Document:

Unassociated Document

     

    Exhibit
      10.1

     

    PURCHASE
      AND SALE AGREEMENT

     

    dated
      as of February
      21, 2008

     

    between

     

    AZITHROMYCIN
      ROYALTY SUB LLC

     

    and

     

    INSITE
      VISION INCORPORATED

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      Table
        of
        Contents

       

    

    
      	 	 
Page
	
              ARTICLE
                I
RULES OF CONSTRUCTION AND DEFINED TERMS

            	 
	 	 
	
              Section
                1.1

            	
              Rules
                of Construction and Defined Terms

            	
              1

            
	 	 	 
	
              ARTICLE
                II

              SALE
                AND PURCHASE OF PURCHASED ASSETS

            	 
	 	 
	
              Section
                2.1

            	
              Agreement
                to Sell and Purchase Purchased Assets

            	
              1

            
	
              Section
                2.2

            	
              Sale
                and Purchase of Purchased Assets; Sale Price.

            	
              1

            
	
              Section
                2.3

            	
              Consideration
                for Sale of Purchased Assets

            	
              2

            
	 	 	 
	
              ARTICLE
                III

              SALE
                PRICE PAYMENTS

            	 
	 	 
	
              Section
                3.1

            	
              Sale
                Price Payments

            	
              2

            
	 	 	 
	
              ARTICLE
                IV

              CONDITIONS
                TO CLOSING

            	 
	 	 
	
              Section
                4.1

            	
              Conditions
                to Closing

            	
              3

            
	 	 	 
	
              ARTICLE
                V

              REPRESENTATIONS
                AND WARRANTIES OF PARENT

            	 
	 	 
	
              Section
                5.1

            	
              Representations
                and Warranties of Parent

            	
              3

            
	 	 	 
	
              ARTICLE
                VI

              COVENANTS

            	 
	 	 
	
              Section
                6.1

            	
              Affirmative
                Covenants

            	
              8

            
	
              Section
                6.2

            	
              Negative
                Covenants

            	
              11

            
	
              Section
                6.3

            	
              Reporting

            	
              13

            
	
              Section
                6.4

            	
              Certain
                Covenants

            	
              14

            
	 	 	 
	
              ARTICLE
                VII

              ADDITIONAL
                RIGHTS AND OBLIGATIONS

            	 
	 	 
	
              Section
                7.1

            	
              Responsibilities
                of Parent

            	
              14

            
	
              Section
                7.2

            	
              Further
                Action Evidencing Sale.

            	
              14

            
	
              Section
                7.3

            	
              Application
                of Collections

            	
              15

            
	
              Section
                7.4

            	
              Third
                Party Royalties

            	
              15

            

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      	
              ARTICLE
                VIII

              INDEMNIFICATION

            	 
	 	 
	
              Section
                8.1

            	
              Indemnification
                by Parent

            	
              15

            
	 	 	 
	
              ARTICLE
                IX

              MISCELLANEOUS

            	 
	 	 
	
              Section
                9.1

            	
              Transfers
                Intended as Sales

            	
              16

            
	
              Section
                9.2

            	
              Specific
                Performance

            	
              16

            
	
              Section
                9.3

            	
              Notices

            	
              17

            
	
              Section
                9.4

            	
              CHOICE
                OF LAW

            	
              17

            
	
              Section
                9.5

            	
              Counterparts

            	
              17

            
	
              Section
                9.6

            	
              Amendment.

            	
              17

            
	
              Section
                9.7

            	
              Severability
                of Provisions

            	
              18

            
	
              Section
                9.8

            	
              Binding
                Effect; Assignability; Survival

            	
              18

            
	
              Section
                9.9

            	
              Acknowledgement
                and Agreement

            	
              18

            
	
              Section
                9.10

            	
              Cumulative
                Remedies

            	
              18

            
	
              Section
                9.11

            	
              Costs,
                Expenses and Taxes

            	
              19

            
	
              Section
                9.12

            	
              No
                Proceedings

            	
              19

            
	
              Section
                9.13

            	
              Consent
                to Jurisdiction.

            	
              19

            
	
              Section
                9.14

            	
              Limited
                Recourse

            	
              20

            
	
              Section
                9.15

            	
              Table
                of Contents and Headings

            	
              20

            

    

    

    
      	
              Annex
                A

            	
              Rules
                of Construction and Defined Terms

            
	 	 
	
              Exhibit
                A

            	
              Form
                of Bill of Sale

            
	
              Exhibit
                B

            	
              UCC
                Financing Statements and Other
                Filings

            

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    PURCHASE
      AND SALE AGREEMENT

     

    This
      PURCHASE AND SALE AGREEMENT, dated as of February 21, 2008, is between
      AZITHROMYCIN ROYALTY SUB LLC, a Delaware
      limited liability company,
      and
      INSITE VISION INCORPORATED, a Delaware corporation.

     

    WITNESSETH:

     

    WHEREAS,
      the Parent desires to sell, transfer, convey, assign, contribute and grant
      to
      the Issuer, and the Issuer desires to purchase and accept from the Parent,
      the
      Purchased Assets, on the terms and conditions set forth in this Purchase and
      Sale Agreement; and

     

    WHEREAS,
      the Parent desires to grant to the Issuer, and the Issuer desires to accept
      from
      the Parent, residual license rights and other obligations of the Parent under
      the Residual License Agreement, on the terms and conditions set forth in this
      Purchase and Sale Agreement;

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual agreements set forth
      herein and of other good and valuable consideration, the receipt and adequacy
      of
      which are hereby acknowledged, the parties hereto covenant and agree as
      follows:

     

    ARTICLE
      I

    RULES
      OF CONSTRUCTION AND DEFINED TERMS

     

    Section
      1.1 Rules
      of Construction and Defined Terms.
      The
      rules of construction set forth in Annex
      A
      shall
      apply to this Purchase and Sale Agreement and are hereby incorporated by
      reference into this Purchase and Sale Agreement as if set forth fully in this
      Purchase and Sale Agreement. Capitalized terms used but not otherwise defined
      in
      this Purchase and Sale Agreement shall have the respective meanings given to
      such terms in Annex
      A,
      which
      is hereby incorporated by reference into this Purchase and Sale Agreement as
      if
      set forth fully in this Purchase and Sale Agreement. Not all terms defined
      in
Annex
      A
      are used
      in this Purchase and Sale Agreement.

     

    ARTICLE
      II

    SALE
      AND
      PURCHASE OF PURCHASED ASSETS

     

    Section
      2.1 Agreement
      to Sell
      and
      Purchase Purchased Assets.
      On the
      terms and subject to the conditions set forth herein, the Parent agrees to
      (a)
      sell, transfer, convey, assign, contribute and grant to the Issuer, and the
      Issuer agrees to purchase and accept from the Parent, on the Closing Date,
      all
      of the Purchased Assets, and (b) execute and deliver to the Issuer, and the
      Issuer agrees to accept from the Parent, the Residual License Agreement pursuant
      to which the Parent grants the Residual License to the Issuer.

     

    Section
      2.2 Sale
      and Purchase of Purchased Assets; Sale Price.

     

    (a) Effective
      upon the satisfaction of the conditions set forth in Section 4.1, on the Closing
      Date, the Parent hereby and by the Bill of Sale sells, transfers, conveys,
      assigns, contributes and grants to the Issuer, and the Issuer hereby and by
      the
      Bill of Sale purchases and accepts from the Parent, all of the Purchased Assets.
      On the Closing Date, the Parent and the Issuer shall execute and deliver the
      Bill of Sale.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (b) The
      aggregate amount to be paid for the Purchased Assets and for the Residual
      License pursuant to Section 2.2(a) (the “Sale
      Price”)
      is
      equal to the fair market value of the Purchased Assets and the Residual License
      as agreed at arm’s length by the Parent and the Issuer. For the avoidance of
      doubt, the Issuer is not assuming any of the liabilities or obligations of
      the
      Parent under any of the Principal Documents to which it is party, including
      the
      obligation to pay royalties to Pfizer under the Pfizer License Agreement, which
      shall be retained by and remain liabilities and obligations of the Parent,
      and
      the Parent shall continue to be subject to such obligations and liabilities
      to
      the relevant counterparties and third party beneficiaries; provided,
      that
      the Issuer agrees to be bound by the confidentiality obligations undertaken
      by
      the Parent in all of the Principal Documents; provided,
      further,
      that
      the Issuer agrees to make to the Parent the payments of royalties due to Pfizer
      and other third parties as described in and in accordance with Section 7.4
      out
      of the amounts payable under the Purchased Assets but otherwise without recourse
      to the Issuer.

     

    Section
      2.3 Consideration
      for Sale of Purchased Assets.
      On the
      terms and subject to the conditions set forth in this Purchase and Sale
      Agreement, the Issuer agrees to pay the Sale Price to the Parent on the Closing
      Date in accordance with Section 3.1. To the extent that the Sale Price exceeds
      the Cash Purchase Price received by the Issuer, the Parent shall be deemed
      to
      have made a capital contribution to the Issuer in the amount of such excess
      as
      specified in Section 3.1(b). Each of the Parent and the Issuer acknowledges
      and
      agrees that the Parent is granting the Residual License to the Issuer on the
      Closing Date and has a present, legally binding obligation under the Residual
      License Agreement to perform its obligations thereunder on the terms and
      conditions specified thereunder from and after the Termination Date (as defined
      in the Residual License Agreement).

     

    ARTICLE
      III

    SALE
      PRICE PAYMENTS

     

    Section
      3.1 Sale
      Price Payments.
      On the
      Closing Date, on the terms and subject to the conditions set forth in this
      Purchase and Sale Agreement, the Issuer shall pay (or cause to be paid) to
      the
      Parent the Sale Price for the Purchased Assets and the Residual License as
      follows:

     

    (a) first,
      a
      wire transfer from the Issuer to the Parent in immediately available federal
      funds in the amount of $51,203,267.19 (the “Cash
      Purchase Price”);
      and

     

    (b) second,
      the remaining portion of the Sale Price shall constitute a capital contribution
      by the Parent to the Issuer in an amount equal to the excess of the agreed
      fair
      market value of the Purchased Assets and the Residual License over the amount
      of
      the Cash Purchase Price, the value of which is evidenced by Capital Securities
      of the Issuer delivered to the Parent at or before the Closing
      Date.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IV

    CONDITIONS
      TO CLOSING

     

    Section
      4.1 Conditions
      to Closing.
      The
      Parent’s obligation to sell, transfer, convey, assign, contribute and grant the
      Purchased Assets and to grant the Residual License contemplated by the Residual
      License Agreement pursuant to Section 2.2 is subject to tender by the Issuer
      of
      the Cash Purchase Price pursuant to Section 3.1(a), and the Issuer’s obligations
      to purchase and accept the Purchased Assets, to enter into the Residual License
      Agreement and to tender the Cash Purchase Price are subject to (x) the receipt
      by the Issuer of the net proceeds of its sale of the Notes to be issued under
      the Indenture on or before the Closing Date, (y) the execution and delivery
      by
      the Parent of the Servicing Agreement pursuant to which the Issuer will
      designate the Parent as initial Servicer on the terms and conditions set forth
      therein and (z) the execution and delivery by the Parent of the Residual License
      Agreement.

     

    In
      addition, as a further condition to the Issuer’s obligations to purchase and
      accept the Purchased Assets and to tender the Cash Purchase Price, on or prior
      to the Closing Date, the Parent shall have (i) notified Inspire of the sale,
      transfer, conveyance, assignment, contribution and granting of the Purchased
      Assets to the Issuer, (ii) instructed Inspire to make all Royalty Payments
      after
      the Closing Date to the Collection Account, (iii) requested Inspire to send
      all
      reports otherwise sent or required to be sent to the Parent to be sent also
      to
      the Issuer and the Servicer (to the extent consistent with the terms and
      conditions of the Inspire License Agreement) and (iv) requested acknowledgment
      from Inspire of the foregoing.

     

    ARTICLE
      V

    REPRESENTATIONS
      AND WARRANTIES OF PARENT

     

    Section
      5.1 Representations
      and Warranties of Parent.
      The
      Parent hereby represents and warrants to the Issuer that, as of the Closing
      Date:

     

    (a) it
      has
      been duly organized, is validly existing and is in good standing under the
      laws
      of its jurisdiction of organization; it has all licenses, permits, franchises
      and governmental authorizations necessary to carry on its business as now being
      conducted; it is duly licensed or qualified to do business in good standing
      in
      each jurisdiction in which such qualification is required by law, except where
      such failure to qualify would not reasonably be likely to result in a Material
      Adverse Effect; it has the full power and authority to own the property it
      purports to own, to carry on its business as presently conducted and as proposed
      to be conducted, and to execute, deliver and perform this Purchase and Sale
      Agreement, each other instrument to be delivered by it pursuant to this Purchase
      and Sale Agreement and each other Transaction Document to which it is a party,
      and the consummation of the transactions contemplated hereby and thereby have
      been duly and validly authorized by it; each of the Transaction Documents to
      which it is a party (including this Purchase and Sale Agreement) has been duly
      executed and delivered by it and constitutes its valid and binding agreement,
      enforceable against the Parent in accordance with its respective terms, except
      as enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium or similar laws affecting creditors’ rights generally
      and by general principles of equity; and all requisite action has been taken
      by
      it to make this Purchase and Sale Agreement and each of the other Transaction
      Documents to which it is a party valid and binding upon it;

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b) it
      is not
      required to obtain the consent, license, approval or authorization of, or make
      any registration, filing or declaration with, any Governmental Authority in
      connection with the execution, delivery, performance, validity or enforceability
      of this Purchase and Sale Agreement or the Residual License Agreement (except
      for the filing of UCC financing statements and other filings specified in
Exhibit
      B,
      any
      consents, licenses, approvals, authorizations, registrations, filings or
      declarations under state blue sky laws, all of which have been made or obtained
      as of the date hereof or will be made within the time periods required under
      the
      Exchange Act, and the consent of Pfizer referenced in the Residual License
      Agreement);

     

    (c) the
      execution, delivery and performance by it of the Transaction Documents to which
      it is a party and the consummation of the transactions contemplated hereby
      and
      thereby, including the sale, transfer, conveyance, assignment, contribution
      and
      granting of the Purchased Assets on the Closing Date, do not and will not (i)
      result in the breach of any term or provision of the Parent Organizational
      Documents, (ii) result in the breach of any term or provision of, or conflict
      with, constitute a default under or result in the acceleration or required
      prepayment by the Parent of any obligation under, the Principal Documents or
      any
      other agreement, including any indenture, credit agreement, lease or license,
      or
      any deed or other instrument of conveyance to which it or its property is
      subject, (iii) result in or require the creation or imposition of any Lien
      upon
      any of its properties pursuant to the terms of any such agreement, indenture,
      credit agreement or other instrument (except as contemplated by this Purchase
      and Sale Agreement and the other Transaction Documents) or (iv) result in the
      violation of any law (including any bulk transfer or similar law), rule,
      regulation, order, judgment or decree to which it or its property or the
      Purchased Assets are subject, except
      in
      the case of clause (iv) where such violation would not have or would not be
      reasonably likely to have a Material Adverse Effect;

     

    (d) it
      has
      not taken any action to impair the Issuer’s
      rights
      in the Purchased Assets other than pursuant to the Principal
      Documents;

     

    (e) its
      principal place of business is located at the address referred to in Section
      12.5 of the Indenture, and the jurisdiction of its organization is Delaware
      (or
      at such other location, notified to the Issuer in accordance with Section
      6.2(b), in a jurisdiction where all action required thereby has been taken
      and
      completed);

     

    (f) since
      January 1, 2002, it has not been known by any legal name other than InSite
      Vision Incorporated nor has it been a party to any merger, consolidation or
      other reorganization, except in each case where it was the surviving or
      resulting corporate entity;

     

    (g) it
      has
      filed (or caused to be filed) all material tax returns and reports required
      by
      law to have been filed by it and has paid all material Taxes required to be
      paid
      by it, except any such Taxes that are being diligently contested in good faith
      and for which adequate reserves in accordance with GAAP have been set aside
      on
      its books, and it has never filed any tax return or report under any name other
      than its exact legal name;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (h) it
      is in
      compliance with the requirements of all Applicable Laws, a breach of any of
      which, individually or in the aggregate, would be reasonably likely to have
      a
      Material Adverse Effect;

     

    (i) it
      has
      obtained all licenses, permits, franchises and other governmental authorizations
      necessary for the ownership of its properties or to the conduct of its business
      that, if not obtained, would be reasonably likely to have a Material Adverse
      Effect;

     

    (j) there
      is
      no order, judgment, decree, injunction, stipulation or consent order of or
      with
      any Governmental Authority to which it is subject, and there is no action,
      suit,
      arbitration or regulatory proceeding pending or, to its knowledge, threatened,
      nor to its knowledge is there any investigation pending or threatened, before
      or
      by any Governmental Authority against it that, in each case under this Section
      5.1(j), individually or in the aggregate, is reasonably likely to have a
      Material Adverse Effect;

     

    (k) there
      is
      no action, suit, proceeding, arbitration, regulatory or governmental
      investigation pending or, to its knowledge, threatened before or by any
      Governmental Authority (i) that would be reasonably likely to have a Material
      Adverse Effect or (ii) seeking to prevent the consummation of any of the
      transactions contemplated by this Purchase and Sale Agreement or any other
      Transaction Document;

     

    (l) it
      is not
      required to register as an “investment
      company”
      within
      the meaning of the Investment Company Act of 1940, as amended;

     

    (m) it
      is not
      engaged in the business of extending credit for the purpose of buying or
      carrying margin stock, and no portion of the Sale Price shall be used (i) for
      a
      purpose that violates, or would be inconsistent with, Regulation T, U or X
      promulgated by the Board of Governors of the Federal Reserve System from time
      to
      time or (ii) to acquire any security in any transaction that is subject to
      Section 13 or 14 of the Exchange Act;

     

    (n) neither
      it nor any of its Subsidiaries is in breach or violation of any Principal
      Document or any other agreement, including any indenture, credit agreement,
      lease or license, or any deed or other instrument of conveyance to which it
      or
      its property is subject, or subject to or in violation of any statute, order
      or
      regulation of any Governmental Authority having jurisdiction over it, that,
      in
      each case under this Section 5.1(n), has or may in the future be reasonably
      expected to have a Material Adverse Effect;

     

    (o) the
      filings of financing statements under the UCC and other recordings, if any,
      required to perfect the security interest granted hereunder in favor of the
      Issuer in the Purchased Assets sold, transferred, conveyed, assigned,
      contributed and granted on the Closing Date, including those specified in
Exhibit
      B,
      if any,
      have been or shall have been duly made by the Closing Date, and the Issuer
      has
      or shall have the same rights as the Parent has with respect to the Purchased
      Assets (if the Parent were still the owner of such Purchased Assets) against
      any
      other Person;

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (p) (i)
      the
      Purchased Assets sold, transferred, conveyed, assigned, contributed and granted
      to the Issuer on the Closing Date have not been pledged, sold, transferred,
      conveyed, assigned, contributed or granted by the Parent to any other Person
      except as permitted by the Indenture, (ii) the Parent has good and marketable
      title to the Purchased Assets free and clear of any Lien and is the sole owner
      thereof, (iii) the Parent has full right to sell, transfer, convey, assign,
      contribute and grant the Purchased Assets to the Issuer and (iv) upon the sale,
      transfer, conveyance, assignment, contribution and granting of the Purchased
      Assets to the Issuer pursuant to Article II, the Issuer shall have good and
      marketable title to the Purchased Assets free and clear of any Lien (other
      than
      Permitted Liens) and shall be the owner of the Purchased Assets;

     

    (q) (i)
      each
      of the Principal Documents is in full force and effect, (ii) the Principal
      Documents are valid and legally binding and enforceable against the Parent
      and,
      to the knowledge of the Parent, all other parties thereto, (iii) it has provided
      the Issuer with true, correct and complete copies of the Principal Documents
      (other than with respect to the Pfizer License Agreement, which is available
      in
      redacted form as an exhibit to the Parent’s Form 10-Q filed on May 10, 2007) and
      all written amendments, if any, thereto through the Closing Date, (iv) to its
      knowledge, there are no oral waivers or modifications (or pending requests
      therefor) in respect of the Principal Documents, (v) it is not in default under
      any Principal Document (including with respect to the execution, delivery and
      performance of this Purchase and Sale Agreement, the Residual License Agreement,
      the Servicing Agreement or the Pledge and Security Agreement) and is not aware
      of any default by any other Person under any Principal Document to which any
      such Person is party and (vi) the Parent has not granted any waiver under the
      Principal Documents and has not released the applicable counterparty, in whole
      or in part, from any of its obligations under the Principal
      Documents;

     

    (r) (i)
      no
      party to any of the Principal Documents has given any written notice to the
      Parent of termination or breach by the Parent of any such Principal Document,
      (ii) the Parent is not aware of any notice of termination or breach given by
      any
      such Person to any other such Person with respect to any Principal Document
      to
      which any such Person is a party and (iii) to its knowledge, no event has
      occurred that would give any such Person or the Parent the right to terminate
      any Principal Document to which any of them is party, whether as of the Closing
      Date or because of events or occurrences existing on or before the Closing
      Date,
      including with respect to the execution, delivery and performance by the Parent
      of this Purchase and Sale Agreement or any other Transaction Document or
      Principal Document to which it is a party;

     

    (s) under
      the
      terms of the Principal Documents, no consent of any Person is required in
      respect of the execution, delivery and performance by the Parent and the Issuer
      of this Purchase and Sale Agreement or any other Transaction Document to which
      the Parent is a party (other than (i) consents received from any such Person
      and
      (ii) the consent of Pfizer with respect to the Residual License Agreement,
      which
      consent has not yet been obtained);

     

    (t) no
      step
      has been taken or is intended by the Parent or, so far as it is aware, any
      other
      party to any of the Principal Documents or Transaction Documents for the
      winding-up, liquidation, dissolution, administration, merger or consolidation
      or
      for the appointment of a receiver or administrator of it or all or any of its
      assets, and, immediately after the sale, transfer, conveyance, assignment,
      contribution and granting of the Purchased Assets on the Closing Date, the
      Parent will not be rendered insolvent or be unable to pay its debts as they
      mature or be left with unreasonably small capital;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (u) it
      has
      determined, and by virtue of its entering into the transactions contemplated
      hereby and its authorization, execution and delivery of this Purchase and Sale
      Agreement and the other Transaction Documents to which it is party, that its
      undertaking of the obligations and liabilities contemplated hereby or thereby
      (i) is in its own best interests, (ii) does not leave it unable to pay its
      debts
      as they become due in the ordinary course of business, (iii) will not leave
      it
      with debts that cannot be paid from the present saleable value of its property
      and (iv) will not render it insolvent within the meaning of Section 101(32)
      of
      the Bankruptcy Code or Section 271 of the New York Debtor and Creditor
      Law;

     

    (v) all
      obligations of the Parent to make payments to date under the Principal Documents
      have been fully satisfied;

     

    (w) the
      Parent is the exclusive or joint owner of all right, title and interest in,
      to
      and under, or has licensed or obtained rights to, the Licensed IP, and the
      information set forth under “AzaSite—Patent Protection” in the Private Placement
      Memorandum contains a fair and accurate description of the Licensed IP described
      therein; and the Licensed IP constitutes all of the intellectual property
      licensed by the Parent to Inspire under the Inspire License Agreement and the
      Inspire Trademark License Agreement necessary for the sale of the Subject
      Products in the Field in the Territory; and AzaSite is an Inspire Licensed
      Product (as defined in the Inspire License Agreement);

     

    (x) there
      is
      no action, claim, demand, suit, citation, summon, subpoena, inquiry or
      investigation of any nature, civil, criminal, regulatory or otherwise, in law
      or
      in equity, or arbitral or other proceeding by or before any Governmental
      Authority or other third party pending or, to the knowledge of the Parent,
      threatened against, relating to or affecting the Licensed IP (other than
      ordinary course prosecution of patents and trademarks at the United States
      Patent and Trademark Office and equivalent foreign patent offices or customary
      actions with the relevant regulatory authorities), which could reasonably be
      expected to result in the issuance of an order restraining, enjoining or
      otherwise resulting in the diminution of the benefits contemplated by this
      Purchase and Sale Agreement;

     

    (y) to
      the
      knowledge of the Parent, the manufacture, use, sale, offer for sale or
      importation of the Current Product as contemplated under the Inspire License
      Agreement does not infringe upon any third party’s patents or constitute a
      misappropriation of a third party’s trade secrets or other intellectual property
      rights, each existing as of the Closing Date; neither the Parent nor any of
      its
      Affiliates has received any notice in writing, or otherwise has knowledge of
      any
      facts, that have, or reasonably should have, led the Parent to believe that
      the
      manufacture, use, sale, offer for sale or exportation of such Current Product
      to
      Canada will infringe any rights of a third party existing as of the Closing
      Date;

     

    (z) to
      the
      Parent’s knowledge, there is no third party infringing any of the Licensed IP
      owned or controlled by the Parent;

     

    (aa) the
      Parent has not consented to any assignment by any counterparty to any Principal
      Document of such counterparty’s rights or obligations under such Principal
      Document and, to the knowledge of the Parent, no such counterparty has assigned
      any of its rights or obligations under such Principal Document to any
      Person;

     

    
      
        
        

      

      
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    (bb) except
      for the Principal Documents and any other documents specifically described
      in
      the Inspire License Agreement, neither the Parent nor any of its Affiliates
      (including the Issuer) (i) is party to any agreement with any other Person
      in
      respect of the Subject Products in the Field in the Territory or the Licensed
      IP
      (other than with respect to Catalent and the supplier of the active ingredient
      for the Subject Products) and (ii) has any royalty or other payment obligations
      in respect of the Subject Products or such Licensed IP; and

     

    (cc) to
      the
      knowledge of the Parent, there are no sublicenses entered into by Inspire in
      respect of Inspire’s license under the Inspire License Agreement.

     

     

    ARTICLE
      VI

    COVENANTS

     

    Section
      6.1 Affirmative
      Covenants.
      So long
      as the Notes are outstanding, the Parent shall:

     

    (a) comply
      with all Applicable Laws in the performance of its obligations under the
      Principal Documents and the Transaction Documents and its exercise of its rights
      and duties that compose Purchased Assets, the violation of which would be
      reasonably likely to have a Material Adverse Effect;

     

    (b) (i)
      preserve and maintain its existence, (ii) preserve and maintain its rights,
      franchises and privileges unless failure to do any of the foregoing would not
      have a Material Adverse Effect and (iii) qualify and remain qualified in good
      standing in each jurisdiction where the failure to preserve and maintain such
      existence, rights, franchises, privileges and qualifications would be reasonably
      likely to have such a Material Adverse Effect; provided,
      however,
      that
      nothing contained in this Section 6.1(b) shall prohibit the Parent (or any
      parent entity of the Parent) from entering into any transaction of merger,
      consolidation or amalgamation with, or, in the case of clause (B) below, a
      sale
      of all or substantially all of the assets of the Parent (or any parent entity
      of
      the Parent) to, any other Person (A) if the Parent (or such parent entity)
      is
      the continuing or surviving entity or (B) if the Parent (or such parent entity)
      is not the continuing or surviving entity but the continuing or surviving entity
      shall have assumed all of the obligations of the Parent under this Purchase
      and
      Sale Agreement and the other Transaction Documents to which the Parent is a
      party immediately prior to such transaction (collectively, a “Change
      of Control”);

     

    (c) timely
      and fully perform and comply with each of its duties and obligations, including
      all covenants, conditions and other provisions, with respect to the Purchased
      Assets and the Residual License;

     

    (d) timely
      and fully perform and comply with each of its duties and obligations under
      the
      Principal Documents, including using its reasonable commercial efforts to
      exercise its rights under the Principal Documents to maintain and defend the
      Licensed IP under the terms and conditions of the Principal
      Documents;

     

    
      
        
        

      

      
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    (e) use
      commercially reasonable efforts to enforce its rights under the Principal
      Documents in respect of the material obligations of each other Person under
      the
      Principal Documents to which each of them is party in a timely manner, including
      bringing any action in respect of an actual or threatened breach by any such
      Person of its respective obligations under any Principal Document;

     

    (f) as
      between the Issuer and the Parent, permit the Issuer or the Trustee to cure
      any
      default by the Parent under any Principal Document (including making any Parent
      Shortfall Payment in respect of a Parent Shortfall pursuant to the Indenture)
      if
      the Parent is not then taking commercially reasonable action to cure such
      default, and reasonably cooperate with the Issuer and the Trustee for such
      purpose, and reimburse the Issuer or the Trustee promptly (but in no event
      later
      than two Business Days following notice of any Parent Shortfall Payment) for
      any
      Parent Shortfall Payment so funded by the Issuer or the Trustee (any such
      reimbursement to the Trustee to be made directly to the Collection Account);
      provided,
      that if
      the applicable counterparty shall refuse to accept any such Parent Shortfall
      Payment from the Issuer or the Trustee, then, subject to Section 3.9 of the
      Indenture, the Parent shall cooperate with the Issuer and the Trustee to cause
      such Parent Shortfall Payment that is being funded by the Issuer or the Trustee
      to be made directly by the Parent to the applicable counterparty;

     

    (g) file
      (or
      cause to be filed) all material tax returns and reports required by law to
      be
      filed by it and pay all Taxes required to be paid by it, except any such Taxes
      that are being diligently contested in good faith by appropriate proceedings
      and
      for which adequate reserves in accordance with GAAP have been set aside on
      its
      books, and it shall not file any tax return or report under any name other
      than
      its exact legal name; it shall not, and shall not permit the Issuer to, make
      any
      election under Treasury Regulations Section 301.7701-3(c) (or any successor
      provision) to classify the Issuer as an association taxed as a corporation;
      and,
      except as otherwise required by law, it shall treat the Original Class A Notes
      as debt of the Parent for U.S. federal income tax purposes;

     

    (h) promptly
      provide written notice to the Issuer, the Trustee and the Servicer of any
      dispute between the Parent on the one hand and any other Person on the other
      hand in respect of any Principal Document that may adversely affect the
      Purchased Assets or the Residual License; and, if any such dispute would
      reasonably be expected to have a Material Adverse Effect, keep the Issuer and
      the Trustee (or a representative designated by the Trustee at the Direction
      of
      Noteholders holding a majority in Outstanding Principal Balance of the Senior
      Class of Notes) informed concerning such negotiations or legal
      proceedings;

     

    (i) maintain
      in place all policies and procedures, and take and continue to take all actions,
      described in the assumptions as to facts as to the Parent relating to the
      separateness of the Issuer and the Parent set forth in, and forming the basis
      of, the opinions delivered pursuant to Section 6.3 of the Note Purchase
      Agreements, and comply with, and cause the Issuer to comply with, the provisions
      of Section 5.2(q) of the Indenture that relate to the Issuer;

     

    
      
        
        

      

      
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    (j) provide
      promptly the Trustee with written notice of the institution of any proceeding
      by
      or against the Parent seeking to adjudicate it a bankrupt or insolvent, or
      seeking liquidation, winding-up, reorganization, arrangement, adjustment,
      protection, relief or composition of its debts under any law relating to
      bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
      entry of an order for relief or the appointment of a receiver, trustee or other
      similar official for it or for any substantial part of its
      property;

     

    (k) comply
      in
      all material respects with the Parent Organizational Documents;

     

    (l) if
      it
      shall receive any Royalty Payments or Replacement Royalty Payments, it shall
      deliver such Royalty Payments or Replacement Royalty Payments, as the case
      may
      be, to the Issuer for deposit directly into the Collection Account in the exact
      form received with all necessary endorsements within two Business Days following
      its receipt thereof;

     

    (m) cause
      the
      Issuer to perform its obligations under the Transaction Documents to which
      the
      Issuer is a party for so long as the Parent is the sole owner of all of the
      outstanding Voting Securities of the Issuer;

     

    (n) to
      the
      extent required under the Inspire License Agreement, pay for any audit of
      Inspire’s records pursuant to the Inspire License Agreement;

     

    (o) make
      reasonably available its respective records and personnel to the Issuer in
      connection with any prosecution of litigation by the Issuer against any party
      to
      any of the Principal Documents to enforce any of the Issuer’s rights under any
      such Principal Document;

     

    (p) if
      Pfizer
      were to become insolvent and seek to reorganize under Chapter 11 of the
      Bankruptcy Code, elect, as licensee under the Pfizer License Agreement, to
      retain its rights under the Pfizer License Agreement pursuant to Section 365(n)
      of the Bankruptcy Code by written request as soon as practicable
      thereafter;

     

    (q) use
      its
      commercially reasonable efforts to preserve, maintain and maximize the
      commercial value of the Licensed IP, including obtaining patent term extensions
      when available and patent listing in the U.S. Food and Drug Administration
      Electronic Orange Book for the Subject Products when applicable;

     

    (r) pay
      to
      Pfizer and the other third parties entitled to royalties in respect of the
      Subject Products in the Field in the Territory, one Business Day following
      the
      date of any receipt of funds in respect thereof from the Issuer or the Trustee
      and in any event within 30 days following the end of the prior calendar quarter,
      the royalties due to such Persons in respect of such Subject Products and any
      other amounts due to Pfizer under the Pfizer License Agreement; the Parent
      shall
      receive and hold such funds in one or more separate accounts in trust or escrow
      for Pfizer and certain other third parties entitled to royalties in respect
      of
      the Subject Products, and the Parent shall not commingle such funds with any
      other funds of the Parent; the Parent shall apply any such funds received from
      the Issuer or the Trustee in respect thereto first to Pfizer and second to
      the
      other third parties entitled to royalties in respect of such Subject
      Products;

     

    
      
        
        

      

      
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    (s) following
      any termination of the Inspire License Agreement in respect of one or more
      countries in the Territory, subject to the Residual License, use commercially
      reasonable efforts to (i) enter into a new agreement or other arrangement to
      license and sublicense the Licensed IP (or any portion thereof) in the Field
      to
      one or more third parties in such country or countries of the Territory to
      develop, manufacture, commercialize and market the Subject Products in the
      Field
      in such country or countries in the Territory (including obtaining Pfizer’s
      consent to sublicense the Pfizer Patent Rights (as defined in the Inspire
      License Agreement) to such third parties), and, if such agreement is entered
      into, the Parent shall instruct such third parties to make Replacement Royalty
      Payments directly to the Collection Account, or (ii) develop, manufacture,
      commercialize and market the Subject Products in the Field in such country
      or
      countries in the Territory by itself, in which case the Parent shall make
      Replacement Royalty Payments directly to the Collection Account;
      and

     

    (t) reimburse
      or refund to, as the case may be, the Issuer or the Trustee promptly (but in
      no
      event later than two Business Days following the offset or credit described
      herein) for any credit to future royalties described in Section 5.7 of the
      Inspire License Agreement that relate to periods prior to the Closing Date
      or
      any offset described in Section 11.3 or Section 11.4 of the Inspire License
      Agreement.

     

    Section
      6.2 Negative
      Covenants.
      The
      Parent agrees that it shall not, without the prior written consent of the Issuer
      and, so long as the Notes are outstanding, the Trustee pursuant
      to Section 9.1 or Section 9.2 of the Indenture, as applicable:

     

    (a) except
      as
      otherwise provided herein, in any other Transaction Document or in any Principal
      Document, in each case with respect to the transactions contemplated by the
      Transaction Documents, directly or indirectly, sell, assign (by operation of
      law
      or otherwise) or otherwise dispose of, or create, incur, assume or suffer to
      be
      created or to exist any Lien on any of its rights, title or beneficial interest
      in, to or under, whether directly or indirectly, (i) the Issuer, (ii) any
      Royalty Payments or the Replacement Royalty Payments, if any, (iii) the Residual
      License other than in accordance with the Residual License Agreement or (iv)
      any
      of the other Purchased Assets (including the Principal Documents), in each
      case
      (subject to any restrictions in the Principal Documents) other than (A) any
      Lien
      for the benefit of the Trustee on behalf of the Noteholders (including the
      pledge of the Capital Securities held by the Parent in the Issuer pursuant
      to
      the Pledge and Security Agreement) or (B) any other Permitted Lien, except
      that,
      so long as no Default or Event of Default has occurred and is continuing, the
      Parent will be permitted to transfer the Capital Securities held by the Parent
      in the Issuer in whole or in part (including to a non-Affiliate) so long as
      (x)
      such Capital Securities in the hands of each transferee remain subject to the
      pledge under the Pledge and Security Agreement, (y) the Trustee shall have
      been
      provided with an Opinion of Counsel as to the continuing validity of such pledge
      and perfection of the security interest of the Trustee therein and a written
      acknowledgement from the transferee that it is acquiring the Capital Securities
      subject to such pledge and security interest and (z) each of the Parent and
      the
      Servicer shall remain bound by and in compliance with all obligations under
      this
      Purchase and Sale Agreement, the Residual License Agreement, the Servicing
      Agreement and the other Transaction Documents and Principal Documents to which
      it is a party (for the avoidance of doubt, a Change of Control will not by
      itself constitute a violation of this Section 6.2(a));

    
      
        
        

      

      
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    (b) except
      with a 30-day prior written notice to the Issuer, the Servicer and, so long
      as
      the Notes are outstanding, the Trustee, change its name, identity, legal entity
      type or jurisdiction of organization; provided,
      however,
      that
      neither the Issuer nor the Trustee has any right or power to prohibit a change
      in the Parent’s name, identity, legal entity type or jurisdiction of
      organization; provided,
      further,
      if any
      change in the Parent’s name, identity, legal entity type or jurisdiction of
      organization would make any financing or continuation statement or notice of
      lien filed in connection with this Purchase and Sale Agreement seriously
      misleading within the meaning of applicable provisions of the UCC, the Parent
      hereby authorizes each of the Issuer and the Trustee to file such amendments
      as
      may be required to preserve and protect the Issuer’s title and interest and the
      Trustee’s security interest in and to the Purchased Assets and proceeds thereof
      and the collateral, if any, related thereto; it is understood that, during
      the
      term of this Purchase and Sale Agreement, the Parent shall maintain its
      jurisdiction of organization in the United States;

     

    (c) except
      with a 30-day prior written notice to the Issuer and, so long as the Notes
      are
      outstanding, the Trustee, assign, amend, modify, supplement or restate any
      Principal Document, enter into any new agreement in respect of the Purchased
      Assets or the Subject Products (in respect of the Territory in the Field) (other
      than in accordance with the Residual License Agreement, if applicable), exercise
      or waive any right or option, fail to exercise any right or option or grant
      any
      consent in respect of the Purchased Assets, the Subject Products (in respect
      of
      the Territory in the Field) or the Principal Documents in any manner that would,
      in any such case, materially adversely affect the Issuer, the Issuer’s rights
      under this Purchase and Sale Agreement or the Residual License Agreement or
      the
      rights and interests of the Trustee and the Noteholders with respect thereto
      or
      conflict with or cause an event of default under, or breach of, this Purchase
      and Sale Agreement, any other Transaction Document or any Principal Document;
      provided,
      however,
      that
      the Parent shall not be required to take any action unless the Parent has
      determined in good faith that such action is not illegal or unlawful and will
      not subject the Parent to any risk of personal liability from any third party
      unless such liability is a result of the Parent’s gross negligence or willful
      misconduct (except that the foregoing shall not relieve the Parent from any
      breach of its obligations under this Purchase and Sale Agreement);

     

    (d) terminate
      (or agree with any counterparty to any termination thereof by mutual agreement)
      any Principal Document in whole or in part;

     

    (e) take
      any
      action to waive, repeal, amend, vary, supplement or otherwise modify the Issuer
      Organizational Documents in a manner that would adversely affect the rights,
      privileges or preferences of any Noteholder;

     

    (f) take
      any
      action or cause or permit the Issuer (except as required by law) to take any
      action to cause the Issuer to become subject to a Voluntary Bankruptcy or an
      Involuntary Bankruptcy;

     

    (g) take
      any
      action to dissolve the Issuer;

     

    (h) directly
      or indirectly challenge, or induce any third party to challenge, the validity
      or
      enforceability of the Licensed Patents (as defined in the Pfizer License
      Agreement);

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (i) (i)
      provide to Inspire the concurrence described in Section 5.8(b) of the Inspire
      License Agreement (unless the failure to provide such concurrence would
      reasonably be expected to result in a breach of the Inspire License Agreement),
      (ii) abandon the prosecution of any patent application or maintenance of any
      issued patent described in Section 11.3 of the Inspire License Agreement with
      regard to matters affecting Subject Products in the Field in the Territory
      or
      (iii) decline to pursue any patent extension described in Section 11.4 of the
      Inspire License Agreement (to the extent affecting Subject Products in the
      Field
      in the Territory); and

     

    (j) take
      any
      action adverse to the Issuer under the Residual License Agreement except as
      contemplated by the Transaction Documents.

     

    Section
      6.3 Reporting.
      The
      Parent shall,
      unless
      the Issuer shall otherwise consent in writing:

     

    (a) subject
      to applicable confidentiality restrictions, make available such other
      information as the Issuer or the Trustee may, from time to time, reasonably
      request with respect to (i) the Purchased Assets or (ii) the condition or
      operations, financial or otherwise, of it that is reasonably likely to impact
      or
      affect the performance of its obligations hereunder or its compliance with
      the
      terms, provisions and conditions of this Purchase and Sale
      Agreement;

     

    (b) promptly
      (but in no event more than five Business Days following its receipt thereof)
      provide to the Issuer and the Servicer copies of any Notices between the Parent
      and any other party to any Principal Document regarding any such Principal
      Document, including copies of Notices it receives pursuant to Section 12.4
      of
      the Inspire License Agreement, but shall not be required to do so to the extent
      that any such Notice does not relate to and could not be expected to affect
      the
      Purchased Assets in any material respect;

     

    (c) deliver
      to the Issuer and the Servicer, with a copy to the Trustee, within 120 days
      after the end of each fiscal year of the Parent ending after the date hereof,
      a
      certificate of a Responsible Officer, stating whether or not, to the best
      knowledge of such Responsible Officer, any party to any Principal Document
      is in
      default in the performance and observance of any of the terms, provisions and
      conditions of any such Principal Document (without regard to any period of
      grace
      or requirement of notice provided thereunder) and, if any such party shall
      be in
      default, specifying the nature of all such defaults and the steps the Parent
      plans or expects to take in relation to any such default thereof of which he
      or
      she may have knowledge;

     

    (d) promptly
      after a Responsible Officer has knowledge of any of the following events or
      situations, provide written notification to the Issuer and the Servicer, with
      a
      copy to the Trustee, of the circumstances regarding such event or situation,
      both initially and in respect of subsequent material changes and developments
      regarding such event or situation, and a written summary of the actions taken
      or
      proposed to be taken by the Parent in response thereto, if any:

     

    (i) an
      act or
      failure to act of any party to any Principal Document or other Person that
      constitutes or, with the passage of time, would constitute a default thereunder
      or that gives rise or, with the passage of time, would give rise to the right
      of
      any party to exercise any remedies thereunder, including any right to terminate
      any Principal Document; or

     

    
      
        
        

      

      
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    (ii) any
      actual or overtly threatened termination by Inspire or Pfizer of any Principal
      Document to which it is party in whole or in part; and

     

    (e) during
      any period in which the Parent is not subject to Section 13 or 15(d) of the
      Exchange Act, deliver to the Issuer and the Trustee (i) audited financial
      statements of the Parent with respect to its most recent fiscal year no later
      than 120 days after the end of such fiscal year and (ii) unaudited interim
      financial statements of the Parent with respect to each fiscal quarter (except
      for fiscal year-end) no later than 45 days after the end of such fiscal quarter,
      in each case, prepared in accordance with GAAP in all material
      respects.

     

    Section
      6.4 Certain
      Covenants.
      The
      mere occurrence of any termination of the Inspire License Agreement will not
      in
      and of itself comprise or demonstrate the occurrence of a breach by the Parent
      of Section 6.1(c), Section 6.1(d), Section 6.1(e), Section 6.1(f), Section
      6.1(m), Section 6.1(q), Section 6.2(a) or Section 6.2(c), and the determination
      of whether the Parent has breached any of the foregoing provisions will be
      made
      without regard to any actual termination of the Inspire License
      Agreement.

     

    ARTICLE
      VII

    ADDITIONAL
      RIGHTS AND OBLIGATIONS

     

    Section
      7.1 Responsibilities
      of Parent.
      Anything herein to the contrary notwithstanding:

     

    (a) the
      Parent shall perform its obligations hereunder, and the exercise by the Issuer
      or its designee of its rights hereunder shall not relieve the Parent from such
      obligations; and

     

    (b) none
      of
      the Issuer, the Trustee or any other Indemnified Party shall have any obligation
      or liability to Inspire or any other third Person with respect to any of the
      Purchased Assets, any Principal Document or any related agreements, nor shall
      the Issuer, the Trustee or any other Indemnified Party be obligated to perform
      any of the obligations of the Parent thereunder, except that each such Person
      will comply with the confidentiality provisions set forth in each Principal
      Document.

     

    Section
      7.2 Further
      Action Evidencing Sale.

     

    (a) The
      Parent agrees that, from time to time, at its expense, it shall promptly execute
      and deliver all further instruments and documents, and take all further action,
      that the Issuer may reasonably request in order to perfect, protect or more
      fully evidence or perfect the sale, transfer, conveyance, assignment,
      contribution and granting of the Purchased Assets hereunder or to enable the
      Issuer to exercise or enforce any of its rights hereunder or under any other
      Transaction Document to which it is a party.

     

    (b) The
      Parent hereby authorizes the Issuer and the Trustee to file one or more
      financing or continuation statements, and amendments thereto and assignments
      thereof, in relation to all or any of the Purchased Assets now existing or
      hereafter generated by the Parent to perfect their interests therein as
      contemplated by this Purchase and Sale Agreement and the Indenture.

     

    
      
        
        

      

      
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    (c) Subject
      to Section 6.1(f), if, after written notice, the Parent fails to perform any
      of
      its agreements or obligations under this Purchase and Sale Agreement, the Issuer
      or its designee may (but shall not be required to) itself perform, or cause
      performance of, such agreement or obligation, and the expenses of the Issuer
      or
      its designee incurred in connection therewith shall be payable by the
      Parent.

     

    Section
      7.3 Application
      of Collections(a) .
      Any
      Royalty Payment or Replacement Royalty Payment paid by any party to any of
      the
      Principal Documents in respect of any obligations owed by it to the Parent
      in
      respect of any such Principal Document shall, except as otherwise specified
      by
      such Person or otherwise required by contract or law and unless otherwise
      instructed by the Issuer or the Trustee, be applied as a Collection with respect
      to a Purchased Asset to the extent of any amounts then due and payable
      thereunder.

     

    Section
      7.4 Third
      Party Royalties.
      So long
      as the Notes are outstanding, pursuant to the Indenture the Issuer shall cause
      the Trustee to set aside in trust for payment of, and, if the Notes are no
      longer outstanding, the Issuer shall pay to the Parent from available revenues
      on or before each Payment Date, in each case within 30 days of the end of each
      calendar quarter, the royalties due to Pfizer and other third parties in respect
      of Subject Products, but in no event shall such royalties exceed, in the
      aggregate, 3.5% of Net Sales (as defined in the Inspire License Agreement)
      for
      any calendar quarter.

     

    ARTICLE
      VIII

    INDEMNIFICATION

     

    Section
      8.1 Indemnification
      by Parent.
      Without
      limiting any other rights that the Issuer may have hereunder or under Applicable
      Law, the Parent hereby agrees to indemnify the Issuer and each of its directors,
      officers, members, managers, employees and agents (each of the foregoing Persons
      being individually called an “Indemnified
      Party”),
      forthwith on demand, from and against any and all damages, losses, claims,
      judgments, liabilities and related costs and expenses, including reasonable
      attorneys’
      fees and
      expenses (all of the foregoing being collectively called “Indemnified
      Amounts”)
      awarded
      against or incurred by any of them arising out of or as a result of any breach
      of representation or warranty by the Parent under this Purchase and Sale
      Agreement or any other Transaction Document or Principal Document to which
      it is
      a party, the failure of the Parent to observe or perform its obligations under
      this Purchase and Sale Agreement or any other Transaction Document or Principal
      Document to which it is party or arising out of claims asserted against an
      Indemnified Party relating to the transactions contemplated in this Purchase
      and
      Sale Agreement or any other Transaction Document or Principal Document to which
      the Parent is a party or the use of proceeds herefrom or therefrom; provided,
      however,
      that
      the foregoing shall exclude any indemnification to any Indemnified Party (a)
      resulting from gross negligence, willful misconduct, fraud or acts of bad faith
      on the part of such Indemnified Party if the Indemnified Party was not an
      Affiliate of the Parent at such time, (b) that has the effect of imposing on
      the
      Parent any recourse liability for Royalty Payments or Replacement Royalty
      Payments, if any, because of the insolvency or other creditworthiness problems
      of Inspire, or other third party licensee, or the insufficiency of the Available
      Collections Amount (taken together with the Interest Reserve Account and the
      Capital Account), whether as a result of the amount of cash flow arising from
      sales of the Subject Products or otherwise, unless resulting from the failure
      of
      the Parent to perform its obligations under this Purchase and Sale Agreement,
      (c) subject to Section 9.11, for normal and customary expenses incurred in
      the
      ordinary course of business in the administration of this Purchase and Sale
      Agreement and any of the other Transaction Documents or Principal Documents
      to
      which it is party, (d) for the repayment of the Notes pursuant to the Indenture
      unless resulting from the failure of the Parent to perform its obligations
      under
      this Purchase and Sale Agreement or any of the other Transaction Documents
      or
      Principal Documents to which it is party and (e) for any special, indirect,
      consequential or punitive damages.

    
      
        
        

      

      
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    ARTICLE
      IX

    MISCELLANEOUS

     

    Section
      9.1 Transfers
      Intended as Sales.
      Each of
      the parties hereto expressly intends and agrees that the sale, transfer,
      conveyance, assignment, contribution and granting of the Purchased Assets
      contemplated and effected under this Purchase and Sale Agreement are complete
      and absolute sales rather than pledges or assignments of only a security
      interest and shall be given effect as such for all purposes. If, however,
      notwithstanding the express intent of the parties hereto, such sale, transfer,
      conveyance, assignment, contribution and granting are deemed to be a secured
      financing, this Purchase and Sale Agreement is a security agreement and the
      Parent hereby grants to the Issuer a security interest in all of the Parent’s
      right, title and interest in, to and under the following, in each case, whether
      now owned or existing or hereafter acquired or arising, and wherever located:
      (a) the Purchased Assets; and (b) any and all additions and accessions to any
      of
      the foregoing, all substitutions and replacements therefor and all products
      and
      proceeds thereof, to secure the performance of all of the Parent’s obligations
      in connection with such secured financing. The sale, transfer, conveyance,
      assignment, contribution and granting of the Purchased Assets and the grant
      of
      the license under the Residual License Agreement shall be reflected on the
      Parent’s balance sheet and other financial statements and computer records as a
      sale of assets and a license to the Issuer consistent with GAAP. The sale,
      transfer, conveyance, assignment, contribution and granting by the Parent of
      the
      Purchased Assets hereunder are and shall be without recourse to, or
      representation or warranty (express or implied) by, the Parent, except as
      otherwise specifically provided herein. The limited rights of recourse specified
      herein against the Parent in connection with the sale, transfer, conveyance,
      assignment, contribution and granting by the Parent of the Purchased Assets
      hereunder are intended to provide a remedy for breach of representations and
      warranties relating to the condition of the assets sold, breach of the covenants
      in this Purchase and Sale Agreement or for other indemnified amounts (including
      Indemnified Amounts) set forth in Section 8.1 or Section 9.11, rather than
      to
      the collectibility of underlying indebtedness and other payment
      obligations.

     

    Section
      9.2 Specific
      Performance.
      Any
      party may enforce specific performance of this Purchase and Sale
      Agreement.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Section
      9.3 Notices.
      All
      Notices shall be in writing and shall be effective (a) upon receipt when sent
      through the mails, registered or certified mail, return receipt requested,
      postage prepaid, with such receipt to be effective the date of delivery
      indicated on the return receipt, (b) upon receipt when sent by an overnight
      courier, (c) on the date personally delivered to an authorized officer of the
      party to which sent, (d) on the date transmitted by legible telecopier
      transmission with a confirmation of receipt or (e) in the case of any report
      that is of a routine nature, on the date sent by first class mail or overnight
      courier or transmitted by legible telecopier transmission, in all cases, with
      a
      copy emailed to the recipient at the applicable address, addressed to the
      recipient in accordance with Section 12.5 of the Indenture. A copy of each
      Notice given hereunder to any party hereto shall also be given to the other
      party hereto. Each party hereto may, by notice given in accordance herewith
      to
      the other party hereto, designate any further or different address to which
      subsequent Notices shall be sent.

     

    Section
      9.4 CHOICE
      OF LAW.
      THIS
      PURCHASE AND SALE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
      WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
      TO
      THE RULES THEREOF RELATING TO CONFLICTS OF LAW OTHER THAN SECTION 5-1401 OF
      THE
      GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS
      AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
      SUCH LAWS.

     

    Section
      9.5 Counterparts.
      This
      Purchase and Sale Agreement may be executed in any number of counterparts,
      each
      of which so executed shall be deemed to be an original, but all of such
      counterparts shall together constitute but one and the same
      instrument.

     

    Section
      9.6 Amendment.

     

    (a) The
      provisions of this Purchase and Sale Agreement may from time to time be amended,
      modified, supplemented, restated or waived, if such amendment, modification,
      supplement, restatement or waiver is in writing and consented to by each of
      the
      parties hereto and, so long as the Notes are outstanding, the Trustee pursuant
      to Section 9.1 or Section 9.2 of the Indenture, as applicable.

     

    (b) No
      failure or delay on the part of the Issuer, the Parent or the Trustee exercising
      any power or right hereunder shall operate as a waiver thereof, nor shall any
      single or partial exercise of any such power or right preclude any other or
      further exercise thereof or the exercise of any other power or right. No notice
      to or demand on the Issuer or the Parent in any case shall entitle it to any
      notice or demand in similar or other circumstances. No waiver or approval by
      the
      Issuer under this Purchase and Sale Agreement shall, except as may otherwise
      be
      stated in such waiver or approval, be applicable to subsequent transactions.
      No
      waiver or approval under this Purchase and Sale Agreement shall require any
      similar or dissimilar waiver or approval thereafter to be granted
      hereunder.

     

    (c) The
      Transaction Documents contain a final and complete integration of all prior
      expressions by the parties hereto and thereto with respect to the subject matter
      hereof and thereof and shall constitute the entire agreement among the parties
      hereto and thereto with respect to the subject matter hereof and thereof,
      superseding all prior oral or written understandings.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    Section
      9.7 Severability
      of Provisions.
      If any
      one or more of the covenants, agreements, provisions or terms of this Purchase
      and Sale Agreement shall be for any reason whatsoever held invalid, then such
      covenants, agreements, provisions or terms shall be deemed severable from the
      remaining covenants, agreements, provisions or terms of this Purchase and Sale
      Agreement and shall in no way affect the validity or enforceability of the
      other
      covenants, agreements, provisions or terms of this Purchase and Sale
      Agreement.

     

    Section
      9.8 Binding
      Effect; Assignability; Survival.
      This
      Purchase and Sale Agreement shall be binding upon and inure to the benefit
      of
      the Issuer, the Parent and the Trustee and their respective successors and
      permitted assigns. Neither the Parent nor the Issuer may assign any of its
      rights hereunder or any interest herein without the prior written consent of
      the
      other party and, in the case of the Parent, so long as the Notes are
      outstanding, the Trustee pursuant to Section 9.1 or Section 9.2 of the
      Indenture, as applicable, except as otherwise herein specifically provided;
      provided,
      however,
      that a
      Change of Control shall not by itself be deemed an assignment for purposes
      of
      this Section 9.8. This Purchase and Sale Agreement shall create and constitute
      the continuing obligations of the parties hereto in accordance with its terms,
      and shall remain in full force and effect until such time as the parties hereto
      shall agree, it being agreed that the parties hereto shall not terminate this
      Purchase and Sale Agreement at any time prior to payment in full of the Notes.
      The rights and remedies with respect to (i) any breach of any representation
      and
      warranty made by the Parent pursuant to Section 5.1, (ii) the indemnification
      and payment provisions of Article VIII and (iii) the provisions of Section
      9.4,
      Section 9.10, Section 9.11, Section 9.12, Section 9.13 and Section 9.14 shall
      be
      continuing and shall survive any termination of this Purchase and Sale
      Agreement.

     

    Section
      9.9 Acknowledgement
      and Agreement.
      The
      Parent expressly acknowledges and agrees that all of the Issuer’s
      right,
      title and interest in, to and under this Purchase and Sale Agreement (including
      the Issuer’s rights under the Servicing Agreement) and the Residual License
      Agreement shall be pledged and assigned to the Trustee as collateral by the
      Issuer pursuant to the Indenture, and the Parent consents to such pledge and
      assignment. Each of the parties hereto acknowledges and agrees that the Trustee,
      acting on behalf of the Noteholders, is a third party beneficiary of all of
      the
      rights of the Issuer arising hereunder and shall be entitled to exercise the
      rights of the Issuer to give consents under Section
      6.2, to
      receive materials under Section 6.1(j), Section 6.3(c) and Section 6.3(d) and
      to
      enforce the rights of the Issuer set forth in Section 8.1 and Section 9.11.
      Except as set forth in the preceding sentence with respect to the rights of
      the
      Issuer under Section 6.1(j), Section 6.2, Section 6.3(c), Section 6.3(d),
      Section 8.1 and Section 9.11, each of the parties hereto further acknowledges
      and agrees that the rights of the Issuer arising hereunder that have been
      assigned and pledged to the Trustee under the Indenture may be enforced by
      the
      Trustee only
      so
      long as an Event of Default has occurred and is continuing and the Trustee
      is
      exercising remedies under the Indenture, in each case at the direction of
      Noteholders holding a majority in Outstanding Principal Balance of the Senior
      Class of Notes.
      In all
      other cases, the Issuer shall have the right to give and withhold consents
      and
      exercise or refrain from exercising rights and remedies hereunder.

     

    Section
      9.10 Cumulative
      Remedies.
      The
      remedies herein provided are cumulative and not exclusive of any remedies
      provided by law. Without limiting the foregoing, the Parent hereby authorizes
      the Issuer at any time and from time to time, to the fullest extent permitted
      by
      law, to offset any amounts payable by the Issuer to, or for the account of,
      the
      Parent against any obligations of the Parent to the Issuer arising in connection
      with the Transaction Documents (including amounts payable pursuant to Section
      8.1) that are then due and payable.

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    Section
      9.11 Costs,
      Expenses and Taxes.
      In
      addition to the obligations of the Parent under Article VIII, the Parent
      agrees:

     

    (a) to
      pay to
      the Issuer on demand all reasonable costs and expenses incurred by the Issuer
      in
      connection with the enforcement of this Purchase and Sale Agreement and the
      other Transaction Documents to be delivered hereunder;

     

    (b) to
      indemnify the Issuer on an after-tax basis for any stamp and other Taxes and
      fees payable or determined to be payable in connection with the execution,
      delivery, filing and recording of this Purchase and Sale Agreement or the other
      Transaction Documents, and to indemnify each Indemnified Party on an after-tax
      basis in respect of any liabilities with respect to such Taxes and fees;
      and

     

    (c) to
      indemnify the Issuer on an after-tax basis for any U.S. federal, state or local
      or any foreign income, franchise or other Taxes imposed on income or assets
      (including any interest, penalties or accountant or counsel fees incurred in
      connection with such Taxes) asserted against, withheld from or required to
      be
      withheld by the Issuer at any time that the Notes are outstanding.

     

    Section
      9.12 No
      Proceedings.
      The
      Parent hereby agrees that it will not institute against the Issuer, or join
      any
      Person in instituting against the Issuer, any insolvency or similar proceeding
      (namely, any Voluntary Bankruptcy or Involuntary Bankruptcy) until one year
      and
      one day after the date on which the Notes have been paid in full.

     

    Section
      9.13 Consent
      to Jurisdiction.

     

    (a) Any
      legal
      action or proceeding with respect to this Purchase and Sale Agreement may be
      brought in the courts of the State of New York located in the Borough of
      Manhattan, The City of New York or of the United States federal court sitting
      in
      the Borough of Manhattan, The City of New York, and, by execution and delivery
      of this Purchase and Sale Agreement, each party hereto consents, for itself
      and
      in respect of its property, to the non-exclusive jurisdiction of those courts.
      Each party hereto irrevocably consents to service of process in the manner
      provided for notices in Section 9.3. Nothing in this Purchase and Sale Agreement
      shall affect the right of any party hereto to serve process in any other manner
      permitted by law. Each party hereto irrevocably waives, to the maximum extent
      permitted by law, any objection, including any objection to the laying of venue
      or based on the grounds of forum non conveniens, that it may now or hereafter
      have to the bringing of any action or proceeding in such jurisdiction in respect
      of this Purchase and Sale Agreement or any document related hereto. Each party
      hereto waives personal service of any summons, complaint or other process,
      which
      may be made by any other means permitted by New York law.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (b) If,
      for
      the purpose of obtaining a judgment or order in any court, it is necessary
      to
      convert a sum due hereunder from U.S. dollars into another currency, each of
      the
      Issuer and the Parent has agreed that the rate of exchange used shall be that
      at
      which, in accordance with normal banking procedures, such party could purchase
      U.S. dollars with such other currency in the Borough of Manhattan, The City
      of
      New York on the Business Day preceding the day on which final judgment is
      given.

     

    (c) The
      obligation of each of the Issuer and the Parent in respect of any sum payable
      by
      it hereunder shall, notwithstanding any judgment or order in a Judgment
      Currency, be discharged only to the extent that, on the Business Day following
      receipt thereby of such security of any sum adjudged to be so due in the
      Judgment Currency, it may in accordance with normal banking procedures purchase
      U.S. dollars with the Judgment Currency. If the amount of U.S. dollars so
      purchased is less than the sum originally due to such party in the Judgment
      Currency (determined in the manner set forth in Section 9.13(b)), each of the
      Issuer and the Parent agrees, as a separate obligation and notwithstanding
      any
      such judgment, to indemnify such party against such loss, and, if the amount
      of
      the U.S. dollars so purchased exceeds the sum originally due to such party,
      such
      party agrees to remit to the payor, such excess, provided that such party shall
      have no obligation to remit any such excess as long as the payor shall have
      failed to pay such party any obligations due and payable pursuant to such
      judgment, in which case such excess may be applied to such obligations of such
      party in accordance with the terms of such judgment. The foregoing indemnity
      shall constitute a separate and independent obligation of the Issuer and the
      Parent and shall continue in full force and effect notwithstanding any such
      judgment or order as aforesaid.

     

    Section
      9.14 Limited
      Recourse.
      The
      Parent accepts that the enforceability against the Issuer of any obligations
      of
      the Issuer hereunder shall be limited to the assets of the Issuer, whether
      tangible or intangible, real or personal (including the Collateral) and the
      proceeds thereof. Once all such assets have been realized upon and such assets
      (and proceeds thereof) have been applied in accordance with Article III of
      the
      Indenture, any outstanding obligations of the Issuer to the Parent hereunder
      shall be extinguished. The Parent further agrees that it shall take no action
      against any employee, director, officer or administrator of the Issuer in
      relation to this Purchase and Sale Agreement except in the exercise of its
      rights to proceed against any employee, director, officer or administrator
      of
      the Issuer (a) for intentional and willful fraud or intentional and willful
      misrepresentations on the part of or by such employee, director, officer or
      administrator or (b) for the receipt of any distributions or payments to which
      the Parent or any successor in interest is entitled.

     

    Section
      9.15 Table
      of Contents and Headings.
      The
      Table of Contents and headings of the Articles and Sections of this Purchase
      and
      Sale Agreement have been inserted for convenience of reference only, are not
      to
      be considered a part hereof and shall in no way modify or restrict any of the
      terms or provisions hereof.

     

    [SIGNATURE
      PAGE FOLLOWS]

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Purchase and Sale
      Agreement as of the day and year first written above.

     

    
      	
              AZITHROMYCIN
                ROYALTY SUB LLC

            
	 
	
              By:
                InSite Vision Incorporated, its Manager

            
	 
	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            
	 
	
              INSITE
                VISION INCORPORATED

            
	 
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    

      ANNEX
        A

       

      RULES
        OF CONSTRUCTION AND DEFINED TERMS

       

      Unless
        the context otherwise requires, in this Annex
        A
        and each
        Transaction Document (or other document) to which this Annex
        A
        is
        attached:

       

      
        	
                (a)

              	
                Each
                  capitalized term has the meaning assigned to it
                  herein.

              

      

       

      
        	
                (b)

              	
                An
                  accounting term not otherwise defined has the meaning assigned
                  to it in
                  accordance with GAAP.

              

      

       

      
        	
                (c)

              	
                Unless
                  otherwise defined, all terms used herein or therein that are defined
                  in
                  the UCC shall have the meanings stated in the
                  UCC.

              

      

       

      
        	
                (d)

              	
                Words
                  of the masculine, feminine or neuter gender shall mean and include
                  the
                  correlative words of other genders, and words in the singular shall
                  include the plural, and vice versa.

              

      

       

      
        	
                (e)

              	
                The
                  terms “include”, “including” and similar terms shall be construed as if
                  followed by the phrase “without
                  limitation”.

              

      

       

      
        	
                (f)

              	
                References
                  to an agreement or other document include references to such agreement
                  or
                  document as amended, restated, reformed, supplemented or otherwise
                  modified in accordance with the terms thereof and include any Annexes,
                  Exhibits and Schedules attached thereto, and the provisions thereof
                  apply
                  to successive events and
                  transactions.

              

      

       

      
        	
                (g)

              	
                References
                  to any statute or other legislative provision shall include any
                  statutory
                  or legislative modification or re-enactment thereof, or any substitution
                  therefor.

              

      

       

      
        	
                (h)

              	
                References
                  to any Person shall be construed to include such Person’s successors and
                  permitted assigns.

              

      

       

      
        	
                (i)

              	
                The
                  word “will” shall be construed to have the same meaning and effect as the
                  word “shall”.

              

      

       

      
        	
                (j)

              	
                The
                  words “hereof”, “herein”, “hereunder”
                  and similar terms when used in this Annex
                  A
                  or
                  any Transaction Document (or other document) shall refer to this
                  Annex
                  A
                  or
                  such Transaction Document (or other document) as a whole and not
                  to any
                  particular provision hereof or thereof, and Article, Section, Annex,
                  Schedule and Exhibit references herein and therein are references
                  to
                  Articles and Sections of, and Annexes, Schedules and Exhibits to,
                  the
                  relevant Transaction Document (or other document) unless otherwise
                  specified.

              

      

       

      
        	
                (k)

              	
                In
                  the computation of a period of time from a specified date to a
                  later
                  specified date, the word “from”
                  means “from
                  and including”
                  and each of the words “to”
                  and “until”
                  means “to
                  but excluding”.

              

      

       

      
        	
                (l)

              	
                References
                  to a class of Notes shall be to the Original Class A Notes, to
                  the Class B
                  Notes or to a class of Refinancing Notes, as
                  applicable.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      
        	
                (m)

              	
                References
                  to the Notes include the terms and conditions in the relevant Transaction
                  Document (or other document) applicable to the Notes, and any reference
                  to
                  any amount of money due or payable by reference to the Notes shall
                  include
                  any sum covenanted to be paid by the Issuer under the relevant
                  Transaction
                  Document (or other document) in respect of the
                  Notes.

              

      

       

      
        	
                (n)

              	
                References
                  to any action, remedy or method of judicial proceeding for the
                  enforcement
                  of the rights of creditors or of security shall be deemed to include,
                  in
                  respect of any jurisdiction other than the State of New York, references
                  to such action, remedy or method of judicial proceeding for the
                  enforcement of the rights of creditors or of security available
                  or
                  appropriate in such jurisdiction as shall most nearly approximate
                  such
                  action, remedy or method of judicial proceeding described or referred
                  to
                  in the relevant Transaction Document (or other
                  document).

              

      

       

      
        	
                (o)

              	
                Where
                  any payment is to be made, any funds are to be applied or any calculation
                  is to be made under any Transaction Document (or other document)
                  on a day
                  that is not a Business Day, unless any Transaction Document (or
                  other
                  document) otherwise provides, such payment shall be made, such
                  funds shall
                  be applied and such calculation shall be made on the next succeeding
                  Business Day, and payments shall be adjusted accordingly, including
                  interest unless otherwise specified; provided,
                  however,
                  that no interest shall accrue in respect of any payments made on
                  Fixed
                  Rate Notes on that next succeeding Business
                  Day.

              

      

       

      
        	
                (p)

              	
                References
                  to any Calculation Date or Relevant Calculation Date, in each case
                  that
                  would be prior to the first Calculation Date that follows the Closing
                  Date, shall be deemed to refer to the Closing
                  Date.

              

      

       

      
        
           

        

        
          A-2

          
            

          

        

        
           

        

      

      “144A
        Global Note”
has
        the
        meaning set forth in Section 2.1(b) of the Indenture.

       

      “Acceleration
        Default”
means
        any Event of Default of the type described in Section 4.1(f) of the
        Indenture.

       

      “Acceleration
        Notice”
means
        a
        written notice given after the occurrence and continuation of an Event of
        Default to the Issuer by the Senior Trustee at the instruction of the
        Noteholders of a majority of the Outstanding Principal Balance of the Senior
        Class of Notes, declaring all Outstanding principal of and accrued and unpaid
        interest on the Notes to be immediately due and payable.

       

      “Accounts”
means
        the Collection Account, any Redemption Account, any Escrow Account, the Capital
        Account, the Interest Reserve Account and any other account established pursuant
        to Section 3.1 of the Indenture.

       

      “Act”
has
        the
        meaning set forth in Section 1.3(a) of the Indenture.

       

      “Actual
        Beneficial Holder List”
has
        the
        meaning set forth in Section 2.5(d) of the Indenture.

       

      “Additional
        Interest”
means,
        with respect to the Notes, interest accrued on the amount of any interest
        and
        Premium, if any, in respect of such Notes that is not paid when due at the
        Stated Rate of Interest of such Notes for each Interest Accrual Period until
        any
        such unpaid interest or Premium is paid in full, compounded quarterly on
        each
        Payment Date, to the fullest extent permitted by Applicable Law.

       

      “Affiliate”
means,
        with respect to any Person, any other Person that, directly or indirectly,
        controls, is controlled by or is under common control with such Person or
        is a
        director, officer or manager of such Person. For purposes of this definition,
        “control”
of
        a
        Person means the possession, directly or indirectly, of the power (a) to
        vote
        10% or more of the Capital Securities (on a fully diluted basis) of such
        Person
        having ordinary voting power for the election of directors, managing members
        or
        general partners (as applicable) or (b) to direct or cause the direction
        of the
        management and policies of such Person, whether through the ownership of
        Voting
        Securities, by contract or otherwise, and the terms “controlled”
and
        “controlling”
have
        meanings correlative to the foregoing.

       

      “Agent
        Members”
has
        the
        meaning set forth in Section 2.10(a) of the Indenture.

       

      “Applicable
        Law”
means,
        with respect to any Person, all laws, rules, regulations and orders of
        Governmental Authorities applicable to such Person or any of its properties
        or
        assets.

       

      “Applicable
        Treasury Rate”
for
        any
        Redemption Date means the interest rate (expressed as a semiannual decimal
        and,
        in the case of United States Treasury bills, converted to a bond equivalent
        yield) determined on the fourth Business Day prior to such Redemption Date
        to be
        the per annum rate equal to the semiannual yield to maturity for United States
        Treasury securities maturing on the Average Life Date of the Original Class
        A
        Notes as of such Redemption Date and trading in the public securities markets
        either (a) as determined by interpolation between the most recent weekly
        average
        yield to maturity for two series of United States Treasury securities trading
        in
        the public securities markets, (i) one maturing as close as possible to,
        but
        earlier than, the Average Life Date of the Original Class A Notes and (ii)
        the
        other maturing as close as possible to, but later than, the Average Life
        Date of
        the Original Class A Notes, in each case as published in the most recent
        H.15
        (519) or (b) if a weekly average yield to maturity for United States Treasury
        securities maturing on the Average Life Date of the Original Class A Notes
        is
        reported in the most recent H.15 (519), such weekly average yield to maturity
        as
        published in such H.15 (519).

       

      
        
           

        

        
          A-3

          
            

          

        

        
           

        

      

      

       

      “Applicants”
has
        the
        meaning set forth in Section 6.14 of the Indenture.

       

      “Approved
        Holder List”
has
        the
        meaning set forth in Section 2.5(d) of the Indenture.

       

      “Authorized
        Agent”
means,
        with respect to the Notes, any authorized Calculation Agent, Paying Agent
        or
        Registrar acting as such for the Notes.

       

      “Available
        Collections Amount”
means,
        for any Payment Date, the sum of (a) the amount on deposit in the Collection
        Account as of the Calculation Date immediately preceding such Payment Date
        and
        (b) the amount of any net investment income on amounts on deposit in the
        Accounts (other than the Capital Account) as of such Calculation
        Date.

       

      “Average
        Life Date”
of
        the
        Original Class A Notes means the date that follows the applicable Redemption
        Date by a period equal to the Remaining Weighted Average Life of the Original
        Class A Notes.

       

      “AzaSite”
means
        AzaSite (ISV-401), a DuraSite formulation of azithromycin (1%).

       

      “Bankruptcy
        Code”
means
        Title 11 of the United States Code, as amended.

       

      
        
           

        

        
          A-4

          
            

          

        

        
           

        

      

      

       

      “Base
        Case Amortization Schedule”
means
        the following base case amortization schedule:

       

      
        
          	
                  Base
                    Case Amortization Schedule

                

        

        

        
          	
                  Payment
                    Date

                	 	
                  Principal
                    Payment

                	 	
                  Remaining
                    Balance of the Notes

                
	 	 	 	 	
                  $60,000,000

                
	
                  May
                    15, 2008

                	 	
                  $0

                	 	
                  $60,000,000

                
	
                  August
                    15, 2008

                	 	
                  $0

                	 	
                  $60,000,000

                
	
                  November
                    15, 2008

                	 	
                  $0

                	 	
                  $60,000,000

                
	
                  February
                    15, 2009

                	 	
                  $0

                	 	
                  $60,000,000

                
	
                  May
                    15, 2009

                	 	
                  $416,016

                	 	
                  $59,583,984

                
	
                  August
                    15, 2009

                	 	
                  $415,670

                	 	
                  $59,168,314

                
	
                  November
                    15, 2009

                	 	
                  $713,954

                	 	
                  $58,454,360

                
	
                  February
                    15, 2010

                	 	
                  $2,453,121

                	 	
                  $56,001,239

                
	
                  May
                    15, 2010

                	 	
                  $2,726,994

                	 	
                  $53,274,246

                
	
                  August
                    15, 2010

                	 	
                  $2,284,139

                	 	
                  $50,990,107

                
	
                  November
                    15, 2010

                	 	
                  $1,433,700

                	 	
                  $49,556,407

                
	
                  February
                    15, 2011

                	 	
                  $2,294,888

                	 	
                  $47,261,518

                
	
                  May
                    15, 2011

                	 	
                  $3,709,046

                	 	
                  $43,552,472

                
	
                  August
                    15, 2011

                	 	
                  $3,402,090

                	 	
                  $40,150,382

                
	
                  November
                    15, 2011

                	 	
                  $2,827,002

                	 	
                  $37,323,380

                
	
                  February
                    15, 2012

                	 	
                  $3,696,724

                	 	
                  $33,626,656

                
	
                  May
                    15, 2012

                	 	
                  $4,956,719

                	 	
                  $28,669,937

                
	
                  August
                    15, 2012

                	 	
                  $4,935,904

                	 	
                  $23,734,034

                
	
                  November
                    15, 2012

                	 	
                  $3,928,206

                	 	
                  $19,805,827

                
	
                  February
                    15, 2013

                	 	
                  $4,506,637

                	 	
                  $15,299,191

                
	
                  May
                    15, 2013

                	 	
                  $5,846,186

                	 	
                  $9,453,004

                
	
                  August
                    15, 2013

                	 	
                  $5,829,804

                	 	
                  $3,623,201

                
	
                  November
                    15, 2013

                	 	
                  $3,623,201

                	 	
                  $0

                

        

      

      

      “Beneficial
        Holder”
means
        any Person that holds a Beneficial Interest in any Global Note through an
        Agent
        Member.

       

      “Beneficial
        Interest”
means
        any beneficial interest in any Global Note, whether held directly by an Agent
        Member or held indirectly through an Agent Member’s beneficial interest in such
        Global Note.

       

      “Bill
        of Sale”
means
        the Bill of Sale, dated as of the Closing Date, executed by the Parent and
        the
        Issuer, substantially in the form of Exhibit
        A
        to the
        Purchase and Sale Agreement.

       

      “Business
        Day”
means
        (a) any day that is not a Saturday, Sunday or other day on which commercial
        banks in New York City are authorized or required by Applicable Law to remain
        closed or a day on which the Corporate Trust Office is closed for business
        and
        (b) for purposes of calculating amounts at the London interbank offered rate
        and
        related calculations relative to the making, continuing, prepaying or repaying
        of Indebtedness in respect thereof, any day that is a Business Day described
        in
        clause (a) that is also a day on which dealings in U.S. dollars are carried on
        in the London interbank market.

       

      
        
           

        

        
          A-5

          
            

          

        

        
           

        

      

      

       

      “Calculation
        Agent”
means
        U.S.
        Bank
        National Association and
        any
        successor appointed pursuant to Section 6.11 of the Indenture.

       

      “Calculation
        Date”
means,
        for any Payment Date, the fifth Business Day immediately preceding such Payment
        Date.

       

      “Calculation
        Report”
has
        the
        meaning set forth in Section 3.5(b) of the Indenture.

       

      “Capital
        Account”
has
        the
        meaning set forth in Section 3.1(a) of the Indenture.

       

      “Capital
        Securities”
means,
        with respect to any Person, all shares, interests, participations or other
        equivalents (however designated, whether voting or non-voting) of such Person’s
        capital, whether now outstanding or issued after the Closing Date, including
        common shares, ordinary shares, preferred shares, membership interests or
        share
        capital in a limited liability company or other Person, limited or general
        partnership interests in a partnership, beneficial interests in trusts or
        any
        other equivalent of such ownership interest or any options, warrants and
        other
        rights to acquire such shares or interests, including rights to allocations
        and
        distributions, dividends, redemption payments and liquidation
        payments.

       

      “Cash
        Purchase Price”
has
        the
        meaning set forth in Section 3.1(a) of the Purchase and Sale
        Agreement.

       

      “Change
        of Control”
has
        the
        meaning set forth in Section 6.1(b) of the Purchase and Sale
        Agreement.

       

      “Class
        A Notes”
means
        the Original Class A Notes and any Refinancing Notes issued to refinance
        the
        foregoing.

       

      “Class
        B Issuance”
has
        the
        meaning set forth in Section 2.16(a) of the Indenture.

       

      “Class
        B Notes”
means
        the Class B Notes, if any, issued in such form as shall be authorized by
        a
        Manager Resolution or any indenture supplemental to the Indenture in respect
        thereof pursuant to Section 2.16 of the Indenture and any Refinancing Notes
        issued to refinance the foregoing.

       

      “Clearstream”
means
        Clearstream Banking, a French société anonyme.

       

      “Closing
        Date”
means
        the date on which the conditions set forth in Section 4.1 of the Purchase
        and
        Sale Agreement are satisfied, the sale, transfer, conveyance, assignment,
        contribution and granting of the Purchased Assets to the Issuer pursuant
        to
        Article II of the Purchase and Sale Agreement are effective and the Original
        Class A Notes are issued, which date shall be February 21, 2008.

       

      “Code”
means
        the Internal Revenue Code of 1986 and the regulations thereunder.

       

      
        
           

        

        
          A-6

          
            

          

        

        
           

        

      

      

       

      “Collateral”
has
        the
        meaning set forth in the Granting Clause of the Indenture.

       

      “Collection
        Account”
has
        the
        meaning set forth in Section 3.1(a) of the Indenture.

       

      “Collections”
means,
        without duplication, (a) Royalty Payments and Replacement Royalty Payments,
        (b)
        any net investment income on amounts on deposit in the Accounts (other than
        the
        Capital Account) and (c) any other amounts received by the Issuer (other
        than
        the proceeds of any Notes and capital contributions from the
        Parent).

       

      “Confidential
        Information”
means,
        collectively, (i) the information contemplated by Article 8 of the Inspire
        License Agreement, (ii) any materials containing or based on any of the
        foregoing (including any financial models based thereon) and (iii) any portions
        of any of the foregoing.

       

      “Confidentiality
        Agreement”
means,
        with respect to Noteholders or Beneficial Holders at the Closing Date with
        respect to the Original Class A Notes (or, with respect to any Class B Notes
        or
        any Refinancing Notes, the date of issuance of such Class B Notes or Refinancing
        Notes), a confidentiality agreement for the benefit of the Issuer provided
        to
        the Registrar on or prior to the Closing Date (or such date of issuance),
        and
        otherwise means a resale confidentiality agreement for the benefit of the
        Issuer
        substantially in the form of Exhibit
        B
        to the
        Indenture.

       

      “Confidential
        Parties”
has
        the
        meaning set forth in Section 12.13 of the Indenture.

       

      “Controlled
        Accounts”
has
        the
        meaning set forth in Section 3.1(b) of the Indenture.

       

      “Corporate
        Trust Office”
means
        the office of the Trustee in the city at which at any particular time the
        Trustee’s duties under the Transaction Documents shall be principally
        administered and, on the Closing Date, shall be One Federal Street, 3rd Floor,
        Boston, Massachusetts 02110, Attention: Corporate Trust Services.

       

      “Current
        Product”
has
        the
        meaning set forth in the Inspire License Agreement.

       

      “Default”
means
        a
        condition, event or act that, with the giving of notice or the lapse of time
        or
        both, would constitute an Event of Default.

       

      “Definitive
        Notes”
has
        the
        meaning set forth in Section 2.1(b) of the Indenture.

       

      “Direction”
has
        the
        meaning set forth in Section 1.3(c) of the Indenture.

       

      “Distribution
        Report”
has
        the
        meaning set forth in Section 2.13(a) of the Indenture.

       

      “Dollar”
or
        the
        sign “$”
means
        lawful money of the United States.

       

      “DTC”
means
        The Depository Trust Company, its nominees and their respective
        successors.

       

      “DTC
        List”
has
        the
        meaning set forth in Section 2.5(d) of the Indenture.

       

      “Eligibility
        Requirements”
has
        the
        meaning set forth in Section 2.3(b) of the Indenture.

       

      
        
           

        

        
          A-7

          
            

          

        

        
           

        

      

      

       

      “Eligible
        Account”
means
        a
        trust account maintained on the books and records of an Eligible Institution
        in
        the name of the Trustee.

       

      “Eligible
        Institution”
means
        any bank organized under the laws of the U.S. or any state thereof or the
        District of Columbia (or any domestic branch of a foreign bank), which at
        all
        times has either (a) a long-term unsecured debt rating of at least A2 by
        Moody’s
        and A by S&P or (b) a certificate of deposit rating of at least P-1 by
        Moody’s and A-1 by S&P.

       

      “Eligible
        Investments”
means,
        in each case, book-entry securities, negotiable instruments or securities
        represented by instruments in bearer or registered form that
        evidence:

       

      (a) direct
        obligations of, and obligations fully Guaranteed as to timely payment of
        principal and interest by, the U.S. or any agency or instrumentality thereof
        the
        obligations of which are backed by the full faith and credit of the U.S.
        (having
        original maturities of no more than 365 days or such lesser time as is required
        for the distribution of funds);

       

      (b) demand
        deposits, time deposits or certificates of deposit of the Operating Bank
        or of
        depositary institutions or trust companies organized under the laws of the
        U.S.
        or any state thereof or the District of Columbia (or any domestic branch
        of a
        foreign bank) (i) having original maturities of no more than 365 days or
        such
        lesser time as is required for the distribution of funds; provided,
        that,
        at the time of investment or contractual commitment to invest therein, the
        short-term debt rating of such depositary institution or trust company shall
        be
        at least P-1 by Moody’s and A-1 by S&P or (ii) having maturities of more
        than 365 days and, at the time of the investment or contractual commitment
        to
        invest therein, a rating of at least A2 by Moody’s and A by S&P;

       

      (c) corporate
        or municipal debt obligations (i) having remaining maturities of no more
        than
        365 days or such lesser time as is required for the distribution of funds
        and
        having, at the time of the investment or contractual commitment to invest
        therein, a rating of at least P-1 or A2 by Moody’s and A-1 or A by S&P or
        (ii) having remaining maturities of more than 365 days and, at the time of
        the
        investment or contractual commitment to invest therein, a rating of at least
        A2
        by Moody’s and A by S&P;

       

      (d) investments
        in money market funds (including funds in respect of which the Trustee or
        any of
        its Affiliates is investment manager or otherwise) having a rating of at
        least
        A2 by Moody’s and Am by S&P;
        or

       

      (e) notes
        or
        bankers’ acceptances (having original maturities of no more than 365 days or
        such lesser time as is required for the distribution of funds) issued by
        any
        depositary institution or trust company referred to in clause (b)
        above;

       

      provided,
        however,
        that no
        investment shall be made in any obligations of any depositary institution
        or
        trust company that is identified in a written notice to the Trustee from
        the
        Issuer or the Servicer as having a contractual right to set off and apply
        any
        deposits held, or other indebtedness owing, by the Issuer to or for the credit
        or the account of such depositary institution or trust company, unless such
        contractual right by its terms expressly excludes all Eligible
        Investments.

       

      
        
           

        

        
          A-8

          
            

          

        

        
           

        

      

      

       

      “ERISA”
means
        the U.S. Employee Retirement Income Security Act of 1974, as
        amended.

       

      “ERISA
        Affiliate”
means
        any trade or business that is treated as a single employer with the Issuer
        or
        the Parent under Section 414 of the Code.

       

      “Escrow
        Account”
has
        the
        meaning set forth in Section 3.1(a) of the Indenture.

       

      “Escrow
        List”
has
        the
        meaning set forth in Section 2.5(d) of the Indenture.

       

      “Euroclear”
means
        Euroclear Bank S.A./N.V., as operator of the Euroclear system.

       

      “Event
        of Default”
has
        the
        meaning set forth in Section 4.1 of the Indenture.

       

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

       

      “Expenses”
means
        any reasonable out-of-pocket fees, costs or expenses of the Issuer, including
        the fees, expenses and indemnities of the Service Providers (provided that,
        with
        respect to the Servicer, such expenses shall only be reasonable out-of-pocket
        expenses), the fees and out-of-pocket expenses of counsel to the Trustee
        and the
        Issuer incurred after the Closing Date in connection with the transactions
        contemplated by the Transaction Documents, the fees and expenses of any
        nationally recognized independent public accounting firm engaged as auditors
        of
        the Issuer and any payments by the Issuer to third parties in respect of
        obligations for which indemnification payments have been received from the
        Parent; provided,
        however,
        that,
        except as expressly provided in the Indenture, Expenses shall not include
        the
        Servicing Fee, any Transaction Expenses, any amounts payable on the Notes,
        any
        fees, costs or expenses relating to the Class B Notes or any other amounts
        ranking pari passu with or junior to interest payable on the Class A Notes
        in
        the priority of payments set forth under Section 3.7 of the
        Indenture.

       

      “Field”
means
        the treatment, prevention or palliation of any human ocular or ophthalmic
        disease or condition.

       

      “Final
        Legal Maturity Date”
means,
        with respect to (a) the Original Class A Notes May 15, 2019, and (b) with
        respect to any Class B Notes or Refinancing Notes, the date specified in
        the
        indenture supplemental to the Indenture providing for their issuance;
provided,
        that
        the Final Legal Maturity Date with respect to any Class B Notes where the
        proceeds thereof are not used to redeem or refinance all of the Outstanding
        Class A Notes shall be no earlier than May 15, 2019.

       

      “Financial
        Asset”
has
        the
        meaning ascribed to it in Section 8-102(a)(9) of the UCC.

       

      “Fixed
        Rate Notes”
means
        (i) the Original Class A Notes and (ii) any Class B Notes or Refinancing
        Notes
        issued with a fixed rate of interest.

       

      “Floating
        Rate Notes”
means
        any Class B Notes or Refinancing Notes issued with a floating or variable
        rate
        of interest.

       

      
        
           

        

        
          A-9

          
            

          

        

        
           

        

      

      

       

      “GAAP”
means
        generally accepted accounting principles in effect in the U.S. from time
        to
        time.

       

      “Global
        Notes”
means
        any 144A Global Note and Regulation S Global Note.

       

      “Governmental
        Authority”
means
        the government of the United States, any other nation or any political
        subdivision thereof, whether state or local, and any agency, authority,
        instrumentality, regulatory body, court, central bank or other Person exercising
        executive, legislative, judicial, taxing, regulatory or administrative powers
        or
        functions of or pertaining to government.

       

      “Guarantee”
means
        any obligation, contingent or otherwise, of any Person directly or indirectly
        guaranteeing any Indebtedness or other payment obligation of any other Person
        and, without limiting the generality of the foregoing, any obligation, direct
        or
        indirect, contingent or otherwise, of such Person (a) to purchase or pay
        (or
        advance or supply funds for the purchase or payment of) such Indebtedness
        or
        other obligation of such other Person or (b) entered into for purposes of
        assuring in any other manner the obligee of such Indebtedness or other
        obligation of the payment thereof or to protect such obligee against loss
        in
        respect thereof (in whole or in part); provided,
        that
        the term “Guarantee”
shall
        not include endorsements for collection or deposit in the ordinary course
        of
        business. The term “Guarantee”
when
        used as a verb has a corresponding meaning.

       

      “H.15
        (519)”
means
        the weekly statistical release designated as such, or any successor publication,
        published by the Board of Governors of the Federal Reserve System, and the
        most
        recent H.15 (519) is the H.15 (519) published prior to the close of business
        on
        the fourth Business Day prior to the applicable Redemption Date.

       

      “Incur”
has
        the
        meaning set forth in Section 5.2(d) of the Indenture.

       

      “Indebtedness”
means,
        with respect to any Person at any date of determination (without duplication),
        (a) all indebtedness of such Person for borrowed money, (b) all obligations
        of
        such Person evidenced by bonds, debentures, notes or other similar instruments,
        (c) all obligations of such Person as an account party in respect of letters
        of
        credit or other similar instruments (including reimbursement obligations
        with
        respect thereto), (d) all the obligations of such Person to pay the deferred
        and
        unpaid purchase price of property or services, which purchase price is due
        more
        than 90 days after the date of purchasing such property or service or taking
        delivery and title thereto or the completion of such services, and payment
        deferrals arranged primarily as a method of raising funds to acquire such
        property or service, (e) all monetary obligations of such Person and its
        Subsidiaries under any leasing or similar arrangement that have been (or,
        in
        accordance with GAAP, should be) classified as capitalized leases, (f) all
        Guarantees of such Person in respect of any of the foregoing, (g) all monetary
        obligations of such Person with respect to any interest rate hedge, cap,
        floor,
        swap, option or other interest rate hedge agreement entered into after the
        Closing Date, (h) all Indebtedness (as defined in clauses (a) through (g)
        of
        this definition) of other Persons secured by a lien on any asset of such
        Person,
        whether or not such Indebtedness is assumed by such Person, and (i) all
        Indebtedness (as defined in clauses (a) through (g) of this definition) of
        other
        Persons Guaranteed by such Person.

       

      
        
           

        

        
          A-10

          
            

          

        

        
           

        

      

      

       

      “Indemnified
        Amounts”
has
        the
        meaning set forth in Section 8.1 of the Purchase and Sale
        Agreement.

       

      “Indemnified
        Party”
has
        the
        meaning set forth in Section 8.1 of the Purchase and Sale
        Agreement.

       

      “Indemnitee”
has
        the
        meaning set forth in Section 19.1 of the Pledge and Security
        Agreement.

       

      “Indemnitees”
has
        the
        meaning set forth in Section 19.1 of the Pledge and Security
        Agreement.

       

      “Indenture”
        means
        that certain indenture, dated as of the Closing Date, between the Issuer
        and the
        Trustee.

       

      “Indenture
        Estate”
has
        the
        meaning set forth in the Granting Clause of the Indenture.

       

      “Independent
        Consultant”
means
        L.E.K. Consulting LLC.

       

      “Independent
        Consultant’s Report”
means
        the report of the Independent Consultant included in the Private Placement
        Memorandum as Appendix
        A.

       

      “Independent
        Member”
means
        a
        Member
        who is not at the time of such Person’s admission to the Issuer, who is not and
        who has not been at any time during the preceding five years: (a) a director,
        manager, officer or employee of the Issuer (other than in the capacity of
        Independent Member) or any Affiliate of the Issuer (other than in the capacity
        of Independent Member); (b) a Person related to any officer, director, manager
        or employee of the Issuer (other than in the capacity of Independent Member)
        or
        any Affiliate of the Issuer (other than in the capacity of Independent Member);
        (c) a holder (directly or indirectly) of any Voting Securities of the Issuer
        or
        any Affiliate of the Issuer (other than in the capacity of Independent Member);
        (d) a Person related to a holder (directly or indirectly) of any Voting
        Securities of the Issuer or any Affiliate of the Issuer (other than in the
        capacity of Independent Member); (e) a purchaser, customer or any other Person
        who derives any of its revenues from interactions with the Issuer or any
        Affiliate of the Issuer or a family member of such purchaser, customer or
        other
        Person; or (f) a trustee in bankruptcy or other insolvency proceeding for,
        or a
        reorganization of, the Parent or any Subsidiary or Affiliate of the
        Parent.

       

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

       

      “Inspire
        License Agreement”
means
        that certain License Agreement dated as of February 15, 2007 by and between
        Inspire and the Parent, as supplemented by that certain letter agreement
        dated
        January 18, 2008 executed by Inspire in favor of the Parent.

       

      “Inspire
        Supply Agreement”
means
        that certain Supply Agreement dated as of February 15, 2007 by and between
        Inspire and the Parent.

       

      “Inspire
        Trademark License Agreement”
means
        that certain Trademark License Agreement dated as of February 15, 2007 by
        and
        between Inspire and the Parent.

       

      
        
           

        

        
          A-11

          
            

          

        

        
           

        

      

      

       

      “Institutional
        Accredited Investor”
means
        a
        Person that is an accredited investor as that term is defined in Rule 501(a)(1),
        (2), (3) or (7) under the Securities Act.

       

      “Interest
        Accrual Period”
means
        the period beginning on (and including) the Closing Date (or, with respect
        to
        any Class B Notes or any Refinancing Notes, the date of issuance of such
        Class B
        Notes or Refinancing Notes) and ending on (but excluding) the first Payment
        Date
        thereafter and each successive period beginning on (and including) a Payment
        Date and ending on (but excluding) the next succeeding Payment Date;
provided,
        however,
        that
        the final Interest Accrual Period shall end on but exclude the final Payment
        Date (or, if earlier, with respect to any class of Notes repaid in full,
        the
        date such class of Notes is repaid in full).

       

      “Interest
        Amount”
means,
        with respect to the
        Outstanding Principal Balance of
        any
        class of Notes, on any Payment Date, the amount of accrued and unpaid interest
        at the Stated Rate of Interest with respect to the Outstanding Principal
        Balance
        of such class of Notes on such Payment Date (including any Additional Interest,
        if any), determined in accordance with the terms thereof (including interest
        accruing after the commencement of a proceeding in bankruptcy, insolvency
        or
        similar law, whether or not permitted as a claim under such law).

       

      “Interest
        Reserve Account”
has
        the
        meaning set forth in Section 3.1(a) of the Indenture.

       

      “Involuntary
        Bankruptcy”
means,
        without the consent or acquiescence of the Issuer, the entering of an order
        for
        relief or approving a petition for relief or reorganization or any other
        petition seeking any reorganization, arrangement, composition, readjustment,
        liquidation, dissolution or other similar relief under any present or future
        bankruptcy, insolvency or similar statute, law or regulation, or the filing
        of
        any such petition against the Issuer, or, without the consent or acquiescence
        of
        the Issuer, the entering of an order appointing a trustee, custodian, receiver
        or liquidator of the Issuer, or of all or any substantial part of the property
        of the Issuer, in each case where such petition or order shall remain unstayed
        or shall not have been stayed or dismissed within 90 days from entry
        thereof.

       

      “Issuer”
means
        Azithromycin Royalty Sub LLC, a Delaware limited liability company, as issuer
        of
        the Notes pursuant to the Indenture.

       

      “Issuer
        Organizational Documents”
means
        the certificate of formation of the Issuer dated as of January 15, 2008 and
        the
        limited liability company agreement of the Issuer dated as of the Closing
        Date.

       

      “Issuer
        Pledged Collateral”
has
        the
        meaning set forth in Section 2.1 of the Pledge and Security
        Agreement.

       

      “Issuer
        Pledged Equity”
has
        the
        meaning set forth in Section 2.1(a) of the Pledge and Security
        Agreement.

       

      “Judgment
        Currency”
has
        the
        meaning set forth in Section 12.9(d) of the Indenture.

       

      “Licensed
        IP”
means
        the Columbia Patent Rights, the InSite Intellectual Property and the Pfizer
        Patent Rights (each as defined in the Inspire License Agreement).

       

      
        
           

        

        
          A-12

          
            

          

        

        
           

        

      

      

       

      “Lien”
means
        any security interest, mortgage, pledge, hypothecation, assignment, deposit
        arrangement, encumbrance, lien (statutory or otherwise), charge against or
        interest in property or other priority or preferential arrangement of any
        kind
        or nature whatsoever, in each case to secure payment of a debt or performance
        of
        an obligation, including any conditional sale, any sale with recourse against
        the Issuer or any agreement to give any security interest.

       

      “Loss”
means
        any loss, cost, charge, expense, interest, fee, payment, demand, liability,
        claim, action, proceeding, penalty, fine, damages, judgment, order or other
        sanction, other than Taxes.

       

      “Manager”
means
        the manager of the Issuer.

       

      “Manager
        Resolution”
means
        a
        copy of a resolution certified by a Responsible Officer of the Issuer as
        having
        been duly adopted by the Manager and being in full force and effect on the
        date
        of such certification.

       

      “Material
        Adverse Effect”
means
        a
        material adverse effect on (i) the ability of the Parent or the Servicer,
        as the
        case may be, to perform its obligations under any of the Transaction Documents
        or the Principal Documents, in each case to which it is a party, (ii) the
        validity or enforceability of any of the Principal Documents or the rights
        or
        remedies of the Issuer under any of such Principal Documents or (iii) the
        Purchased Assets or the Residual License Agreement or the ability of the
        Issuer
        to perform any of its obligations under the Notes and the
        Indenture.

       

      “Member”
means
        a
        member of the Issuer.

       

      “Moody’s”
means
        Moody’s Investors Service, Inc. and any successor thereto or, if such
        corporation or its successor shall for any reason no longer perform the
        functions of a securities rating agency, “Moody’s”
shall
        be deemed to refer to any other nationally recognized statistical rating
        organization (within the meaning ascribed thereto by the Exchange Act)
        designated by the Issuer.

       

      “Non-U.S.
        Person”
means
        a
        person who is not a U.S. person within the meaning of Regulation S.

       

      “Noteholder”
means
        any Person in whose name a Note is registered from time to time in the Register
        for such Note.

       

      “Note
        Purchase Agreement”
means
        that certain note purchase agreement dated the Closing Date among the Issuer,
        the Parent and the Purchaser party thereto.

       

      “Note
        Purchase Agreements”
means,
        collectively, each Note Purchase Agreement and the Other
        Agreements.

       

      “Note
        Purchasers”
has
        the
        meaning set forth in Section 1.1 of the Note Purchase Agreement.

       

      “Notes”
means
        the Original Class A Notes, any Class B Notes and any Refinancing
        Notes.

       

      
        
           

        

        
          A-13

          
            

          

        

        
           

        

      

      

       

      “Notices”
means
        notices, demands, certificates, requests, directions, instructions and
        communications.

       

      “Officer’s
        Certificate”
means
        a
        certificate signed by, with respect to the Issuer, a Responsible Officer
        of the
        Issuer and, with respect to any other Person, any officer, director, manager,
        trustee or equivalent representative of such Person.

       

      “Operating
        Bank”
means
        U.S. Bank National Association or any other Eligible Institution at which
        the
        Accounts are held; provided,
        that
        (a) upon the resignation or removal and the replacement of the Trustee pursuant
        to the terms of the Indenture, the successor trustee appointed thereunder
        shall
        be the Operating Bank, and (b) if at any time the Operating Bank ceases to
        be an
        Eligible Institution, a successor shall be appointed by the Servicer on behalf
        of the Trustee and all Accounts shall thereafter be transferred to and be
        maintained at such successor in the name of the Trustee and such successor
        shall
        thereafter be the “Operating
        Bank”.

       

      “Opinion
        of Counsel”
means
        a
        written opinion signed by legal counsel, who may be an employee of or counsel
        to
        the Issuer or the Parent, that meets the requirements of Section 1.2 of the
        Indenture.

       

      “Optional
        Redemption”
has
        the
        meaning set forth in Section 3.10(b) of the Indenture.

       

      “Original
        Class A Notes”
means
        the Azithromycin PhaRMASM
        Secured
        16% Notes due 2019 of the Issuer in the initial Outstanding Principal Balance
        of
        $60,000,000, substantially in the form of Exhibit
        A
        to the
        Indenture.

       

      “Other
        Agreements”
has
        the
        meaning set forth in Section 3.1 of the Note Purchase Agreement.

       

      “Other
        Note Purchasers”
has
        the
        meaning set forth in Section 3.1 of the Note Purchase Agreement.

       

      “Other
        Prices”
has
        the
        meaning set forth in Section 3.1 of the Note Purchase Agreement.

       

      “outstanding”
means
        (a) with respect to the Notes of any class at any time, all Notes of such
        class
        theretofore authenticated and delivered by the Trustee except (i) any such
        Notes
        cancelled by, or delivered for cancellation to, the Trustee, (ii) any such
        Notes, or portions thereof, for the payment of principal of and accrued and
        unpaid interest on which moneys have been distributed to Noteholders by the
        Trustee and any such Notes, or portions thereof, for the payment or redemption
        of which moneys in the necessary amount have been deposited in the Redemption
        Account for such Notes; provided,
        that,
        if such Notes are to be redeemed prior to the maturity thereof in accordance
        with the requirements of Section 3.10 of the Indenture, written notice of
        such
        Redemption shall have been given and not rescinded as provided in Section
        3.11
        of the Indenture, or provision satisfactory to the Trustee shall have been
        made
        for giving such written notice, and, if Redemption does not occur, then this
        clause (ii) ceases to apply as of the Payment Date that was supposed to be
        the
        date of Redemption, and (iii) any such Notes in exchange or substitution
        for
        which other Notes, as the case may be, have been authenticated and delivered,
        or
        which have been paid pursuant to the terms of the Indenture (unless proof
        satisfactory to the Trustee is presented that any of such Notes is held by
        a
        Person in whose hands such Note is a legal, valid and binding obligation
        of the
        Issuer), and (b) when used with respect to any other evidence of Indebtedness,
        at any time, any principal amount thereof then unpaid and outstanding (whether
        or not due or payable).

       

      
        
           

        

        
          A-14

          
            

          

        

        
           

        

      

      

       

      “Outstanding
        Principal Balance”
means,
        with respect to any Note or other evidence of Indebtedness Outstanding, the
        total principal amount of such Note or other evidence of Indebtedness unpaid
        and
        Outstanding at any time, as determined in the case of the Notes in the
        information to be provided to the Servicer and the Trustee by the Calculation
        Agent pursuant to Section 3.5(b) of the Indenture.

       

      “Parent”
means
        InSite Vision Incorporated, a Delaware corporation.

       

      “Parent
        Organizational Documents”
means
        (a) the restated certificate of incorporation of the Parent dated October
        25,
        1993, as amended by the certificate of amendment dated June 3, 1994, the
        certificate of designations, preferences and rights dated September 11, 1997,
        the certificate of correction dated September 26, 1997, the certificate of
        amendment dated July 19, 2000, the certificate of designations, preferences
        and
        rights dated July 3, 2002, the certificate of amendment dated June 1, 2004
        and
        the certificate of amendment dated October 23, 2006, and (b) the amended
        and
        restated bylaws as amended through August 8, 2006.

       

      “Parent
        Shortfall”
means
        the amount, if any, payable by the Parent to the applicable counterparty
        pursuant to the Principal Documents that is due and payable but that has
        not
        been paid by the Parent.

       

      “Parent
        Shortfall Payment”
means
        any payment made by the Trustee in respect of any Parent Shortfall.

       

      “Paying
        Agent”
has
        the
        meaning set forth in Section 2.3(a) of the Indenture.

       

      “Payment
        Date”
means
        each February 15, May 15, August 15 and November 15, commencing on May 15,
        2008
        and including the Final Legal Maturity Date; provided,
        that,
        if any such date would otherwise fall on a day that is not a Business Day,
        the
        Payment Date falling on such date shall be the first following day that is
        a
        Business Day; provided,
        further,
        that,
        if any such following Business Day would occur in the succeeding month, then
        the
        Payment Date shall be the first Business Day preceding such date.

       

      “Permanent
        Regulation S Global Note”
has
        the
        meaning set forth in Section 2.1(b) of the Indenture.

       

      “Permitted
        Holder”
means
        (a) the Parent, (b) the Issuer and (c) any Person that has executed a
        Confidentiality Agreement and delivered such Confidentiality Agreement to the
        Registrar in accordance with the terms of the Indenture.

       

      “Permitted
        Lien”
means
        (a) any lien for Taxes, assessments and governmental charges or levies not
        yet
        due and payable or which are being diligently contested in good faith by
        appropriate proceedings and for which adequate reserves in accordance with
        GAAP
        have been set aside on the books of the relevant Person, (b) any Lien created
        in
        favor of the Trustee and (c) any other Lien expressly permitted under the
        Transaction Documents.

       

      
        
           

        

        
          A-15

          
            

          

        

        
           

        

      

      

       

      “Person”
means
        any natural person, firm, corporation, limited liability company, partnership,
        joint venture, association, joint-stock company, trust, unincorporated
        organization, Governmental Authority or any other legal entity, including
        public
        bodies, whether acting in an individual, fiduciary or other
        capacity.

       

      “Pfizer”
means,
        collectively, Pfizer Inc., a Delaware corporation, and Pfizer Products, Inc.,
        a
        Connecticut corporation.

       

      “Pfizer
        License Agreement”
means
        that certain Exclusive License Agreement dated as of February 15, 2007 by
        and
        between Pfizer and the Parent.

       

      “Placement
        Agent”
means
        Morgan Stanley & Co. Incorporated.

       

      “Plan”
means
        any employee benefit plan (within the meaning of Section 3(3) of ERISA) or
        other
        plan or arrangement, whether or not subject to ERISA, that is maintained,
        or to
        which contributions are required to be made by the Issuer, the Parent or
        any
        ERISA Affiliate or with respect to which the Issuer, the Parent or any ERISA
        Affiliate may have any liability.

       

      “Plan
        Assets”
has
        the
        meaning given to such term by Section 3(42) of ERISA and regulations issued
        by
        the U.S. Department of Labor.

       

      “Pledge
        and Security Agreement”
means
        that certain pledge and security agreement dated as of the Closing Date made
        by
        the Parent to the Trustee.

       

      “Premium”
means,
        with respect to any Note on any Redemption Date, any Redemption Premium,
        if
        applicable, or, with respect to any Redemption Date, the portion of the
        Redemption Price of the Notes being redeemed in excess of the Outstanding
        Principal Balance of the Notes being redeemed.

       

      “Price”
has
        the
        meaning set forth in Section 3.1 of the Note Purchase Agreement.

       

      “Principal
        Documents”
means
        the Inspire License Agreement, the Inspire Supply Agreement, the Inspire
        Trademark License Agreement and the Pfizer License Agreement.

       

      “Private
        Placement Legend”
has
        the
        meaning set forth in Section 2.2 of the Indenture.

       

      “Private
        Placement Memorandum”
means
        the final private placement memorandum of the Issuer for the Original Class
        A
        Notes dated February 15, 2008.

       

      “Proceeds”
shall
        have the meaning assigned to such term under the UCC and, in any event, shall
        include (a) any and all proceeds of any guarantee, insurance or indemnity
        payable from time to time to the Parent with respect to any of the Issuer
        Pledged Collateral, (b) any and all payments (in any form whatsoever) made
        or
        due and payable from time to time to the Parent in connection with any
        requisition, confiscation, condemnation, seizure or forfeiture of all or
        any
        part of the Issuer Pledged Collateral by any Governmental Authority (or any
        Person acting under color of Governmental Authority) and (c) any and all
        other
        amounts from time to time paid or payable with respect to or in connection
        with
        any of the Issuer Pledged Collateral.

       

      
        
           

        

        
          A-16

          
            

          

        

        
           

        

      

      

       

      “Purchase
        and Sale Agreement”
means
        that certain purchase and sale agreement dated as of the Closing Date between
        the Parent and the Issuer.

       

      “Purchased
        Assets”
means
        the assets sold, transferred, conveyed, assigned, contributed and granted
        by the
        Parent to the Issuer pursuant to the Purchase and Sale Agreement and the
        Bill of
        Sale, which shall consist of (x) the Parent’s right, title and interest in, to
        and under the Inspire License Agreement to (i) receive or retain all Royalty
        Payments, (ii) receive the quarterly reports produced by Inspire pursuant
        to the
        Inspire License Agreement in respect of sales of Subject Products in the
        Territory and (iii) engage an accounting firm to audit certain records of
        Inspire in respect of such sales pursuant to the Inspire License Agreement
        and
        receive an audit report summarizing the results of any such audit, and the
        proceeds of and the rights to enforce each of the foregoing, and (y) any
        Replacement Royalty Payments.

       

      “Purchase
        Price”
has
        the
        meaning set forth in Section 3.1 of the Note Purchase Agreement.

       

      “Purchaser”
has
        the
        meaning set forth in Section 1.1 of the Note Purchase Agreement.

       

      “QIB”
means
        a
        qualified institutional buyer within the meaning of Rule 144A.

       

      “Receiver”
means
        any Person or Persons appointed as (and any additional Person or Persons
        appointed or substituted as) administrative receiver, receiver, manager or
        receiver and manager.

       

      “Record
        Date”
means,
        with respect to each Payment Date, the close of business on the fifteenth
        day
        preceding such Payment Date and, with respect to the date on which any Direction
        is to be given by the Noteholders, the close of business on the last Business
        Day prior to the solicitation of such Direction.

       

      “Redemption”
means
        any Optional Redemption and any other redemption of Notes described in Section
        3.10(c) of the Indenture.

       

      “Redemption
        Account”
has
        the
        meaning set forth in Section 3.1(a) of the Indenture.

       

      “Redemption
        Date”
means
        the date, which shall in each case be a Payment Date, on which Notes are
        redeemed pursuant to a Redemption.

       

      “Redemption
        Premium”
means,
        in the case of any Class B Notes or Refinancing Notes, the amount, if any,
        specified in the Manager Resolution or indenture supplemental to the Indenture
        to be paid in the event of a Redemption of such Class B Notes or Refinancing
        Notes separately from the Redemption Price.

       

      “Redemption
        Price”
means
        (a) in respect of an Optional Redemption of the Original Class A Notes (i)
        on
        any Payment Date on or prior to February 15, 2010, the greater of (x) the
        Outstanding Principal Balance of the Original Class A Notes being redeemed
        and
        (y) the present value, discounted at the Applicable Treasury Rate plus 1.0%,
        of
        such principal payment amounts and interest at the Stated Rate of Interest
        on
        the Outstanding Principal Balance of the Original Class A Notes (assuming
        the
        principal balances are achieved at the times and in the amounts set forth
        in the
        Base Case Amortization Schedule) plus, in each case, the accrued and unpaid
        interest to the Redemption Date on the Original Class A Notes that are being
        redeemed or (ii) on any Payment Date after February 15, 2010, an amount equal
        to
        the product of (x) the applicable Class A Redemption Percentage as set forth
        below and (y) the Outstanding Principal Balance of the Original Class A Notes
        that are being redeemed on such Payment Date, plus the accrued and unpaid
        interest to the Redemption Date on the Original Class A Notes that are being
        redeemed:

       

      
        
           

        

        
          A-17

          
            

          

        

        
           

        

      

      

       

      
        	
                Payment
                  Dates Between Indicated Payment Dates

              	
                Class
                  A Redemption Percentage

              
	
                From
                  May 15, 2010 to and including

                February
                  15, 2011

              	
                 

                108.0%

              
	
                From
                  May 15, 2011 to and including

                February
                  15, 2012

              	
                 

                104.0%

              
	
                From
                  May 15, 2012 and thereafter

              	
                100.0%

              

      

      

       

      and
        (b)
        in respect of any Class B Notes or Refinancing Notes, the redemption price,
        if
        any, plus the accrued and unpaid interest to the Redemption Date on the Class
        B
        Notes or Refinancing Notes, as the case may be, established by or pursuant
        to a
        Manager Resolution or in any indenture supplemental to the Indenture providing
        for the issuance of such Notes or designated as such in the form of such
        Notes
        (any such Redemption Price in respect of any Class B Notes or Refinancing
        Notes
        may include a Redemption Premium, and such Manager Resolution or indenture
        supplemental to the Indenture may specify a separate Redemption
        Premium).

       

      “Reference
        Date”
means,
        with respect to each Interest Accrual Period, the day that is two Business
        Days
        prior to the Payment Date on which such Interest Accrual Period commences;
        provided,
        however,
        that
        the Reference Date with respect to the initial Interest Accrual Period means
        the
        date that is two Business Days prior to the Closing Date (or, with respect
        to
        any Class B Notes or any Refinancing Notes, the date that is two Business
        Days
        prior to the date of issuance of such Class B Notes or Refinancing
        Notes).

       

      “Refinancing”
has
        the
        meaning set forth in Section 2.15(a) of the Indenture.

       

      “Refinancing
        Date”
means
        the date, which shall in each case be a Payment Date, on which the Original
        Class A Notes, the Refinancing Notes, if any, or the Notes of any other class
        are redeemed in whole, in each case with the proceeds of Refinancing Notes
        as
        provided in Section 2.15 of the Indenture.

       

      “Refinancing
        Expenses”
means
        all Transaction Expenses incurred in connection with an offering and issuance
        of
        Refinancing Notes.

       

      “Refinancing
        Notes”
means
        any class of Notes issued by the Issuer under the Indenture at any time and
        from
        time to time after the Closing Date pursuant to Section 2.15 of the Indenture,
        the proceeds of which are used to repay all of the Outstanding Principal
        Balance
        of a class of Notes.

       

      “Register”
has
        the
        meaning set forth in Section 2.3(a) of the Indenture.

       

      
        
           

        

        
          A-18

          
            

          

        

        
           

        

      

      

       

      “Registrar”
has
        the
        meaning set forth in Section 2.3(a) of the Indenture.

       

      “Regulation
        S”
means
        Regulation S under the Securities Act.

       

      “Regulation
        S Global Note Exchange Date”
means
        the date of exchange of any Temporary Regulation S Global Note for any Permanent
        Regulation S Global Note, which date shall be 40 days after the Closing Date
        (or, with respect to any Class B Notes or any Refinancing Notes, 40 days
        after
        the date of issuance of such Class B Notes or Refinancing Notes).

       

      “Regulation
        S Global Notes”
has
        the
        meaning set forth in Section 2.1(b) of the Indenture.

       

      “Relevant
        Calculation Date”
has
        the
        meaning set forth in Section 3.5(a) of the Indenture.

       

      “Relevant
        Information”
means
        any information provided to the Trustee, the Calculation Agent or the Paying
        Agent in writing by any Service Provider retained from time to time by the
        Issuer pursuant to the Transaction Documents.

       

      “Remaining
        Weighted Average Life”
means,
        with respect to the Original Class A Notes on any Redemption Date, (a) the
        sum
        of the products of (i) each principal payment amount on the Original Class
        A
        Notes payable on each subsequent Payment Date (assuming the principal balances
        are achieved at the times and in the amounts set forth in the Base Case
        Amortization Schedule) multiplied by (ii) the number of days remaining from
        the
        applicable Redemption Date until such subsequent Payment Date divided by
        (b) the
        Outstanding Principal Balance of the Original Class A Notes on such Redemption
        Date.

       

      “Replacement
        Royalty Payments”
means,
        in the event the Inspire License Agreement terminates in one or more countries
        of the Territory and the Parent, using commercially reasonable efforts, is
        able
        to commercialize the Subject Products in such country or countries either
        by
        itself or in an arrangement with one or more third parties in further licensing
        and sublicensing of the Licensed IP (or any portion thereof), as such rights
        revert back to the Parent under and subject to the terms and conditions of
        the
        Inspire License Agreement, in such country or countries in the Field in the
        Territory, any royalties and other payments, net of customary deductions,
        that
        may arise from such use of the Licensed IP (or any portion thereof) to develop,
        have developed, make, have made, use, have used, market, have marketed,
        commercialize, have commercialized, offer for sale, sell, have sold, import
        and
        have imported Subject Products in the Field in such country or countries
        in the
        Territory, including all royalties or other payments payable by the Parent
        or
        any other Person to the Issuer pursuant to the Residual License Agreement.
        Notwithstanding the foregoing, if the Inspire License Agreement terminates
        in
        one or more countries of the Territory and the Parent commercializes the
        Subject
        Products by itself, either directly or through any contract sales force,
        in such
        country or countries, then Replacement Royalty Payments shall only be an
        amount
        equivalent to the royalty that would have been payable by Inspire in such
        country or countries, net of all deductions and adjustments, if the Inspire
        License Agreement (as of the date of such termination) were still in effect
        and
        such commercialization was effected by Inspire as if the Subject Products
        were
        Inspire Licensed Products (as defined in the Inspire License
        Agreement).

       

      “Resale
        Restriction Termination Date”
has
        the
        meaning set forth in the Private Placement Legend.

       

      
        
           

        

        
          A-19

          
            

          

        

        
           

        

      

      

       

      “Residual
        License”
has
        the
        meaning given to such term in the Residual License Agreement.

       

      “Residual
        License Agreement”
means
        that certain residual license agreement dated as of the Closing Date between
        the
        Parent and the Issuer.

       

      “Responsible
        Officer”
means
        (a) with respect to the Trustee, any officer within the Corporate Trust Office,
        including any principal, vice president, managing director, director, manager,
        associate or other officer of the Trustee customarily performing functions
        similar to those performed by any of the above-designated officers and also,
        with respect to a particular matter, any other officer to whom such matter
        is
        referred because of such officer’s knowledge and familiarity with the particular
        subject, (b) with respect to the Issuer, any officer of the Manager or person
        designated by the board of directors of the Manager as a Responsible Officer
        for
        purposes of the Transaction Documents, and (c) with respect to the Parent,
        an
        officer of the Parent.

       

      “Royalty
        Payments”
means
        all royalties and other income, payments and reimbursements paid, owed, accrued
        or otherwise required to be paid by Inspire
        to the
        Parent or the Issuer, as the case may be, pursuant to, and subject to the
        terms
        and conditions of, the Inspire License Agreement, any amounts payable to
        or
        retained by the Parent under the Inspire License Agreement in respect of
        third
        party infringement (after taking into account costs and expenses of the Parent
        and Inspire in prosecuting such infringement), and any additional payments
        or
        consideration paid to the Parent or the Issuer, as the case may be, in
        connection with any amendment, restatement, supplement, modification, waiver
        or
        replacement of the Inspire License Agreement. Royalty Payments do not include
        amounts payable to the Parent under the Inspire Supply Agreement.

       

      “Rule
        144A”
means
        Rule 144A under the Securities Act.

       

      “S&P”
means
        Standard
        & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
        Inc.,
        and any
        successor thereto or, if such division or its successor shall for any reason
        no
        longer perform the functions of a securities rating agency, “S&P”
shall
        be deemed to refer to any other nationally recognized statistical rating
        organization (within the meaning ascribed thereto by the Exchange Act)
        designated by the Issuer.

       

      “Sale
        Price”
has
        the
        meaning set forth in Section 2.2(b) of the Purchase and Sale
        Agreement.

       

      “SEC”
means
        the U.S. Securities and Exchange Commission.

       

      “Secured
        Obligations”
has
        the
        meaning set forth in the Granting Clause of the Indenture.

       

      “Securities
        Account”
has
        the
        meaning set forth in Section 3.1(l) of the Indenture.

       

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

       

      “Securities
        Intermediary”
has
        the
        meaning set forth in Section 3.1(l) of the Indenture.

       

      
        
           

        

        
          A-20

          
            

          

        

        
           

        

      

      

       

      “Security
        Interest”
means
        the security interest granted or expressed to be granted in the Collateral
        pursuant to the Granting Clause of the Indenture and in the Issuer Pledged
        Equity pursuant to the Pledge and Security Agreement.

       

      “Senior
        Claim”
has
        the
        meaning set forth in Section 10.1(a) of the Indenture.

       

      “Senior
        Class”
means
        (a) so long as any Class A Notes are Outstanding, the Class A Notes, or (b)
        if
        no Class A Notes are Outstanding, the Class B Notes.

       

      “Senior
        Trustee”
means
        the trustee of the Senior Class, which shall be (a) so long as any Class
        A Notes
        are Outstanding, the Trustee acting at the Direction of the Noteholders of
        a
        majority of the Outstanding Principal Balance of the Class A Notes, and (b)
        after the Class A Notes have been repaid in full, and so long as any Class
        B
        Notes are Outstanding, the Trustee acting at the Direction of the Noteholders
        of
        a majority of the Outstanding Principal Balance of the Class B
        Notes.

       

      “Service
        Providers”
means
        the Servicer, the Trustee, the Independent Member, the Calculation Agent,
        the
        Paying Agent, the Registrar, the Operating Bank and any Person that becomes
        the
        Servicer, the Trustee, the Independent Member, the Calculation Agent, the
        Paying
        Agent, the Registrar or the Operating Bank in accordance with the terms of
        the
        applicable agreement and, subject to the written approval of the Noteholders
        of
        a majority of the Outstanding Principal Balance of the Senior Class of Notes,
        any other Person designated as a Service Provider by the Issuer.

       

      “Servicer”
means
        the Parent, acting in its capacity as servicer pursuant to the Servicing
        Agreement (or any other Person appointed by the Issuer to succeed the Parent
        as
        such or any successor thereto).

       

      “Servicer
        Information”
means,
        with respect to any Calculation Date, the written information provided by
        the
        Servicer under Section 4.1(c) of the Servicing Agreement with respect to
        such
        Calculation Date.

       

      “Servicer
        Termination Event”
means
        any one of the following events:

       

      (i) the
        Servicer shall fail to pay any amount when due under the Servicing Agreement
        and
        such failure shall continue unremedied for five Business Days;

       

      (ii) the
        Servicer shall fail to deliver the Distribution Report and the other required
        accompanying materials (including the report contemplated by Section 4.1(c)(xi)
        of the Servicing Agreement) with respect to any Payment Date in accordance
        with
        the provisions of the Servicing Agreement within five Business Days of the
        date
        such Distribution Report and the other required accompanying materials
        (including the report contemplated by Section 4.1(c)(xi) of the Servicing
        Agreement) are required to be delivered under the Servicing
        Agreement;

       

      (iii) the
        Servicer shall fail to carry out its obligations under Section 4.1(c)(ii)
        of the
        Servicing Agreement that shall have or reasonably be expected to have a material
        adverse effect on the Noteholders;

       

      
        
           

        

        
          A-21

          
            

          

        

        
           

        

      

      

       

      (iv) the
        Servicer shall fail to carry out its obligations under Section 4.1(c)(v)
        of the
        Servicing Agreement in a commercially reasonable manner and such failure
        shall
        continue unremedied for a period of 30 days after the date on which (A) the
        Servicer shall have obtained knowledge of such failure or (B) written notice
        of
        such failure requiring the same to be remedied shall have been given to the
        Servicer by the Trustee, in each case that continues to materially adversely
        affect the Noteholders for such period;

       

      (v) the
        Servicer shall fail to carry out its obligations under Section 4.1(c)(viii),
        Section 4.1(c)(ix) or Section 4.1(c)(x) of the Servicing Agreement;

       

      (vi) the
        Servicer shall fail to observe or perform in any material respect any of
        the
        covenants or agreements on the part of the Servicer contained in the Servicing
        Agreement (other than for which provision is made in clauses (i) through
        (v)
        above) and such failure shall continue unremedied for a period of 30 days
        after
        the date on which (A) the Servicer shall have obtained knowledge of such
        failure
        or (B) written notice of such failure requiring the same to be remedied shall
        have been given to the Servicer by the Trustee, in each case that continues
        to
        materially adversely affect the Noteholders for such period;

       

      (vii) a
        court
        having jurisdiction in the premises enters a decree or order for (i) relief
        in
        respect of the Servicer under any Applicable Law relating to bankruptcy,
        insolvency, receivership, winding-up, liquidation, reorganization, examination,
        relief of debtors or other similar law in effect now or after the Closing
        Date,
        (ii) appointment of a receiver, liquidator, examiner, assignee, custodian,
        trustee, sequestrator or similar official of the Servicer or (iii) the
        winding-up or liquidation of the affairs of the Servicer and, in each case,
        such
        decree or order shall remain unstayed or such writ or other process shall
        not
        have been stayed or dismissed within 90 days from entry thereof;

       

      (viii) the
        Servicer (i) commences a voluntary case under any Applicable Law relating
        to
        bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization,
        examination, relief of debtors or other similar law in effect now or after
        the
        Closing Date, or consents to the entry of an order for relief in any involuntary
        case under any such law, (ii) consents to the appointment of or taking
        possession by a receiver, liquidator, examiner, assignee, custodian, trustee,
        sequestrator or similar official of the Servicer or for all or substantially
        all
        of the property and assets of the Servicer or (iii) effects any general
        assignment for the benefit of creditors;

       

      (ix) the
        Servicer’s business activities are terminated by any Governmental
        Authority;

       

      (x) a
        material adverse change occurs in the financial condition or operations of
        the
        Servicer that is reasonably likely to have a Material Adverse
        Effect;

       

      (xi) an
        Event
        of Default shall have occurred, other than an Event of Default solely caused
        by
        the Trustee, the Calculation Agent, the Paying Agent or the Registrar failing
        to
        perform any of its respective obligations under the Indenture or any other
        Transaction Document; or

       

      
        
           

        

        
          A-22

          
            

          

        

        
           

        

      

      

       

      (xii) the
        Parent sells, transfers, conveys, assigns, contributes or grants a majority
        of
        the Capital Securities of the Issuer to another Person or Persons.

       

      “Services”
means
        the services to be performed by the Servicer pursuant to the Servicing
        Agreement.

       

      “Servicing
        Agreement”
means
        the servicing agreement dated as of the Closing Date between the Issuer and
        the
        Parent.

       

      “Servicing
        Fee”
has
        the
        meaning set forth in Section 2.1 of the Servicing Agreement.

       

      “Shortfall”
has
        the
        meaning set forth in Section 3.5(a)(x) of the Indenture.

       

      “Stated
        Rate of Interest”
means,
        with respect to any class of the Notes for any Interest Accrual Period, the
        interest rate set forth in such class of Notes for such Interest Accrual
        Period.

       

      “Subject
        Product”
means
        any topical anti-infective product for human ocular or ophthalmic indications,
        in any dosage strength or size, for any mode of ocular or ophthalmic
        administration, containing as the sole active ingredient the chemical compound
        known as azithromycin or any salts, esters or hydrates thereof.

       

      “Subordinated
        Claim”
has
        the
        meaning set forth in Section 10.1(a) of the Indenture.

       

      “Subsidiary”
means,
        with respect to any Person, any other Person of which more than 50% of the
        outstanding Voting Securities of such other Person (irrespective of whether
        at
        the time Capital Securities of any other class or classes of such other Person
        shall or might have voting power upon the occurrence of any contingency)
        is at
        the time directly or indirectly owned or controlled by such Person, by such
        Person and one or more other Subsidiaries of such Person or by one or more
        other
        Subsidiaries of such Person.

       

      “Taxes”
means
        (i) any and all taxes, fees, levies, duties, tariffs, imposts and other charges
        of any kind (together with any and all interest, penalties, loss, damage,
        liability, expense, additions to tax and additional amounts or costs incurred
        or
        imposed with respect thereto) now or hereafter imposed, levied, collected,
        withheld or otherwise assessed by any taxing authority, including taxes or
        other
        charges on or with respect to income, franchise, windfall or other profits,
        gross receipts, property, sales, use, capital stock, payroll, employment,
        social
        security, workers’ compensation, unemployment compensation or net worth and
        similar charges and taxes or other charges in the nature of excise, deduction,
        withholding, ad valorem, stamp, transfer, value added, taxes on goods and
        services, escheat, gains taxes, license, registration and documentation fees,
        customs duties, tariffs and similar charges, (ii) liability for such a tax
        that
        is imposed by reason of U.S. Treasury Regulation Section 1.1502-6 or similar
        provision of law and (iii) liability for the payment of any amounts as a
        result
        of any express or implied obligation to indemnify any other Person with respect
        to the payment of any amounts described in clause (i) or clause
        (ii).

       

      “Temporary
        Regulation S Global Note”
has
        the
        meaning set forth in Section 2.1(b) of the Indenture.

       

      
        
           

        

        
          A-23

          
            

          

        

        
           

        

      

      

       

      “Territory”
means
        the United States and Canada and their respective territories and
        possessions.

       

      “Transaction
        Documents”
means
        the Indenture, the Notes, the Purchase and Sale Agreement, the Bill of Sale,
        the
        Residual License Agreement, the Servicing Agreement, the Pledge and Security
        Agreement and the Note Purchase Agreements, and each other agreement pursuant
        to
        which the Trustee (or its agent) is granted a Lien to secure the obligations
        under the Indenture or the Notes.

       

      “Transaction
        Expenses”
means
        the out-of-pocket expenses payable by the Issuer in connection with (a) the
        issuance of the Original Class A Notes, including placement fees, any initial
        fees payable to Service Providers and the fees and expenses of Pillsbury
        Winthrop Shaw Pittman LLP, counsel to the Noteholders in connection with
        the
        offering and issuance of the Original Class A Notes, as set forth in the
        Note
        Purchase Agreements and (b) the offering and issuance of any Class B Notes
        or
        any Refinancing Notes, to the extent specified in the Manager Resolution
        authorizing such offering and issuance.

       

      “Trustee”
means
        U.S. Bank National Association, a national banking association, as initial
        trustee of the Notes under the Indenture, and any successor appointed in
        accordance with the terms of the Indenture.

       

      “Trustee
        Closing Account”
means
        the account of the Issuer maintained with the Trustee at U.S. Bank National
        Association, ABA No. 091000022, Account No. 121030000, Ref. Azithromycin
        Royalty
        Collection Acct., Attention: Josh Tripi.

       

      “Trust
        Indenture Act”
means
        the U.S. Trust Indenture Act of 1939, as amended.

       

      “UCC”
means
        the Uniform Commercial Code as in effect from time to time in the State of
        New
        York; provided,
        that,
        if, with respect to any financing statement or by reason of any provisions
        of
        law, the perfection or the effect of perfection or non-perfection of the
        Liens
        granted to the Trustee pursuant to the applicable Transaction Document is
        governed by the Uniform Commercial Code as in effect in a jurisdiction of
        the
        United States other than the State of New York, then “UCC”
means
        the Uniform Commercial Code as in effect from time to time in such other
        jurisdiction for purposes of the provisions of each Transaction Document
        and any
        financing statement relating to such perfection or effect of perfection or
        non-perfection.

       

      “U.S.”
or
        “United
        States”
means
        the United States of America, its 50 states, each territory thereof and the
        District of Columbia.

       

      “U.S.
        Person”
means
        a
        U.S. person within the meaning of Regulation S.

       

      “U.S.
        Treasury”
means
        the U.S. Department of the Treasury.

       

      
        
           

        

        
          A-24

          
            

          

        

        
           

        

      

      

       

      “Voluntary
        Bankruptcy”
means
        (i) an admission in writing by the Issuer of its inability to pay its debts
        generally or a general assignment by the Issuer for the benefit of creditors,
        (ii) the filing of any petition or answer by the Issuer seeking to adjudicate
        itself as bankrupt or insolvent, or seeking for itself any liquidation,
        winding-up, reorganization, arrangement, adjustment, protection, relief or
        composition of the Issuer or its debts under any law relating to bankruptcy,
        insolvency, receivership, winding-up, liquidation, reorganization, examination,
        relief of debtors or other similar law now or hereafter in effect, or seeking,
        consenting to or acquiescing in the entry of an order for relief in any case
        under any such law, or the appointment of or taking possession by a receiver,
        trustee, custodian, liquidator, examiner, assignee, sequestrator or other
        similar official for the Issuer or for any substantial part of its property,
        or
        (iii) corporate or other entity action taken by the Issuer to authorize any
        of
        the actions set forth above.

       

      “Voting
        Securities”
means,
        with respect to any Person, Capital Securities of any class or kind ordinarily
        having the power to vote for the election of directors, managers or other
        voting
        members of the governing body of such Person.

       

    

    
      
         

      

      
        A-25

        
          

        

      

      
         

      

    

     

     

    EXHIBIT
      A

     

    FORM
      OF BILL OF SALE

     

    This
      BILL
      OF SALE is dated as of February 21, 2008 (the “Closing
      Date”)
      by
      InSite Vision Incorporated, a Delaware corporation (the “Parent”),
      in
      favor of Azithromycin Royalty Sub LLC, a Delaware limited liability company
      (the
“Issuer”).

     

    RECITALS

     

    WHEREAS,
      the Parent desires to sell, transfer, convey, assign, contribute and grant
      to
      the Issuer, and the Issuer desires to purchase and accept from the Parent,
      all
      of the Purchased Assets (as defined below), on the terms and conditions set
      forth in the Purchase and Sale Agreement between the Parent and the Issuer
      dated
      as of the Closing Date (the “Agreement”);

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual agreements set forth
      in the Agreement and of other good and valuable consideration, the receipt
      and
      adequacy of which are hereby acknowledged, the parties hereto agree as
      follows:

     

    
      	 	
              1.

            	
              The
                Parent, by this Bill of Sale, does hereby sell, transfer, convey,
                assign,
                contribute, grant, release, set over, confirm and deliver to the
                Issuer,
                and the Issuer does hereby purchase and accept, the assets sold,
                transferred, conveyed, assigned, contributed and granted by the Parent
                to
                the Issuer pursuant to the Agreement and this Bill of Sale, which
                shall
                consist of (x) the Parent’s right, title and interest in, to and under
                that certain License Agreement dated as of February 15, 2007 by and
                between Inspire Pharmaceuticals, Inc., a Delaware corporation
                (“Inspire”),
                and the Parent, as supplemented by that certain letter agreement
                dated
                January 18, 2008 executed by Inspire in favor of the Parent (the
                “Inspire
                License Agreement”)
                to (i) receive or retain all royalties and other income, payments
                and
                reimbursements paid, owed, accrued or otherwise required to be paid
                by
                Inspire
                to
                the Parent or the Issuer, as the case may be, pursuant to, and subject
                to
                the terms and conditions of, the Inspire License Agreement, any amounts
                payable to or retained by the Parent under the Inspire License Agreement
                in respect of third party infringement (after taking into account
                costs
                and expenses of the Parent and Inspire in prosecuting such infringement),
                and any additional payments or consideration paid to the Parent or
                the
                Issuer, as the case may be, in connection with any amendment, restatement,
                supplement, modification, waiver or replacement of the Inspire License
                Agreement (but not including amounts payable to the Parent under
                that
                certain Supply Agreement dated as of February 15, 2007 by and between
                Inspire and the Parent), (ii) receive the quarterly reports produced
                by
                Inspire pursuant to the Inspire License Agreement in respect of sales
                of
                any topical anti-infective product for human ocular or ophthalmic
                indications, in any dosage strength or size, for any mode of ocular
                or
                ophthalmic administration, containing as the sole active ingredient
                the
                chemical compound known as azithromycin or any salts, esters or hydrates
                thereof (“Subject
                Products”),
                in the United States and Canada and their respective territories
                and
                possessions (the “Territory”)
                and (iii) engage an accounting firm to audit certain records of Inspire
                in
                respect of such sales pursuant to the Inspire License Agreement and
                receive an audit report summarizing the results of any such audit,
                and the
                proceeds of and the rights to enforce each of the foregoing (collectively,
                the “Principal
                Assets”),
                and (y) in the event the Inspire License Agreement terminates in
                one or
                more countries of the Territory and the Parent, using commercially
                reasonable efforts, is able to commercialize the Subject Products
                in such
                country or countries either by itself or in an arrangement with one
                or
                more third parties in further licensing and sublicensing of the Columbia
                Patent Rights, the InSite Intellectual Property and the Pfizer Patent
                Rights (each as defined in the Inspire License Agreement) (collectively,
                the “Licensed
                IP”)
                (or any portion thereof), as such rights revert back to the Parent
                under
                and subject to the terms and conditions of the Inspire License Agreement,
                in such country or countries in the treatment, prevention or palliation
                of
                any human ocular or ophthalmic disease or condition (the “Field”)
                in the Territory, any royalties and other payments, net of customary
                deductions, that may arise from such use of the Licensed IP (or any
                portion thereof) to develop, have developed, make, have made, use,
                have
                used, market, have marketed, commercialize, have commercialized,
                offer for
                sale, sell, have sold, import and have imported Subject Products
                in the
                Field in such country or countries in the Territory, including all
                royalties or other payments payable by the Parent or any other person
                or
                entity to the Issuer pursuant to that certain Residual License Agreement
                dated as of the Closing Date between the Parent and the Issuer (the
                “Replacement
                Royalty Payments”
                and, together with the Principal Assets, the “Purchased
                Assets”).
                Notwithstanding the foregoing, if the Inspire License Agreement terminates
                in one or more countries of the Territory and the Parent commercializes
                the Subject Products by itself, either directly or through any contract
                sales force, in such country or countries, then Replacement Royalty
                Payments shall only be an amount equivalent to the royalty that would
                have
                been payable by Inspire in such country or countries, net of all
                deductions and adjustments, if the Inspire License Agreement (as
                of the
                date of such termination) were still in effect and such commercialization
                was effected by Inspire as if the Subject Products were Inspire Licensed
                Products (as defined in the Inspire License
                Agreement).

            

    

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    
      	 	
              2.

            	
              The
                Parent hereby covenants that, at any time or from time to time after
                the
                Closing Date, at the Issuer’s reasonable request and without further
                consideration, the Parent shall execute and deliver to the Issuer
                such
                other instruments of sale, transfer, conveyance, assignment, contribution,
                granting and confirmation, provide such materials and information
                and take
                such other actions, each as the Issuer may reasonably deem necessary
                to
                sell, transfer, convey, assign, contribute, grant, release, set over,
                confirm and deliver to the Issuer, and to confirm the Issuer’s title to,
                the Purchased Assets and assist the Issuer in exercising all rights
                with
                respect thereto.

            

    

     

    
      	 	
              3.

            	
              The
                Parent represents, warrants and covenants that (i) it has good and
                marketable title to the Purchased Assets free and clear of all claims,
                liens and encumbrances of any nature whatsoever, (ii) it has not
                made any
                prior sale, transfer, conveyance, assignment, contribution, granting,
                release, setting over, confirmation or delivery of the Purchased
                Assets,
                (iii) it has the present lawful right, power and authority to sell,
                transfer, convey, assign, contribute, grant, release, set over, confirm
                and deliver the Purchased Assets to the Issuer and (iv) all action
                has
                been taken that is required to make this Bill of Sale, and this Bill
                of
                Sale is, a legal, valid and binding obligation of the
                Parent.

            

    

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

     

    
      	 	
              4.

            	
              The
                Parent covenants to warrant and defend the sale of the Purchased
                Assets to
                the Issuer, its successors and assigns against any person or entity
                claiming an interest in the Purchased Assets, and the Parent shall
                defend
                its right to sell the Purchased Assets against all lawful claims
                and
                demands.

            

    

     

    
      	 	
              5.

            	
              This
                Bill of Sale shall be binding upon and inure to the benefit of the
                Parent,
                the Issuer and their respective successors and assigns, for the uses
                and
                purposes set forth and referred to above, effective immediately upon
                its
                delivery to the Issuer.

            

    

     

    
      	 	
              6.

            	
              THIS
                BILL OF SALE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
                THE
                INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
                TO
                THE RULES THEREOF RELATING TO CONFLICTS OF LAW OTHER THAN SECTION
                5-1401
                OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE
                OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
                DETERMINED IN ACCORDANCE WITH SUCH
                LAWS.

            

    

     

    
      	 	
              7.

            	
              This
                Bill of Sale may be executed in any number of counterparts, each
                of which
                so executed shall be deemed to be an original, but all of such
                counterparts shall together constitute but one and the same
                instrument.

            

    

    
      
        
        

      

      
        A-3

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Bill of Sale as of the
      day and year first written above.

     

    
      	
              INSITE
                VISION INCORPORATED

            
	 	 
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:

            
	
              AZITHROMYCIN
                ROYALTY SUB LLC

            
	 	 
	
              By:
                InSite Vision Incorporated, its Manager

            
	 	 
	By:	 
	 	
              Name:

            
	 	
              Title:

            

    

    
      
        
        

      

      
        A-4

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

     

    UCC
      FINANCING STATEMENTS AND OTHER FILINGS

     

    
      	
              1.

            	
              A
                Form UCC-1 Financing Statement will be filed with the Secretary of
                State
                of the State of Delaware naming the Parent as debtor/seller and the
                Issuer
                as secured party, to be followed by the filing of a Form UCC-3 Financing
                Statement amending such Form UCC-1 Financing Statement naming the
                Issuer
                as assignor and the Trustee as
                assignee.

            

    

     

    
      	
              2.

            	
              The
                Parent will make such filings as may be required in connection with
                the
                Parent’s disclosure
                obligations under the Exchange
                Act.

            

    

    
      
        
        

      

      
        B-1Unassociated Document

     

    Exhibit
      10.2

     

    NOTE
      PURCHASE AGREEMENT

     

    dated
      February 21, 2008

     

    among

     

    AZITHROMYCIN
      ROYALTY SUB LLC,

     

    INSITE
      VISION INCORPORATED

     

    and

     

    THE
      PURCHASER NAMED HEREIN

     

    $60,000,000
      AZITHROMYCIN PHARMASM
      SECURED 16% NOTES DUE 2019

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Table
      of
      Contents

    

      
        	 	 	
                Page

              
	 
	
                ARTICLE
                  I

              
	
                INTRODUCTORY

              
	 	 	 
	
                Section
                  1.1

              	
                Introductory

              	
                1

              
	 
	
                ARTICLE
                  II

              
	
                RULES
                  OF CONSTRUCTION AND DEFINED TERMS

              
	 	 	 
	
                Section
                  2.1

              	
                Rules
                  of Construction and Defined Terms

              	
                1

              
	 
	
                ARTICLE
                  III

              
	
                SALE
                  AND PURCHASE OF ORIGINAL CLASS A NOTES; CLOSING

              
	 	 	 
	
                Section
                  3.1

              	
                Sale
                  and Purchase of Original Class A Notes; Closing

              	
                2

              
	 
	
                ARTICLE
                  IV

              
	
                REPRESENTATIONS,
                  WARRANTIES AND AGREEMENTS OF PURCHASER

              
	 	 	 
	
                Section
                  4.1

              	
                Purchase
                  for Investment and Restrictions on Resales

              	
                3

              
	
                Section
                  4.2

              	
                Purchaser
                  Status

              	
                4

              
	
                Section
                  4.3

              	
                Source
                  of Funds

              	
                4

              
	
                Section
                  4.4

              	
                Due
                  Diligence

              	
                5

              
	
                Section
                  4.5

              	
                Enforceability
                  of this Note Purchase Agreement

              	
                5

              
	
                Section
                  4.6

              	
                Inspire
                  and Pfizer

              	
                5

              
	
                Section
                  4.7

              	
                Confidentiality
                  Agreement

              	
                6

              
	
                Section
                  4.8

              	
                Tax
                  Matters.

              	
                6

              
	 
	
                ARTICLE
                  V

              
	
                REPRESENTATIONS
                  AND WARRANTIES OF THE ISSUER AND THE PARENT

              
	 	 	 
	
                Section
                  5.1

              	
                Disclosure

              	
                7

              
	
                Section
                  5.2

              	
                Enforceability
                  of this Note Purchase Agreement

              	
                7

              
	
                Section
                  5.3

              	
                Securities
                  Laws.

              	
                7

              
	
                Section
                  5.4

              	
                Investment
                  Company Act

              	
                8

              
	
                Section
                  5.5

              	
                Governmental
                  Authorizations

              	
                8

              
	
                Section
                  5.6

              	
                Compliance
                  with ERISA

              	
                8

              
	
                Section
                  5.7

              	
                Use
                  of Proceeds; Margin Regulations

              	
                8

              
	
                Section
                  5.8

              	
                Independent
                  Consultant’s Forecasts

              	
                9

              
	
                Section
                  5.9

              	
                Other
                  Representations and Warranties

              	
                9

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	
                ARTICLE
                  VI

              
	
                CONDITIONS
                  TO CLOSING

              
	
                 

              	 	 
	
                Section
                  6.1

              	
                Proceedings

              	
                9

              
	
                Section
                  6.2

              	
                Transactional
                  Opinion

              	
                9

              
	
                Section
                  6.3

              	
                True
                  Sale and Non-Consolidation Opinions

              	
                9

              
	
                Section
                  6.4

              	
                Note
                  Purchaser’s Counsel Opinion

              	
                9

              
	
                Section
                  6.5

              	
                Consummation
                  of Transactions

              	
                10

              
	
                Section
                  6.6

              	
                Certification
                  as to Private Placement Memorandum

              	
                10

              
	
                Section
                  6.7

              	
                Certification
                  as to Note Purchase Agreement

              	
                10

              
	
                Section
                  6.8

              	
                No
                  Actions

              	
                10

              
	
                Section
                  6.9

              	
                Principal
                  Documents

              	
                10

              
	
                Section
                  6.10

              	
                Authorizations

              	
                11

              
	
                Section
                  6.11

              	
                Offering
                  of Original Class A Notes

              	
                11

              
	
                Section
                  6.12

              	
                CUSIP
                  Number

              	
                11

              
	
                Section
                  6.13

              	
                Notice
                  and Instruction to Inspire

              	
                11

              
	
                Section
                  6.14

              	
                Compliance
                  with Laws

              	
                11

              
	
                Section
                  6.15

              	
                Filing
                  of Financing Statements

              	
                12

              
	 
	
                ARTICLE
                  VII

              
	
                ADDITIONAL
                  COVENANTS

              
	 	 	 
	
                Section
                  7.1

              	
                DTC

              	
                12

              
	
                Section
                  7.2

              	
                Expenses

              	
                12

              
	 
	
                ARTICLE
                  VIII

              
	
                SURVIVAL
                  OF CERTAIN PROVISIONS

              
	 	 	 
	
                Section
                  8.1

              	
                Survival
                  of Certain Provisions

              	
                12

              
	 
	
                ARTICLE
                  IX

              
	
                NOTICES

              
	 	 	 
	
                Section
                  9.1

              	
                Notices

              	
                13

              
	 
	
                ARTICLE
                  X

              
	
                SUCCESSORS
                  AND ASSIGNS

              
	 	 	 
	
                Section
                  10.1

              	
                Successors
                  and Assigns

              	
                13

              
	 
	
                ARTICLE
                  XI

              
	
                SEVERABILITY

              
	 	 	 
	
                Section
                  11.1

              	
                Severability

              	
                13

              

      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

      
        	
                ARTICLE
                  XII

              
	
                WAIVER
                  OF JURY TRIAL

              
	 	 	 
	
                Section
                  12.1

              	
                WAIVER
                  OF JURY TRIAL

              	
                13

              
	 
	
                ARTICLE
                  XIII

              
	
                GOVERNING
                  LAW; CONSENT TO JURISDICTION

              
	 	 	 
	
                Section
                  13.1

              	
                Governing
                  Law; Consent to Jurisdiction.

              	
                14

              
	 
	
                ARTICLE
                  XIV

              
	
                COUNTERPARTS

              
	 	 	 
	
                Section
                  14.1

              	
                Counterparts

              	
                15

              
	 
	
                ARTICLE
                  XV

              
	
                TABLE
                  OF CONTENTS AND HEADINGS

              
	 	 	 
	
                Section
                  15.1

              	
                Table
                  of Contents and Headings

              	
                15

              
	 
	
                ARTICLE
                  XVI

              
	
                TAX
                  DISCLOSURE

              
	 	 	 
	
                Section
                  16.1

              	
                Tax
                  Disclosure

              	
                15

              
	 
	
                ARTICLE
                  XVII

              
	
                MISCELLANEOUS

              
	 	 	 
	
                Section
                  17.1

              	
                Limited
                  Recourse

              	
                16

              
	 	 	 
	
                Annex
                  A

              	
                Rules
                  of Construction and Defined Terms

              	 
	
                Schedule
                  1

              	
                Purchaser

              	 

      

    

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    NOTE
      PURCHASE AGREEMENT

     

    February
      21, 2008

     

    To
      the
      Purchaser named in Schedule
      1

     

    Ladies
      and Gentlemen:

     

    Azithromycin
      Royalty Sub LLC, a Delaware limited liability company, and InSite Vision
      Incorporated, a Delaware corporation, hereby covenant and agree with you as
      follows:

     

    ARTICLE
      I

    INTRODUCTORY

     

    Section
      1.1 Introductory.
      The
      Issuer
      proposes, subject to the terms and conditions stated herein, to issue and sell
      to the purchaser named in Schedule
      1
      (the
“Purchaser”)
      and to
      the Other Note Purchasers the beneficial interests in the Global Notes
      evidencing $60,000,000 aggregate principal amount of the
      Issuer’s Azithromycin PhaRMASM
      Secured
      16% Notes due 2019. The Original Class A Notes are to be issued pursuant to
      the
      Indenture.

     

    The
      Original Class A Notes will be offered and sold to the Purchaser and the Other
      Note Purchasers (collectively, the “Note
      Purchasers”)
      in
      transactions exempt from the registration requirements of the Securities Act.
      The Issuer
      has
      prepared the Private Placement Memorandum describing, among other things, the
      Original Class A Notes and the security pledged therefor, the Parent’s sale,
      transfer, conveyance, assignment, contribution and granting to the Issuer
      of the
      Purchased Assets and the Parent’s grant of the license under the Residual
      License Agreement.
      As
      described in the Private Placement Memorandum, the Issuer
      will use
      the net proceeds from the offering of the Original Class A Notes to fund a
      portion of the purchase price to obtain the Purchased Assets, to pay the
      expenses associated with the issuance of the Original Class A Notes and to
      fund
      the Interest Reserve Account in the amount of $5,000,000.

     

    ARTICLE
      II

    RULES
      OF CONSTRUCTION AND DEFINED TERMS

     

    Section
      2.1 Rules
      of Construction and Defined Terms.
      The
      rules
      of construction set forth in Annex
      A
      shall
      apply to this Note Purchase Agreement and are hereby incorporated by reference
      into this Note Purchase Agreement as if set forth fully in this Note Purchase
      Agreement. Capitalized terms used but not otherwise defined in this Note
      Purchase Agreement shall have the respective meanings given to such terms in
      Annex
      A,
      which
      is hereby incorporated by reference into this Note Purchase Agreement as if
      set
      forth fully in this Note Purchase Agreement. Not
      all
      terms defined in Annex
      A
      are used
      in this Note Purchase Agreement.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      III

    SALE
      AND PURCHASE OF ORIGINAL CLASS A NOTES; CLOSING

     

    Section
      3.1 Sale
      and Purchase of Original Class A Notes; Closing.
      On the
      basis of the representations and warranties contained in, and subject to the
      terms and conditions of, this Note Purchase Agreement, the Issuer agrees to
      issue and sell the Original Class A Notes to the Purchaser, and the Purchaser
      agrees to purchase, the principal amount of Original Class A Notes set forth
      opposite its name on Schedule
      1.
      The
      Purchaser will purchase such principal amount of Original Class A Notes at
      a
      purchase price equal to 100% of the principal amount thereof (the “Price”).
      Contemporaneously with entering into this Note Purchase Agreement, the Issuer
      is
      entering into separate Note Purchase Agreements (the “Other
      Agreements”)
      substantially identical to this Note Purchase Agreement with other note
      purchasers (the “Other
      Note Purchasers”),
      providing for the sale on the Closing Date to each of the Other Note Purchasers
      of Original Class A Notes in the principal amount specified opposite its name
      in
Schedule
      1
      to such
      Other Agreement, at a purchase price equal to 100% of the principal amount
      thereof (the “Other
      Prices”
and,
      together with the Price, the “Purchase
      Price”).
      The
      Issuer shall not be obligated to deliver, and no Note Purchaser shall be
      required to purchase, any of the Original Class A Notes except upon delivery
      of
      and payment for all the Original Class A Notes to be purchased on the Closing
      Date.

     

    On
      the
      Closing Date, the Issuer will deliver one or more Global Notes for the account
      of DTC evidencing the aggregate principal amount of Original Class A Notes
      to be
      acquired by all Note Purchasers pursuant to the Note Purchase Agreements. The
      Issuer will deliver the Global Notes to DTC against payment by each such Note
      Purchaser of its respective portion of the aggregate Purchase Price for its
      beneficial interest therein by wire transfer of immediately available funds
      to
      the Trustee Closing Account. Delivery to each Note Purchaser of the Original
      Class A Notes shall be made through the facilities of DTC on the Closing Date,
      upon payment therefor by each such Note Purchaser of its respective portion
      of
      the aggregate Purchase Price by wire transfer of immediately available funds
      to the
      Trustee Closing Account. The Issuer and the Parent shall cause the Trustee
      to
      hold all such funds in trust for the Note Purchasers pending completion of
      the
      closing of the transactions contemplated by this Note Purchase Agreement. Upon
      receipt by the Trustee of the aggregate Purchase Price from all Note Purchasers
      and the satisfaction of the conditions to closing set forth in Article VI,
      the
      Issuer and the Parent shall cause the Trustee to disburse the Purchase Price
      in
      accordance with Section 3.3 of the Indenture. If the aggregate Purchase Price
      shall not have been received by the Trustee by 3:30 p.m. (New York City time)
      on
      the Closing Date, or if the closing of the transactions contemplated by the
      Note
      Purchase Agreements shall not otherwise be capable of being consummated by
      3:30
      p.m. (New York City time) on the Closing Date, then each Note Purchaser who
      has
      paid its respective portion of the Purchase Price shall have the right to
      instruct the Trustee at or after 3:30 p.m. (New York City time) on the Closing
      Date to return, and the Issuer and the Parent shall cause the Trustee to return,
      such portion of the Purchase Price to such Note Purchaser prior to the close
      of
      business on the Closing Date or as soon thereafter as reasonably
      practicable.

     

    If
      the
      Global
      Notes shall not be tendered for the benefit of any Note Purchaser for the
      account of DTC in accordance with the foregoing provisions of this Section
      3.1,
      or any of the conditions specified in Article VI shall not have been fulfilled
      to the satisfaction of any Note Purchaser, such Note Purchaser shall, at its
      election, be relieved of all obligations (other than confidentiality
      obligations) under the applicable Note Purchase Agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IV

    REPRESENTATIONS,
      WARRANTIES AND AGREEMENTS OF PURCHASER

     

    The
      Purchaser agrees and acknowledges that the Issuer, the Parent and the Placement
      Agent and their respective counsel may rely upon the accuracy and performance
      of
      the representations, warranties and agreements of the Purchaser contained in
      this Article IV.

     

    Section
      4.1 Purchase
      for Investment and Restrictions on Resales.
      The
      Purchaser:

     

    (a) acknowledges
      that the Original Class A Notes have not been and will not be registered under
      the Securities Act or the securities laws of any U.S. state or any other
      jurisdiction and may not be offered, sold, pledged or otherwise transferred
      except as set forth in the Private Placement Memorandum, the Indenture and
      the
      legend regarding transfers on its Original Class A Notes, in compliance with
      such securities laws;

     

    (b) agrees
      that, if it should resell or otherwise transfer the Original Class A Notes,
      in
      whole or in part, it will do so only pursuant to an exemption from, or in a
      transaction not subject to, registration under the Securities Act, applicable
      state or foreign securities laws, the respective rules and regulations
      promulgated thereunder and the provisions of this Note Purchase Agreement,
      and
      only
      to a Person whom it reasonably believes, at the time any buy order for such
      Original Class A Notes is originated, is
      (i) the
      Issuer or a subsidiary thereof, (ii) for so long as such Original Class A Notes
      are eligible for resale pursuant to Rule 144A, a QIB that purchases for its
      own
      account or for the account of a QIB, to whom notice is given that the transfer
      is being made in reliance on Rule 144A, (iii) an Institutional Accredited
      Investor inside the United States, in respect of which the Purchaser shall
      reasonably believe that at such time such entity and each other entity, if
      any,
      for whom such entity may be acting with respect to the Original Class A Notes
      has sufficient knowledge and experience in financial and business matters to
      be
      capable of evaluating the merits and risks of the purchase of the Original
      Class
      A Notes and is able and prepared to bear the economic risk of investing in
      and
      holding the Original Class A Notes, that is purchasing such Original Class
      A
      Notes for its own account or for the account of such an Institutional Accredited
      Investor for investment purposes and not with a view to, or for offer or sale
      in
      connection with, any distribution in violation of the Securities Act or (iv)
      an
      Institutional Accredited Investor outside the United States in an offshore
      transaction in compliance with Rule 903 or 904 of Regulation S (if available),
      in each case unless consented to by the Issuer and such offer, sale or other
      transfer occurs following the Resale Restriction Termination Date;

     

    (c) agrees
      that it will give to each Person to whom it transfers the Original Class A
      Notes, in whole or in part, notice of the restrictions on transfer of the
      Original Class A Notes;

     

    (d) agrees
      that it will cause any Person to whom it intends to transfer the Original Class
      A Notes to execute and deliver a resale confidentiality agreement with the
      Issuer substantially in the form attached to the Indenture and agrees not to
      make available any confidential information about the Issuer, the Parent,
      Inspire or Subject Products, including the Private Placement Memorandum, to
      such
      Person, and the Purchaser otherwise agrees to comply with the procedures
      relating to the execution and delivery of such resale confidentiality agreement
      set forth in the Indenture;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (e) acknowledges
      the restrictions and requirements applicable to transfers of the Original Class
      A Notes described under the heading “Transfer Restrictions” in the Private
      Placement Memorandum and contained in the Indenture and agrees that it will
      only
      offer or sell the Original Class A Notes in accordance with such section and
      the
      Indenture and only to Permitted Holders; and

     

    (f) represents
      that it is purchasing the Original Class A Notes for investment purposes and
      not
      with a view to resale or distribution thereof in contravention of the
      requirements of the Securities Act.

     

    Section
      4.2 Purchaser
      Status.
      The
      Purchaser represents and warrants that it is purchasing the Original Class
      A
      Notes for its own account or an account with respect to which it exercises
      sole
      investment discretion and that it and any such account is (i) a QIB and such
      purchase meets the requirements of Rule 144A under the Securities Act, (ii)
      an
      Institutional Accredited Investor, is not acquiring the Original Class A Notes
      with a view to any resale or distribution thereof other than in accordance
      with
      the restrictions set forth below, has sufficient knowledge and experience in
      financial and business matters to be capable of evaluating the merits and risks
      of the purchase of the Original Class A Notes and is able and prepared to bear
      the economic risk of investing in and holding the Original Class A Notes, (iii)
      an Institutional Accredited Investor that is not a U.S. person and has acquired
      such Original Class A Notes in an offshore transaction in compliance with
      Regulation S or (iv) a person or entity consented to by the Issuer in its sole
      discretion where such offer or sale occurs following the Resale Restriction
      Termination Date.

     

    Section
      4.3 Source
      of Funds.
      The
      Purchaser represents, warrants and covenants that either:

     

    (a) no
      Plan
      Assets have been used to purchase an Original Class A Note; or

     

    (b) to
      the
      extent that Plan Assets are used to purchase an Original Class A Note, one
      or
      more statutory or administrative exemptions applies such that the use of such
      Plan Assets to purchase and hold such Original Class A Notes will not constitute
      a non-exempt prohibited transaction within the meaning of Section 406 of ERISA
      or Section 4975 of the Code,

     

    In
      addition, the Purchaser represents, warrants and covenants that either:

     

    (i)
      no
      assets of a governmental, church or foreign plan have been used to purchase
      an
      Original Class A Note; or

     

    (ii)
      to
      the extent such assets are used, neither the purchase nor holding of the
      Original Class A Notes will constitute or result in a violation of any
      Applicable Law that is similar to the prohibited transaction provisions of
      Section 406 of ERISA or Section 4975 of the Code.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Section
      4.4 Due
      Diligence.
      The
      Purchaser acknowledges that (i) it has made, either alone or together with
      its advisors, such independent investigation of the Issuer, the Parent, Inspire,
      Pfizer and their respective managements, assets and related matters, and such
      separate and independent investigation of the Purchased Assets and related
      matters, as the Purchaser deems to be, or such advisors have advised to be,
      necessary or advisable in connection with the purchase of the Original Class
      A
      Notes pursuant to the transactions contemplated by this Note Purchase Agreement,
      (ii) it and its advisors have received all information and data that it and
      such advisors believe to be necessary in order to reach an informed decision
      as
      to the advisability of the purchase of the Original Class A Notes pursuant
      to
      the transactions contemplated by this Note Purchase Agreement, (iii) it
      understands the nature of the potential risks and potential rewards of the
      purchase of the Original Class A Notes, (iv) it is a sophisticated investor
      with investment experience and, in the event of a
      default
      on the Original Class A Notes, any termination of any of the Principal Documents
      or termination of the Royalty Payments under the Inspire License Agreement
      or
      any liquidation or winding up of the Issuer, has the ability to bear complete
      loss of its investment, (v) it has such knowledge and experience in financial
      and business matters that it is capable of evaluating the merits and risks
      of
      purchasing the Original Class A Notes and can bear the economic risks of
      investing in the Original Class A Notes for an indefinite period of time, (vi)
      it has received and reviewed the Private Placement Memorandum and each of the
      Transaction Documents and has been furnished by the Parent with an opportunity
      to review the Principal Documents (except in the case of the Pfizer License
      Agreement, which has been made available by the Parent only in redacted form)
      and (vii) it has determined that the rates, prices or amounts and other terms
      of
      the purchase and sale of the Original Class A Notes reflect those in the
      relevant market for similar transactions and it is purchasing the Original
      Class
      A Notes with a full understanding of all of the terms, conditions and risks
      thereof (economic and otherwise), and it is capable of assuming and willing
      to
      assume (financially and otherwise) those risks. The Purchaser acknowledges
      that
      it has obtained its own attorneys, business advisors and tax advisors as to
      legal, business and tax advice (or has decided not to obtain such advice) and
      has not relied on the Issuer, the Parent or the Placement Agent for any such
      advice. Except for (A) the representations, warranties and covenants made by
      the
      Issuer and the Parent in this Note Purchase Agreement and the other Transaction
      Documents and (B) the legal opinions provided to the Trustee or the Note
      Purchasers in connection with the transactions contemplated by the Transaction
      Documents, the Purchaser is relying on its own investigation and analysis in
      entering into the transactions contemplated hereby.

     

    Section
      4.5 Enforceability
      of this Note Purchase Agreement.
      This
      Note Purchase Agreement has been duly authorized, executed and delivered by
      the
      Purchaser and constitutes the valid, legally binding and enforceable obligations
      of the Purchaser, except as enforceability may be limited by applicable
      bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
      creditors’ rights generally and by general principles of equity.

     

    Section
      4.6 Inspire
      and Pfizer.
      The
      Purchaser acknowledges and agrees that neither Inspire nor Pfizer is a party
      to
      the transactions to which this Note Purchase Agreement relates, neither Inspire
      nor Pfizer has participated in the preparation of any document related thereto,
      including the Private Placement Memorandum, and neither Inspire nor Pfizer
      makes
      any representations or warranties whatsoever with respect to the transactions
      contemplated by the Private Placement Memorandum, including the issuance of
      the
      Original Class A Notes by the Issuer, the value thereof, the value of the rights
      transferred by the Parent to the Issuer with respect thereto or the risks
      associated therewith.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Section
      4.7 Confidentiality
      Agreement.
      The
      Purchaser acknowledges and agrees that it is bound by the terms and conditions
      of the confidentiality agreement referenced in Schedule
      1
      (including, if the Purchaser is not a party thereto, as if it were a party
      thereto), agrees to execute any documents reasonably requested by the Issuer
      to
      evidence such obligation and acknowledges and agrees that such confidentiality
      agreement remains in effect and will survive the execution and delivery of
      this
      Note Purchase Agreement and the closing of the purchase of the Original Class
      A
      Notes pursuant to its terms. 

     

    Section
      4.8 Tax
      Matters.

     

    (a) The
      Purchaser represents and warrants that either (i) it is not, and will not
      become, a partnership, Subchapter S corporation or grantor trust for U.S.
      federal income tax purposes or (ii) it is a partnership, Subchapter S
      corporation or grantor trust for U.S. federal income tax purposes but (A) none
      of the direct or indirect beneficial owners of any of the interests in such
      holder have allowed or caused, or will allow or cause, 50% or more of the value
      of such interests to be attributable to such ownership of Notes or (B) such
      partnership, Subchapter S corporation or grantor trust was not formed with
      a
      principal purpose of permitting the Issuer to satisfy the 100-partner limitation
      in Treasury Regulation Section 1.7704-1(h)(1)(ii) (assuming for this purpose
      that the Original Class A Notes were classified as equity, and not debt, for
      U.S. federal income tax purposes), and the Purchaser will not participate or
      transfer an interest in any Original Class A Note to any Person who is of a
      type
      described in clause (i) above but is not of a type described in clause (ii)
      above.

     

    (b) Except
      as
      otherwise required by law, the Purchaser agrees to treat, and shall treat,
      the
      Original Class A Notes as debt of the Parent for U.S. federal income tax
      purposes.

     

    (c) The
      Purchaser understands and acknowledges that failure to provide the Issuer,
      the
      Trustee or any Paying Agent with the applicable U.S. federal income tax
      certifications (generally, an Internal Revenue Service Form W-9 (or successor
      applicable form) in the case of a person that is a United States person (within
      the meaning of Section 7701(a)(30) of the Code) or an appropriate Internal
      Revenue Service Form W-8 (or successor applicable form) in the case of a person
      that is not a United States person (within the meaning of Section 7701(a)(30)
      of
      the Code)) may result in U.S. federal back-up withholding from payments in
      respect of the Original Class A Notes.

     

    ARTICLE
      V

    REPRESENTATIONS
      AND WARRANTIES OF THE ISSUER AND THE PARENT

     

    Each
      of
      the Issuer and the Parent, jointly and severally, represents and warrants to
      the
      Purchaser as follows:

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Section
      5.1 Disclosure.
      The
      Private Placement Memorandum, as of its date and the date hereof, together
      with
      any amendments or supplements thereto, any summaries thereof approved by the
      Issuer and any other written information relating to the offering of the
      Original Class A Notes prepared by the Issuer or the Parent (or prepared by
      the
      Placement Agent and approved by the Issuer or the Parent) and provided by the
      Issuer or the Parent to the Purchaser (or provided by the Placement Agent to
      the
      Purchaser with the approval of the Issuer or the Parent) in connection with
      the
      transactions contemplated hereby, did not and do not contain any untrue
      statement of a material fact or omit to state any material fact necessary to
      make the statements therein not misleading in light of the circumstances under
      which they were made. From the date of the Private Placement Memorandum until
      the date hereof and except as disclosed therein, there has been no material
      adverse change or development involving or anticipated to involve a prospective
      material adverse change in their business relating to the Purchased Assets
      or
      the Principal Documents or their ability to perform their respective obligations
      under the Transaction Documents.

     

    Section
      5.2 Enforceability
      of this Note Purchase Agreement.
      This
      Note Purchase Agreement has been duly authorized, executed and delivered by
      the
      Issuer and the Parent and constitutes the valid, legally binding and (subject
      to
      general equitable principles, insolvency, liquidation, reorganization and other
      laws of general application relating to creditors’ rights) enforceable
      obligations of the Issuer and the Parent.

     

    Section
      5.3 Securities
      Laws.

     

    (a) No
      securities of the same class (within the meaning of Rule 144A(d)(3)(i) under
      the
      Securities Act) as the Original Class A Notes have been issued and sold by
      the
      Issuer within the six-month period immediately prior to the date
      hereof.

     

    (b) Neither
      the Issuer or the Parent nor any affiliate (as defined in Rule 144 under the
      Securities Act) of the Issuer or the Parent has directly, or through any agent,
      (i) sold, offered for sale, solicited offers to buy or otherwise negotiated
      in
      respect of any security (as defined in the Securities Act) that is or will
      be
      integrated with the sale of the Original Class A Notes in a manner that would
      require the registration under the Securities Act of the Original Class A Notes
      or (ii) engaged in any form of general solicitation or general advertising
      in
      connection with the offering of the Original Class A Notes (as those terms
      are
      used in Regulation D under the Securities Act), or offered to sell or solicited
      offers to buy Original Class A Notes in any manner involving a public offering
      within the meaning of Section 4(2) of the Securities Act, including publication
      or release of articles, notices or other communications published in any
      newspaper, magazine or similar medium or broadcast over television or radio,
      or
      internet or any seminar or meeting whose attendees have been invited by any
      general solicitation or general advertising.

     

    (c) Assuming
      the accuracy of the representations and warranties of the Note Purchasers in
      each Note Purchase Agreement and assuming the accuracy of the statements in
      the
      certificate to be delivered by the Placement Agent pursuant to Section 6.11,
      the
      Indenture is not required to be qualified under the Trust Indenture
      Act.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (d) Assuming
      the accuracy of the representations and warranties of the Note Purchasers in
      each Note Purchase Agreement and assuming the accuracy of the statements in
      the
      certificate to be delivered by the Placement Agent pursuant to Section 6.11,
      no
      registration under the Securities Act of the Original Class A Notes is required
      in connection with the sale of the Original Class A Notes to the Note Purchasers
      as contemplated by the Note Purchase Agreements.

     

    Section
      5.4 Investment
      Company Act.
      Assuming the accuracy of the representations and warranties of the Note
      Purchasers in each Note Purchase Agreement and after giving effect to the
      offering and sale of the Original Class A Notes and the purchase by the Issuer
      of the Purchased Assets, the Issuer will not be required to register as an
      “investment company” within the meaning of the Investment Company Act of 1940,
      as amended.

     

    Section
      5.5 Governmental
      Authorizations.
      No
      consent, approval or authorization of, or registration, filing or declaration
      with, any Governmental Authority is required in connection with the execution,
      delivery or performance by the Parent or the Issuer of this Note Purchase
      Agreement or the transactions contemplated hereby other than such filings as
      shall have been made prior to the date hereof and such filings required to
      be
      made after the date hereof under applicable federal and state securities laws,
      such as applicable state blue sky filings.

     

    Section
      5.6 Compliance
      with ERISA.
      Each
      Plan
      maintained by the Issuer or the Parent has been operated and administered
      substantially in compliance with all Applicable Laws. Neither the Issuer nor
      the
      Parent has incurred any material liability or penalty or could be reasonably
      expected to incur any material liability or penalty pursuant to Title I or
      IV of
      ERISA or pursuant to the Code. None of the Issuer, the Parent or any ERISA
      Affiliate currently maintains or has maintained within the preceding six years
      a
      pension plan that is subject to Title IV of ERISA. The execution and delivery
      of
      this Note Purchase Agreement and the issuance and sale of the Original Class
      A
      Notes hereunder will not involve any transaction that is subject to the
      prohibitions of Section 406 of ERISA or in connection with which a tax could
      be
      imposed pursuant to Sections 4975(c)(1)(A)-(D) of the Code. The representation
      by the Issuer and the Parent in the preceding sentence is made in reliance
      upon
      and subject to the accuracy of the Note Purchasers’ representation in Section
      4.3 of each Note Purchase Agreement as to the sources of the funds used to
      pay
      the Purchase Price of the Original Class A Notes to be purchased by the Note
      Purchasers.

     

    Section
      5.7 Use
      of
      Proceeds; Margin Regulations.
      No part
      of the proceeds from the sale of the Original Class A Notes hereunder will
      be
      used, directly or indirectly, for the purpose of buying or carrying any margin
      stock within the meaning of Regulation U of the Board of Governors of the
      Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying
      or
      trading in any securities under such circumstances as to involve the Issuer
      or
      the Parent in a violation of Regulation X of said Board (12 CFR 224) or to
      involve any broker or dealer in a violation of Regulation T of said Board
      (12 CFR 220). As used in this Section 5.7, the terms “margin stock” and
“purpose of buying or carrying” shall have the meanings assigned to them in said
      Regulation U.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Section
      5.8 Independent
      Consultant’s Forecasts.
      Neither
      the Issuer nor the Parent has any reason to believe that the sales forecast
      projections of AzaSite included in the Independent Consultant’s Report (a) are
      not based upon assumptions (as they are described in the Independent
      Consultant’s Report) that the Issuer or the Parent believes in good faith to be
      consistent in all material respects with operation of the Principal Documents
      and (b) are not based on assumptions that are reasonable in light of the
      circumstances of the Issuer and the Parent, products subject to their licenses
      and the terms of their licenses and patents. 

     

    Section
      5.9 Other
      Representations and Warranties.
      Each of
      the representations and warranties made by the Issuer in Section 5.1 of the
      Indenture and by the Parent in Section 5.1 of the Purchase and Sale Agreement
      and Section 4.1 of the Pledge and Security Agreement is hereby incorporated
      herein by reference as if fully set forth herein and given for the benefit
      of
      the Purchaser.

     

    ARTICLE
      VI

    CONDITIONS
      TO CLOSING

     

    The
      obligations of the Purchaser hereunder are subject to the accuracy, on and
      as of
      the date hereof and the Closing Date, of the representations and warranties
      of
      the Issuer and the Parent contained herein, to the accuracy of the statements
      of
      the Issuer and the Parent and their respective officers made in any certificates
      delivered pursuant hereto, to the performance by the Issuer and the Parent
      of
      their respective obligations hereunder and to each of the following additional
      terms and conditions:

     

    Section
      6.1 Proceedings.
      All
      proceedings and legal matters incident to the
      formation and constitution of the Issuer and the issuance of the Original Class
      A Notes, and all other legal matters relating to the Transaction Documents
      and
      the transactions contemplated hereby and thereby, shall be reasonably
      satisfactory in all material respects to the Purchaser, and the Issuer and
      the
      Parent shall have furnished to the Purchaser all documents and information
      that
      it or counsel to the Purchaser may reasonably request to enable them to pass
      upon such matters.

     

    Section
      6.2 Transactional
      Opinion.
      O’Melveny & Myers LLP shall have furnished to the Note Purchasers their
      opinion, as special counsel to the Issuer and the Parent, addressed to the
      Note
      Purchasers and dated the Closing Date, in form and substance reasonably
      satisfactory to the Note Purchasers.

     

    Section
      6.3 True
      Sale and Non-Consolidation Opinions.
      Pillsbury Winthrop Shaw Pittman LLP shall have furnished to the Note Purchasers
      their reasoned opinion addressed to the Note Purchasers, dated the Closing
      Date,
      as to the sale, transfer, conveyance, assignment, contribution and granting
      by
      the Parent of the Purchased Assets to the Issuer constituting a true sale and
      capital contribution and not a secured loan and as to the non-consolidation
      of
      the Issuer in a bankruptcy proceeding of the Parent, which opinion shall be
      in
      form and substance reasonably satisfactory to the Note Purchasers.

     

    Section
      6.4 Note
      Purchaser’s Counsel Opinion.
      Pillsbury Winthrop Shaw Pittman LLP, special counsel to the Note Purchasers,
      shall have furnished to the Note Purchasers their opinion addressed to the
      Note
      Purchasers dated the Closing Date as to such matters related to the Transaction
      Documents as the Note Purchasers may reasonably request.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Section
      6.5 Consummation
      of Transactions.
      All of
      the transactions contemplated by the Transaction Documents to be completed
      on or
      before the Closing Date shall have been consummated or shall be consummated
      concurrently with the transactions contemplated hereby in compliance with
      Applicable Law, the Purchaser shall have received executed copies of the
      Transaction Documents (which shall be in full force and effect) and the Trustee
      shall have received one or more certificates (endorsed for transfer)
      representing all of the Capital Securities of the Issuer to be held by the
      Trustee pursuant to the terms of the Pledge and Security Agreement.

     

    Section
      6.6 Certification
      as to Private Placement Memorandum.
      The
      Parent shall have furnished to the Note Purchasers a certificate, dated the
      Closing Date, of a Responsible Officer of the Parent stating that (i) such
      person has carefully examined the Private Placement Memorandum, (ii) to his
      or
      her knowledge, the Private Placement Memorandum, as of its date, did not include
      any untrue statement of a material fact and did not omit to state a material
      fact necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading, and (iii) to his
      or
      her knowledge, since the date of the Private Placement Memorandum, no event
      has
      occurred that should have been set forth in a supplement or amendment to the
      Private Placement Memorandum so that the Private Placement Memorandum as of
      the
      Closing Date would not include any untrue statement of a material fact and
      would
      not omit to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading.

     

    Section
      6.7 Certification
      as to Note Purchase Agreement.
      Each of
      the Issuer and the Parent shall have furnished to the Note Purchasers a
      certificate, dated the Closing Date, of its respective Responsible Officer,
      stating that, as of the Closing Date, the representations and warranties of
      the
      Issuer or the Parent, as the case may be, in and incorporated into this Note
      Purchase Agreement are true and correct in all material respects (except that
      any such representations or warranties that are qualified in respect of
      materiality or Material Adverse Effect shall be true and correct in all
      respects) and the Issuer or the Parent, as the case may be, has complied with
      all agreements and satisfied all conditions on its part to be performed or
      satisfied hereunder on or prior to the Closing Date.

     

    Section
      6.8 No
      Actions.
      No
      action shall have been taken and no statute, rule, regulation or order shall
      have been enacted, adopted or issued by any Governmental Authority that would,
      as of the Closing Date, prevent the issuance or sale of the Original Class
      A
      Notes, and no injunction, restraining order or order of any other nature by
      any
      federal or state court of competent jurisdiction shall have been issued as
      of
      the Closing Date that would prevent the issuance or sale of the Original Class
      A
      Notes.

     

    Section
      6.9 Principal
      Documents.
      The
      Principal Documents, each in the form previously furnished by the Parent to
      counsel to the Note Purchasers, shall be in full force and effect, and the
      Note
      Purchasers shall have received upon prior written request therefor a true,
      correct and complete copy of each of the Principal Documents (except in the
      case
      of the Pfizer License Agreement, which will be delivered in redacted
      form).

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Section
      6.10 Authorizations.
      Each of
      the Issuer and the Parent shall have furnished to the Note Purchasers (i) a
      copy
      of the resolutions, consents or other documents, certified by a Responsible
      Officer of the Issuer or the Parent, as the case may be, as of the Closing
      Date,
      duly authorizing the execution, delivery and performance of the Transaction
      Documents to which it is a party and any other documents to be executed on
      or
      prior to the Closing Date by or on behalf of it in connection with the
      transactions contemplated thereby, and (ii) certified copies of its respective
      organizational documents, including as such documents have been amended to
      effect the transactions contemplated by the Transaction Documents.

     

    Section
      6.11 Offering
      of Original Class A Notes.
      The
      Placement Agent shall have delivered to the Issuer a certificate as to the
      manner of the offering of the Original Class A Notes and the number and
      character of the offerees contacted, which certificate shall state that the
      Placement Agent (i) did not solicit offers for, or offer, the Original Class
      A
      Notes by means of any form of general solicitation or general advertising or
      in
      any manner involving a public offering within the meaning of Section 4(2) of
      the
      Securities Act and (ii) solicited offers for the Original Class A Notes only
      from, and offered the Original Class A Notes only to, (a) Persons who it
      reasonably believed were QIBs or Institutional Accredited Investors or, if
      any
      such Person was buying for one or more institutional accounts for which such
      Person was acting as fiduciary or agent, only when such Person reasonably
      believed that each such account was a QIB or Institutional Accredited Investor,
      as applicable and (b) in the case of offers outside the United States, to
      institutions that are not U.S. persons (as defined in Regulation S) in
      accordance with Rule 903 of Regulation S, and shall further state that counsel
      to the Issuer and the Parent and to the Note Purchasers may rely thereon in
      rendering their respective opinions to be delivered hereunder.

     

    Section
      6.12 CUSIP
      Number.
      Standard & Poor’s CUSIP Service Bureau, as agent for the National
      Association of Insurance Commissioners, shall have issued a CUSIP number for
      the
      Original Class A Notes.

     

    Section
      6.13 Notice
      and Instruction to
      Inspire.
      The
      Note Purchasers shall have received a copy of the notice and instruction
      provided to Inspire by the Parent pursuant to Section 4.1 of the Purchase and
      Sale Agreement, which shall be certified by a Responsible Officer of the Parent
      as having been sent to Inspire on or prior to the Closing Date.

     

    Section
      6.14 Compliance
      with Laws.
      If
      requested by a Note Purchaser, the Issuer shall have provided such Note
      Purchaser with such information as it may reasonably request to enable such
      Note
      Purchaser to determine whether such purchase shall (i) be permitted by the
      laws
      and regulations of each jurisdiction to which such Note Purchaser is subject,
      without recourse to provisions (such as Section 1405(a)(8) of the New York
      Insurance Law) permitting limited investments by insurance companies without
      restriction as to the character of the particular investment and (ii) not
      violate any Applicable Law (including Regulation T, U or X of the Board of
      Governors of the Federal Reserve System).

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Section
      6.15 Filing
      of Financing Statements.
      The
      filings of financing statements under the UCC and other recordings required
      or
      reasonably requested to be made to perfect a security interest in the Purchased
      Assets sold, transferred, conveyed, assigned, contributed and granted on the
      Closing Date, including those specified in Exhibit
      B
      to the
      Purchase and Sale Agreement, and the Collateral, including those specified
      in
Exhibit
      E
      to the
      Indenture, shall have been duly made.

     

    ARTICLE
      VII

    ADDITIONAL
      COVENANTS

     

    Section
      7.1 DTC.
      The
      Issuer will, and the Parent will cause the Issuer to, use commercially
      reasonable best efforts to comply with all agreements set forth in the
      representation letter of the Issuer to DTC relating to the approval of the
      Original Class A Notes by DTC for “book-entry” transfer.

     

    Section
      7.2 Expenses.
      The
      Issuer and the Parent jointly and severally agree to pay or cause to be paid
      all
      reasonable, documented Transaction Expenses of Pillsbury Winthrop Shaw Pittman
      LLP, acting as outside counsel to the Placement Agent, it being understood
      that
      neither the Issuer nor the Parent will reimburse any other expenses of any
      Note
      Purchasers (including expenses of any other counsel).

     

    ARTICLE
      VIII

    SURVIVAL
      OF CERTAIN PROVISIONS

     

    Section
      8.1 Survival
      of Certain Provisions.
      The
      representations, warranties, covenants and agreements contained in this Note
      Purchase Agreement shall survive (a) the execution and delivery of this Note
      Purchase Agreement and the Original Class A Notes and (b) the purchase or
      transfer by any Note Purchaser of any Original Class A Note or portion thereof
      or interest therein. All such provisions are binding upon and may be relied
      upon
      by any subsequent holder or beneficial owner of an Original Class A Note that
      has executed and delivered to the Registrar a Confidentiality Agreement in
      compliance with the procedures set forth in the Indenture, regardless of any
      investigation made at any time by or on behalf of any Note Purchaser or any
      other holder of an Original Class A Note; provided,
      however,
      that
      the representations and covenants contained in Section 4.8 may be relied upon
      regardless of whether such holder or owner has executed and delivered to the
      Registrar such Confidentiality Agreement. All statements contained in any
      certificate or other instrument delivered by or on behalf of any party hereto
      pursuant to this Note Purchase Agreement shall be deemed to have been relied
      upon by each other party hereto and shall survive the consummation of the
      transactions contemplated hereby regardless of any investigation made by or
      on
      behalf of any such party. This Note Purchase Agreement and the other Transaction
      Documents embody the entire agreement and understanding among the parties hereto
      and supersede all prior agreements and understandings relating to the subject
      matter hereof, other than the separate Confidentiality Agreements entered into
      between each Note Purchaser and the Issuer relating to the transactions
      contemplated hereby.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IX

    NOTICES

     

    Section
      9.1 Notices.
      All
      statements, requests, notices and agreements hereunder shall be in writing
      and
      delivered by hand, mail, overnight courier or telefax as follows:

     

    (a) if
      to the
      Purchaser, in accordance with Schedule
      1;
      and

     

    (b) if
      to the
      Issuer or the Parent, in accordance with Section 12.5 of the
      Indenture.

     

    ARTICLE
      X

    SUCCESSORS
      AND ASSIGNS

     

    Section
      10.1 Successors
      and Assigns.
      This
      Note Purchase Agreement will inure to the benefit of and be binding upon the
      parties hereto and their respective successors, permitted assignees and
      permitted transferees. So long as any of the Notes are outstanding, neither
      the
      Issuer nor the Parent may assign any of its rights or obligations hereunder
      or
      any interest herein without the prior written consent of the
      Purchaser.

     

    ARTICLE
      XI

    SEVERABILITY

     

    Section
      11.1 Severability.
      Any
      provision of this Note Purchase Agreement that is prohibited or unenforceable
      in
      any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
      of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof, and any such prohibition or unenforceability in any
      jurisdiction shall (to the full extent permitted by law) not invalidate or
      render unenforceable such provision in any other jurisdiction.

     

    ARTICLE
      XII

    WAIVER
      OF JURY TRIAL

     

    Section
      12.1 WAIVER
      OF JURY TRIAL.
      THE
      PURCHASER, THE ISSUER AND THE PARENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION
      BROUGHT ON OR WITH RESPECT TO THIS NOTE PURCHASE AGREEMENT, THE ORIGINAL CLASS
      A
      NOTES, THE TRANSACTION DOCUMENTS, THE PRIVATE PLACEMENT MEMORANDUM AND ALL
      TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

    
       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

     

    ARTICLE
      XIII

    GOVERNING
      LAW; CONSENT TO JURISDICTION

     

    Section
      13.1 Governing
      Law; Consent to Jurisdiction.

     

    (a) THIS
      NOTE
      PURCHASE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE
      RULES THEREOF RELATING TO CONFLICTS OF LAW OTHER THAN SECTION 5-1401 OF THE
      GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS
      AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
      SUCH LAWS.

     

    (b) Any
      legal
      action or proceeding with respect to this Note Purchase Agreement may be brought
      in the courts of the State of New York located in the Borough of Manhattan,
      The
      City of New York or of the United States federal court sitting in the Borough
      of
      Manhattan, The City of New York, and, by execution and delivery of this Note
      Purchase Agreement, each party hereto consents, for itself and in respect of
      its
      property, to the non-exclusive jurisdiction of those courts. Each party hereto
      irrevocably consents to service of process in the manner provided for notices
      in
      Section 9.1. Nothing in this Note Purchase Agreement shall affect the right
      of
      any party hereto to serve process in any other manner permitted by law. Each
      party hereto irrevocably waives, to the maximum extent permitted by law, any
      objection, including any objection to the laying of venue or based on the
      grounds of forum non conveniens, that it may now or hereafter have to the
      bringing of any action or proceeding in such jurisdiction in respect of this
      Note Purchase Agreement or any document related hereto. Each party hereto waives
      personal service of any summons, complaint or other process, which may be made
      by any other means permitted by New York law.

     

    (c) If,
      for
      the purpose of obtaining a judgment or order in any court, it is necessary
      to
      convert a sum due hereunder to any Noteholder from U.S. dollars into another
      currency, each of the Issuer and the Parent has agreed, and each Noteholder
      by
      holding an Original Class A Note will be deemed to have agreed, to the fullest
      extent that they may effectively do so, that the rate of exchange used shall
      be
      that at which, in accordance with normal banking procedures, such party could
      purchase U.S. dollars with such other currency in the Borough of Manhattan,
      The
      City of New York on the Business Day preceding the day on which final judgment
      is given.

     

    (d) The
      obligation of each of the Issuer and the Parent in respect of any sum payable
      by
      it to a Noteholder shall, notwithstanding any judgment or order in a Judgment
      Currency, be discharged only to the extent that, on the Business Day following
      receipt by such Noteholder of such security of any sum adjudged to be so due
      in
      the Judgment Currency, such Noteholder may in accordance with normal banking
      procedures purchase U.S. dollars with the Judgment Currency. If the amount
      of
      U.S. dollars so purchased is less than the sum originally due to such Noteholder
      in the Judgment Currency (determined in the manner set forth in Section
      13.1(b)), each of the Issuer and the Parent agrees, as a separate obligation
      and
      notwithstanding any such judgment, to indemnify such Noteholder against such
      loss, and, if the amount of the U.S. dollars so purchased exceeds the sum
      originally due to such Noteholder, such Noteholder agrees to remit to the Issuer
      or the Parent, as the case may be, such excess, provided that such Noteholder
      shall have no obligation to remit any such excess to the extent that the Issuer
      or the Parent, as the case may be, shall have failed to pay such Noteholder
      any
      obligations due and payable under the Original Class A Notes of such Noteholder,
      in which case such excess may be applied to such obligations of the Issuer
      or
      the Parent, as the case may be, under such Original Class A Notes in accordance
      with the terms thereof. The foregoing indemnity shall constitute a separate
      and
      independent obligation of the Issuer and the Parent and shall continue in full
      force and effect notwithstanding any such judgment or order as
      aforesaid.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XIV

    COUNTERPARTS

     

    Section
      14.1 Counterparts.
      This
      Note Purchase Agreement may be executed in any number of counterparts, each
      of
      which shall be deemed to be an original, but all such counterparts shall
      together constitute one and the same Note Purchase Agreement.

     

    ARTICLE
      XV

    TABLE
      OF CONTENTS AND HEADINGS

     

    Section
      15.1 Table
      of Contents and Headings.
      The
      Table of Contents and headings of the Articles and Sections of this Note
      Purchase Agreement have been inserted for convenience of reference only, are
      not
      to be considered a part hereof and shall in no way modify or restrict any of
      the
      terms or provisions hereof.

     

    ARTICLE
      XVI

    TAX
      DISCLOSURE

     

    Section
      16.1 Tax
      Disclosure.
      Notwithstanding anything expressed or implied to the contrary herein, the
      Purchaser and its respective employees, representatives and agents may disclose
      to any and all Persons, without limitation of any kind, the tax treatment and
      the tax structure of the transactions contemplated by this Note Purchase
      Agreement and the agreements and instruments referred to herein and all
      materials of any kind (including opinions or other tax analyses) that are
      provided to the Purchaser relating to such tax treatment and tax structure;
      provided,
      however,
      that
      neither the Purchaser nor any employee, representative or other agent thereof
      shall disclose any other information that is not relevant to understanding
      the
      tax treatment and tax structure of such transactions (including the identity
      of
      any party and any information that could lead another to determine the identity
      of any party) or any other information to the extent that such disclosure could
      reasonably result in a violation of any federal or state securities law. For
      these purposes, the tax treatment of the transactions contemplated by this
      Note
      Purchase Agreement and the agreements and instruments referred to herein means
      the purported or claimed U.S. federal or state tax treatment of such
      transactions. Moreover, the tax structure of the transactions contemplated
      by
      this Note Purchase Agreement and the agreements and instruments referred to
      herein includes any fact that may be relevant to understanding the purported
      or
      claimed U.S. federal or state tax treatment of such transactions.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XVII

    MISCELLANEOUS

     

    Section
      17.1 Limited
      Recourse.
      Each of
      the parties hereto accepts that the enforceability against the Issuer of the
      obligations of the Issuer hereunder shall be limited to the assets of the
      Issuer, whether tangible or intangible, real or personal (including the
      Collateral) and the proceeds thereof. Once all such assets have been realized
      upon and such assets (and proceeds thereof) have been applied in accordance
      with
      Article III of the Indenture, any outstanding obligations of the Issuer shall
      be
      extinguished. Each of the parties hereto further agrees that it shall take
      no
      action against any employee, director, officer or administrator of the Issuer
      or
      the Trustee in relation to this Note Purchase Agreement; provided,
      that
      nothing herein shall limit the Issuer (or its permitted successors or assigns,
      including any party hereto that becomes such a successor or assign) from
      pursuing claims, if any, against any such person. The provisions of this Section
      17.1 shall survive termination of this Note Purchase Agreement; provided,
      further,
      that
      the foregoing shall not in any way limit, impair or otherwise affect any rights
      of any party to proceed against any employee, director, officer or administrator
      of the Issuer (a) for intentional and willful fraud or intentional and willful
      misrepresentations on the part of or by such employee, director, officer or
      administrator or (b) for the receipt of any distributions or payments to which
      the Issuer or any successor in interest is entitled, other than distributions
      expressly permitted pursuant to the other Transaction Documents.

     

    [SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned parties hereby execute this Note Purchase
      Agreement, in one or more counterparts, effective and binding on the date first
      written above.

     

    
      	
              AZITHROMYCIN
                ROYALTY SUB LLC

            
	 	 
	
              By:
                

            	
              InSite
                Vision Incorporated, its Manager

            
	 	 
	
              By:

            	
               

            
	
               Name:
                

            
	
               Title:

            
	 
	
              INSITE
                VISION INCORPORATED

            
	 	 
	
              By:

            	 
	
               Name:

            
	
               Title:

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    [PURCHASER
      SIGNATURE PAGE]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1

     

    Confidentiality
      Agreement Referenced In Section 4.7:

    Date:
      __________, 2008

    Parties:
      Issuer and ________________________________________________________

    Number
      (See Top Right of First Page of Confidentiality Agreement):
      _______________

     

    
      	
              Purchaser

            	 	
              Principal

              Amount
                of

            	 	
              Notice
                Information

            
	 	 	
              
                Original

                Class
                  A Notes

              

            	 	 

    

     

    
       

      
        
          
          

        

        
          1-1

          
            

          

        

        
          
          

      

    

    Annex
      A

    

    

    See
      Annex
      A to the Purchase and Sale Agreement by and between Azithromycin Royalty Sub
      LLC
      and the Company dated February 21, 2008, attached as Exhibit 10.1 to this
      Quarterly Report on Form 10-Q".

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