palo Alto, CA
  94304

  
	
   

  	
  Attn: Mark
  Reinstra, Esq.

  
	
   

  	
  Facsimile:
  650-493-6811

  

 

Each such notice
or other communication shall be deemed to have been duly given and to be
effective (x) if delivered by hand, immediately upon delivery if delivered
on a Business Day during normal business hours and, if otherwise, on the next
Business Day; (y) if sent by facsimile transmission, immediately upon
confirmation that such transmission has been successfully transmitted on a
Business Day before or during normal business hours and, if otherwise, on the
Business Day following such confirmation; or (z) if sent by a nationally
recognized overnight delivery service, on the day of delivery by such service
or, if not a Business Day, on the first Business Day after delivery.  Notices and other communications sent via
facsimile must be followed by notice delivered by hand or by overnight delivery
service as set forth herein within five (5) Business Days.

 

10.6                           Publicity.  No Party shall issue any press release or any
other form of public disclosure regarding the existence of this Agreement or
the terms hereof, or use the name of any other Party hereto in any press
release or other public disclosure without the prior written consent of the
other Parties, except (i) for those disclosures and notifications contemplated
by this Agreement and (ii) as required by any Legal Requirement and solely
to the extent necessary to satisfy such Legal Requirement.

 

10.7                           Assignment;
No Third-Party Rights.  This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any Party hereto without the prior
written consent of each other Party.  Notwithstanding
the foregoing, and subject to compliance with Section 3.7, in the
event the Option Closing or Put Closing has not occurred prior to or
simultaneously with the closing of a Major Transaction,  the Company shall assign this Agreement to
the surviving or acquiring entity in such Major Transaction, and shall cause
the successor entity resulting from such Major Transaction to assume all of the
obligations of the Company under this Agreement 

 

 

pursuant to an assumption
agreement in form and substance reasonably satisfactory to the Stockholders. This
Agreement and its provisions are for the sole benefit of the Parties to this
Agreement and their successors and permitted assigns and shall not give any
other Person any legal or equitable right, remedy or claim.

 

10.8                           Confidentiality.  Each
Stockholder and ED hereby agrees, and shall cause its respective employees and
agents, not to disclose to any third party any material non-public information
received from or on behalf of the Company in connection with this Agreement, or
to use such material non-public information for any purpose except as expressly
permitted under this Agreement.  Each
Stockholder and ED further agrees that it and its respective employees and
agents have not and will not engage in any trades, transfers or other similar
transactions involving the Company’s common stock in violation of federal
securities laws while in receipt of such non-public information of the
Company.  Notwithstanding the foregoing,
the Parties shall be permitted to make such public and other statements as are
necessary for it to comply with applicable federal and state securities laws or
rules.

 

10.9                           Governing
Law.  The execution, interpretation
and performance of this Agreement, and any disputes with respect to the
transactions contemplated by this Agreement, including any fraud claims, shall
be governed by the internal laws and judicial decisions of the State of
Delaware, without regard to principles of conflicts of laws.

 

10.10                     Severability.  If any provision contained in this Agreement
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein,
unless the invalidity of any such provision substantially deprives any Party of
the practical benefits intended to be conferred by this Agreement.  Notwithstanding the foregoing, any provision
of this Agreement held invalid, illegal or unenforceable only in part or degree
shall remain in full force and effect to the extent not held invalid or
unenforceable, and the determination that any provision of this Agreement is
invalid, illegal or unenforceable as applied to particular circumstances shall
not affect the application of such provision to circumstances other than those
as to which it is held invalid, illegal or unenforceable.

 

10.11                     Construction.  Each Party acknowledges that it and its
attorneys have been given an equal opportunity to negotiate the terms and
conditions of this Agreement and that any rule of construction to the
effect that ambiguities are to be resolved against the drafting Party or any
similar rule operating against the drafter of an agreement shall not be
applicable to the construction or interpretation of this Agreement.

 

10.12                     Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may be executed on signature pages exchanged
by facsimile, in which event each Party shall promptly deliver to the others
such number of original executed copies as the other Parties may reasonably
request.

 

10.13                     Entire
Agreement.  This Agreement
constitutes the entire agreement and understanding of the Parties hereto in
respect of the subject matter hereof. 
This Agreement 

 

 

supersedes all prior agreements, understandings,
promises, representations and statements between the Parties and their
representatives with respect to the transactions contemplated by this
Agreement.

 

[The
remainder of this page is left blank intentionally.]

 

 

IN WITNESS WHEREOF, the Parties
have executed this Option and Put Agreement as of the date first written above.

 

	
   

  	
  VIVUS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy E.
  Morris

  
	
   

  	
   

  	
  Name:

  	
  Timothy E. Morris

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DEERFIELD
  ED CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeff Kaplan

  
	
   

  	
   

  	
  Name:

  	
  Jeff Kaplan

  
	
   

  	
   

  	
  Title:

  	
  Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DEERFIELD
  PRIVATE DESIGN FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James Flynn

  
	
   

  	
   

  	
  Name:

  	
  James Flynn

  
	
   

  	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DEERFIELD
  PRIVATE DESIGN

  INTERNATIONAL, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James Flynn

  
	
   

  	
   

  	
  Name:

  	
  James Flynn

  
	
   

  	
   

  	
  Title:

  	
  General Partner

  

 

Signature Page to Option
and Put Agreement

 

 

EXHIBIT 1

 

Stockholders

 

	
  Stockholders

  
	
   

  
	
  Deerfield Private Design International, L.P., a
  British Virgin Islands limited partnership

  
	
   

  
	
  Deerfield Private Design Fund, L.P., a Delaware
  limited partnership

  

 

 

EXHIBIT 2

 

WIRING
INSTRUCTIONS

 

	
  Name

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Deerfield
  Private Design International, L.P.

  	
   

  	
  $

  	
  1,234,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Deerfield
  Private Design Fund, L.P.

  	
   

  	
  $

  	
  766,000

  	
   

  

 

 

EXHIBIT 3

 

OPTION EXERCISE NOTICE

 

 

Deerfield
ED Corporation

c/o
Deerfield Capital, L.P.

780
Third Avenue

New
York, New York  10017

Attention:  James E. Flynn

 

Dear
Mr. Flynn:

 

Reference is made
to that certain Option and Put Agreement dated as of
        , 2008 (the “Agreement”),
between VIVUS, Inc., a Delaware corporation (the “Company”), Deerfield
ED Corporation, a Delaware corporation (“ED”), and the Stockholders of
ED.  Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to them in the
Agreement.  

 

Pursuant to
Section 2.4 of the Agreement, the Company hereby provides notice of its
exercise of the Option.  The Company will
purchase all of the Shares from the Stockholderse on
        , 20     in
accordance with and subject to the terms and conditions set forth in the
Agreement.  

 

 

IN WITNESS
WHEREOF, the Company has caused this Option Exercise Notice to be given by its
duly authorized representative as of the date written above:

 

	
   

  	
  VIVUS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  

 

 

PUT EXERCISE
NOTICE

 

VIVUS, Inc.

1172 Castro Street

Mountain View,
California  94040

Attention:  Leland F. Wilson

 

Dear Mr. Wilson:

 

Reference is made to that certain Option and Put
Agreement dated as of             ,
2008 (the “Agreement”), between VIVUS, Inc., a Delaware corporation (the
“Company”), Deerfield ED Corporation, a Delaware corporation (“ED”),
and the Stockholders of ED. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to them in the Agreement.

 

[FOR EXERCISE IN RESPECT OF PUT RIGHTS OTHER THAN
PURSUANT TO SECTION 3.2(d) OF THE AGREEMENT]  Pursuant to Section 3.5 of the Agreement, the
Stockholders hereby provide notice of their exercise of the Put Right. The
Stockholders will sell all of the Shares to the Company on             ,
20    in accordance with and subject to the terms and
conditions set forth in the Agreement.

 

[FOR EXERCISE IN RESPECT OF PUT RIGHT SPECIFIED IN
SECTION 3.2(D) OF THE AGREEMENT]  Pursuant to Section 3.5 of the Agreement, the
Stockholders hereby provide notice of their exercise of the Put Right. The
Stockholders will sell all of the Shares to the Company simultaneously with the
closing of the Major Transaction specified in the Major Transaction Notice of
the Company dated                      ,
200   , or on a date that is mutually agreeable to the Company
and the Stockholders that is prior to the closing of the Major Transaction.
Such sale and purchase will be subject to and will be made in accordance with
the terms and conditions set forth in the Agreement.

 

 

IN WITNESS
WHEREOF, the Stockholders have caused this Put Exercise Notice to be given by
its duly authorized representative as of the date written above:

 

	
   

  	
  DEERFIELD
  PRIVATE DESIGN FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DEERFIELD
  PRIVATE DESIGN

  INTERNATIONAL, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

EXHIBIT 4

 

Security Agreement

 

See Exhibit 10.7 to the
8-K.

 

3Exhibit
10.6

 

SECURITY
AGREEMENT

 

THIS SECURITY AGREEMENT (this “Agreement”) dated as of April 3,
2008, is made by and between VIVUS, INC., a
Delaware corporation (the “Debtor”), and DEERFIELD ED
CORPORATION, a Delaware corporation (the “Secured Party”).

 

WHEREAS, the Debtor and the Secured Party have entered into
that certain Funding and Royalty Agreement dated as of April 3, 2008 (the “Royalty
Agreement”) pursuant to which the Secured Party has agreed to provide funds
to the Debtor in consideration of the payment by the Debtor of a royalty on
future sales of certain pharmaceutical products specified therein;

 

WHEREAS, it is a condition precedent to the Secured Party’s
execution of the Royalty Agreement that the Debtor execute and deliver to the
Secured Party a security agreement in substantially the form hereof;

 

WHEREAS, the Debtor wishes to grant a security interest in
favor of the Secured Party on the terms and subject to the conditions set forth
herein; and

 

WHEREAS, the Debtor intends to enter into a separate Security
Agreement (the “Option Security Agreement”) with the stockholders of the
Secured Party (including such stockholders’ successors and assigns, the “Stockholders”),
pursuant to which the Debtor will grant to the Stockholders a security interest
in the same Collateral (as defined herein) as the Debtor grants a security
interest to the Secured Party pursuant to this Agreement, which security
interest shall have priority over the security interest granted to the Secured
Party under this Agreement.

 

NOW, THEREFORE, in consideration of the promises contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

1.1                                 UCC Terms.  The following
terms that are defined in the Uniform Commercial Code (as hereinafter defined)
are used in this Agreement as so defined (and, in the event any such term is
defined differently for purposes of Article 9 of the Uniform Commercial
Code than for any other purpose or purposes of the Uniform Commercial Code, the
Article 9 definition shall govern): 
Account, Documents, Equipment, Inventory, Proceeds and Records.

 

1.2                                 Royalty Agreement Terms. 
All other capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Royalty Agreement.

 

1.3                                 Other Defined Terms. 
In addition, the following terms shall have the meanings set forth
below:

 

“Collateral” means and includes the
Registrations, the Intellectual Property and all of the Accounts, Equipment and
Inventory arising out of or relating specifically to the Royalty 

 

 

Products, wherever
located, of the Debtor now or hereafter held or received by, in transit to, or
in the possession or control of the Debtor or the Secured Party, and any
substitutions or replacements thereof and any products and proceeds thereof,
including without limitation, insurance proceeds.  Equipment of which Debtor makes significant
use for purposes unrelated to the Royalty Products is not Collateral.

 

“Collateral Accounts” means any Accounts
comprising any or all of the Collateral.

 

“Collateral Collection Accounts” has the
meaning set forth in Section 5.4.

 

“Collateral Equipment” means Equipment
comprising part of the Collateral.

 

“Collateral Inventory” means any Inventory
comprising any or all of the Collateral.

 

“Copyright” means the legal right provided by
the Copyright Act of 1976, as amended, to the expression contained in any work
of authorship fixed in any tangible medium of expression together with any
similar rights arising in any other country as a result of statute or treaty,
and any right that may exist to obtain a registration with respect thereto from
any Governmental Authority and any rights arising under any such application.

 

“Event of Default” shall mean any failure of
the Debtor to make Royalty payments in accordance with the Royalty Agreement,
which failure constitutes a breach of the Royalty Agreement, within fifteen
(15) days after the Debtor receives written notice of such failure to pay from
the Secured Party.

 

“Governmental Authority” means any nation or
government, any state or other political subdivision thereof, any municipal,
local, city or county government, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any corporation or other entity owned or controlled, through capital stock
or otherwise, by any of the foregoing.

 

“Intellectual Property” means all Patents,
Marks, Trade Names, Copyrights, Software, Trade Secrets, Know-How, tests,
protocols, standard operating procedures, results and data owned, licensed,
possessed, used or useful by the Debtor specifically relating to or necessary
for the Royalty Products or the composition, manufacture, quality control,
testing, packaging, storage or use of the Royalty Products.  “Intellectual Property” includes the contents
of the drug master file, all adverse event reports made or received by the
Debtor and all submissions made to the FDA relating to the Royalty Products.

 

“Know-How” means ideas, designs, inventions,
discoveries, concepts, compilations of information, methods, techniques,
procedures and processes, whether confidential or not, whether patentable or
not and whether reduced to practice or not.

 

“Lien” means any mortgage, claim, lien,
security interest, pledge, escrow, charge, option, restriction or encumbrance
of any kind or character whatsoever.

 

“Mark” means any word, name, symbol or device
used by a Person to identify its goods or services, whether or not registered,
all goodwill associated therewith, and any right that may 

 

2

 

exist to obtain a
registration with respect thereto from any Governmental Authority and any
rights arising under any such application. 
“Mark” includes trademarks and service marks.

 

“Obligations” means all of the obligations and
liabilities of the Debtor to make Royalty payments to the Secured Party
pursuant to the Royalty Agreement.

 

“Patent” means any patent granted by the U.S.
Patent and Trademark Office or by the comparable agency of any other country,
and any renewal thereof, and any rights arising under any patent application
filed with the U.S. Patent and Trademark Office or the comparable agency of any
other country and any rights that may exist to file any such application.

 

“Permitted Liens” means (i)  Liens for
current Taxes not yet delinquent or Liens for Taxes being contested in good
faith and by appropriate proceedings for which adequate reserves have been
made, (ii)  possessory Liens on personal property imposed by law, such as
the Liens of carriers, warehousemen, mechanics, materialmen and landlords,
incurred in the ordinary course for sums not constituting borrowed money, that
are not overdue or which are being contested in good faith and by appropriate
proceedings, (iii) the Liens granted pursuant to this Agreement (iv) Liens
in favor of the Stockholders and (v) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of customs duties in
connection with the importation of goods.

 

“Person” means any corporation, association,
joint venture, partnership, limited liability company, organization, business,
individual, trust, Governmental Authority or other legal entity.

 

“Registrations” has the meaning given such term
in the Royalty Agreement.

 

“Royalty Products” has the meaning given such
term in the Royalty Agreement.

 

“Software” means, with respect to a Person, all
types of computer software programs owned, licensed, used or usable by such
Person, including operating systems, application programs, software tools,
firmware and software imbedded in equipment, including both object code and
source code versions thereof.  The term “Software”
also includes all written or electronic materials that explain the structure or
use of the Software or that were used in the development of the Software,
including logic diagrams, flow charts, procedural diagrams, error reports,
manuals and training materials.

 

“Trade Names” means any words, names or symbols
used by a Person to identify its business.

 

“Trade Secrets” means the business or technical
information of any Person including, but not limited to, customer lists,
marketing data and Know-How that is not generally known to other Persons who
are not subject to an obligation of nondisclosure and that derives actual or
potential commercial value from being not generally known to other Persons.

 

“Uniform Commercial Code” means the Uniform
Commercial Code as the same may be in effect from time to time in the State of
Delaware; provided that if, by reason of applicable law, the validity or
perfection of any security interest in any Collateral granted under this
Agreement is governed by the Uniform Commercial Code as in effect in another jurisdiction,
then as to the 

 

3

 

validity or perfection,
as the case may be, of such security interest, “Uniform Commercial Code” means
the Uniform Commercial Code as in effect from time to time in such other jurisdiction.

 

1.4                                 Construction. 
Unless the context requires otherwise, words in the singular include the
plural, words in the plural include the singular, and words importing any
gender shall be applicable to all genders. 
If a term is defined as one part of speech (such as a noun), it shall
have a corresponding meaning when used as another part of speech (such as a
verb).

 

ARTICLE 2

 

GRANT
OF SECURITY INTEREST

 

2.1                                 Pledge and Grant of Security Interest. 
The Debtor hereby pledges, assigns and delivers to the Secured Party and
grants to the Secured Party, to secure the payment and performance in full of
all of the Obligations, a lien upon and security interest in all of its right,
title and interest in and to the Collateral, wherever located, whether now owned
or hereafter acquired or arising, and all proceeds and products thereof.

 

2.2                                 Security for Debtor’s Obligations. 
This Agreement and the Collateral secure the full and prompt payment, at
any time and from time to time as and when due (whether at the stated maturity,
by acceleration or otherwise), of all of the Obligations of the Debtor.

 

2.3                                 Security Interests Absolute. 
All rights of the Secured Party and security interests hereunder, and
all obligations of the Debtor hereunder, shall be absolute and unconditional
and, without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:

 

(a)                                  any extension, renewal, settlement,
compromise, waiver or release in respect of any Obligation, the Royalty
Agreement or any other document evidencing or securing such Obligation, by
operation of law or otherwise;

 

(b)                                 any modification, amendment or supplement
to the Royalty Agreement or any other document evidencing or securing any
Obligation;

 

(c)                                  any release, non-perfection or invalidity
of any direct or indirect security for any Obligation;

 

(d)                                 any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Debtor or its assets
or any resulting disallowance, release or discharge of all or any portion of
the Obligations;

 

(e)                                  the existence of any claim, set-off or
other right which the Secured Party may have at any time against the Debtor or
any other Person, whether in connection herewith or any unrelated transactions;
provided, that nothing herein shall prevent the assertion of any such
claim by separate suit or compulsory counterclaim;

 

4

 

(f)                                    any invalidity or unenforceability
relating to or against the Debtor for any reason of any Obligation, or any provision
of applicable law or regulation purporting to prohibit the payment by the
Debtor of the Obligations;

 

(g)                                 any failure by the Secured Party (A) to
file or enforce a claim against the Debtor (in a bankruptcy or other
proceeding), (B) to give notice of the existence, creation or incurrence
by the Debtor of any new or additional indebtedness or obligation under or with
respect to the Obligations, (C) to commence any action against the Debtor
or (D) to proceed with due diligence in the collection, protection or
realization upon any collateral securing the Obligations; or

 

(h)                                 any other act or omission to act or delay
of any kind by the Secured Party or the Debtor or any other corporation or
Person or any other circumstance whatsoever which might, but for the provisions
of this clause, constitute a legal or equitable discharge of the Debtor’s
obligations hereunder.

 

ARTICLE 3

 

REPRESENTATIONS
AND WARRANTIES

 

Debtor hereby represents and warrants as follows:

 

3.1                                 Ownership of Collateral. 
The Debtor owns, or has valid rights as a lessee or licensee with
respect to, all Collateral purported to be pledged by it hereunder, free and
clear of any Liens except for Permitted Liens. 
No mortgage, security agreement, financing statement or other public
notice with respect to all or any part of the Collateral is on file or of
record in any government or public office, and the Debtor has not filed or
consented to the filing of any such mortgage, agreement, statement or notice,
except (i) Uniform Commercial Code financing statements naming the Secured
Party as secured party and (ii) Liens in favor of the Stockholders.

 

3.2                                 Security Interests; Filings. 
This Agreement, together with (i) the filing of duly completed and
executed Uniform Commercial Code financing statements naming the Debtor as
debtor, the Secured Party as secured party, and describing the Collateral, in
the jurisdictions set forth with respect to the Debtor on Schedule I
hereto (which filing is hereby authorized by the Debtor) and (ii) to the
extent required by applicable law, the filing of duly completed and executed
assignments in the forms required by the U.S. Copyright Office or the U.S.
Patent and Trademark Office, creates, and at all times shall constitute, a
valid and perfected security interest in and Lien upon the Collateral in favor
of the Secured Party, to the extent a security interest and Lien therein can be
perfected by such filings, recordings or possession, as applicable, superior
and prior to the rights of all other Persons therein except for Permitted
Liens.

 

3.3                                 Locations.  Schedule I lists as to the Debtor, (i) its exact legal
name, (ii) the jurisdiction of its incorporation or organization, its
federal tax identification number, and (if applicable) its organizational
identification number, (iii) the addresses of its chief executive office
and each other place of business and (iv) the address of each location at
which any of the Collateral Inventory or Collateral Equipment is kept, except
for any new locations established in accordance with the provisions of Section 4.2.  The
Debtor does not presently conduct business 

 

5

 

under any prior or other corporate or company name or
under any trade or fictitious names, except as indicated beneath its name on Schedule I, and the Debtor has not entered into any contract
or granted any Lien within the past five (5) years under any name other
than its legal corporate name or a trade or fictitious name indicated on Schedule I.

 

3.4                                 No Violations. 
The signing, delivery and performance of this Agreement by the Debtor is
not prohibited or limited by, and will not result in the breach of or a default
under, any provision of the certificate of incorporation, bylaws or other
formation documents of the Debtor, any material agreement or instrument binding
on the Debtor or any Legal Requirement applicable to the Debtor, except for
such prohibitions, limitations, defaults or Legal Requirements as would not
prevent or impair consummation by the Debtor of the transactions contemplated
hereby, the performance by the Debtor of its obligations hereunder or the
exercise of the Secured Party of its rights hereunder.  The execution, delivery and performance of
this Agreement by the Debtor, the Debtor’s compliance with the terms and
provisions hereof and the Secured Party’s exercise of any of its rights
hereunder, do not and will not conflict with or result in a breach of any of
the terms and provisions of or constitute a default or create a termination
right under, with or without the passage of time and the giving of notice, any
material contract or other instrument or obligation binding or affecting the
Debtor, the Royalty Products or the Collateral including, without limitation,
that certain agreement dated December 28, 2000 between Tanabe Seiyaku Co.,
Ltd. and the Debtor (the “Tanabe Agreement”), except as set forth in
that certain disclosure letter of even date herewith delivered by the Debtor to
the Secured Party pursuant to Section 7 of the Royalty Agreement.

 

3.5                                 No Restrictions. 
There are no statutory or regulatory restrictions, prohibitions or
limitations on the Debtor’s ability to grant to the Secured Party a Lien upon
and security interest in the Collateral pursuant to this Agreement or (except
for the provisions of the federal Anti-Assignment Act (41 U.S.C. 15), as
amended and the Anti-Claims Act (31 U.S.C. 3727), as amended) on the exercise
by the Secured Party of its rights and remedies hereunder (including any
foreclosure upon or collection of the Collateral), and there are no contractual
restrictions on the Debtor’s ability to grant such Lien and security interest.

 

3.6                                 Accounts.  Each
Collateral Account is, or at the time it arises will be, (i) a bona fide,
valid and legally enforceable indebtedness of the account debtor according to
its terms, arising out of or in connection with the sale, lease or performance
of goods or services by the Debtor or any of them, (ii) subject to no
offsets, discounts, counterclaims, contra accounts or any other defense of any
kind and character, other than warranties and discounts customarily given by
the Debtor in the ordinary course of business and warranties provided by
applicable law, (iii) to the extent listed on any schedule of Collateral
Accounts at any time furnished to the Secured Party, a true and correct
statement of the amount actually and unconditionally owing thereunder, maturing
as stated in such schedule and in the invoice covering the transaction creating
such Collateral Account, and (iv) not evidenced by any other instrument;
or if so, such other instrument (other than invoices and related correspondence
and supporting documentation) shall promptly be duly endorsed to the order of
the Secured Party and delivered to the Secured Party to be held as Collateral
hereunder.  To the knowledge of the
Debtor, there are no facts, events or occurrences that would in any way impair
the validity or enforcement of any Collateral Accounts except as set forth
above.

 

6

 

ARTICLE 4

 

COVENANTS

 

The Debtor agrees that so long as any Obligation
remains unpaid:

 

4.1                                 Use and Disposition of Collateral. 
So long as no Event of Default shall have occurred and be continuing,
the Debtor may, in any lawful manner not inconsistent with the provisions of
this Agreement, use, control and manage the Collateral in the operation of its
business, and receive and use the income, revenue and profits arising therefrom
and the proceeds thereof, in the same manner and with the same effect as if
this Agreement had not been made; provided, however, that the
Debtor will not sell or otherwise dispose of (other than sales of Royalty
Products in the ordinary course of the Debtor’s business), grant any option
with respect to or grant any Lien with respect to or otherwise encumber any of
the Collateral or any interest therein, except for Permitted Liens, except as
may be otherwise expressly permitted in accordance with the terms of this
Agreement (including any applicable provisions therein regarding delivery of
proceeds of sale or disposition to the Secured Party) or except in connection
with a permitted assignment under Section 9(f) of the Royalty
Agreement.

 

4.2                                 Change of Name, Locations, etc. 
The Debtor will not (i) change its name, identity or corporate
structure, (ii) change its chief executive office from the location
thereof listed on Schedule I, (iii) change
the jurisdiction of its incorporation or organization from the jurisdiction
listed on Schedule I (whether by merger or
otherwise) or (iv) remove any Collateral, or any books, records or other
information relating to such Collateral, from the applicable location thereof
listed on Schedule I, or keep or maintain any
Collateral at a location not listed on Schedule I,
(except for Collateral with an aggregate fair market value not to exceed
$250,000 at any time, in the ordinary course of business, including, without
limitation, for testing or evaluation purposes) unless in each case the Debtor
has (A) given prior written notice to the Secured Party of its intention
to do so, together with information regarding any such new location and such
other information in connection with such proposed action as the Secured Party
may reasonably request, and (B) delivered to the Secured Party, prior to
any such change or removal, such documents, instruments and financing
statements as may be reasonably required by the Secured Party, all in form and
substance reasonably satisfactory to the Secured Party, paid all necessary
filing and recording fees and taxes, and taken all other actions reasonably
requested by the Secured Party, in order to perfect and maintain the Lien upon
and security interest in the Collateral.

 

4.3                                 Records; Inspection.

 

(a)                                  The Debtor will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral
Accounts and all other Collateral, and will furnish to the Secured Party from
time to time such statements, schedules and reports (including, without
limitation, accounts receivable aging schedules) with regard to the Collateral
as the Secured Party may reasonably request.

 

(b)                                 The Debtor shall, from time to time at
such times as may be reasonably requested and upon not less than seven (7) days’
prior notice, permit the Secured Party to 

 

7

 

visit its offices
or the premises upon which any Collateral may be located (provided that with
respect to locations owned or operated by third parties, Debtor shall satisfy
its obligations hereunder by making reasonable commercial efforts to secure
access to the Secured Party), inspect its books and records relating to the
Collateral and make copies and memoranda thereof, inspect the Collateral,
discuss its finances and affairs relating to the Collateral with its officers,
employees and independent accountants and take any other actions necessary for
the protection of the interests of the Secured Party in the Collateral,
provided that such audit or inspection shall not be conducted more than once
per year.

 

4.4                                 Accounts.  Unless
notified otherwise by the Secured Party in accordance with the terms hereof,
the Debtor shall endeavor to collect its Collateral Accounts and all amounts
owing to it thereunder in the ordinary course of its business consistent with
past practices and shall apply forthwith upon receipt thereof all such amounts
as are so collected to the outstanding balances thereof, and in connection
therewith shall, at the request of the Secured Party, take such reasonable
action as the Secured Party may deem necessary or advisable (within applicable
laws) to enforce such collection.  The
Debtor shall promptly inform the Secured Party of any disputes with any account
debtor or obligor and of any claimed offset and counterclaim that may be
asserted with respect thereto involving, in each case, any material amount,
where the Debtor reasonably believes that the likelihood of payment by such
account debtor is materially impaired, indicating in detail the reason for the
dispute, all claims relating thereto and the amount in controversy.

 

4.5                                 Collateral Inventory. 
Debtor will maintain at all times at least six months’ inventory of
active pharmaceutical ingredient for Muse.

 

4.6                                 Intellectual Property. 
The Debtor will execute and deliver to the Secured Party fully completed
collateral assignments in the forms requested by the Secured Party for
recordation in the U.S. Copyright Office or the U.S. Patent and Trademark
Office with regard to any registered Intellectual Property owned by the Debtor
and included among the Collateral.  In
the event that after the date hereof the Debtor shall acquire any or effect any
registration of any such registered Intellectual Property, the Debtor shall
promptly furnish written notice thereof to the Secured Party and execute and
deliver to the Secured Party, as promptly as possible after the date of such
acquisition or registration fully completed collateral assignments in the forms
requested by the Secured Party for recordation in the U.S. Copyright Office or
the U.S. Patent and Trademark Office. 
The Debtor hereby appoints the Secured Party its attorney-in-fact to
execute, deliver and record any and all such amendments, agreements,
instruments and documents for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed and such power, being coupled with an
interest, shall be irrevocable for so long as this Agreement shall be in effect
with respect to the Debtor.

 

4.7                                 Collateral in Possession of Third Party. 
Without limiting the generality of any other provision of this
Agreement, the Debtor agrees that it shall not permit any Collateral to be in
the possession of any bailee, warehouseman, agent, processor or other third
party at any time (except for relocations of Collateral with an aggregate fair
market value not to exceed $250,000 at any time, in the ordinary course of
business, including, without limitation, for testing or evaluation purposes)
unless such bailee or other Person shall have been notified of the security 

 

8

 

interest created by this Agreement (or, if required
under applicable law in order to perfect the Secured Party’s security interest
in such Collateral, such bailee or other Person shall have acknowledged to the
Secured Party in writing that it is holding such Collateral for the benefit of
the Secured Party and subject to such security interest and to the instructions
of the Secured Party) and the Debtor shall have exercised its commercially
reasonable efforts to obtain from such bailee or other Person, at the Debtor’s
sole cost and expense, the written acknowledgement described above (if not
already required by applicable law to perfect the Secured Party’s security
interest) and agreement to waive and release any Lien (whether arising by
operation of law or otherwise) it may have with respect to such Collateral,
such agreement to be in form and substance reasonably satisfactory to the
Secured Party.

 

4.8                                 Protection of Security Interest; Further
Assurances.  The Debtor will, at its expense and in such
manner and form as the Secured Party may reasonably require, execute, deliver,
file and record any financing statement, specific assignment or other paper,
obtain all necessary consents of third parties and take any other action that
may be necessary or desirable, or that the Secured Party may reasonably
request, in order to create, preserve, perfect or validate the security
interests granted hereby or to enable the Secured Party to exercise and enforce
its rights hereunder with respect to any of the Collateral.  To the extent permitted by applicable law,
the Debtor hereby authorizes the Secured Party to execute and file, in the name
of the Debtor or otherwise, Uniform Commercial Code financing statements which
the Secured Party in its sole discretion may deem necessary or appropriate to
further perfect the security interests.

 

ARTICLE 5

 

5.1                                 General Authority. 
Upon the occurrence and during the continuance of an Event of Default,
the Debtor hereby irrevocably appoints the Secured Party and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact, in the name of the Debtor or its own name, for the sole use
and benefit of the Secured Party, but at the Debtor’s expense, at any time and
from time to time, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to carry
out the terms of this Agreement and, without limiting the foregoing, the Debtor
hereby gives the Secured Party the power and right on its behalf, without
notice to or further assent by the Debtor to do the following:

 

(a)                                  to receive, take, endorse, assign and
deliver any and all checks, notes, drafts, acceptances, documents and other
negotiable and nonnegotiable instruments taken or received by the Debtor as, or
in connection with, the Collateral;

 

(b)                                 to demand, sue for, collect, receive and
give acquittance for any and all monies due or to become due upon or in
connection with the Collateral;

 

(c)                                  to commence, settle, compromise,
compound, prosecute, defend or adjust any claim, suit, action or proceeding
with respect to, or in connection with, the Collateral;

 

(d)                                 to sell, transfer, assign or otherwise
deal in or with the Collateral or any part thereof, as fully and effectually as
if the Secured Party were the absolute owner thereof; and

 

9

 

(e)                                  to do, at its option, but at the expense
of the Debtor, at any time or from time to time, all acts and things which the
Secured Party deems necessary to protect or preserve the Collateral and to
realize upon the Collateral.

 

5.2                                 Rights and Remedies. 
If an Event of Default shall have occurred and be continuing, the
Secured Party shall be entitled to exercise in respect of the Collateral all of
its rights, powers and remedies provided for herein or otherwise available to
it by law, in equity or otherwise, including all rights and remedies of a
secured party under the Uniform Commercial Code, and shall be entitled in
particular, but without limitation of the foregoing, to exercise the following
rights, which the Debtor agrees to be commercially reasonable:

 

(a)                                  To notify any or all account debtors or
obligors under any Collateral Accounts or other Collateral of the security
interest in favor of the Secured Party created hereby and to direct all such
Persons to make payments of all amounts due thereon or thereunder directly to
the Secured Party or to an account designated by the Secured Party; and in such
instance and from and after such notice, all amounts and proceeds received by
the Debtor in respect of any Collateral Accounts or other Collateral shall be
received in trust for the benefit of the Secured Party hereunder, shall be
segregated from the other funds of the Debtor and shall be forthwith deposited
into such account or paid over or delivered to the Secured Party in the same
form as so received (with any necessary endorsements or assignments), to be
held as Collateral and applied to the Obligations as provided herein;

 

(b)                                 To take possession of, receive, endorse,
assign and deliver, in its own name or in the name of the Debtor, all checks,
notes, drafts and other instruments relating to any Collateral, including
receiving, opening and properly disposing of all mail addressed to the Debtor
concerning Collateral Accounts and other Collateral; to verify with account
debtors or other contract parties the validity, amount or any other matter
relating to any Collateral Accounts or other Collateral, in its own name or in
the name of the Debtor; to accelerate any indebtedness or other obligation constituting
Collateral that may be accelerated in accordance with its terms; to take or
bring all actions and suits deemed necessary or appropriate to effect
collections and to enforce payment of any Collateral Accounts or other
Collateral; to settle, compromise or release in whole or in part any amounts
owing on Collateral Accounts or other Collateral; and to extend the time of
payment of any and all Collateral Accounts or other amounts owing under any
Collateral and to make allowances and adjustments with respect thereto, all in
the same manner and to the same extent as the Debtor might have done;

 

(c)                                  To transfer to or register in the Secured
Party’s name or the name of any of its agents or nominees all or any part of
the Collateral;

 

(d)                                 To require the Debtor to, and the Debtor
hereby agrees that it will at its expense and upon request of the Secured Party
forthwith, assemble all or any part of the Collateral as directed by the
Secured Party and make it available to the Secured Party at a place designated
by the Secured Party;

 

10

 

(e)                                  To enter and remain upon the premises of
the Debtor and take possession of all or any part of the Collateral, with or
without judicial process; to use the materials, services, books and records of
the Debtor for the purpose of liquidating or collecting the Collateral, whether
by foreclosure, auction or otherwise; and to remove the same to the premises of
the Secured Party or any designated agent for such time as the Secured Party
may desire, in order to effectively collect or liquidate the Collateral; and

 

(f)                                    To sell, resell, assign and deliver, in
its sole discretion, all or any of the Collateral, in one or more parcels, at
public or private sale, at any of the Secured Party’s offices or elsewhere, for
cash, upon credit or for future delivery, at such time or times and at such
price or prices and upon such other terms as the Secured Party may deem
satisfactory.  If any of the Collateral
is sold by the Secured Party upon credit or for future delivery, the Secured Party
shall not be liable for the failure of the purchaser to purchase or pay for the
same and, in the event of any such failure, the Secured Party may resell such
Collateral.  In no event shall the Debtor
be credited with any part of the proceeds of sale of any Collateral until and
to the extent cash payment in respect thereof has actually been received by the
Secured Party.  Each purchaser at any
such sale shall hold the property sold absolutely, free from any claim or right
of whatsoever kind, including any equity or right of redemption of the Debtor,
and the Debtor hereby expressly waives all rights of redemption, stay or
appraisal, and all rights to require the Secured Party to marshal any assets in
favor of the Debtor or any other party or against or in payment of any or all
of the Obligations, that it has or may have under any rule of law or
statute now existing or hereafter adopted. 
No demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law, as referred to below), all of which are
hereby expressly waived by the Debtor, shall be required in connection with any
sale or other disposition of any part of the Collateral.  If any notice of a proposed sale or other
disposition of any part of the Collateral shall be required under applicable
law, the Secured Party shall give the Debtor at least ten (10) days’ prior
notice of the time and place of any public sale and of the time after which any
private sale or other disposition is to be made, which notice the Debtor agrees
is commercially reasonable.  The Secured
Party shall not be obligated to make any sale of Collateral if it shall
determine not to do so, regardless of the fact that notice of sale may have
been given.  The Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. 
Upon each public sale and, to the extent permitted by applicable law,
upon each private sale, the Secured Party may purchase all or any of the
Collateral being sold, free from any equity, right of redemption or other claim
or demand, and may make payment therefor by endorsement and application (without
recourse) of the Obligations in lieu of cash as a credit on account of the
purchase price for such Collateral.

 

5.3                                 Application of Proceeds.

 

(a)                                  All proceeds collected by the Secured
Party upon any sale, other disposition of or realization upon any of the
Collateral, together with all other moneys received by the Secured Party
hereunder, shall be applied as follows:

 

11

 

(i)                                     first, to payment of the expenses of such
sale or other realization, including reasonable compensation to the Secured
Party and its agents and counsel, and all expenses, liabilities and advances
incurred or made by the Secured Party, its agents and counsel in connection
therewith or in connection with the care, safekeeping or otherwise of any or
all of the Collateral, and any other unreimbursed expenses for which the
Secured Party is to be reimbursed pursuant to Section 6.1;

 

(ii)                                  second, after payment in full of the
amounts specified in clause (i) above,
to payment of the Obligations; and

 

(iii)                               finally, after payment in full of the amounts
specified in clauses (i) and (ii) above, any surplus then remaining shall be paid to
the Debtor, or its successors or assigns, or to whomever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may
direct.

 

(b)                                 The Debtor shall remain liable to the
extent of any deficiency between the amount of all proceeds realized upon sale
or other disposition of the Collateral pursuant to this Agreement and the
amount of any then outstanding Obligations. 
Upon any sale of any Collateral hereunder by the Secured Party (whether
by virtue of the power of sale herein granted, pursuant to judicial proceeding,
or otherwise), the receipt of the Secured Party or the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold, and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Secured Party or such officer or be answerable in any way for the
misapplication thereof.

 

5.4                                 Collateral Collection Accounts. 
Upon the occurrence and during the continuance of an Event of Default,
the Secured Party shall have the right to cause to be established and
maintained, at its principal office or such other location or locations as it
may establish from time to time in its discretion, one or more accounts
(collectively, “Collateral Collection Accounts”) for the collection of
cash proceeds of the Collateral.  Such
proceeds, when deposited, shall continue to constitute Collateral for the
Obligations and shall not constitute payment thereof until applied as herein
provided.  The Secured Party shall have
sole dominion and control over all funds deposited in any Collateral Collection
Account, and such funds may be withdrawn therefrom only by the Secured
Party.  Upon the occurrence and during
the continuance of an Event of Default, the Secured Party shall have the right
to apply amounts held in the Collateral Collection Accounts in payment of the
Obligations in the manner provided for in Section 5.3.

 

5.5                                 Grant of License. 
The Debtor hereby grants to the Secured Party, with effect upon the
occurrence and during the continuance of an Event of Default, an irrevocable,
non-exclusive license or sublicense (as applicable) of any duration, with right
to sublicense (exercisable without payment of royalty or other compensation to
the Debtor), in, to and under all Intellectual Property now owned or licensed
or hereafter acquired or licensed by the Debtor, wherever the same may be
located throughout the world, for any purpose relating to the Royalty Products,
subject to applicable law and subject to the requirements of the Tanabe
Agreement, including, without limitation, Section 2.3
thereof.

 

12

 

5.6                                 Waivers.  The Debtor,
to the greatest extent not prohibited by applicable law, hereby (i) agrees
that it will not invoke, claim or assert the benefit of any rule of law or
statute now or hereafter in effect (including, without limitation, any right to
prior notice or judicial hearing in connection with the Secured Party’s
possession, custody or disposition of any Collateral or any appraisal,
valuation, stay, extension, moratorium or redemption law), or take or omit to
take any other action, that would or could reasonably be expected to have the
effect of delaying, impeding or preventing the exercise of any rights and
remedies in respect of the Collateral, the absolute sale of any of the
Collateral or the possession thereof by any purchaser at any sale thereof, and
waives the benefit of all such laws and further agrees that it will not hinder,
delay or impede the execution of any power granted hereunder to the Secured
Party, but that it will permit the execution of every such power as though no
such laws were in effect, (ii) waives all rights that it has or may have
under any rule of law or statute now existing or hereafter adopted to
require the Secured Party to marshal any Collateral or other assets in favor of
the Debtor or any other party or against or in payment of any or all of the
Obligations, and (iii) waives all rights that it has or may have under any
rule of law or statute now existing or hereafter adopted to demand,
presentment, protest, advertisement or notice of any kind (except notices
expressly provided for herein).

 

5.7                                 Subordination to Security Interest of
Stockholders.  The security interest granted to the Secured
Party pursuant to this Agreement shall be subordinate to the security interest
granted to the Stockholders pursuant to the Option Security Agreement.  The Stockholders are intended beneficiaries
of this Section 5.7.

 

ARTICLE 6

 

6.1                                 Indemnity and Expenses. 
Debtor agrees:

 

(a)                                  To indemnify and hold harmless the
Secured Party and each of its directors, managers, officers, employees, agents,
members and affiliates from and against any and all claims, damages, demands,
losses, obligations, judgments and liabilities (including, without limitation,
reasonable attorneys’ fees and expenses) in any way arising out of or in
connection with this Agreement and the transactions contemplated hereby, except
to the extent the same shall arise as a result of the gross negligence or
willful misconduct of the party seeking to be indemnified; and

 

(b)                                 To pay and reimburse Secured Party upon
demand for all reasonable costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses) that the Secured Party may incur in
connection with (i) the custody, use or preservation of, or the sale of,
collection from or other realization upon, any of the Collateral, including the
reasonable expenses of re-taking, holding, preparing for sale or lease, selling
or otherwise disposing of or realizing on the Collateral, (ii) the
exercise or enforcement of any rights or remedies granted hereunder (including,
without limitation, under Article 5),
under the Royalty Agreement or otherwise available to it (whether at law, in
equity or otherwise), or (iii) the failure by the Debtor to perform or
observe any of the provisions hereof. 
The provisions of this Section 6.1
shall survive the execution and delivery of this Agreement, the repayment of
any of the Obligations and the termination of this Agreement, the 

 

13

 

Royalty Agreement
or any other instruments or documents executed and delivered pursuant to or in
connection with this Agreement.

 

6.2                                 No Waiver.  The Secured
Party’s failure at any time or times hereafter to require strict performance by
the Debtor of any of the provisions of this Agreement or of the Royalty
Agreement shall not waive, affect or diminish any right of the Secured Party at
any time or times hereafter to demand strict performance therewith and with
respect to any other provision of this Agreement, and any waiver of any Event
of Default shall not waive or affect any other Event of Default, whether prior
or subsequent thereto, and whether of the same or a different type.  None of the provisions of this Agreement
shall be deemed to have been waived by any act or knowledge of the Secured
Party, its agents, officers or employees except by an instrument in writing
signed by an officer of the Secured Party and directed to the Debtor specifying
such waiver.

 

6.3                                 Binding Effect. 
This Agreement and all other instruments and documents executed and
delivered pursuant hereto or in connection herewith shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto.

 

6.4                                 Governing Law. 
This Agreement shall be construed and interpreted in accordance with the
internal laws and judicial decisions of the State of Delaware without giving
effect to the conflict of laws principles thereof, except to the extent that
matters of perfection and validity of the security interests hereunder, or
remedies hereunder, are governed by the laws of a jurisdiction other than the
State of Delaware.

 

6.5                                 Survival of Agreement. 
All representations and warranties of the Debtor and all obligations of
the Debtor contained herein shall survive the execution and delivery of this
Agreement.

 

6.6                                 Pre-Filing and Filing of Financing
Statements.  By execution of this Agreement, the Debtor (a) expressly
authorizes the Secured Party to prepare and file or cause to be filed such
Uniform Commercial Code financing statements (including attached schedules,
exhibits, and addenda) as the Secured Party may deem reasonably necessary to
perfect the security interests and liens granted herein and (b) hereby
ratifies and confirms that the Secured Party was and is authorized to file all
such Uniform Commercial Code financing statements (including attached
schedules, exhibits, and addenda) prior to the execution and delivery of this
Agreement, and hereby ratifies any such filings.

 

6.7                                 Continuing Security Interest; Term;
Successors and Assigns; Assignment; Termination and Release; Survival. 
This Agreement shall create a continuing security interest in the
Collateral and shall secure the payment and performance of all of the
Obligations as the same may arise and be outstanding at any time and from time
to time from and after the date hereof, and shall (i) remain in full force
and effect until all of the Obligations have been finally discharged in full, (ii) be
binding upon and enforceable against the Debtor and its successors and assigns
(provided, however, that the Debtor may not sell, assign or
transfer any of its rights, interests, duties or obligations hereunder without
the prior written consent of the Secured Party, except that the Debtor may
assign this Agreement without such consent to any successor to all or
substantially all of the Debtor’s assets or business to which the Royalty
Agreement relates 

 

14

 

(whether by stock purchase, asset purchase, merger,
operation of law or otherwise); provided, however, that any such assignment
shall be effective only if the assignee shall have assumed all of the
obligations of the Debtor under the Royalty Agreement and this Agreement), and (iii) inure
to the benefit of and be enforceable by the Secured Party and its successors
and assigns.  Upon the termination of the
security interest created by this Agreement, the security interest in the
Collateral granted herein shall terminate and all rights to the Collateral
shall revert to Debtor.  Upon such
termination of the security interest, the Secured Party hereby authorizes the
Debtor to file any UCC termination statements necessary to effect such
termination and the Secured Party will execute and deliver to the Debtor any
additional documents or instruments reasonably requested by the Debtor to
evidence such termination.

 

6.8                                 Notices.  All notices,
consents, waivers and other communications hereunder shall be in writing and
shall be (i) delivered by hand, (ii) sent by facsimile transmission,
or (iii) sent certified mail or by a nationally recognized overnight
delivery service, charges prepaid, to the address set forth below (or such
other address for a Party as shall be specified by like notice):

 

	
   

  	
  If to the
  Secured Party, to:

  	
   

  	
  c/o Deerfield
  Capital, L.P.

  
	
   

  	
   

  	
   

  	
  780 Third
  Avenue, 37th Floor

  
	
   

  	
   

  	
   

  	
  New York, New
  York 10017

  
	
   

  	
   

  	
   

  	
  Attention: James
  E. Flynn

  
	
   

  	
   

  	
   

  	
  Facsimile: (212)
  573-8111

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy to:

  	
   

  	
  Robinson,
  Bradshaw & Hinson, P.A.

  
	
   

  	
   

  	
   

  	
  101 North Tryon
  Street, Suite 1900

  
	
   

  	
   

  	
   

  	
  Charlotte, North
  Carolina 28246

  
	
   

  	
   

  	
   

  	
  Attention: David
  J. Clark

  
	
   

  	
   

  	
   

  	
  Facsimile: (704)
  373-3990

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the
  Debtor, to:

  	
   

  	
  Vivus, Inc.

  
	
   

  	
   

  	
   

  	
  1172 Castro
  Street

  
	
   

  	
   

  	
   

  	
  Mountain View,
  California 94040

  
	
   

  	
   

  	
   

  	
  Attention:
  Leland F. Wilson

  
	
   

  	
   

  	
   

  	
  Facsimile: (650)
  934-5389

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy to:

  	
   

  	
  Wilson Sonsini
  Goodrich & Rosati

  
	
   

  	
   

  	
   

  	
  650
  Page Mill Road

  
	
   

  	
   

  	
   

  	
  Palo Alto, CA
  94304

  
	
   

  	
   

  	
   

  	
  Attention: Ian
  B. Edvalson

  
	
   

  	
   

  	
   

  	
  Facsimile: (650)
  493-6811

  

 

Each such notice
or other communication shall be deemed to have been duly given and to be
effective (x) if delivered by hand, immediately upon delivery if delivered
on a Business Day during normal business hours and, if otherwise, on the next
Business Day; (y) if sent by facsimile transmission, immediately upon
confirmation that such transmission has been successfully transmitted on a
Business Day before or during normal business hours and, if otherwise, on the
Business Day following such confirmation, or (z) if sent by certified mail
or a nationally recognized overnight delivery service, on the day of delivery
if delivered during normal business 

 

15

 

hours on a
Business Day and, if otherwise, on the first Business Day after delivery.  Notices and other communications sent via
facsimile must be followed by notice delivered by hand or by certified mail or
overnight delivery service as set forth herein within five (5) Business
Days.

 

6.9                                 Severability. 
To the extent any provision of this Agreement is prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

 

6.10                           Captions.  The captions
to the sections of this Agreement have been inserted for convenience only and
shall not limit or modify any of the terms hereof.

 

6.11                           Counterparts. 
This Agreement may be executed in two or more counterparts, which when
assembled shall constitute one and the same agreement.

 

6.12                           Amendments and Waivers. 
Any provision of this Agreement may be amended or waived, if, but only
if, such amendment or waiver is in writing and is signed by the Debtor and the
Secured Party.

 

 

[Signature
Page Follows]

 

16

 

IN WITNESS WHEREOF, intending to be legally bound, the Debtor has caused
this Security Agreement to be duly executed as of the date first above written.

 

	
   

  	
  VIVUS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy E.
  Morris

  
	
   

  	
  Name: Timothy E.
  Morris

  
	
   

  	
  Title: Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
  Accepted:

  
	
   

  	
   

  
	
   

  	
  DEERFIELD
  ED CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeff Kaplan

  
	
   

  	
  Name: Jeff
  Kaplan

  
	
   

  	
  Title: Treasurer

  
				

 

17

 

SCHEDULE
I

 

	
  Name and
  Jurisdiction of Incorporation:

  	
   

  	
  VIVUS, Inc.,
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
  Federal Tax
  Identification Number:

  	
   

  	
  94-3136179

  
	
   

  	
   

  	
   

  
	
  Chief Executive
  Office:

  	
   

  	
  1172 Castro
  Street, Mountain View, CA 94040

  
	
   

  	
   

  	
   

  
	
  Other Place of
  Business:

  	
   

  	
  735 an 745
  Airport Road, Lakewood, NJ 08701

  
	
   

  	
   

  	
   

  
	
  Locations of
  Collateral Inventory and Collateral Equipment:

  	
   

  	
  1172 Castro
  Street, Mountain View, CA 94040

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  735 and 745
  Airport Road, Lakewood, NJ 08701

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  15 Ingram
  Boulevard, La Vergne, TN 37086 (Cardinal Health)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  118 Melrich
  Road, Cranbury, NJ 08512 (E-Beam)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  500 West 4th
  Street, Lima, OH 45804 (Beam One)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  930 Wanamaker Avenue, Ontario, CA 91761 (Medegen)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  122 Fairfield Road, Fairfield, NJ 07004 (Gibraltor Labs)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}]]