Document:

Exhibit 10.30

 

 

LOAN AND
SECURITY AGREEMENT

 

 

among

 

COMERICA
BANK,

on the one hand,

 

 

and

 

 

JAMDAT
MOBILE INC.,

 

 

and

 

 

CERTAIN OF
ITS SUBSIDIARIES SIGNATORY HERETO,

on the other hand

 

 

dated as
of April 20, 2005

 

 

$25,000,000

 

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  DEFINITIONS AND
  CONSTRUCTION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Definitions

  	
   

  
	
   

  	
  1.2

  	
  Accounting Terms

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  LOAN AND TERMS OF PAYMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Credit Extensions

  	
   

  
	
   

  	
  2.2

  	
  Overadvances

  	
   

  
	
   

  	
  2.3

  	
  Interest
  Rates, Payments, and Calculations

  	
   

  
	
   

  	
  2.4

  	
  Crediting Payments

  	
   

  
	
   

  	
  2.5

  	
  Fees

  	
   

  
	
   

  	
  2.6

  	
  Term

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS
  OF LOANS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Conditions
  Precedent to Initial Credit Extension

  	
   

  
	
   

  	
  3.2

  	
  Conditions
  Precedent to the Disbursement of the Term Loan

  	
   

  
	
   

  	
  3.3

  	
  Conditions
  Precedent to all Credit Extensions

  	
   

  
	
   

  	
  3.4

  	
  Conditions Subsequent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  CREATION OF SECURITY
  INTEREST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Grant of Security Interest

  	
   

  
	
   

  	
  4.2

  	
  Perfection of Security
  Interest

  	
   

  
	
   

  	
  4.3

  	
  Right to Inspect

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Due Organization and
  Qualification

  	
   

  
	
   

  	
  5.2

  	
  Due Authorization; No
  Conflict

  	
   

  
	
   

  	
  5.3

  	
  Collateral

  	
   

  
	
   

  	
  5.4

  	
  Intellectual Property
  Collateral

  	
   

  
	
   

  	
  5.5

  	
  Name; Location
  of Chief Executive Office

  	
   

  
	
   

  	
  5.6

  	
  Litigation

  	
   

  
	
   

  	
  5.7

  	
  No
  Material Adverse Change in Financial Statements

  	
   

  
	
   

  	
  5.8

  	
  Solvency, Payment of Debts

  	
   

  
	
   

  	
  5.9

  	
  Compliance with
  Laws and Regulations

  	
   

  
	
   

  	
  5.10

  	
  Subsidiaries

  	
   

  
	
   

  	
  5.11

  	
  Government Consents

  	
   

  
	
   

  	
  5.12

  	
  Inbound Licenses

  	
   

  
	
   

  	
  5.13

  	
  Full Disclosure

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  AFFIRMATIVE
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Good Standing
  and Government Compliance

  	
   

  
	
   

  	
  6.2

  	
  Financial
  Statements, Reports, Certificates

  	
   

  
	
   

  	
  6.3

  	
  Inventory; Returns

  	
   

  
	
   

  	
  6.4

  	
  Taxes

  	
   

  
	
   

  	
  6.5

  	
  Insurance

  	
   

  
	
   

  	
  6.6

  	
  Primary Depository

  	
   

  
	
   

  	
  6.7

  	
  Financial Covenants

  	
   

  
	
   

  	
  6.8

  	
  Registration
  of Intellectual Property Rights

  	
   

  
	
   

  	
  6.9

  	
  Intentionally Omitted

  	
   

  

 

 

	
   

  	
  6.10

  	
  Further Assurances

  	
   

  
	
   

  	
  6.11

  	
  Formation of Subsidiaries

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  NEGATIVE
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Dispositions

  	
   

  
	
   

  	
  7.2

  	
  Change
  in Name, Location, Executive Office, or Executive Management; Change in
  Business; Change in Fiscal Year; Change in Control

  	
   

  
	
   

  	
  7.3

  	
  Mergers or Acquisitions

  	
   

  
	
   

  	
  7.4

  	
  Indebtedness

  	
   

  
	
   

  	
  7.5

  	
  Encumbrances

  	
   

  
	
   

  	
  7.6

  	
  Distributions

  	
   

  
	
   

  	
  7.7

  	
  Investments

  	
   

  
	
   

  	
  7.8

  	
  Transactions with
  Affiliates

  	
   

  
	
   

  	
  7.9

  	
  Subordinated Debt

  	
   

  
	
   

  	
  7.10

  	
  Inventory and Equipment

  	
   

  
	
   

  	
  7.11

  	
  No Investment
  Company; Margin Regulation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  EVENTS OF
  DEFAULT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Payment Default

  	
   

  
	
   

  	
  8.2

  	
  Covenant Default

  	
   

  
	
   

  	
  8.3

  	
  Defective Perfection

  	
   

  
	
   

  	
  8.4

  	
  Material Adverse Change

  	
   

  
	
   

  	
  8.5

  	
  Attachment

  	
   

  
	
   

  	
  8.6

  	
  Insolvency

  	
   

  
	
   

  	
  8.7

  	
  Other Agreements

  	
   

  
	
   

  	
  8.8

  	
  Subordinated Debt

  	
   

  
	
   

  	
  8.9

  	
  Judgments

  	
   

  
	
   

  	
  8.10

  	
  Misrepresentations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  BANK’S RIGHTS AND REMEDIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Rights and Remedies

  	
   

  
	
   

  	
  9.2

  	
  Power of Attorney

  	
   

  
	
   

  	
  9.3

  	
  Accounts Collection

  	
   

  
	
   

  	
  9.4

  	
  Bank Expenses

  	
   

  
	
   

  	
  9.5

  	
  Bank’s Liability for
  Collateral

  	
   

  
	
   

  	
  9.6

  	
  No Obligation to Pursue
  Others

  	
   

  
	
   

  	
  9.7

  	
  Remedies Cumulative

  	
   

  
	
   

  	
  9.8

  	
  Demand; Protest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  CHOICE OF
  LAW AND VENUE; JURY TRIAL WAIVER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  JUDICIAL
  REFERENCE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Mechanics

  	
   

  
	
   

  	
  12.2

  	
  Procedures

  	
   

  
	
   

  	
  12.3

  	
  Application of Law

  	
   

  
	
   

  	
  12.4

  	
  Repeal

  	
   

  

 

 

	
  13.

  	
  GENERAL
  PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Successors and Assigns

  	
   

  
	
   

  	
  13.2

  	
  Indemnification

  	
   

  
	
   

  	
  13.3

  	
  Time of Essence

  	
   

  
	
   

  	
  13.4

  	
  Severability of Provisions

  	
   

  
	
   

  	
  13.5

  	
  Amendments in
  Writing, Integration

  	
   

  
	
   

  	
  13.6

  	
  Counterparts

  	
   

  
	
   

  	
  13.7

  	
  Survival

  	
   

  
	
   

  	
  13.8

  	
  Confidentiality

  	
   

  
	
   

  	
  13.9

  	
  Parent as Agent for
  Borrowers

  	
   

  

 

 

This LOAN AND SECURITY AGREEMENT is entered
into as of April 20, 2005, by and among Comerica Bank (“Bank”), on the one
hand, and JAMDAT Mobile Inc. (“Parent”), and certain of Parent’s Subsidiaries
signatory hereto (collectively, jointly and severally, with Parent, “Borrowers”
and each individually a “Borrower”), on the other hand.

 

RECITALS

 

Borrowers wish to obtain credit from time to
time from Bank, and Bank desires to extend credit to Borrowers.  This Agreement sets forth the terms on which
Bank will advance credit to Borrowers, and Borrowers will repay the amounts
owing to Bank.

 

AGREEMENT

 

The parties agree as follows:

 

1.             DEFINITIONS AND CONSTRUCTION.

 

1.1           Definitions.  As used in this Agreement, all capitalized
terms shall have the definitions set forth on Exhibit A.  Any term used in the Code and not defined
herein shall have the meaning given to the term in the Code.

 

1.2           Accounting Terms.  Any accounting term not specifically defined
on Exhibit A shall be construed in accordance with GAAP and all
calculations shall be made in accordance with GAAP.  The term “financial statements” shall include
the accompanying notes and schedules.

 

2.             LOAN AND TERMS OF PAYMENT.

 

2.1           Credit Extensions.

 

(a)           Promise
to Pay.  Borrowers promise to pay to
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrowers, together
with interest on the unpaid principal amount of such Credit Extensions at rates
in accordance with the terms hereof.

 

(b)           Advances
Under Revolving Line.

 

(i)            Amount.  Subject to and upon the terms and conditions
of this Agreement (1) Borrowers may request Advances in an aggregate
outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the
Borrowing Base, less any amounts outstanding under the Letter of Credit
Sublimit, and (2) amounts borrowed pursuant to this Section 2.1(b) may
be repaid and reborrowed at any time prior to the Revolving Maturity Date, at
which time all Advances under this Section 2.1(b) shall be
immediately due and payable.  Borrowers
may prepay any Advances without penalty or premium.

 

(ii)           Form of
Request.  Whenever Borrowers desire
an Advance, Parent, on behalf of Borrowers, will notify Bank by facsimile
transmission or telephone no later than 3:00 p.m. Pacific time (1:00 p.m.
Pacific time for wire transfers), on the Business Day that the Advance is to be
made.  Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit C.  Bank is authorized to make Advances under
this Agreement, based upon instructions received from a Responsible Officer or
a designee of a Responsible Officer, or without instructions if in Bank’s
discretion such Advances are necessary to meet Obligations which have become
due and remain unpaid.  Bank shall be
entitled to rely on any telephonic notice given by a person who Bank reasonably
believes to be a Responsible Officer or a designee thereof, and Borrowers shall
indemnify and hold Bank harmless for any damages or loss

 

 

suffered by Bank as a result of such
reliance.  Bank will credit the amount of
Advances made under this Section 2.1(b) to Borrowers’ Designated Deposit
Account.

 

(iii)          Letter
of Credit Sublimit. Subject to the availability under the Revolving Line,
and in reliance on the representations and warranties of Borrowers set forth
herein, at any time and from time to time from the date hereof through the
Business Day immediately prior to the Revolving Maturity Date, Bank shall issue
for the account of Borrowers such Letters of Credit as Borrowers may request by
delivering to Bank a duly executed letter of credit application on Bank’s
standard form; provided, however, that the outstanding and undrawn amounts
under all such Letters of Credit (i) shall not at any time exceed the
Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances
for the purpose of calculating availability under the Revolving Line.  Any drawn but unreimbursed amounts under any
Letters of Credit shall be charged as Advances against the Revolving Line. All
Letters of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank’s form
application and letter of credit agreement. 
Borrowers will pay any standard issuance and other fees that Bank
notifies Borrowers it will charge for issuing and processing Letters of Credit,
including, without limitation, a fee equal to 1.25% of the face amount of each
Letter of Credit, due and payable upon issuance.

 

(c)           Term
Loan.

 

(i)            Funding
of the Term Loan.  Subject to the
terms and conditions hereof, including, without limitation, Section 3.2, Bank
has agreed to make a term loan (the “Term Loan”) to Borrowers in the amount of
Ten Million Dollars ($10,000,000).  Bank
shall make the proceeds of the Term Loan available to Borrowers pursuant to
written disbursement instructions provided to Bank by Borrowers.

 

(ii)           Amortization.  Interest on the Term Loan shall accrue from
the date the proceeds of the Term Loan are disbursed in accordance with the
terms and provisions contained herein at the rate set forth in Section 2.3(a).  If not sooner repaid, the outstanding
principal of the Term Loan shall be repaid on the following dates and in the
following amounts:

 

	
  Date

  	
   

  	
  Installment Amount

  	
   

  
	
  June 30,
  2005

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  September 30,
  2005 and December 31, 2005

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  March 31,
  2006, June 30, 2006, and September 30, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  December 31,
  2006, and each March 31, June 30, September 30, and December 31
  thereafter

  	
   

  	
  $

  	
  1,250,000

  	
   

  

 

On the Term Loan Maturity Date, the outstanding principal balance and
all accrued and unpaid interest under the Term Loan shall be due and payable in
full.  Borrowers may voluntarily prepay
the Term Loan in whole or in part from time to time without premium or
penalty.  Amounts borrowed and repaid
pursuant to this Section 2.1(c) may not be reborrowed.

 

2.2           Overadvances.  If the aggregate amount of the outstanding
Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any
time, Borrowers shall immediately pay to Bank, in cash, the amount of such
excess.

 

 

2.3           Interest Rates,
Payments, and Calculations.

 

(a)           Interest
Rates.

 

(i)            Advances.  Except as set forth in Section 2.3(b), the Advances shall bear interest, on
the outstanding daily balance thereof, at Borrowers’ election, a variable rate per
annum equal to 0.50% above the Prime Rate, or as set forth in the LIBOR
Addendum to Loan and Security Agreement, dated as of even date herewith,
executed by Borrowers and Bank.

 

(ii)           Term
Loan.  Except as set forth in Section 2.3(b), the Term Loan
shall bear interest, on the outstanding daily balance thereof, at Borrowers’
election, at a variable rate per annum equal to 0.75% above the Prime Rate, or
as set forth in the LIBOR Addendum to Loan and Security Agreement, dated as of
even date herewith, executed by Borrowers and Bank.

 

(b)           Late
Fee; Default Rate.  If any payment is
not made within 10 days after the date such payment is due, Borrowers shall pay
Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid
amount or (ii) the maximum amount permitted to be charged under applicable
law.  All Obligations shall bear
interest, from and after the occurrence and during the continuance of an Event
of Default, at a rate equal to 2 percentage points above the interest rate
applicable immediately prior to the occurrence of the Event of Default.

 

(c)           Payments.  Interest hereunder shall be due and payable
on the first calendar day of each calendar quarter during the term hereof.  Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against the Designated
Deposit Account or, if there are insufficient funds in the Designated Deposit
Account to cover such charges, against the Revolving Line, in which case those
amounts shall thereafter accrue interest at the rate then applicable
hereunder.  Any interest not paid when
due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable
hereunder.

 

(d)           Computation.  In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased, effective as of the day the Prime Rate is changed, by
an amount equal to such change in the Prime Rate.  All interest chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual
number of days elapsed.

 

2.4           Crediting Payments.  Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to the Designated Deposit Account or to such Obligation as Parent, on
behalf of Borrowers, specifies.  After
the occurrence of an Event of Default, Bank shall have the right, in its sole
discretion, to immediately apply any wire transfer of funds, check, or other
item of payment Bank may receive to conditionally reduce Obligations, but such
applications of funds shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such
check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00
noon Pacific time shall be deemed to have been received by Bank as of the
opening of business on the immediately following Business Day.  Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.

 

 

2.5           Fees.  Borrowers shall pay to Bank the following:

 

(a)           Revolving
Line Commitment Fee.  On the Closing
Date, a revolving line commitment fee equal to $150,000, which shall be fully earned
as of the Closing Date and shall be nonrefundable;

 

(b)           Term
Loan Facility Fee.  On the Closing
Date, a term loan facility fee equal to $50,000, and on the first anniversary
of the Closing Date, a fee equal to $50,000, both of which shall be fully earned
as of the Closing Date and shall be nonrefundable; provided, however,
Borrowers shall have no obligation to pay the installment of the term loan
facility fee payable on the first anniversary of the Closing Date if Borrowers
have repaid the entire principal balance of the Term Loan and all accrued and
unpaid interest thereon prior to the first anniversary of the Closing Date; and

 

(c)           Bank
Expenses.  On the Closing Date, all
Bank Expenses incurred through the Closing Date, and, after the Closing Date,
all Bank Expenses, as and when they become due.

 

2.6           Term.  This Agreement shall become effective on the
Closing Date and, subject to Section 13.7, shall continue in full force and effect
for so long as any Obligations remain outstanding or Bank has any obligation to
make Credit Extensions under this Agreement. 
Notwithstanding the foregoing, Bank shall have the right to terminate
its obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default.

 

3.             CONDITIONS OF LOANS.

 

3.1           Conditions Precedent
to Initial Credit Extension.  The effectiveness
of this Agreement and the obligation of Bank to make the initial Credit
Extension is subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, the following:

 

(a)           this
Agreement;

 

(b)           an
officer’s or secretary’s certificate of each Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

 

(c)           a
financing statement (Form UCC-1);

 

(d)           an
intellectual property security agreement of each Borrower;

 

(e)           an
insurance certificate listing Bank as an additional insured, and, to the extent
available, named as loss payee;

 

(f)            payment
of the fees and Bank Expenses then due specified in Section 2.5;

 

(g)           current
SOS Reports indicating that except for Permitted Liens, there are no other
security interests or Liens of record in the Collateral;

 

(h)           an
audit of the Collateral, the results of which shall be satisfactory to Bank;

 

(i)            financial
statements, including company prepared consolidated and consolidating balance
sheets and income statements for the period ended February 28, 2005 and audited
consolidated statements for each Borrower’s most recently ended fiscal year,
together with an unqualified opinion, and such other updated financial
information as Bank may reasonably request;

 

(j)            [Intentionally
Omitted];

 

 

(k)           evidence
that Borrowers’ Funded Debt Ratio as of February 28, 2005 is less than or
equal to 2.50:1 after giving effect to the Acquisition and the initial funding
under the Revolving Line and the Term Loan;

 

(l)            evidence
that the Blue Lava Acquisition has been consummated;

 

(m)          the
Blue Lava Acquisition Related Documents;

 

(n)           a
joint and several borrower rider;

 

(o)           a
stock pledge security agreement of each Borrower; and

 

(p)           such
other documents or certificates, and completion of such other matters, as Bank
may reasonably deem necessary or appropriate.

 

3.2           Intentionally
Omitted.

 

3.3           Conditions Precedent
to all Credit Extensions.  The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension and the Term Loan, is further subject to the following conditions:

 

(a)           timely
receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and

 

(b)           the
representations and warranties contained in Section 5 shall be true and correct in all material
respects on and as of the date of such Payment/Advance Form and on the
effective date of each Credit Extension as though made at and as of each such
date, and no Event of Default shall have occurred and be continuing, or would
exist after giving effect to such Credit Extension (provided, however, that
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of such date).  The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrowers on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section 3.3.

 

3.4           Condition Subsequent.  The obligations of Bank to make any Advances
hereunder at any time (or to extend any other credit hereunder) shall be
subject to delivery by Borrowers to Bank, within 30 days of the Closing Date, a
collateral access agreement, in form and substance acceptable to Bank, with
respect to the 3415 S. Sepulveda Blvd., Los Angeles, California location.  The failure by Borrowers to satisfy the
conditions subsequent set forth in this Section 3.4 within the prescribed
time periods shall constitute an Event of Default hereunder.

 

4.             CREATION OF SECURITY INTEREST.

 

4.1           Grant of Security
Interest.  Each Borrower grants and
pledges to Bank a continuing security interest in the Collateral to secure
prompt repayment of any and all Obligations and to secure prompt performance by
each Borrower of each of its covenants and duties under the Loan
Documents.  Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in later-acquired Collateral.  Notwithstanding any termination, Bank’s Lien
on the Collateral shall remain in effect for so long as any Obligations are
outstanding.

 

4.2           Perfection of
Security Interest.  Each Borrower
authorizes Bank to file at any time financing statements, continuation
statements, and amendments thereto that (i) either specifically describe
the

 

 

Collateral or describe the Collateral as all
assets of Borrowers of the kind pledged hereunder, and (ii) contain any
other information required by the Code for the sufficiency of filing office
acceptance of any financing statement, continuation statement, or amendment,
including whether the applicable Borrower is an organization, the type of
organization and any organizational identification number issued to Borrowers,
if applicable.  Any such financing
statements may be signed by Bank on behalf of Borrowers, as provided in the
Code, and may be filed at any time in any jurisdiction whether or not Revised Article 9
of the Code is then in effect in that jurisdiction.  Borrowers shall from time to time endorse and
deliver to Bank, at the request of Bank, all Negotiable Collateral and other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and continue perfected Bank’s security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the
Loan Documents.  Borrowers shall have possession
of the Collateral, except where expressly otherwise provided in this Agreement
or where Bank chooses to perfect its security interest by possession in
addition to the filing of a financing statement.  Where Collateral is in possession of a third
party bailee, Borrowers shall take such steps as Bank reasonably requests for
Bank to (i) obtain an acknowledgment, in form and substance satisfactory
to Bank, of the bailee that the bailee holds such Collateral for the benefit of
Bank, (ii) obtain “control” of any Collateral consisting of investment
property, deposit accounts, letter-of-credit rights or electronic chattel paper
(as such items and the term “control” are defined in Revised Article 9 of
the Code) by causing the securities intermediary or depositary institution or
issuing bank to execute a control agreement in form and substance satisfactory
to Bank.  Borrowers will not create any
chattel paper without placing a legend on the chattel paper acceptable to Bank
indicating that Bank has a security interest in the chattel paper.  Borrowers from time to time may deposit with
Bank specific cash collateral to secure specific Obligations; each Borrower
authorizes Bank to hold such specific balances in pledge and to decline to
honor any drafts thereon or any request by Borrowers or any other Person to pay
or otherwise transfer any part of such balances for so long as the specific
Obligations are outstanding.

 

4.3           Right to Inspect.  Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to
time during Borrowers’ usual business hours but no more than twice a year
(unless an Event of Default has occurred and is continuing), to inspect
Borrowers’ Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrowers’ financial condition or the amount,
condition of, or any other matter relating to, the Collateral.

 

5.             REPRESENTATIONS AND WARRANTIES.

 

Borrowers
represent and warrant as follows:

 

5.1           Due Organization and
Qualification.  Parent and each
Subsidiary of Parent is a corporation duly existing under the laws of the state
in which it is incorporated and qualified and licensed to do business in any
state in which the conduct of its business or its ownership of property
requires that it be so qualified, except where the failure to do so would not
reasonably be expected to cause a Material Adverse Effect.

 

5.2           Due Authorization;
No Conflict.  The execution,
delivery, and performance of the Loan Documents are within each Borrower’s
powers, have been duly authorized, and are not in conflict with nor constitute
a breach of any provision contained in Borrowers’ Certificates of Incorporation
or Bylaws, nor will they constitute an event of default under any material
agreement by which any Borrower is bound. 
No Borrower is in default under any agreement by which it is bound,
except to the extent such default would not reasonably be expected to cause a
Material Adverse Effect.

 

5.3           Collateral.  Each Borrower has rights in or the power to
transfer the Collateral, and its title to the Collateral is free and clear of
Liens, adverse claims, and restrictions on transfer or pledge except for
Permitted Liens.  All Collateral is
located solely in the Collateral States.  The Eligible Accounts are bona fide existing
obligations.  The property or services
giving rise to such Eligible Accounts has been delivered or

 

 

rendered to the account debtor or its agent
for immediate shipment to and unconditional acceptance by the account debtor.  No Borrower has received notice of actual or
imminent Insolvency Proceeding of any account debtor whose accounts are
included in any Borrowing Base Certificate as an Eligible Account.  All Inventory is in all material respects of
good and merchantable quality, free from all material defects, except for
Inventory for which adequate reserves have been made.  Except as set forth in the Schedule, none of
the Collateral is maintained or invested with a Person other than Bank or Bank’s
Affiliates.

 

5.4           Intellectual
Property Collateral.  Parent is the sole owner of the
Intellectual Property Collateral, except as disclosed in the Schedule and
except for licenses granted by Borrowers to their customers in the ordinary
course of business.  To the best of Borrowers’
knowledge, each of the Copyrights, Trademarks and Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has been
judged invalid or unenforceable, in whole or in part, and no claim has been
made to Borrowers that any part of the Intellectual Property Collateral
violates the rights of any third party except to the extent such claim would
not reasonably be expected to cause a Material Adverse Effect.  Except as set forth in the Schedule or
as Parent, on behalf of Borrowers, shall advise Bank in writing quarterly, a Borrower’s
rights as a licensee of intellectual property do not give rise to more than 10%
of its gross revenue in any given month, including without limitation revenue
derived from the sale, licensing, rendering or disposition of any product or
service.

 

5.5           Name; Location of
Chief Executive Office.  Except as
disclosed in the Schedule, no Borrower has done business under any name other
than that specified on the signature page hereof, and its exact legal name
is as set forth in the first paragraph of this Agreement.  The chief executive office of each Borrower
is located in the Chief Executive Office State at the address set forth in the
Schedule.

 

5.6           Litigation.  Except as set forth in the Schedule, there
are no actions or proceedings pending by or against Parent or any Subsidiary of
Parent before any court or administrative agency in which a likely adverse
decision would reasonably be expected to have a Material Adverse Effect.

 

5.7           No Material Adverse
Change in Financial Statements.  All
consolidated and consolidating financial statements related to Parent and any
Subsidiary of Parent that are delivered by Borrowers to Bank fairly present in
all material respects Parent’s consolidated and consolidating financial
condition as of the date thereof and Parent’s consolidated and consolidating
results of operations for the period then ended.  There has not been a material adverse change
in the consolidated or in the consolidating financial condition of Borrowers
since the date of the most recent of such financial statements submitted to
Bank.

 

5.8           Solvency, Payment of
Debts.  Each Borrower is able to pay
its debts (including trade debts) as they mature; the fair saleable value of each
Borrower’s assets (including goodwill minus disposition costs) exceeds the fair
value of its liabilities; and no Borrower is left with unreasonably small
capital after the transactions contemplated by this Agreement.

 

5.9           Compliance with Laws
and Regulations.  Parent and each
Subsidiary of Parent have met the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA.  No event has occurred resulting from a Borrower’s
failure to comply with ERISA that is reasonably likely to result in any Borrower
incurring any liability that could have a Material Adverse Effect.  No Borrower is an “investment company” or a
company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940.  No Borrower
is engaged principally, or as one of the important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations T and U of the Board of Governors of the
Federal Reserve System).  Each Borrower
has complied in all material respects with all the provisions of the Federal
Fair Labor Standards Act.  Each Borrower
is in compliance with all environmental laws, regulations and ordinances except
where the failure to comply is not reasonably likely to have a Material Adverse
Effect.  No Borrower has violated any
statutes, laws, ordinances or rules applicable to it, the violation of
which could reasonably be expected to have a Material Adverse Effect.  Parent and each Subsidiary of Parent have
filed or caused to be filed all tax returns

 

 

required to be filed, and have paid, or have
made adequate provision for the payment of, all taxes reflected therein except
those being contested in good faith with adequate reserves under GAAP or where
the failure to file such returns or pay such taxes would not reasonably be
expected to have a Material Adverse Effect.

 

5.10         Subsidiaries.  No Borrower owns any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.

 

5.11         Government Consents.  Parent and each Subsidiary of Parent have
obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all governmental authorities that
are necessary for the continued operation of Borrowers’ businesses as currently
conducted, except where the failure to do so would not reasonably be expected
to cause a Material Adverse Effect.

 

5.12         Intentionally Omitted.

 

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

 

6.             AFFIRMATIVE COVENANTS.

 

Borrowers
covenant that, until payment in full of all outstanding Obligations, and for so
long as Bank may have any commitment to make a Credit Extension hereunder,
Borrowers shall do all of the following:

 

6.1           Good Standing and
Government Compliance.  Each Borrower
shall maintain its and each of its Subsidiaries’ corporate existence and good
standing in the applicable Borrower State, shall maintain qualification and
good standing in each other jurisdiction in which the failure to so qualify
could have a Material Adverse Effect, and shall furnish to Bank the
organizational identification number issued to Borrowers by the authorities of
the state in which Borrowers are organized, if applicable.  Borrowers shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. 
Each Borrower shall comply in all material respects with all applicable
Environmental Laws, and maintain all material permits, licenses and approvals
required thereunder where the failure to do so could have a Material Adverse
Effect.  Each Borrower shall comply, and
shall cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, and shall
maintain, and shall cause each of its Subsidiaries to maintain, in force all
licenses, approvals and agreements, the loss of which or failure to comply with
which would reasonably be expected to have a Material Adverse Effect.

 

6.2           Financial
Statements, Reports, Certificates.  Parent
shall deliver to Bank:  (i) as soon
as available, but in any event within 45 days after the end of each calendar quarter,
a company prepared consolidated and consolidating balance sheet and income
statement covering Parent’s and its Subsidiaries operations during such period,
in a form reasonably acceptable to Bank and certified by a Responsible Officer;
(ii) as soon as available, but in any event within 90 days after the end
of Parent’s fiscal year, audited consolidated and consolidating financial
statements of Parent and its Subsidiaries prepared in accordance with GAAP,
consistently applied, together with an opinion which is unqualified or
otherwise consented to in writing by Bank on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (iii) if
applicable, copies of all statements, reports and notices sent or made
available

 

 

generally by Parent and its Subsidiaries to
its security holders or to any holders of Subordinated Debt and all reports on
Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly
upon receipt of notice thereof, a report of any legal actions pending or
threatened against Parent or any Subsidiary of Parent that could result in
damages or costs to Parent or any Subsidiary of Parent of $100,000 or more; (v) promptly
upon receipt, each management letter prepared by Parent’s independent certified
public accounting firm regarding each Borrower’s management control systems; (vi) such
budgets, sales projections, operating plans or other financial information
generally prepared by Borrowers in the ordinary course of business as Bank may
reasonably request from time to time; (vii) as soon as available, but in
any event within 60 days of the end of each of Parent’s fiscal years, annual
financial projections for the upcoming fiscal year of Parent and its
Subsidiaries, including, but not limited to, a company prepared balance sheet
and income statement, in a form acceptable to Bank and certified by a
Responsible Officer; and (viii) within 30 days of the last day of each fiscal
quarter, a report signed by Responsible Officer, in form reasonably acceptable
to Bank, listing any applications or registrations that Parent has made or
filed in respect of any Patents, Copyrights or Trademarks and the status of any
outstanding applications or registrations, as well as any material change in
Borrowers’ Intellectual Property Collateral, including but not limited to any
subsequent ownership right of Borrowers in or to any Trademark, Patent or
Copyright not specified in Exhibits A, B, and C of any
Intellectual Property Security Agreement delivered to Bank by Borrowers in
connection with this Agreement.

 

(a)           Within
30 days after the last day of each month, Parent, on behalf of Borrowers, shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer of
Parent in substantially the form of Exhibit D hereto, together with
aged listings by invoice date of accounts receivable and accounts payable.

 

(b)           Within
45 days after the last day of each quarter, Parent, on behalf of Borrowers,
shall deliver to Bank with the quarterly financial statements a Compliance
Certificate certified as of the last day of the applicable quarter and signed
by a Responsible Officer in substantially the form of Exhibit E
hereto.

 

(c)           As
soon as possible and in any event within 3 Business Days after becoming aware
of the occurrence or existence of an Event of Default hereunder, a written
statement of a Responsible Officer setting forth details of the Event of
Default, and the action which Borrowers have taken or proposes to take with
respect thereto.

 

(d)           Bank
shall have a right from time to time hereafter to audit Borrowers’ Accounts at
Borrowers’ expense, provided that such audits will be conducted no more often
than every 6 months unless an Event of Default has occurred and is continuing.

 

Borrowers may deliver to Bank on an
electronic basis any certificates, reports or information required pursuant to
this Section 6.2, and Bank shall be entitled to rely on the information
contained in the electronic files, provided that Bank in good faith believes
that the files were delivered by a Responsible Officer.  If Borrowers deliver this information
electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight
courier service, hand delivery, facsimile or .pdf file within 5 Business Days
of submission of the unsigned electronic copy the certification of monthly
financial statements, the intellectual property report, the Borrowing Base
Certificate and the Compliance Certificate, each bearing the physical signature
of the Responsible Officer.

 

6.3           Inventory; Returns.  Borrowers shall keep all Inventory in good
and merchantable condition, free from all material defects except for Inventory
for which adequate reserves have been made. 
Returns and allowances, if any, as between a Borrower and its account
debtors shall be on the same basis and in accordance with the usual customary
practices of such Borrower, as they exist on the Closing Date.  Borrowers shall promptly notify Bank of all
returns and recoveries and of all disputes and claims involving more than
$100,000.

 

 

6.4           Taxes.  Borrowers shall make, and cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
including, but not limited to, those laws concerning income taxes, F.I.C.A.,
F.U.T.A. and state disability, and will execute and deliver to Bank, on demand,
proof satisfactory to Bank indicating that Parent or a Subsidiary of Parent has
made such payments or deposits and any appropriate certificates attesting to
the payment or deposit thereof; provided that Parent or a Subsidiary of Parent need
not make any payment if the amount or validity of such payment is contested in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrowers.

 

6.5           Insurance.

 

(a)           Borrowers,
at their own expense, shall keep the Collateral insured against loss or damage
by fire, theft, explosion, sprinklers, and all other hazards and risks, and in
such amounts, as ordinarily insured against by other owners in similar
businesses conducted in the locations where Borrowers’ business is conducted on
the date hereof.  Borrowers shall also
maintain liability and other insurance in amounts and of a type that are
customary to businesses similar to Borrowers’ businesses.

 

(b)           All
such policies of insurance shall be in such form, with such companies, and in
such amounts as reasonably satisfactory to Bank.  All policies of property insurance shall
contain a lender’s loss payable endorsement, in a form satisfactory to Bank,
showing Bank as an additional loss payee, and all liability insurance policies
shall show Bank as an additional insured and specify that the insurer must give
at least 20 days notice to Bank before canceling its policy for any
reason.  Upon Bank’s request, Borrowers
shall deliver to Bank certified copies of the policies of insurance and
evidence of all premium payments.  If no
Event of Default has occurred and is continuing, proceeds payable under any
casualty policy will, at Borrowers’ option, be payable to Borrowers to replace
the property subject to the claim, provided that any such replacement property
shall be deemed Collateral in which Bank has been granted a first priority
security interest.  If an Event of
Default has occurred and is continuing, all proceeds payable under any such
policy shall, at Bank’s option, be payable to Bank to be applied on account of
the Obligations.

 

6.6           Primary Depository.  Each Borrower shall maintain its primary depository
and operating accounts with Bank or Bank’s Affiliates.

 

6.7           Financial Covenants.
 Parent and its Subsidiaries shall at all
times maintain the following financial ratios and covenants:

 

(a)           Minimum
Liquidity Ratio.  A ratio of Cash and
marketable securities to Funded Debt measured on a fiscal quarter end basis, of
not less than the required amount set forth in the following table for the
applicable period set forth opposite thereto:

 

	
  Measurement Date

  	
   

  	
  Ratio

  	
   

  
	
  for the
  quarter ended June 30, 2005

  	
   

  	
  1.25:1.00

  	
   

  
	
  for the
  quarter ended September 30, 2005

  	
   

  	
  1.50:1.00

  	
   

  
	
  for the
  quarter ended December 31, 2005 and each quarter end thereafter

  	
   

  	
  2.00:1.00

  	
   

  

 

 

(b)           Minimum
Cash.  A balance of Cash and
marketable securities at Bank and at Bank’s Affiliates covered by a control
agreement of not less $5,000,000.

 

(c)           T3M
EBITDA.  T3M EBITDA of not less than
the required amount set forth for the applicable period set forth opposite
thereto:

 

	
  Measurement Date

  	
   

  	
  T3M EBITDA

  	
   

  
	
  March 31,
  2005 and June 30, 2005

  	
   

  	
  $

  	
  4,000,000

  	
   

  
	
  September 30,
  2005

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
  December 31,
  2005, and each March 31, June 30, September 30, and December 31
  thereafter

  	
   

  	
  $

  	
  7,000,000

  	
   

  

 

6.8           Registration of
Intellectual Property Rights.

 

(a)           Each
Borrower shall register or cause to be registered on an expedited basis (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as the case may be, those
registrable intellectual property rights now owned or hereafter developed or
acquired by Borrowers, to the extent that a Borrower, in its reasonable
business judgment, deems it appropriate to so protect such intellectual
property rights.

 

(b)           Each
Borrower shall promptly give Bank written notice of any applications or
registrations of intellectual property rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any.

 

(c)           Each
Borrower shall (i) give Bank not less than 30 days prior written notice of
the filing of any applications or registrations with the United States
Copyright Office, including the title of such intellectual property rights to
be registered, as such title will appear on such applications or registrations,
and the date such applications or registrations will be filed; (ii) prior
to the filing of any such applications or registrations, execute such documents
as Bank may reasonably request for Bank to maintain its perfection in such
intellectual property rights to be registered by a Borrower; (iii) upon
the request of Bank, either deliver to Bank or file such documents
simultaneously with the filing of any such applications or registrations; (iv) upon
filing any such applications or registrations, promptly provide Bank with a
copy of such applications or registrations together with any exhibits, evidence
of the filing of any documents requested by Bank to be filed for Bank to
maintain the perfection and priority of its security interest in such intellectual
property rights, and the date of such filing.

 

(d)           Each
Borrower shall execute and deliver such additional instruments and documents
from time to time as Bank shall reasonably request to perfect and maintain the
perfection and priority of Bank’s security interest in the Intellectual
Property Collateral.

 

(e)           Each
Borrower shall (i) protect, defend and maintain the validity and
enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) use
commercially reasonable efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Bank in writing of material
infringements detected and (iii) not allow any material Trademarks,
Patents or Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Bank, which shall not be unreasonably withheld.

 

 

(f)            Bank
may audit Borrowers’ Intellectual Property Collateral to confirm compliance
with this Section 6.8, provided such audit may not occur more often than
twice per year, unless an Event of Default has occurred and is continuing.  Bank shall have the right, but not the
obligation, to take, at Borrowers’ sole expense, any actions that a Borrower is
required under this Section 6.8 to take but which Borrowers fail to take,
after 15 days’ notice to Borrowers. 
Borrowers shall reimburse and indemnify Bank for all reasonable costs
and reasonable expenses incurred in the reasonable exercise of its rights under
this Section 6.8.

 

6.9           Intentionally
Omitted.

 

6.10         Further Assurances.  At any time and from time to time Borrowers
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this
Agreement.

 

6.11         Formation of
Subsidiaries.  At the time that any
Borrower forms any direct or indirect Subsidiary or acquires any direct or
indirect Subsidiary after the Closing Date, such Borrower shall (a) cause
such new domestic Subsidiary to provide to Bank a joinder to this Agreement,
together with such other security documents, as well as appropriate financing
statements, all in form and substance satisfactory to Bank (including being
sufficient to grant Bank a perfected first priority Lien (subject only to
Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary), (b) provide to Bank a pledge agreement respecting the Stock
of such Subsidiary (100% of such Stock for each domestic Subsidiary and 65% of
such Stock for each foreign Subsidiary) and shall have delivered to Bank
possession of the original Stock certificates respecting the issued and
outstanding shares of Stock of such Subsidiary pledged to Bank, together with
stock powers with respect thereto endorsed in blank, and take all other steps
reasonably requested by Bank (including registration of such pledge or other
steps required by such Subsidiary’s jurisdiction of organization) to perfect
Bank’s Liens on such Stock, and (c) provide to Bank all other
documentation, including one or more opinions of counsel satisfactory to Bank,
which in Bank’s opinion is appropriate with respect to the execution and
delivery of the applicable documentation referred to above.  Notwithstanding the foregoing, Bank shall not
be obligated to consent to any such formation or acquisition of a Subsidiary
unless such formation or acquisition is otherwise expressly permitted
hereunder.

 

7.             NEGATIVE COVENANTS.

 

Each Borrower
covenants and agrees that, so long as any credit hereunder shall be available
and until the outstanding Obligations are paid in full or for so long as Bank
may have any commitment to make any Credit Extensions, no Borrower will do any
of the following without Bank’s prior written consent:

 

7.1           Dispositions.  Convey, sell, lease, license, transfer or
otherwise dispose of (collectively, to “Transfer”), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, or move
cash balances on deposit with Bank to accounts opened at another financial
institution, other than Permitted Transfers; provided  however,
that, notwithstanding the foregoing, any Borrower, or any Subsidiary of a
Borrower, may Transfer Collateral to any Borrower.

 

7.2           Change in Name,
Location, Executive Office, or Executive Management; Change in Business; Change
in Fiscal Year; Change in Control. 
Change its name or the Borrower State or relocate its chief executive
office without 30 days prior written notification to Bank; replace its chief
executive officer or chief financial officer without 30 days prior written
notification to Bank; engage in any business, or permit any of its Subsidiaries
to engage in any business, other than or reasonably related or incidental to
the businesses currently engaged in by Borrowers; change its fiscal year end;
have a Change in Control.

 

7.3           Mergers or
Acquisitions.  Other than Permitted
Acquisitions, merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with or into any other business organization (other

 

 

than mergers or consolidations of a
Subsidiary into another Subsidiary or into a Borrower), or acquire, or permit
any of its Subsidiaries to acquire, all or substantially all of the capital
stock or property of another Person.

 

7.4           Indebtedness.  Create, incur, assume, guarantee or be or
remain liable with respect to any Indebtedness, or permit any Subsidiary so to
do, other than Permitted Indebtedness, or prepay any Indebtedness or take any
actions which impose on a Borrower an obligation to prepay any Indebtedness,
except Indebtedness to Bank.

 

7.5           Encumbrances.  Create, incur, assume or allow any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens, or covenant to any other
Person that Borrowers in the future will refrain from creating, incurring,
assuming or allowing any Lien with respect to any of Borrowers’ property.

 

7.6           Distributions.  Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, except that (a) a Borrower may (i) repurchase
the stock of former employees pursuant to stock repurchase agreements as long
as an Event of Default does not exist prior to such repurchase or would not
exist after giving effect to such repurchase, and (ii) repurchase the
stock of former employees pursuant to stock repurchase agreements by the
cancellation of indebtedness owed by such former employees to a Borrower
regardless of whether an Event of Default exists, and (b) a Subsidiary of
a Borrower may pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock, to a
Borrower.

 

7.7           Investments.  Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments, or maintain or invest any of its
property with a Person other than Bank or Bank’s Affiliates or permit any
Subsidiary to do so unless such Person has entered into a control agreement
with Bank, in form and substance satisfactory to Bank, or suffer or permit any
Subsidiary to be a party to, or be bound by, an agreement that restricts such
Subsidiary from paying dividends or otherwise distributing property to a Borrower.

 

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

 

7.9           Subordinated Debt.  Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision affecting Bank’s rights contained in any documentation relating to
the Subordinated Debt without Bank’s prior written consent.

 

7.10         Inventory and
Equipment.  Store Inventory or
Equipment with a bailee, warehouseman, or similar third party unless the third
party has been notified of Bank’s security interest and Bank (a) has
received an acknowledgment from the third party that it is holding or will hold
the Inventory or Equipment for Bank’s benefit or (b) is in possession of
the warehouse receipt, where negotiable, covering such Inventory or
Equipment.  Except for Inventory sold in
the ordinary course of business and except for such other locations as Bank may
approve in writing, Borrowers shall keep the Inventory and Equipment only at
the location set forth in Section 10 and such other locations of which
Borrowers give Bank prior written notice and as to which Bank files a financing
statement where needed to perfect its security interest.

 

7.11         No Investment Company;
Margin Regulation.  Become or be
controlled by an “investment company,” within the meaning of the Investment
Company Act of 1940, or become principally

 

 

engaged in, or undertake as one of its
important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Credit
Extension for such purpose.

 

8.             EVENTS OF DEFAULT.

 

Any one or
more of the following events shall constitute an Event of Default by Borrowers
under this Agreement:

 

8.1           Payment Default.  If Borrowers fail to pay any of the
Obligations when due;

 

8.2           Covenant Default.

 

(a)           If
Borrowers fail to comply with Section 6.7 of this Agreement or violate any
of the covenants contained in Article 7 of this Agreement; or

 

(b)           If
Borrowers fail or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrowers and
Bank and as to any default under such other term, provision, condition or
covenant that can be cured, has failed to cure such default within 15 days
after Borrowers receive notice thereof or any officer of Borrowers becomes
aware thereof; provided, however, that if the default cannot by its nature be
cured within the 15 day period or cannot after diligent attempts by Borrowers
be cured within such 15 day period, and such default is likely to be cured
within a reasonable time, then Borrowers shall have an additional reasonable
period (which shall not in any case exceed 45 days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default but no Credit Extensions will
be made;

 

8.3           Defective Perfection.  If Bank shall receive at any time following
the Closing Date an SOS Report indicating that except for Permitted Liens, Bank’s
security interest in the Collateral is not prior to all other security
interests or Liens of record reflected in the report;

 

8.4           Material Adverse
Change.  If there occurs a material
adverse change in a Borrower’s prospects, business or financial condition, or
if there is a material impairment in the prospect of repayment of any portion
of the Obligations or a material impairment in the perfection, value or
priority of Bank’s security interests in the Collateral;

 

8.5           Attachment.  If any material portion of a Borrower’s
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within 10 days,
or if a Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of a Borrower’s assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of a Borrower’s assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten days after Borrowers receive notice thereof,
provided that none of the foregoing shall constitute an Event of Default where
such action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrowers (provided that no Credit Extensions will be
made during such cure period);

 

8.6           Insolvency.  If a Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by a Borrower, or if an Insolvency
Proceeding is commenced against a Borrower and is not dismissed or stayed
within 45 days (provided that no Credit Extensions will be made prior to the
dismissal of such Insolvency Proceeding);

 

 

8.7           Other Agreements.  If there is a default or other failure to
perform in any agreement to which a Borrower is a party with a third party or
parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of $250,000 or that could have a Material Adverse Effect;

 

8.8           Subordinated Debt.  If a Borrower makes any payment on account of
Subordinated Debt, except to the extent the payment is allowed under any
subordination agreement entered into with Bank;

 

8.9           Judgments.  If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least $250,000
shall be rendered against a Borrower and shall remain unsatisfied and unstayed
for a period of 10 days (provided that no Credit Extensions will be made prior
to the satisfaction or stay of the judgment); or

 

8.10         Misrepresentations.  If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set
forth herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or
any other Loan Document.

 

9.             BANK’S RIGHTS AND REMEDIES.

 

9.1           Rights and Remedies.  Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrowers:

 

(a)           Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the
occurrence of an Event of Default described in Section 8.6, all
Obligations shall become immediately due and payable without any action by
Bank);

 

(b)           Demand
that Borrowers (i) deposit cash with Bank in an amount equal to the amount
of any Letters of Credit remaining undrawn, as collateral security for the
repayment of any future drawings under such Letters of Credit, and (ii) pay
in advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit, and Borrowers shall promptly deposit
and pay such amounts;

 

(c)           Cease
advancing money or extending credit to or for the benefit of Borrowers under
this Agreement or under any other agreement between Borrowers and Bank;

 

(d)           Settle
or adjust disputes and claims directly with account debtors for amounts, upon
terms and in whatever order that Bank reasonably considers advisable;

 

(e)           Make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral.  Each Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate.  Borrowers authorize
Bank to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or lien which in Bank’s
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith.  With respect to any of Borrowers’ owned
premises, Borrowers hereby grant Bank a license to enter into possession of
such premises and to occupy the same, without charge, in order to exercise any
of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;

 

 

(f)            Set
off and apply to the Obligations any and all (i) balances and deposits of
Borrowers held by Bank, and (ii) indebtedness at any time owing to or for
the credit or the account of Borrowers held by Bank;

 

(g)           Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral.  Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrowers’
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrowers’ rights under all licenses and
all franchise agreements shall inure to Bank’s benefit;

 

(h)           Sell
the Collateral at either a public or private sale, or both, by way of one or
more contracts or transactions, for cash or on terms, in such manner and at
such places (including Borrowers’ premises) as Bank determines is commercially
reasonable, and apply any proceeds to the Obligations in whatever manner or
order Bank deems appropriate.  Bank may
sell the Collateral without giving any warranties as to the Collateral.  Bank may specifically disclaim any warranties
of title or the like.  This procedure
will not be considered adversely to affect the commercial reasonableness of any
sale of the Collateral.  If Bank sells
any of the Collateral upon credit, Borrowers will be credited only with
payments actually made by the purchaser, received by Bank, and applied to the
indebtedness of the purchaser.  If the
purchaser fails to pay for the Collateral, Bank may resell the Collateral and
Borrowers shall be credited with the proceeds of the sale;

 

(i)            Bank
may credit bid and purchase at any public sale;

 

(j)            Apply
for the appointment of a receiver, trustee, liquidator or conservator of the
Collateral, without notice and without regard to the adequacy of the security
for the Obligations and without regard to the solvency of Borrowers, any
guarantor or any other Person liable for any of the Obligations; and

 

(k)           Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Borrowers.

 

Bank may comply with any applicable state or federal law requirements
in connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.

 

9.2           Power of Attorney.  Effective only upon the occurrence and during
the continuance of an Event of Default, Borrowers hereby irrevocably appoints
Bank (and any of Bank’s designated officers, or employees) as Borrowers’ true
and lawful attorney to:  (a) send
requests for verification of Accounts or notify account debtors of Bank’s
security interest in the Accounts; (b) endorse Borrowers’ name on any
checks or other forms of payment or security that may come into Bank’s
possession; (c) sign Borrowers’ name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust
all claims under and decisions with respect to Borrowers’ policies of insurance;
(f) settle and adjust disputes and claims respecting the accounts directly
with account debtors, for amounts and upon terms which Bank determines to be
reasonable; (g) to modify, in its sole discretion, any intellectual
property security agreement entered into between Borrowers and Bank without
first obtaining Borrowers’ approval of or signature to such modification by
amending Exhibits A, B, and C, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Borrowers after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which a Borrower no longer has or claims to have any right, title
or interest; and (h) to file, in

 

 

its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of a Borrower where permitted by law; provided
Bank may exercise such power of attorney to sign the name of a Borrower on any
of the documents described in clauses (g) and (h) above, regardless
of whether an Event of Default has occurred. 
The appointment of Bank as Borrowers’ attorney in fact, and each and
every one of Bank’s rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank’s obligation to provide advances hereunder is terminated.

 

9.3           Accounts Collection.  At any time after the occurrence and during the
continuation of an Event of Default, Bank may notify any Person owing funds to
Borrowers of Bank’s security interest in such funds and verify the amount of
such Account.  Borrowers shall collect
all amounts owing to Borrowers for Bank, receive in trust all payments as Bank’s
trustee, and immediately deliver such payments to Bank in their original form
as received from the account debtor, with proper endorsements for deposit.

 

9.4           Bank Expenses.  If Borrowers fail to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following after reasonable notice to Parent, on behalf of Borrowers:  (a) make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Line as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c) obtain
and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. 
Any amounts so paid or deposited by Bank shall constitute Bank Expenses,
shall be immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the
Collateral.  Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the
future or a waiver by Bank of any Event of Default under this Agreement.

 

9.5           Bank’s Liability for
Collateral.  Bank has no obligation
to clean up or otherwise prepare the Collateral for sale.  All risk of loss, damage or destruction of
the Collateral shall be borne by Borrowers.

 

9.6           No Obligation to
Pursue Others.  Bank has no
obligation to attempt to satisfy the Obligations by collecting them from any
other person liable for them and Bank may release, modify or waive any
collateral provided by any other Person to secure any of the Obligations, all
without affecting Bank’s rights against Borrowers.  Each Borrower waives any right it may have to
require Bank to pursue any other Person for any of the Obligations.

 

9.7           Remedies Cumulative.  Bank’s rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be
cumulative.  Bank shall have all other
rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity.  No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any Event of Default on Borrowers’ part shall be deemed a continuing waiver.  No delay by Bank shall constitute a waiver,
election, or acquiescence by it.  No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.  Each Borrower expressly agrees that this Section 9.7
may not be waived or modified by Bank by course of performance, conduct,
estoppel or otherwise.

 

9.8           Demand; Protest.  Except as otherwise provided in this
Agreement, each Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment and any other notices
relating to the Obligations.

 

10.           NOTICES.

 

Unless
otherwise provided in this Agreement, all notices or demands by any party
relating to

 

 

this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrowers or to Bank, as the case may be, at its addresses set
forth below:

 

If to Borrowers:                    JAMDAT
Mobile Inc.

3415 S. Sepulveda Blvd.

Los Angeles, CA 90034

Attn: 
Chief Financial Officer

FAX:  (310)
397-0353

 

If to Bank:                              Comerica
Bank

2321 Rosecrans Ave., Suite 5000

El Segundo, CA 90245

Attn:  Manager

FAX:  (310) 297-2290

 

with copies
to:                      Comerica Bank

611 Anton Blvd., Suite 400

Costa Mesa, CA 92626

Attn:  Kurt Huisman

FAX:  (714) 433-3280

 

The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

11.           CHOICE OF LAW AND VENUE; JURY TRIAL
WAIVER.

 

This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of California, without regard to principles of conflicts of
law.  Each of Borrowers and Bank hereby
submits to the exclusive jurisdiction of the state and Federal courts located
in the County of Los Angeles, State of California.  BANK AND BORROWERS EACH ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE
WAIVED.  EACH OF THEM, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE
TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWERS, EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.

 

12.           JUDICIAL REFERENCE.

 

If and only if the jury trial waiver set forth in Section 11 of
this Agreement is invalidated for any reason by a court of law, statute or
otherwise, the reference provisions set forth below shall be substituted in
place of the jury trial waiver.  So long
as the jury trial waiver remains valid, the reference provisions set forth in
this Section shall be inapplicable.

 

 

12.1         Mechanics.  Each controversy, dispute or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement, any security
agreement executed by Borrowers in favor of Bank, any note executed by Borrowers
in favor of Bank or any other document, instrument or agreement executed by
Borrowers with or in favor of Bank (collectively in this Section, the “Loan
Documents”), other than (i) all matters in connection with nonjudicial
foreclosure of security interests in real or personal property; or (ii) the
appointment of a receiver or the exercise of other provisional remedies (any of
which may be initiated pursuant to applicable law) that are not settled in
writing within fifteen (15) days after the date on which a party subject to the
Loan Documents gives written notice to all other parties that a Claim exists
(the “Claim Date”) shall be resolved by a reference proceeding in California in
accordance with the provisions of Section 638 et seq. of the California
Code of Civil Procedure, or their successor sections (“CCP”), which shall
constitute the exclusive remedy for the resolution of any Claim concerning the
Loan Documents, including whether such Claim is subject to the reference
proceeding.  Except as set forth in this
section, the parties waive the right to initiate legal proceedings against each
other concerning each such Claim.  Venue
for these proceedings shall be in the Superior Court in the County where the
real property, if any, is located or in a County where venue is otherwise
appropriate under state law (the “Court”). 
By mutual agreement, the parties shall select a retired Judge of the
Court to serve as referee, and if they cannot so agree within fifteen (15) days
after the Claim Date, the Presiding Judge of the Court (or his or her representative)
shall promptly select the referee.  A
request for appointment of a referee may be heard on an ex parte or expedited
basis.  The referee shall be appointed to
sit as a temporary judge, with all the powers for a temporary judge, as
authorized by law, and upon selection should take and subscribe to the oath of
office as provided for in Rule 244 of the California Rules of Court
(or any subsequently enacted Rule).  Each
party shall have one peremptory challenge pursuant to CCP §170.6.  Upon being selected, the referee shall (a) be
requested to set the matter for a status and trial-setting conference within
fifteen (15) days after the date of selection and (b) if practicable, try
any and all issues of law or fact and report a statement of decision upon them
within ninety (90) days of the date of selection.  The referee will have power to expand or
limit the amount of discovery a party may employ.  Any decision rendered by the referee will be
final, binding and conclusive, and judgment shall be entered pursuant to CCP
§644 in any court in the State of California having jurisdiction.  The parties shall complete all discovery no
later than fifteen (15) days before the first trial date established by the
referee.  The referee may extend such
period in the event of a party’s refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness.  No party shall be entitled to “priority” in
conducting discovery.  Either party may
take depositions upon seven (7) days written notice, and shall respond to
requests for production or inspection of documents within ten (10) days
after service.  All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.  Pending appointment of the referee as
provided herein, the Superior Court is empowered to issue temporary and/or
provisional remedies, as appropriate.

 

12.2         Procedures.  Except as expressly set forth herein, the
referee shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding. 
Except for trial, all proceedings and hearings conducted before the
referee shall be conducted without a court reporter unless a party requests a
court reporter.  The party making such a
request shall have the obligation to arrange for and pay for the court
reporter.  Subject to the referee’s power
to award costs to the prevailing party, the parties shall equally bear the
costs of the court reporter at the trial and the referee’s expenses

 

12.3         Application of Law.  The referee shall determine all issues in
accordance with existing California case and statutory law.  California rules of evidence applicable
to proceedings at law will apply to the reference proceeding.  The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that shall be binding upon the
parties.  At the close of the reference
proceeding, the referee shall issue a single judgment at disposing of all the
claims of the parties that are the subject of the reference.  The parties reserve the right (i) to
contest or

 

 

appeal from the final judgment or any
appealable order or appealable judgment entered by the referee and (ii) to
obtain findings of fact, conclusions of laws, a written statement of decision,
and (iii) to move for a new trial or a different judgment, which new
trial, if granted, shall be a reference proceeding under this provision.

 

12.4         Repeal.  If the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by arbitration
conducted by a retired judge of the Court, in accordance with the California
Arbitration Act §1280 through §1294.2 of the CCP as amended from time to
time.  The limitations with respect to
discovery as set forth in this Section shall apply to any such arbitration
proceeding.

 

13.           GENERAL PROVISIONS.

 

13.1         Successors and Assigns.  This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties and shall bind all persons who become bound as a debtor to this
Agreement; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrowers without Bank’s prior written consent,
which consent may be granted or withheld in Bank’s sole discretion.  Bank shall have the right without the consent
of or notice to Borrowers to sell, transfer, negotiate, or grant participation
in all or any part of, or any interest in, Bank’s obligations, rights and
benefits hereunder.

 

13.2         Indemnification.  Borrowers shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against:  (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) all losses or Bank
Expenses in any way suffered, incurred, or paid by Bank, its officers,
employees and agents as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrowers whether under this
Agreement, or otherwise (including without limitation reasonable attorneys fees
and expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.

 

13.3         Time of Essence.  Time is of the essence for the performance of
all obligations set forth in this Agreement.

 

13.4         Severability of
Provisions.  Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.

 

13.5         Amendments in Writing,
Integration.  All amendments to or
terminations of this Agreement or the other Loan Documents must be in
writing.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the
other Loan Documents, if any, are merged into this Agreement and the Loan
Documents.

 

13.6         Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.

 

13.7         Survival.  All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding or Bank has any obligation to make any Credit
Extension to Borrowers.  The obligations
of Borrowers to indemnify Bank with respect to the expenses, damages, losses,
costs and liabilities described in Section 13.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.

 

 

13.8         Confidentiality.  In handling any confidential information,
Bank and all employees and agents of Bank shall exercise the same degree of
care that Bank exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Agreement except that disclosure
of such information may be made (i) to the subsidiaries or Affiliates of
Bank in connection with their present or prospective business relations with
Borrowers, (ii) to prospective transferees or purchasers of any interest
in the Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrowers and have delivered a copy to Borrowers, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or
similar order, (iv) as may be required in connection with the examination,
audit or similar investigation of Bank and (v) as Bank may determine in
connection with the enforcement of any remedies hereunder.  Confidential information hereunder shall not
include information that either:  (a) is
in the public domain or in the knowledge or possession of Bank when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank through
no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.

 

13.9         Parent as Agent for
Borrowers.  Each Borrower hereby
irrevocably appoints Parent as the borrowing agent and attorney-in-fact for all
Borrowers (the “Administrative Borrower”) which appointment shall remain in
full force and effect unless and until Bank shall have received prior written
notice signed by Parent and each Borrower that such appointment has been
revoked and that another Borrower has been appointed Administrative
Borrower.  Parent and each Borrower
hereby irrevocably appoints and authorizes the Administrative Borrower (i) to
provide Bank with all notices with respect to Advances and Letters of Credit
obtained for the benefit of any Borrower and all other notices and instructions
under this Agreement and (ii) to take such action as the Administrative
Borrower deems appropriate on its behalf to obtain Advances and Letters of
Credit and to exercise such other powers as are reasonably incidental thereto
to carry out the purposes of this Agreement. 
It is understood that the handling of the loan account and Collateral of
Borrowers in a combined fashion, as more fully set forth herein, is done solely
as an accommodation to Borrowers in order to utilize the collective borrowing
powers of Borrowers in the most efficient and economical manner and at their
request, and that Bank shall not incur liability to any Borrower as a result
hereof.  Each Borrower expects to derive
benefit, directly or indirectly, from the handling of the loan account and the
Collateral in a combined fashion since the successful operation of each
Borrower is dependent on the continued successful performance of the integrated
group.

 

[remainder of page left
blank intentionally]

 

 

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

 

	
   

  	
  JAMDAT MOBILE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Marchetti

  	
   

  
	
   

  	
  Name:Michael Marchetti

  
	
   

  	
  Title:Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  JAMDAT MOBILE (CANADA HOLDINGS) INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Marchetti

  	
   

  
	
   

  	
  Name:Michael Marchetti

  
	
   

  	
  Title:Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kurt Huisman

  	
   

  
	
   

  	
  Name:Kurt Huisman

  
	
   

  	
  Title: Vice President

  

 

(Loan and Security Agreement)

 

S-1

 

 

EXHIBIT A

 

DEFINITIONS

 

“Accounts” means all presently existing and hereafter arising accounts,
contract rights, payment intangibles and all other forms of obligations owing
to Borrowers arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrowers and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrowers and Borrowers’ Books relating to any of the foregoing.

 

“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Line.

 

“Affiliate” means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person’s senior executive officers, directors, and partners.

 

“Bank Expenses” means all reasonable costs or expenses (including
reasonable attorneys’ fees and expenses, whether generated in-house or by
outside counsel) incurred in connection with the preparation, negotiation,
administration, and enforcement of the Loan Documents;  reasonable Collateral audit fees; and Bank’s
reasonable attorneys’ fees and expenses (whether generated in-house or by
outside counsel) incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, whether or not suit is brought.

 

“Blue Lava” means Blue Lava Wireless, LLC, a Hawaii limited liability
company.

 

“Blue Lava Acquisition” means the proposed purchase by Parent or one of
its domestic Subsidiaries of all of the membership interests in Blue Lava,
pursuant to definitive purchase documents and otherwise on terms and conditions
reasonably satisfactory to Bank.

 

“Blue Lava Acquisition Agreement” means a purchase agreement evidencing
the acquisition by Parent or one of Parent’s domestic Subsidiaries of all of
the membership interests of Blue Lava.

 

“Blue Lava Acquisition Documents” means and includes the Blue Lave
Acquisition Agreement and all of the schedules, exhibits, documents,
instruments, and agreements executed and/or delivered in connection therewith.

 

“Blue Lava Acquisition Related Documents” means and includes (i) a
fully executed copy of each of the Blue Lava Acquisition Documents, certified
as true and correct by a Responsible Officer of Parent; (ii) a fully
executed collateral assignment of Blue Lava Acquisition Agreement, substantially
in the form of Exhibit F attached hereto; and (iii) any other
document, agreement and instrument Bank, in its reasonable discretion, requests
in connection with the consummation of the Blue Lava Acquisition.

 

“Borrower State” means Delaware, the state under whose laws Borrowers are
organized.

 

“Borrowers’ Books” means all of Borrowers’ books and records
including:  ledgers; records concerning
Borrowers’ assets or liabilities, the Collateral, business operations or
financial condition; and all computer programs, or tape files, and the
equipment, containing such information.

 

“Borrowing Base” means an amount equal to 80% of Eligible Accounts, as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrowers.

 

 

“Business Day” means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.

 

“Cash” means unrestricted cash and cash equivalents.

 

“Change in Control” shall mean a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient
number of shares of all classes of stock then outstanding of a Borrower
ordinarily entitled to vote in the election of directors, empowering such “person”
or “group” to elect a majority of the Board of Directors of [Borrowers], who
did not have such power before such transaction.

 

“Chief Executive Office State” means California, where Borrowers’ chief
executive offices are located.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code as amended or supplemented
from time to time.

 

“Collateral” means the property described on Exhibit B
attached hereto and all Negotiable Collateral and Intellectual Property
Collateral to the extent not described on Exhibit B, except to the
extent any such property (i) is nonassignable by its terms without the
consent of the licensor thereof or another party (but only to the extent such
prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections 9406 and 9408 of the Code), or (ii) the granting of a
security interest therein is contrary to applicable law, provided that upon the
cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral.

 

“Collateral State” means the state or states where the Collateral is
located, which is California.

 

“Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its
Subsidiaries, after deduction of all expenses, taxes, and other proper charges,
determined in accordance with GAAP, after eliminating therefrom all
extraordinary nonrecurring items of income.

 

“Consolidated Total Interest Expense” means with respect to any Person
for any period, the aggregate amount of interest required to be paid or accrued
by a Person and its Subsidiaries during such period on all Indebtedness of such
Person and its Subsidiaries outstanding during all or any part of such period,
whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of any
capitalized lease or any synthetic lease, and including commitment fees, agency
fees, facility fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money.

 

“Contingent Obligation” means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit,
corporate credit cards or merchant services issued for the account of that
Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest
rate collar agreement, or other agreement or arrangement designated to protect
a Person against fluctuation in interest rates, currency exchange rates or
commodity prices; provided, however, that the term “Contingent Obligation”
shall not include endorsements for collection or deposit in the ordinary course
of business.  The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable,

 

 

the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

 

“Copyrights” means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.

 

“Credit Extension” means each Advance, or any other extension of credit
by Bank to or for the benefit of Borrowers hereunder.

 

“Current Liabilities” means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Parent and its Subsidiaries, as at such date,
plus, to the extent not already included therein, undrawn Letters of Credit but
specifically excluding any cash-secured Obligations.

 

“Designated Deposit Account” means the deposit account of Borrowers
maintained at Bank and specified in the Automatic Credit and Debit
Authorization of even date herewith executed by Parent, on behalf of Borrowers,
and delivered to Bank.

 

“EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated
Net Income of the Parent and its Subsidiaries for such fiscal period, plus
(b) in each case to the extent deducted in the calculation of the Parent’s
Consolidated Net Income and without duplication, (i) depreciation and
amortization (including, without limitation, any non-cash (x) amortization
of license advances and (y) in process research and development expenses) for
such period, plus (ii) income tax expense for such period, plus
(iii) Consolidated Total Interest Expense paid or accrued during such
period, plus (iv) non-cash expense associated with restricted stock
and granting stock options, and minus, to the extent added in computing
Consolidated Net Income, and without duplication, all extraordinary and
non-recurring revenue and gains (including income tax benefits) for such
period, all as determined in accordance with GAAP

 

“Eligible Accounts” means those Accounts that arise in the ordinary
course of Borrowers’ business that comply with all of Borrowers’
representations and warranties to Bank set forth in Section 5.3; provided,
that Bank may change the standards of eligibility by giving Borrowers 30 days
prior written notice.  Unless otherwise
agreed to by Bank, Eligible Accounts shall not include the following:

 

(a)           Accounts
that the account debtor has failed to pay in full within the lesser of 120 days
of invoice date or 60 days of due date;

 

(b)           Credit
balances over 90 days;

 

(c)           Accounts
with respect to an account debtor, 25% of whose Accounts the account debtor has
failed to pay within the lesser of 120 days of invoice date or 60 days of due
date;

 

(d)           Accounts
with respect to an account debtor, including Subsidiaries and Affiliates, whose
total obligations to Borrowers exceed 25% (or 40% with respect to each of Verizon
Communications, Inc., Cingular Wireless, and Sprint) of all Accounts, to
the extent such obligations exceed the aforementioned percentage;

 

(e)           Accounts
with respect to which the account debtor does not have its principal place of
business in the United States, except for Eligible Foreign Accounts;

 

 

(f)            Accounts
with respect to which the account debtor is the United States or any department,
agency, or instrumentality of the United States, except for Accounts of the
United States if the payee has assigned its payment rights to Bank and the
assignment has been acknowledged under the Assignment of Claims Act of 1940 (31
U.S.C. 3727);

 

(g)           Accounts
with respect to which a Borrower is liable to the account debtor for goods sold
or services rendered by the account debtor to a Borrower (other than ordinary
course cellular phone and other telecommunications obligations to cellular
carriers), but only to the extent of any amounts owing to the account debtor
against amounts owed to such Borrower;

 

(h)           Accounts
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, demo or promotional, or other terms by
reason of which the payment by the account debtor may be conditional;

 

(i)            Accounts
with respect to which the account debtor is an officer, employee, agent or
Affiliate of a Borrower;

 

(j)            Accounts
that have not yet been billed to the account debtor or that relate to deposits
(such as good faith deposits) or other property of the account debtor held by a
Borrower for the performance of services or delivery of goods which a Borrower
has not yet performed or delivered;

 

(k)           Accounts
with respect to which the account debtor disputes liability or makes any claim
with respect thereto as to which Bank believes, in its sole discretion, that
there may be a basis for dispute (but only to the extent of the amount subject
to such dispute or claim), or is subject to any Insolvency Proceeding, or
becomes insolvent, or goes out of business;

 

(l)            Accounts
the collection of which Bank reasonably determines after inquiry and
consultation with Borrowers to be doubtful; and

 

(m)          Retentions
and hold-backs.

 

“Eligible Foreign Accounts” means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are (i) supported by one or more letters of credit in an
amount and of a tenor, and issued by a financial institution, acceptable to
Bank, (ii) insured by the Export Import Bank of the United States, (iii) generated
by an account debtor with its principal place of business in Canada, provided
that the Bank has perfected its security interest in the appropriate Canadian
province, or (iv) approved by Bank on a case-by-case basis.  All Eligible Foreign Accounts must be
calculated in U.S. Dollars.

 

“Environmental Laws” means all laws, rules, regulations, orders and the
like issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.

 

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which a Borrower has any interest.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.

 

“Event of Default” has the meaning assigned in Article 8.

 

 

“Funded Debt” means, as of any date of determination, the total amount
of Indebtedness to Bank incurred by Borrowers under this Agreement.

 

“Funded Debt Ratio” means a ratio of Borrowers’ Funded Debt to TTM
EBITDA.

 

“GAAP” means generally accepted accounting principles, consistently
applied, as in effect from time to time.

 

“Indebtedness” means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations, and (d) all
Contingent Obligations.

 

“Insolvency Proceeding” means any proceeding commenced by or against
any Person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

 

“Intellectual Property Collateral” means all of Borrowers’ right,
title, and interest in and to the following:

 

(a)           Copyrights,
Trademarks and Patents;

 

(b)           Any
and all trade secrets, and any and all intellectual property rights in computer
software and computer software products now or hereafter existing, created,
acquired or held;

 

(c)           Any
and all design rights which may be available to a Borrower now or hereafter
existing, created, acquired or held;

 

(d)           Any
and all claims for damages by way of past, present and future infringement of
any of the rights included above, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
intellectual property rights identified above;

 

(e)           All
licenses or other rights to use any of the Copyrights, Patents or Trademarks,
and all license fees and royalties arising from such use to the extent
permitted by such license or rights;

 

(f)            All
amendments, renewals and extensions of any of the Copyrights, Trademarks or
Patents; and

 

(g)           All
proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.

 

“Inventory” means all present and future inventory in which a Borrower
has any interest.

 

“Investment” means any beneficial ownership of (including stock,
partnership or limited liability company interest or other securities) any
Person, or any loan, advance or capital contribution to any Person.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

 

“Letter of Credit” means a standby letter of credit issued by Bank at
Borrowers’ request in accordance with Section 2.1(b)(iii).

 

“Letter of Credit Sublimit” means a sublimit for Letters of Credit
under the Revolving Line not to exceed $2,500,000.

 

 

“Lien” means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.

 

“Loan Documents” means, collectively, this Agreement, any note or notes
executed by Borrowers, and any other document, instrument or agreement entered
into in connection with this Agreement, all as amended or extended from time to
time.

 

“Material Adverse Effect” means a material adverse effect on (i) the
business operations, condition (financial or otherwise) or prospects of Parent
and its Subsidiaries taken as a whole, (ii) the ability of Borrowers to
repay the Obligations or otherwise perform its obligations under the Loan
Documents, (iii) Borrowers’ interest in, or the value, perfection or
priority of Bank’s security interest in the Collateral.

 

“Negotiable Collateral” means all of Borrowers’ present and future
letters of credit of which it is a beneficiary, drafts, instruments (including
promissory notes), securities, documents of title, and chattel paper, and
Borrowers’ Books relating to any of the foregoing.

 

“Obligations” means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrowers pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing
or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrowers to others that Bank may have obtained by
assignment or otherwise.

 

“Patents” means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.

 

“Periodic Payments” means all installments or similar recurring payments
that Borrowers may now or hereafter become obligated to pay to Bank pursuant to
the terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrowers and Bank.

 

“Permitted Acquisition” means collectively, (i) the Blue Lava
Acquisition and (ii) either (a) the purchase or other acquisition by Parent
or its Subsidiaries of all or substantially all of the assets of any other
Person (an “Asset Acquisition”), or (b) the purchase or other acquisition
by Parent or its Subsidiaries of all of the shares, options, warrants,
interests, participations, or other equivalents (regardless of how designated)
of or in a Person, whether voting or nonvoting, including common stock,
preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1
of the General Rules and Regulations promulgated by the SEC under the
Exchange Act) (a “Stock Acquisition”), that satisfies each of the following
conditions:

 

(a)           no
Default or Event of Default shall have occurred and be continuing or would
result from the consummation of the proposed acquisition,

 

(b)           no
Change in Control would result from consummation of the proposed acquisition,

 

(c)           the
assets being acquired, or the Person whose stock is being acquired, are useful
in or engaged in, as applicable, the business of Borrowers or a business
reasonably related thereto,

 

(d)           the
aggregate cash consideration payable in respect of the proposed acquisition(s)
do(es) not exceed $5,000,000 during any fiscal year,

 

(e)           Parent,
on behalf of Borrowers, has provided Bank with written confirmation, supported
by reasonably detailed calculations, that on a pro forma
basis, created by adding the historical combined financial statements of
Borrowers (including the combined financial statements of any other Person or
assets that were the subject of a prior Permitted Acquisition during the
relevant period) to the historical consolidated financial statements of the
Person to be acquired (or the historical financial

 

 

statements related to the assets to be
acquired) pursuant to the proposed acquisition (adjusted to eliminate expense
items that would not have been incurred and to include income items that would
have been recognized, in each case, if the combination had been accomplished at
the beginning of the relevant period; such eliminations and inclusions to be
mutually agreed upon by Borrowers and Bank), Borrowers would have been in
compliance with the financial covenants in Section 6.7 for the 12
months ending as of the fiscal quarter ended immediately prior to the proposed
date of consummation of such proposed acquisition, together with copies of all
such historical financial statements of the Person or assets being acquired,

 

(f)            Parent,
on behalf of Borrowers, has provided Bank with written notice of the proposed
acquisition not less than 15 Business Days prior to the anticipated closing
date of the subject acquisition together with such documentation that Bank may
require demonstrating that after giving effect to the subject acquisition, Parent
and its Subsidiaries (taken as a whole) could not reasonably be expected to
suffer a Material Adverse Effect as a result of such proposed acquisition,

 

(g)           the
proposed acquisition is not hostile (i.e., the management and owners of the
target are cooperating in the consummation of the transaction),

 

(h)           in
the case of an Asset Acquisition, the subject assets are being acquired
directly by a Borrower,

 

(i)            in
the case of a Stock Acquisition, the subject Stock is being acquired directly
by a Borrower and in any merger transaction a Borrower shall be the surviving
entity.

 

“Permitted Indebtedness” means:

 

(a)           Indebtedness
of Borrowers in favor of Bank arising under this Agreement or any other Loan
Document;

 

(b)           Indebtedness
existing on the Closing Date and disclosed in the Schedule;

 

(c)           Indebtedness
not to exceed $250,000 in the aggregate in any fiscal year of Borrowers secured
by a lien described in clause (c) of
the defined term “Permitted Liens,” provided such Indebtedness does not exceed
the lesser of the cost or fair market value of the equipment financed with such
Indebtedness;

 

(d)           Subordinated
Debt;

 

(e)           Indebtedness
to trade creditors incurred in the ordinary course of business; and

 

(f)            Extensions,
refinancings and renewals of any items of Permitted Indebtedness, provided that
the principal amount is not increased or the terms modified to impose more
burdensome terms upon Parent or its Subsidiary, as the case may be.

 

“Permitted Investment” means:

 

(a)           Investments
existing on the Closing Date disclosed in the Schedule;

 

(b)           Marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one year from the
date of acquisition thereof, (ii) commercial paper maturing no more than
one year from the date of creation thereof and currently having rating of at
least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s
Investors Service, (iii) commercial bank certificates of deposit maturing
no more than one year from the date of investment therein, and (iv) commercial
bank’s money market accounts;

 

 

(c)           Repurchases
of stock from former employees or directors of Borrowers under the terms of
applicable repurchase agreements (i) in an aggregate amount not to exceed
$100,000 in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases, or (ii) in
any amount where the consideration for the repurchase is the cancellation of
indebtedness owed by such former employees to Borrowers regardless of whether
an Event of Default exists;

 

(d)           Investments
accepted in connection with Permitted Transfers;

 

(e)           Investments
by Borrowers in or to (i) the domestic Subsidiaries of Borrowers in any
amount, and (ii) the foreign Subsidiaries of Borrowers in an aggregate
amount not to exceed $8,000,000 in any fiscal year;

 

(f)            Investments
not to exceed $100,000 in the aggregate in any fiscal year consisting of (i) travel
advances and employee relocation loans and other employee loans and advances in
the ordinary course of business, and (ii) loans to employees, officers or
directors relating to the purchase of equity securities of a Borrower or its
Subsidiaries pursuant to employee stock purchase plan agreements approved by a Borrower’s
Board of Directors;

 

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

 

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

 

(i)            Joint
ventures or strategic alliances in the ordinary course of a Borrower’s business
consisting of the non-exclusive licensing of technology, the development of
technology or the providing of technical support, provided that any cash
Investments by a Borrower do not exceed $500,000 in the aggregate in any fiscal
year.

 

“Permitted Liens” means the following:

 

(a)           Any
Liens existing on the Closing Date and disclosed in the Schedule (excluding
Liens to be satisfied with the proceeds of the Advances) or arising under this
Agreement or the other Loan Documents;

 

(b)           Liens
for taxes, fees, assessments or other governmental charges or levies, either
not delinquent or being contested in good faith by appropriate proceedings and
for which Borrowers maintain adequate reserves, provided the same have no
priority over any of Bank’s security interests;

 

(c)           Liens
not to exceed $250,000 in the
aggregate (i) upon or in any Equipment acquired or held by Parent or any
of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition or
lease of such Equipment, or (ii) existing on such Equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;

 

(d)           Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through
(c) above, provided that any extension, renewal or replacement Lien shall
be limited to the property encumbered by the existing Lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase; and

 

 

(e)           Liens
arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.5 or 8.9.

 

“Permitted Transfer” means the conveyance, sale, lease, transfer or
disposition by Parent or any Subsidiary of:

 

(a)           Inventory
in the ordinary course of business;

 

(b)           licenses
and similar arrangements for the use of the property of Parent or its
Subsidiaries in the ordinary course of business;

 

(c)           worn-out
or obsolete Equipment; or

 

(d)           other
assets of Parent or its Subsidiaries that do not in the aggregate exceed
$100,000 during any fiscal year.

 

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

 

“Prime Rate” means the variable rate of interest, per annum, most
recently announced by Bank, as its “prime rate,” whether or not such announced
rate is the lowest rate available from Bank.

 

“Responsible Officer” means each of the Chief Executive Officer, the
Chief Operating Officer, the Chief Financial Officer and the Controller of Parent.

 

“Revolving Line” means a Credit Extension of up to $15,000,000
(inclusive of any amounts outstanding under the Letter of Credit Sublimit.

 

“Revolving Maturity Date” means April 20, 2007.

 

“Schedule” means the schedule of exceptions attached hereto and
approved by Bank, if any.

 

“SOS Reports” means the official reports from the Secretaries of State
of each Collateral State, Chief Executive Office State and the Borrower State
and other applicable federal, state or local government offices identifying all
current security interests filed in the Collateral and Liens of record as of
the date of such report.

 

“Subordinated Debt” means any debt incurred by Borrowers that is
subordinated in writing to the debt owing by Borrowers to Bank on terms
reasonably acceptable to Bank (and identified as being such by Borrowers and
Bank).

 

“Subsidiary” means any corporation, partnership or limited liability
company or joint venture in which (i) any general partnership interest or (ii) more
than 50% of the stock, limited liability company interest or joint venture of
which by the terms thereof ordinary voting power to elect the Board of
Directors, managers or trustees of the entity, at the time as of which any
determination is being made, is owned by a Borrower, either directly or through
an Affiliate.

 

“Term Loan” has the meaning set forth in Section 2.1(c)(i),

 

“Term Loan Maturity Date” means September 20, 2007.

 

 

“Trademarks” means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrowers
connected with and symbolized by such trademarks.

 

“TTM EBITDA” means, as of any date of determination, EBITDA for the
immediately preceding 12 month period.

 

“T3M EBITDA” means, as of any date of determination, EBITDA for the
immediately preceding 3 month period.

 

 

	
  DEBTOR:

  	
  JAMDAT MOBILE INC. AND CERTAIN OF ITS
  SUBSIDIARIES SIGNATORY HERETO

  
	
   

  	
   

  
	
  SECURED PARTY:

  	
  COMERICA BANK

  

 

 

EXHIBIT B

 

COLLATERAL DESCRIPTION
ATTACHMENT TO LOAN AND SECURITY AGREEMENT

 

All personal property of Borrowers (herein collectively, jointly and
severally, referred to as “Borrower” or “Debtor”) whether presently existing or
hereafter created or acquired, and wherever located, including, but not limited
to:

 

(a)           all
accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents
(including negotiable documents), equipment (including all accessions and
additions thereto), general intangibles (including payment intangibles and
software), goods (including fixtures), instruments (including promissory
notes), inventory (including all goods held for sale or lease or to be
furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records;

 

(b)           all
common law and statutory copyrights and copyright registrations, applications
for registration, now existing or hereafter arising, in the United States of
America or in any foreign jurisdiction, obtained or to be obtained on or in
connection with any of the foregoing, or any parts thereof or any underlying or
component elements of any of the foregoing, together with the right to
copyright and all rights to renew or extend such copyrights and the right (but
not the obligation) of Secured Party to sue in its own name and/or in the name
of the Debtor for past, present and future infringements of copyright;

 

(c)           all
trademarks, service marks, trade names and service names and the goodwill
associated therewith, together with the right to trademark and all rights to
renew or extend such trademarks and the right (but not the obligation) of
Secured Party to sue in its own name and/or in the name of the Debtor for past,
present and future infringements of trademark;

 

(d)           all
(i) patents and patent applications filed in the United States Patent and
Trademark Office or any similar office of any foreign jurisdiction, and
interests under patent license agreements, including, without limitation, the
inventions and improvements described and claimed therein, (ii) licenses
pertaining to any patent whether Debtor is licensor or licensee,  (iii) income, royalties, damages,
payments, accounts and accounts receivable now or hereafter due and/or payable
under and with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) right
(but not the obligation) to sue in the name of Debtor and/or in the name of
Secured Party for past, present and future infringements thereof, (v) rights
corresponding thereto throughout the world in all jurisdictions in which such
patents have been issued or applied for, and (vi) reissues, divisions,
continuations, renewals, extensions and continuations-in-part with respect to
any of the foregoing; and

 

(e)           any
and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All terms above have the meanings given to
them in the California Uniform Commercial Code, as amended or supplemented from
time to time, including revised Division 9 of

 

 

the Uniform Commercial Code-Secured
Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative
July 1, 2001.

 

 

EXHIBIT
C

 

BORROWING
BASE CERTIFICATE

 

	
  Borrower:  JAMDAT Mobile, Inc.,
  et al                                       
  Lender :

  	
  Comerica Bank

  
	
   

  	
  Technology &
  Life Sciences Div.

  
	
  Commitment Amount:  $15,000,000

  	
  Loan Analysis
  Department

  
	
   

  	
  Five Palo Alto Square, Suite 800

  
	
   

  	
  3000 El Camino Real

  
	
   

  	
  Palo Alto, CA 94306

  
	
   

  	
  Phone:  (650) 846-6820

  
	
   

  	
  Fax:  (650) 846-6840

  

 

	
  ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  	
   

  
	
  1.             Accounts Receivable Book Value as of 

  	
   

  	
   

  	
  $

  	
   

  
	
  2.             Additions (please explain on reverse)

  	
   

  	
   

  	
  $

  	
   

  
	
  3.             TOTAL ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE
  DEDUCTIONS (without duplication)

  	
   

  	
   

  	
   

  	
   

  
	
  4.             Amounts over 90 days due

  	
  $

  	
   

  	
   

  	
   

  
	
  5.             Balance of 25% over 90 day accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  6.             Concentration Limits

  	
   

  	
   

  	
   

  	
   

  
	
  7.             Foreign Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  8.             Governmental Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  9.             Contra Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  10.           Demo Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  11.           Intercompany/Employee Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  12.           Other (please explain on reverse)

  	
  $

  	
   

  	
   

  	
   

  
	
  13.           TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

  	
   

  	
   

  	
  $

  	
   

  
	
  14.           Eligible Accounts (#3 minus #13)

  	
   

  	
   

  	
  $

  	
   

  
	
  15.           LOAN VALUE OF ACCOUNTS (   % of #14)

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  	
   

  	
   

  
	
  16.           Maximum Loan Amount

  	
   

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  17.           Total Funds Available [Lesser of #16 or
  #15]

  	
   

  	
   

  	
  $

  	
   

  
	
  18.           Present balance owing on Line of Credit

  	
   

  	
   

  	
  $

  	
   

  
	
  19.           Outstanding under Sublimits (e.g.,
  Letters of Credit)

  	
   

  	
   

  	
  $

  	
   

  
	
  20.           RESERVE POSITION (#17 minus #18 and
  #19)

  	
   

  	
   

  	
  $

  	
   

  
						

 

The undersigned represents and warrants that the foregoing
is true, complete and correct, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set
forth in the Loan and Security Agreement between the undersigned and Comerica
Bank.

 

	
  JAMDAT Mobile, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
  Authorized
  Signer

  	
   

  	
   

  
	
   

  	
  BANK USE ONLY

  	
   

  
	
   

  	
  Rec’d By:

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
  Reviewed By:

  	
   

  	
   

  
	
   

  	
  Date

  	
   

  	
   

  
							

 

 

SCHEDULE OF
EXCEPTIONS

 

Permitted Indebtedness  (Exhibit A)

 

JAMDAT Mobile Inc., as guarantor of that certain operating line of
credit between JAMDAT Mobile (Canada) ULC and the Bank of Montreal (as
described under: Notes Payable, p. F-19 of JAMDAT’s 2004 Annual Report on
Form 10-K)

 

JAMDAT Mobile Inc., as guarantor of that certain fixed asset loan
between JAMDAT Mobile (Canada) ULC and the Bank of Montreal (as described
under: Notes Payable, p. F-19 of JAMDAT’s 2004 Annual Report on Form 10-K)

 

JAMDAT Mobile Inc., as transferee of that certain note payable of
Hexacto (as described under: Notes Payable, p. F-20 of JAMDAT’s 2004
Annual Report on Form 10-K)

 

Office Lease, dated November 11, 2002, between JAMDAT Mobile Inc.
and CA_Sepulveda Center Limited Partnership (as described under Operating
Leases, p. F-31 of JAMDAT’s 2004 Annual Report on Form 10-K

 

Company credit cards and non-material debt utilized in the ordinary
course of business

 

Any other liabilities of the Borrowers set forth in JAMDAT’s 2004
Annual Report on Form 10-K

 

Permitted Investments  (Exhibit A)

 

500,000 shares of common stock (11.1%) of C-Valley, Inc., a Cayman
Islands exempt company

 

Permitted Liens  (Exhibit A)

 

None

 

Intellectual Property Licenses (Section 5.4)

 

The following licenses contribute more than 10% of JAMDAT Mobile Inc.’s
revenue:

 

1.     License
and Publishing Agreement, dated as of July 3, 2002, by and between the
Company and Activision Publishing, Inc., as amended.

 

2.     License
and Publishing Agreement, dated as of June 24, 2004, by and between the
Company and PopCap Games, Inc.

 

Prior Names  (Section 5.5)

 

Nimbus Rising, Inc.

 

Chief Executive Offices (Section 5.5)

 

JAMDAT Mobile Inc.

3415 South Sepulveda Boulevard, Suite 700

Los Angeles, CA 90034

 

JAMDAT Mobile (Canada Holdings), Inc.

c/o JAMDAT Mobile Inc.

3415 South Sepulveda Boulevard, Suite 700

Los Angeles, CA 90034

 

Litigation 
(Section 5.6)

 

None.

 

1

 

Corporation Resolutions and Incumbency
Certification

 

Authority to Procure Loans

 

I certify that I am the duly elected and qualified Secretary of [JAMDAT Mobile Inc.]; that the
following is a true and correct copy of resolutions duly adopted by the Board
of Directors of the Corporation in accordance with its bylaws and applicable
statutes.

 

Copy of Resolutions:

 

Be it Resolved, That:

 

1.             Any
one (1) of the following                                        
(insert titles only) of the Corporation are/is authorized, for, on behalf of,
and in the name of the Corporation to:

 

(a)           Negotiate
and procure loans, letters of credit and other credit or financial
accommodations from Comerica Bank (“Bank”), a Michigan banking corporation,
including, without limitation, that certain Loan and Security Agreement dated
as of April    , 2005, as may subsequently be amended from
time to time.

 

(b)           Discount
with the Bank, commercial or other business paper belonging to the Corporation
made or drawn by or upon third parties, without limit as to amount;

 

(c)           Purchase,
sell, exchange, assign, endorse for transfer and/or deliver certificates and/or
instruments representing stocks, bonds, evidences of Indebtedness or other
securities owned by the Corporation, whether or not registered in the name of
the Corporation;

 

(d)           Give
security for any liabilities of the Corporation to the Bank by grant, security
interest, assignment, lien, deed of trust or mortgage upon any real or personal
property, tangible or intangible of the Corporation; and

 

(e)           Execute
and deliver in form and content as may be required by the Bank any and all
notes, evidences of Indebtedness, applications for letters of credit,
guaranties, subordination agreements, loan and security agreements, financing
statements, assignments, liens, deeds of trust, mortgages, trust receipts and
other agreements, instruments or documents to carry out the purposes of these Resolutions,
any or all of which may relate to all or to substantially all of the
Corporation’s property and assets.

 

2.             Said
Bank be and it is authorized and directed to pay the proceeds of any such loans
or discounts as directed by the persons so authorized to sign, whether so
payable to the order of any of said persons in their individual capacities or
not, and whether such proceeds are deposited to the individual credit of any of
said persons or not;

 

3.             Any
and all agreements, instruments and documents previously executed and acts and
things previously done to carry out the purposes of these Resolutions are
ratified, confirmed and approved as the act or acts of the Corporation.

 

4.             These
Resolutions shall continue in force, and the Bank may consider the holders of
said offices and their signatures to be and continue to be as set forth in a
certified copy of these Resolutions delivered to the Bank, until notice to the
contrary in writing is duly served on the Bank (such notice to have no effect
on any action previously taken by the Bank in reliance on these Resolutions).

 

 

5.             Any
person, corporation or other legal entity dealing with the Bank may rely upon a
certificate signed by an officer of the Bank to effect that these Resolutions
and any agreement, instrument or document executed pursuant to them are still
in full force and effect and binding upon the Corporation.

 

6.             The
Bank may consider the holders of the offices of the Corporation and their
signatures, respectively, to be and continue to be as set forth in the
Certificate of the Secretary of the Corporation until notice to the contrary in
writing is duly served on the Bank.

 

I further certify that the above Resolutions are in full force and
effect as of the date of this Certificate; that these Resolutions and any
borrowings or financial accommodations under these Resolutions have been
properly noted in the corporate books and records, and have not been rescinded,
annulled, revoked or modified; that neither the foregoing Resolutions nor any
actions to be taken pursuant to them are or will be in contravention of any
provision of the articles of incorporation or bylaws of the Corporation or of
any agreement, indenture or other instrument to which the Corporation is a
party or by which it is bound; and that neither the articles of incorporation
nor bylaws of the Corporation nor any agreement, indenture or other instrument
to which the Corporation is a party or by which it is bound require the vote or
consent of shareholders of the Corporation to authorize any act, matter or
thing described in the foregoing Resolutions.

 

I further certify that the following named persons have been duly
elected to the offices set opposite their respective names, that they continue
to hold these offices at the present time, and that the signatures which appear
below are the genuine, original signatures of each respectively:

 

(PLEASE
SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)

 

	
  NAME (Type or Print)

  	
   

  	
  TITLE

  	
   

  	
  SIGNATURE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

In Witness Whereof, I have affixed my name as Secretary and have caused
the corporate seal (where available) of said Corporation to be affixed on April    ,
2005.

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Secretary

  

 

***

 

	
  The Above Statements are Correct.

  	
   

  	
   

  
	
   

  	
  SIGNATURE OF OFFICER OR DIRECTOR OR, IF
  NONE. A SHAREHOLDER OTHER

  THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.

  

 

 

Failure to complete the above when the Secretary is authorized to sign
alone shall constitute a certification by the Secretary that the Secretary is
the sole Shareholder, Director and Officer of the Corporation.

 

 

COMERICA
BANK

Member
FDIC

ITEMIZATION
OF AMOUNT FINANCED

DISBURSEMENT
INSTRUCTIONS

(Revolver)

 

	
  Name(s):  JAMDAT MOBILE INC., as
  Administrative Borrower             Date:   April    ,
  2005

  
	
   

  	
   

  
	
  $

  	
  Credited to deposit account No. 189 294 6615
  when Advances are requested or disbursed to Borrowers by cashiers check or
  wire transfer

  
	
   

  
	
  Amounts paid to others on your behalf:

  
	
  $150,000

  	
  to Comerica Bank for Revolving Line
  Commitment Fee

  
	
  $50,000

  	
  to Comerica Bank for Term Loan Fee

  
	
  $ 

  	
  to Comerica Bank for accounts receivable
  audit (estimate)

  
	
  $ 

  	
  to Bank counsel fees and expenses

  
	
  $

  	
  to 

  
	
  $

  	
  to 

  
	
  $

  	
  TOTAL (AMOUNT FINANCED)

  

 

 

Upon consummation of this transaction, this document will also serve as
the authorization for Comerica Bank to disburse the loan proceeds as stated
above.

 

	
   

  	
  JAMDAT MOBILE INC.,

  as Administrative Borrower

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

COMERICA
BANK

Member
FDIC

ITEMIZATION
OF AMOUNT FINANCED

DISBURSEMENT
INSTRUCTIONS

(Term
Loan)

 

	
  Name(s):  JAMDAT MOBILE INC., as
  Administrative Borrower             Date:   April     ,
  2005

  
	
   

  
	
   

  	
   

  
	
  $

  	
  Credited to deposit account No. 189 294 6615
  when Advances are requested or disbursed to Borrowers by cashiers check or
  wire transfer

  
	
   

  	
   

  
	
  Amounts paid to others on your behalf:

  
	
  $

  	
  to 

  
	
  $

  	
  to 

  
	
  $

  	
  TOTAL (AMOUNT FINANCED)

  

 

 

Upon consummation of this transaction, this document will also serve as
the authorization for Comerica Bank to disburse the loan proceeds as stated
above.

 

	
   

  	
  JAMDAT MOBILE INC.,

  as Administrative Borrower

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

AGREEMENT
TO PROVIDE INSURANCE

 

	
  TO:         COMERICA
  BANK

  	
  Date: 
  April    , 2005

  
	
  Attn:  Deni M. Snider, MC 4770

  75 E. Trimble Road

  San Jose, CA 95131

  	
  Borrowers:     JAMDAT MOBILE INC., AND CERTAIN OF ITS SUBSIDIARIES
  SIGNATORY THE LOAN AND SECURITY AGREEMENT

  

 

In consideration of a loan in the amount of $25,000,000, secured by all tangible personal
property including inventory and equipment.

 

I/We agree to obtain adequate insurance coverage to remain in force
during the term of the loan.

 

I/We also agree to advise the below named
agent to add Comerica Bank as lender’s loss payable on the new or existing
insurance policy, and to furnish Bank at above address with a copy of said
policy/endorsements and any subsequent renewal policies.

 

I/We understand that the policy must contain:

 

1.             Fire and extended
coverage in an amount sufficient to cover:

 

(a)           The
amount of the loan, OR

 

(b)           All
existing encumbrances, whichever is greater,

 

But not in excess of the replacement value of
the improvements on the real property.

 

2.             Lender’s
“Loss Payable” Endorsement Form 438 BFU in favor of Comerica Bank, or any
other lender’s “loss payable” endorsement form acceptable to Bank.

 

INSURANCE INFORMATION

 

Insurance Co./Agent           Telephone
No.:

Agent’s Address:

	
   

  	
  Signature of Obligor:

  	
   

  	
   

  
	
   

  	
  Signature of Obligor:

  	
   

  	
   

  

 

 

	
   

  	
  FOR BANK USE ONLY

  
	
   

  	
  INSURANCE VERIFICATION: Date:

  	
   

  	
   

  
	
   

  	
  Person Spoken to:

  	
   

  	
   

  
	
   

  	
  Policy Number:

  	
   

  	
   

  
	
   

  	
  Effective From:

  	
   

  	
   To:

  	
   

  	
   

  
	
   

  	
  Verified by:

  	
   

  	
   

  
										

 

 

	
  COMERICA BANK

  	
   

  
	
   

  	
  AUTOMATIC DEBIT AUTHORIZATION

  
	
  Member FDIC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  To:  Comerica Bank

  
	
   

  
	
  Re:  Loan # 

  
	
   

  
	
  You are hereby authorized and instructed (i) to
  credit the proceeds of all Advances made by Bank to Borrowers under (and as
  such terms are defined in) the Loan Agreement referred to below to deposit account
  No. 189 294 6615 in the name of JAMDAT MOBILE INC., as Administrative Borrower (the “Designated Deposit Account”) and (ii) to
  charge the Designated Deposit Account for principal, interest and other
  payments due on above referenced loan as set forth below and credit the loan
  referenced above.

  
	
   

  
	
  ý            Debit each interest
  payment as it becomes due according to the terms of the Loan and Security
  Agreement and any renewals or amendments thereof.

  
	
   

  
	
  ý            Debit each principal
  payment as it becomes due according to the terms of the Loan and Security
  Agreement and any renewals or amendments thereof.

  
	
   

  
	
  ý            Debit each payment
  for Bank Expenses as it becomes due according to the terms of the Loan and
  Security Agreement and any renewals or amendments thereof.

  
	
   

  
	
  This Authorization is to remain in full
  force and effect until revoked in writing.

  
	
   

  
	
   

  
	
   

  	
  April    , 2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JAMDAT MOBILE INC.,

  as Administrative Borrower

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
					

 

 

Secured Party:      Comerica Bank

 

Debtors:                 JAMDAT MOBILE INC., AND CERTAIN OF ITS SUBSIDIARIES
SIGNATORY TO THE LOAN AN SECURITY AGREEMENT

 

EXHIBIT A to UCC Financing Statement

 

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

 

All personal property of Borrowers (herein collectively, jointly and
severally, referred to as “Borrower” or “Debtor”) whether presently existing or
hereafter created or acquired, and wherever located, including, but not limited
to:

 

(a)           all
accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents
(including negotiable documents), equipment (including all accessions and
additions thereto), general intangibles (including payment intangibles and
software), goods (including fixtures), instruments (including promissory
notes), inventory (including all goods held for sale or lease or to be
furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records;

 

(b)           all
common law and statutory copyrights and copyright registrations, applications
for registration, now existing or hereafter arising, in the United States of
America or in any foreign jurisdiction, obtained or to be obtained on or in
connection with any of the foregoing, or any parts thereof or any underlying or
component elements of any of the foregoing, together with the right to
copyright and all rights to renew or extend such copyrights and the right (but
not the obligation) of Secured Party to sue in its own name and/or in the name
of the Debtor for past, present and future infringements of copyright;

 

(c)           all
trademarks, service marks, trade names and service names and the goodwill
associated therewith, together with the right to trademark and all rights to
renew or extend such trademarks and the right (but not the obligation) of
Secured Party to sue in its own name and/or in the name of the Debtor for past,
present and future infringements of trademark;

 

(d)           all
(i) patents and patent applications filed in the United States Patent and
Trademark Office or any similar office of any foreign jurisdiction, and
interests under patent license agreements, including, without limitation, the
inventions and improvements described and claimed therein, (ii) licenses
pertaining to any patent whether Debtor is licensor or licensee, (iii) income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (iv) right (but not the obligation) to sue in the name of Debtor
and/or in the name of Secured Party for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all
jurisdictions in which such patents have been issued or applied for, and (vi) reissues,
divisions, continuations, renewals, extensions and continuations-in-part with
respect to any of the foregoing; and

 

 

(e)           any
and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All terms above have the meanings given to
them in the California Uniform Commercial Code, as amended or supplemented from
time to time, including revised Division 9 of the Uniform Commercial
Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35,
operative July 1, 2001.Exhibit
4.1

 

RIGHTS
AGREEMENT

between

DEPOMED, INC.

and

CONTINENTAL STOCK TRANSFER & TRUST COMPANY

as Rights Agent

dated as of April 21, 2005

 

 

RIGHTS
AGREEMENT

 

THIS
RIGHTS AGREEMENT (the “Agreement”)
is made as of April 21, 2005 by and between Depomed, Inc., a California
corporation (the “Corporation”), and
Continental Stock Transfer & Trust Company a New York corporation (the “Rights Agent”).

 

B
A  C  K
G  R  O
U  N  D

 

The Board of Directors of
the Corporation has authorized and declared a dividend of one preferred share
purchase right (a “Right”) for each share of
Common Stock (as hereinafter defined) of the Corporation outstanding at the
Close of Business (as hereinafter defined) on May 5, 2005 (the “Record Date”).  Each Right originally is a right to purchase
one one-thousandth (1/1000th) of a share of Preferred Stock (as hereinafter
defined) upon the terms and subject to the conditions herein set forth.  The Board of Directors has further authorized
and directed the issuance of one Right with respect to each share of Common
Stock that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date (as
those terms are hereinafter defined) or as provided in Section 22 of this
Agreement.

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual
agreements herein set forth, the parties hereby agree as follows:

 

1.             Certain Definitions

 

For purposes of this
Agreement, these terms have these meanings:

 

1.1.          “Acquiring Person” means any Person who or
which, together with all Affiliates and Associates of that Person, without the
prior approval of the Board, shall be the Beneficial Owner of 20% or more of
the then outstanding shares of Common Stock (other than as a result of a
Permitted Offer) or was such a Beneficial Owner at any time after the date
hereof, whether or not such Person continues to be the Beneficial Owner of 20%
or more of the then outstanding shares of Common Stock.  Notwithstanding the foregoing, the term “Acquiring
Person” shall not include (i) the Corporation, (ii) any Subsidiary of the
Corporation, (iii) any employee benefit plan of the Corporation or of any
Subsidiary of the Corporation, (iv) any Person organized, appointed or
established by the Corporation or any Subsidiary of the Corporation for or
pursuant to the terms of any such plan, (v) any Person who or which, together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 20% or more of the then outstanding shares of Common Stock as a result of
the acquisition of shares of Common Stock directly from the Corporation, or
(vi) any Person who is not an Acquiring Person by operation of Section 27 of
this Agreement.  Further, no Person shall
be an “Acquiring Person” either (i) as a result of the acquisition of Common
Stock by the Corporation which, by reducing the number of shares of Common
Stock outstanding, increases the proportional number of shares beneficially
owned by such Person together with all Affiliates and Associates of such
Person; provided, however, that if (1) a Person would become an
Acquiring Person (but for the operation

 

1

 

of this sentence), as a
result of the acquisition of shares of Common Stock by the Corporation, and (2)
after such share acquisition by the Corporation, such Person, or an Affiliate
or Associate of such Person, becomes the Beneficial Owner of any additional
shares of Common Stock, then such Person shall be deemed an Acquiring Person,
or (ii) if (1) within eight days after such Person would otherwise have become
an Acquiring Person (but for the operation of this sentence), such Person
notifies the Board that such Person did so inadvertently and (2) within two
Business Days (as defined in Section 1.9 hereof) after such notification, such
Person is the Beneficial Owner of less than 20% of the outstanding shares of
Common Stock.

 

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

 

1.3.          “Adjusted Number of Shares” and “Adjusted Purchase Price”
have the meanings set forth in Section 11.1.3 hereof.

 

1.4.          “Adjustment Shares” has the meaning set forth
in Section 11.1.2 hereof.

 

1.5.          “Affiliate” and “Associate” have the meanings ascribed to
them in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

 

1.6.          “Current per share market price” has the
meaning set forth in Section 11.4.1 hereof when used with respect to a “Security”
(as defined in Section 11.4.1) and the meaning set forth in
Section 11.4.2 hereof when used with respect to the Preferred Stock.

 

1.7.          A Person is the “Beneficial Owner” of
and “beneficially owns”
any securities which: (A) that Person or any of that Person’s Affiliates or
Associates beneficially owns, directly or indirectly; (B) that Person or any of
that Person’s Affiliates or Associates has (i) the right to acquire (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding, or upon the exercise
of conversion rights, exchange rights, rights (other than the Rights), warrants
or options, or otherwise; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, securities
tendered pursuant to a tender or exchange offer made by or on behalf of that Person
or any of that Person’s Affiliates or Associates until such tendered securities
are accepted for purchase or exchange; or (ii) the right to vote pursuant to
any agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to that
Person in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations adopted under the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or (C) are beneficially
owned, directly or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such Person’s Affiliates
or Associates) has any agreement, arrangement or understanding relating to the
acquisition, holding, voting (except to the extent contemplated by the proviso
to subclause (ii) of this Section 1.7(B)), or disposing of any securities
of the Corporation.  Notwithstanding
anything in this Section 1.7 to the contrary, the phrase “then
outstanding,” when used with reference to a Person’s Beneficial Ownership of
securities of the Corporation, means the number of such securities then issued
and

 

2

 

outstanding together with
the number of such securities not then actually issued and outstanding which
that Person would be deemed to own beneficially hereunder.  Notwithstanding anything in this
Section 1.7 to the contrary, no Person shall be deemed to beneficially own
any securities solely by reason of that Person being a party to a customary
agreement pursuant to which that Person acts or agrees to act as an underwriter
with respect to a bona fide public offering of securities.  No decision reached or action taken by the
Board or any committee thereof shall cause any Person (or any Affiliate or
Associate of that Person) who is a member of the Board or such committee to be
deemed, for the purposes of this Agreement, to be a Beneficial Owner of any
securities beneficially owned by any other Person (or any Affiliate or Associate
of such other Person) who is a member of the Board or any committee thereof
solely by reason of such membership on the Board or any committee thereof or
participation in any decision or action thereof on the part of either or both
of such Persons.

 

1.8.          “Board” means the Corporation’s Board of Directors.

 

1.9.          “Business Day” means any day other than a
Saturday, a Sunday, a day on which banking institutions in the State of New
York are obligated by law or executive order to close, or a United States
federal holiday.

 

1.10.        “Capital Stock Equivalents” has the meaning
set forth in Section 11.1.3 hereof.

 

1.11.        “Close of Business” on any given day means
5:00 P.M., New York time, on that day; provided, however, that if
that day is not a Business Day, “Close of Business” means 5:00 P.M., New York
time, on the next succeeding Business Day.

 

1.12.        “Common Stock” when used with reference to the
Corporation means the Common Stock of the Corporation or, in the event of a
subdivision, combination or consolidation with respect to such shares of Common
Stock, the shares of Common Stock resulting from such subdivision, combination
or consolidation.  “Common Stock” when
used with reference to any Person other than the Corporation means the capital
stock (or equity interests) with the greatest voting power of such other Person
or, if such other Person is a Subsidiary of another Person, the Person or
Persons that ultimately control the first-mentioned Person.

 

1.13.        “Corporation” means Depomed, Inc., a
California corporation, and also means a Principal Party to the extent provided
in Section 13.1 hereof.

 

1.14.        “Distribution Date” has the meaning set forth
in Section 3.1 hereof.

 

1.15.        “Equivalent Preferred Stock” has the meaning
set forth in Section 11.2 hereof.

 

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

 

1.17.        “Exchange Ratio” has the meaning set forth in
Section 26.1 hereof.

 

1.18.        “Final Expiration Date” has the meaning set
forth in Section 7.1 hereof.

 

3

 

1.19.        “Interested Shareholder” means any Acquiring
Person or any Affiliate or Associate of an Acquiring Person, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.

 

1.20.        “NASDAQ” has the meaning set forth in
Section 11.4.1 hereof.

 

1.21.        “Permitted Offer” means a tender or exchange
offer which is for all the outstanding shares of Common Stock of the
Corporation at a price and on terms determined, before the purchase of shares
under such tender or exchange offer, by at least a majority of the members of
the Board who are not officers of the Corporation and who are not Acquiring
Persons or Affiliates, Associates, nominees or representatives of an Acquiring
Person, to be adequate (taking into account all factors that such directors
deem pertinent including, without limitation, prices that could reasonably be
achieved if the Corporation or its assets were sold on an orderly basis
designed to realize maximum value) and otherwise in the best interests of the
Corporation, its shareholders (other than the Person or any Affiliate or
Associate thereof on whose basis the offer is being made) and other relevant
constituencies, taking into account all factors that such directors may deem
pertinent.

 

1.22.        “Person” means any individual, firm,
partnership, corporation, limited liability company, limited liability
partnership, trust, association, joint venture or other entity, and includes
any successor (by merger or otherwise) of any such entity.

 

1.23.        “Preferred Stock” means shares of the
Corporation’s Series RP Preferred Stock, no par value, having the relative
rights, preferences and limitations set forth in the Form of Certificate of
Determination of Series RP Preferred Stock attached to this Agreement as Exhibit
A.

 

1.24.        “Principal Party” has the meaning set forth in
Section 13.2 hereof.

 

1.25.        “Proration Factor” has the meaning set forth
in Section 11.1.3 hereof.

 

1.26.        “Purchase Price” has the meaning set forth in
Section 4.1 hereof.

 

1.27.        “Record Date” has the meaning set forth in the
preamble to this Agreement.

 

1.28.        “Redemption Date” has the meaning set forth in
Section 7.1 hereof.

 

1.29.        “Redemption Price” has the meaning set forth
in Section 23.1.1 hereof.

 

1.30.        “Right Certificate” has the meaning set forth
in Section 3.1 hereof.

 

1.31.        “Rights” has the meaning set forth in the
preamble to this Agreement.

 

1.32.        “Rights Agent” means Continental Stock
Transfer & Trust Company, a New York corporation, as Rights Agent hereunder,
and, from the time of its succession, any successor Rights Agent selected
pursuant to Section 19 or Section 21 hereof.

 

4

 

1.33.        “Section 11.1.2 Event” has the meaning
set forth in Section 11.1.2 hereof.

 

1.34.        “Section 13 Event” means any event
described in clause (A), (B) or (C) of Section 13.1 hereof.

 

1.35.        “Shares Acquisition Date” means the first date
of public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to the Exchange Act) by the
Corporation or an Acquiring Person that an Acquiring Person has become such or
that facts exist as a result of which there exists an Acquiring Person; provided,
however, that, if such Person is determined by the Board not to have
become an Acquiring Person pursuant to clause (ii) of the second sentence of
Section 1.1 hereof, then no Shares Acquisition Date shall be deemed to have
occurred.

 

1.36.        “Subsidiary” of any Person means any
corporation or other Person of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly,
by such Person.

 

1.37.        “Summary of Rights” has the meaning set forth
in Section 3.2 hereof.

 

1.38.        “Trading Day” has the meaning set forth in
Section 11.4.1 hereof.

 

1.39.        “Triggering Event” means any
Section 11.1.2 Event or any Section 13 Event.

 

1.40.        The term “voting securities” has the meaning set
forth in Section 13.1 hereof.

 

2.             Appointment of Rights
Agent.   The Corporation hereby appoints the Rights
Agent to act as agent for the Corporation in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment.  The Corporation may from time to time appoint
such co-Rights Agents as it may deem necessary or desirable.  The Rights Agent shall have no duty to
supervise, and in no event shall be liable for, the acts or omissions of any
such co-Rights Agent.

 

3.             Issuance of Right
Certificates

 

3.1.          Until the earlier of (A) the Shares
Acquisition Date or (B) the Close of Business on the tenth day (or such later
date as may be determined by action of the Board) after the date of the
commencement by any Person (other than the Corporation, any Subsidiary of the
Corporation, any employee benefit plan of the Corporation or of any Subsidiary
of the Corporation or any Person organized, appointed or established by the
Corporation or any Subsidiary of the Corporation for or pursuant to the terms
of any such plan) of, or after the date of the first public announcement of the
intention of any Person (other than the Corporation, any Subsidiary of the
Corporation, any employee benefit plan of the Corporation or of any Subsidiary
of the Corporation or any Person organized, appointed or established by the
Corporation or any Subsidiary of the Corporation for or pursuant to the terms
of any such plan) to commence (which intention to commence remains in effect
for at least five Business Days after such

 

5

 

announcement), a tender
or exchange offer the consummation of which would result in any Person becoming
an Acquiring Person (including, in the case of both (A) and (B), any such date
which is after the date of this Agreement and before the issuance of the
Rights) (the “Distribution Date”), (i) the
Rights will be evidenced (subject to Section 3.2 hereof) by the
certificates for shares of Common Stock registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (ii) the right to receive Right
Certificates will be transferable only in connection with the transfer of the
underlying shares of Common Stock (including a transfer to the Corporation); provided,
however, that if a tender or exchange offer is terminated before the
occurrence of a Distribution Date, then no Distribution Date shall occur as a
result of such tender or exchange offer. 
As soon as practicable after the Distribution Date, the Corporation will
prepare and execute, the Rights Agent will countersign, and the Corporation
will send or cause to be sent by first-class, postage-prepaid mail, to each
record holder of shares of Common Stock as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Corporation, a Right Certificate, substantially in the form of Exhibit  B
hereto (a “Right Certificate”),
evidencing one Right for each share of Common Stock so held.  As of and after the Distribution Date, the
Rights will be evidenced solely by such Right Certificates.

 

3.2.          As promptly as practicable after the
Record Date, the Corporation will send a copy of a Summary of Rights to
Purchase Preferred Stock, in substantially the form of Exhibit  C
hereto (the “Summary of Rights”), by
first-class, postage-prepaid mail, to each record holder of shares of Common
Stock as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Corporation. 
With respect to certificates for shares of Common Stock outstanding as
of the Record Date, until the Distribution Date the Rights will be evidenced by
such certificates registered in the names of the holders thereof together with
a copy of the Summary of Rights attached thereto.  Until the Distribution Date (or the earlier
of the Redemption Date or the Final Expiration Date), the surrender for
transfer of any certificate for shares of Common Stock outstanding on the
Record Date, with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with such shares of
Common Stock.

 

3.3.          Certificates for shares of Common Stock
that become outstanding (including, without limitation, reacquired shares of
Common Stock referred to in the last sentence of this Section 3.3) after
the Record Date but before the earliest of the Distribution Date, the
Redemption Date and the Final Expiration Date, shall be deemed also to be
certificates for Rights, and shall bear the following legend:

 

This certificate also evidences
and entitles the holder hereof to certain rights as set forth in a Rights
Agreement between Depomed, Inc. and Continental Stock Transfer & Trust
Company, as Rights Agent, dated as of April 21, 2005 (the “Agreement”),
the terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of Depomed, Inc.  Under certain circumstances, as set forth in
the Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. 
Depomed, Inc.

 

6

 

will mail to the holder
of this certificate a copy of the Agreement without charge after receipt of a
written request therefor.  Under certain
circumstances set forth in the Agreement, Rights issued to, or held by, any
person who is, was or becomes an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Agreement) and certain related persons, whether
currently held by or on behalf of such person or by any subsequent holder, may
become null and void.

 

With respect to certificates containing the foregoing
legend, until the Distribution Date the Rights associated with the shares of
Common Stock represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any such certificate
shall also constitute the transfer of the Rights associated with the shares of
Common Stock represented thereby.  If the
Corporation purchases or acquires any shares of Common Stock after the Record
Date but before the Distribution Date (or the earlier of the Redemption Date or
the Final Expiration Date), any Rights associated with such shares of Common
Stock shall be deemed cancelled and retired so that the Corporation shall not
be entitled to exercise any Rights associated with the Common Stock that are no
longer outstanding.

 

4.             Form of Right
Certificate

 

4.1.          The Right Certificates (and the forms of
election to purchase and of assignment to be printed on the reverse thereof) shall
be substantially in the form set forth in Exhibit  B hereto and
may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Corporation may deem
appropriate (which may not affect the duties and responsibilities of the Rights
Agent) and as are not inconsistent with this Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to usage.  Subject to Section 11 and
Section 22 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-thousandths (1/1000ths) of a share
of Preferred Stock as shall be set forth therein at the price per one
one-thousandth (1/1000th) of a share of Preferred Stock set forth therein in
accordance with Section 7.2 hereof (the “Purchase Price”),
but the amount and type of securities purchasable upon the exercise of each
Right and the Purchase Price thereof shall be subject to adjustment as provided
herein.

 

4.2.          Any Right Certificate issued pursuant to
Section 3.1 or Section 22 hereof that represents Rights that are null
and void pursuant to Section 7.6 of this Agreement and any Right
Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Right Certificate
referred to in this sentence, shall contain (to the extent feasible and upon
notice by the Corporation to the Rights Agent that this Section 4.2 has
become applicable) the following legend:

 

The Rights represented by
this Right Certificate are or were beneficially owned by a Person who was or
became an Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as

 

7

 

those terms are defined
in the Agreement).  Accordingly, this
Right Certificate and the Rights represented hereby are null and void.

 

Section 7.6 of this Agreement shall be operative
whether or not the foregoing legend is contained on any such Right Certificate.

 

5.             Countersignature and
Registration

 

5.1.          The Right Certificates shall be executed
on behalf of the Corporation by its President or any Vice President and the
Secretary or an Assistant Secretary, either manually or by facsimile signature,
and shall be attested by the Secretary or an Assistant Secretary of the
Corporation, either manually or by facsimile signature.  The Right Certificates shall be countersigned,
either manually or by facsimile signature, by the Rights Agent and shall not be
valid for any purpose unless so countersigned. 
In case any officer of the Corporation who shall have signed any of the
Right Certificates ceases to be such officer of the Corporation before
countersignature by the Rights Agent and issuance and delivery by the
Corporation, such Right Certificates may nevertheless be countersigned by the
Rights Agent and issued and delivered by the Corporation with the same force
and effect as though the Person who signed such Right Certificates had not
ceased to be such officer of the Corporation. 
Any Right Certificate may be signed on behalf of the Corporation by any
Person who, at the actual date of the execution of such Right Certificate, shall
be a proper officer of the Corporation to sign such Right Certificate, although
at the date of the execution of this Agreement that Person was not such an
officer.

 

5.2.          After the Distribution Date and receipt
by the Rights Agent of a list of record holders of Rights, the Rights Agent
will keep or cause to be kept, at its office designated pursuant to Section 25
hereof as the appropriate place for surrender or transfer of the Right
Certificates, books for registration and transfer of the Right Certificates
issued hereunder.  Such books shall show
the names and addresses of the respective holders of the Right Certificates,
the number of Rights evidenced on the face of each Right Certificate and the
certificate number and the date of each Right Certificate.

 

6.             Transfer, Split-Up,
Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost
or Stolen Right Certificates

 

6.1.          Subject to Section 4.2,
Section 7.6 and Section 14 hereof, at any time after the Close of
Business on the Distribution Date, and at or before the Close of Business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths (1/1000ths)
of a share of Preferred Stock (or, after the occurrence of a Triggering Event,
other securities, as the case may be) as the Right Certificate or Right Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase.  Any registered
holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the office
of the Rights Agent designated for such purpose.  Neither the Rights

 

8

 

Agent nor the Corporation
shall be obligated to take any action whatsoever with respect to the transfer
of any such surrendered Right Certificate until the registered holder shall
have completed and signed the certificate contained in the form of assignment
on the reverse side of such Right Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Corporation or the
Rights Agent shall reasonably request. 
Thereupon the Rights Agent shall, subject to Section 4.2,
Section 7.6 and Section 14 hereof, countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested.  The Corporation
may require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.  The
Rights Agent may in its sole discretion require the Corporation or the Person
entitled to such Right Certificate to provide evidence that such payment has
been made before countersigning and delivering any Right Certificate pursuant
to this Section 6.1 and shall have no duty or obligation under this Section 6
unless and until it is satisfied that all such taxes and charges have been
paid.

 

6.2.          Upon receipt by the Corporation and the
Rights Agent of evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of loss, theft
or destruction, of indemnity or security satisfactory to them, and, at the
Corporation’s request, reimbursement to the Corporation and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate if mutilated, the Corporation
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for countersignature and delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.

 

7.             Exercise of Rights;
Purchase Price; Expiration Date of Rights

 

7.1.          Subject to Section 7.6 hereof, the
registered holder of any Right Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Right Certificate, with the
form of election to purchase and the certificate on the reverse side thereof
duly executed, to the Rights Agent at the office of the Rights Agent designated
for such purpose, together with payment of the total Purchase Price for the
total number of one one-thousandths (1/1000ths) of a share of Preferred Stock
(or other securities, as the case may be) as to which such surrendered Rights
are exercised, at or before the earlier of (A) the Close of Business on April
21, 2015 (the “Final Expiration Date”), or
(B) the time at which the Rights are redeemed as provided in Section 23
hereof (the “Redemption Date”).

 

7.2.          The Purchase Price for each one
one-thousandth (1/1000th) of a share of Preferred Stock pursuant to the
exercise of a Right shall initially be $35.00, shall be subject to adjustment
from time to time as provided in the next sentence and in Sections 11 and 13.1 hereof,
and shall be payable in accordance with Section 7.3 hereof.  Anything in this Agreement to the contrary
notwithstanding, if at any time after the date of this Agreement and before the
Distribution Date, the Corporation shall (A) declare or pay any dividend on the
Common Stock payable in Common Stock or (B) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of dividends in shares of

 

9

 

Common Stock) into a
greater or lesser number of shares of Common Stock, then, in any such case,
each share of Common Stock outstanding after such subdivision, combination or
consolidation shall continue to have a Right associated therewith and the Purchase
Price after the occurrence of any such event shall be proportionately adjusted
to equal the result obtained by multiplying the Purchase Price immediately
before such event by a fraction, the numerator of which shall be the total
number of shares of Common Stock outstanding immediately before the occurrence
of the event, and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after the occurrence of the event.  The adjustment provided for in the preceding
sentence shall be made successively whenever such a dividend is declared or
paid or such a subdivision, combination or consolidation is effected.

 

7.3.          Upon receipt of a Right Certificate
representing exercisable Rights, with the form of election to purchase and the
certificate on the reverse side thereof duly and properly executed, accompanied
by payment of the Purchase Price for the Preferred Stock (or other securities,
as the case may be) to be purchased and an amount equal to any applicable tax
or governmental charge required to be paid by the holder of such Right
Certificate in accordance with Section 6 hereof by certified check,
cashier’s check or money order payable to the order of the Corporation, the
Rights Agent shall thereupon promptly (A) (i) requisition from any transfer
agent of the Preferred Stock certificates for the number of shares of Preferred
Stock to be purchased, and the Corporation hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (ii) if the Corporation, in
its sole discretion, shall have elected to deposit the Preferred Stock issuable
upon exercise of the Rights hereunder into a depositary, requisition from the
depositary agent depositary receipts representing such number of one
one-thousandths (1/1000ths) of a share of Preferred Stock as are to be
purchased (in which case certificates for the Preferred Stock represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Corporation will direct the depositary agent to comply with such
requests, (B) when appropriate, requisition from the Corporation the amount of
cash to be paid in lieu of the issuance of fractional shares in accordance with
Section 14 hereof, (C) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder, and (D) when appropriate, after receipt thereof,
deliver such cash to or upon the order of the registered holder of such Right
Certificate.  If the Corporation is
obligated to issue other securities (including shares of Common Stock) of the
Corporation pursuant to Section 11.1 hereof, the Corporation will make all
arrangements necessary so that such other securities are available for
distribution by the Rights Agent, if and when necessary to comply with this
Agreement.

 

7.4.          In addition, in the case of an exercise
of the Rights by a holder pursuant to Section 11.1.2 hereof, the Rights
Agent shall return such Right Certificate to the registered holder thereof
after imprinting, stamping or otherwise indicating thereon that the Rights
represented by such Right Certificate no longer include the rights provided by
Section 11.1.2 of this Agreement and if less than all the Rights
represented by such Right Certificate were so exercised, the Rights Agent shall
indicate on the Right Certificate the number of Rights represented thereby that
continue to include the rights provided by Section 11.1.2.

 

10

 

7.5.          In case the registered holder of any
Right Certificate exercises less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to the holder’s duly authorized assigns, subject to
Section 6 and Section 14 hereof, or the Rights Agent shall place an
appropriate notation on the Right Certificate with respect to those Rights
exercised.

 

7.6.          Notwithstanding anything in this
Agreement to the contrary, from and after the first occurrence of a
Section 11.1.2 Event, any Rights beneficially owned by (A) an Acquiring
Person or an Affiliate or Associate of an Acquiring Person, (B) a transferee of
an Acquiring Person (or of any Affiliate or Associate thereof) who becomes a
transferee after the Acquiring Person becomes such, or (C) a transferee of an
Acquiring Person (or of any Affiliate or Associate thereof) who becomes a
transferee before or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (i) a transfer (whether or not for
consideration) from the Acquiring Person (or from any Affiliate or Associate
thereof) to holders of equity interests in such Acquiring Person or to any
Person with whom the Acquiring Person has a continuing agreement, arrangement
or understanding regarding the transferred Rights or (ii) a transfer that the
Board has determined is part of a plan, arrangement or understanding that has
as a primary purpose or effect the avoidance of this Section 7.6, shall
become null and void without any further action, and no holder of such Rights
shall have any rights whatsoever with respect to such Rights, whether under
this Agreement or otherwise.  The
Corporation shall notify the Rights Agent when this Section 7.6 applies and
shall use all reasonable efforts to cause this Section 7.6 and
Section 4.2 hereof to be complied with, but neither the Corporation nor
the Rights Agent shall have any liability to any holder of Right Certificates
or other Person as a result of the Corporation’s failure to make any
determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.

 

7.7.          Notwithstanding anything in this
Agreement to the contrary, neither the Rights Agent nor the Corporation shall
be obligated to undertake any action with respect to a registered holder upon
the occurrence of any purported exercise as set forth in this Section 7
unless such registered holder shall have (A) properly completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise, and (B)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Corporation
or the Rights Agent shall reasonably request.

 

8.             Cancellation and
Destruction of Right Certificates.   All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Corporation or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement.  The
Corporation shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Corporation otherwise than upon the exercise
thereof.  The Rights Agent shall deliver
all cancelled Right Certificates to the Corporation, or shall, at the written
request of the Corporation,

 

11

 

destroy such cancelled
Right Certificates, and in such case shall deliver a certificate of destruction
thereof to the Corporation.

 

9.             Reservation and
Availability of Preferred Stock

 

9.1.          At all times before the occurrence of a
Section 11.1.2 Event, the Corporation shall cause to be reserved and kept
available out of its authorized and unissued Preferred Stock, the number of
shares of Preferred Stock that will be sufficient to permit the exercise in
full of all outstanding Rights and, after the occurrence of a
Section 11.1.2 Event, shall, to the extent reasonably practicable, so
reserve and keep available out of its authorized and unissued shares of Common
Stock (or other securities, as appropriate), a sufficient number of shares of
Common Stock (or other securities, as appropriate) that may be required to
permit the exercise in full of the Rights pursuant to this Agreement.

 

9.2.          So long as the shares of Preferred Stock
(and, after the occurrence of a Section 11.1.2 Event, shares of Common
Stock or any other securities) issuable upon the exercise of the Rights may be
listed on any stock exchange, the Corporation shall use its best efforts to
cause, from and after such time as the Rights become exercisable, all shares or
other securities reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.

 

9.3.          The Corporation shall take all such
actions as may be necessary to ensure that all shares of Preferred Stock (or
shares of Common Stock or other securities, as the case may be) delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
shares or other securities (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and non-assessable shares or
securities.

 

9.4.          The Corporation shall pay when due and
payable any and all taxes and governmental charges that may be payable in
respect of the issuance or related delivery of the Right Certificates or of any
shares of Preferred Stock (or shares of Common Stock or other securities, as
the case may be) upon the exercise of Rights. 
The Corporation shall not, however, be required to pay any tax or
governmental charge that may be payable in respect of any transfer or delivery
of Right Certificates to a Person other than, or the issuance or delivery of
certificates or depositary receipts for the shares of Preferred Stock (or
shares of Common Stock or other securities, as the case may be) in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise, or to issue or to deliver any certificates or
depositary receipts for shares of Preferred Stock (or shares of Common Stock or
other securities, as the case may be) upon the exercise of any Rights, until
any such tax or governmental charge shall have been paid (any such tax or
governmental charge being payable by the holder of such Right Certificate at
the time of surrender) or until it has been established to the Corporation’s
reasonable satisfaction that no such tax or governmental charge is due.

 

9.5.          The Corporation shall use its best
efforts to (A) file, as soon as practicable after the Shares Acquisition Date,
a registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (B) cause such
registration statement to become effective as soon as practicable after such
filing, and (C) cause

 

12

 

such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act and the rules and regulations thereunder) until the
date of the expiration of the period for exercise of the Rights provided by
Section 11.1.2.  The Corporation
shall also take such action as may be appropriate under the blue sky laws of
the various states.

 

10.           Preferred Stock Record
Date.  Each Person in whose name any certificate for
shares of Preferred Stock (or shares of Common Stock or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes
be deemed to have become the holder of record of the shares of Preferred Stock
(or shares of Common Stock or other securities, as the case may be) represented
thereby on, and such certificate shall be dated the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable taxes and governmental charges) was made; provided,
however, that, if the date of such surrender and payment is a date upon
which the shares of Preferred Stock (or shares of Common Stock or other
securities, as the case may be) transfer books of the Corporation are closed, such
Person shall be deemed to have become the record holder of such shares on, and
such certificate shall be dated, the next succeeding Business Day on which the
shares of Preferred Stock (or shares of Common Stock or other securities, as
the case may be) transfer books of the Corporation are open.

 

11.           Adjustment of Purchase
Price, Number and Kind of Shares or Number of Right. 
The Purchase Price, the number and kind of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.

 

11.1.        Adjustment Events

 

11.1.1.     If the Corporation shall at any time
after the date of this Agreement (A) declare a dividend on the Preferred Stock
payable in Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of Preferred
Stock or (D) issue any shares of its capital stock in a reclassification of the
Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing or surviving
corporation), except as otherwise provided in this Section 11.1 and Section 7.6
hereof, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable
on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the total number and
kind of shares of capital stock that, if such Right had been exercised
immediately before such date and at a time when the Preferred Stock transfer
books of the Corporation were open, such holder would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the total par value, if any, of the shares of capital stock of the
Corporation issuable upon exercise of one Right.  If an event occurs that would require an
adjustment under both Section 11.1.1 and Section 11.1.2, the
adjustment provided for in this Section 11.1.1 shall be in addition to,
and shall be made before, any adjustment required pursuant to
Section 11.1.2.

 

13

 

11.1.2.     In the event (a “Section 11.1.2
Event”) that any Person, alone or together with its Affiliates
and Associates, shall become an Acquiring Person, then the Corporation shall
make proper provision so that each holder of a Right (except as provided below
and in Section 7.6 hereof) shall, for a period of 60 days (or such longer
period as the Board may determine at any time before or during such 60-day
period after the later of the occurrence of any such event or the effective
date of an appropriate registration statement under the Act pursuant to
Section 9.5 hereof, have a right to receive, upon exercise thereof at a
price equal to the then current Purchase Price, in accordance with this
Agreement, such number of shares of Common Stock (or, in the discretion of the
Board, the number of one one-thousandths (1/1000ths) of a share of Preferred
Stock) as shall equal the result obtained by (A) multiplying the then current
Purchase Price by the then number of one one-thousandths (1/1000ths) of a share
of Preferred Stock for which a Right was exercisable immediately before the
first occurrence of the Section 11.1.2 Event, and (B) dividing that
product by 50% of the then current per share market price of the Common Stock
(determined pursuant to Section 11.4 hereof) on the date of such first
occurrence (such number of shares being referred to as the “Adjustment Shares”); provided,
however, that if the transaction that would otherwise give rise to the
foregoing adjustment is also subject to Section 13 hereof, then only
Section 13 hereof shall apply and no adjustment shall be made pursuant to
this Section 11.1.2.

 

11.1.3.     If there shall not be sufficient
authorized but unissued (and unreserved) Common Stock to permit the exercise in
full of the Rights in accordance with Section 11.1.2 and the Rights become
so exercisable (and the Board has not determined to make the Rights exercisable
solely into fractions of a share of Preferred Stock), notwithstanding any other
provision of this Agreement, to the extent necessary and permitted by
applicable law, each Right (except as provided below and in Section 7.6 hereof)
shall thereafter represent the right to receive, upon exercise thereof at the
then current Purchase Price in accordance with this Agreement, (A) a number of
(or fractions of) shares of Common Stock calculated by dividing the maximum
number of shares of Common Stock that may permissibly be issued by the number
of outstanding Rights and (B) a number of one one-thousandths (1/1000ths) of
shares of Preferred Stock or a number of, or fractions of, other equity
securities of the Corporation (or, in the discretion of the Board, debt) that the
Board has determined to have a total current market value (determined pursuant
to Section 11.1.1 and Section 11.1.2 hereof, to the extent applicable) equal to
the difference between (i) the total current market value of the Adjustment
Shares (assuming such shares of Common Stock could be issued pursuant to
Section 11.1.2 hereof) and (ii) the total current market value of the shares of
Common Stock issued in respect of such Right pursuant to the preceding clause
(A) (such number of, or fractions of, shares of Preferred Stock, debt or other
equity securities or debt of the Corporation being referred to as a “Capital Stock Equivalent”); provided,
however, that if a sufficient number of shares of Common Stock or
Capital Stock Equivalents are unavailable, then the Corporation shall, to the
extent permitted by applicable law, take all such action as may be necessary to
authorize additional shares of Common Stock or Capital Stock Equivalents for
issuance upon exercise of the Rights, including the calling of a meeting of
shareholders; and provided, further, that if the Corporation is
unable to cause sufficient shares of Common Stock or Capital Stock Equivalents
to be available for issuance upon exercise in full of the Rights, then each
Right shall thereafter represent the right to receive the Adjusted Number of
Shares upon exercise at the Adjusted Purchase Price.  “Adjusted Number of Shares”

 

14

 

shall mean that number of
(or fractions of) shares of Common Stock (or Capital Stock Equivalents) equal
to the product of (x) the number of Adjustment Shares and (y) a fraction, the
numerator of which is the number of shares of Common Stock (or Capital Stock
Equivalents) available for issuance upon exercise of the Rights, and the
denominator of which is the total number of Adjustment Shares otherwise
issuable upon exercise in full of all Rights (assuming there were a sufficient
number of shares of Common Stock available) (such fraction being referred to as
the “Proration Factor”).  “Adjusted Purchase Price”
means the product of the Purchase Price and the Proration Factor.  The Board may, but shall not be required to,
establish procedures to allocate the right to receive shares of Common Stock
and Capital Stock Equivalents upon exercise of the Rights among holders of
Rights.

 

11.2.        If the Corporation fixes a record date
for the issuance of rights (other than the Rights), options or warrants to all
holders of Preferred Stock entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase shares of
Preferred Stock (or shares having the same rights, privileges and preferences
as the Preferred Stock (“Equivalent Preferred Stock”))
or securities convertible into Preferred Stock or Equivalent Preferred Stock at
a price per share of Preferred Stock or Equivalent Preferred Stock (or having a
conversion price per share, if a security convertible into shares of Preferred
Stock or Equivalent Preferred Stock) less than the then current per share market
price of the Preferred Stock (as determined pursuant to Section 11.4
hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately before such record date by a fraction, the numerator of which shall
be the number of shares of Preferred Stock outstanding on such record date plus
the number of shares of Preferred Stock that the total offering price of the
total number of shares of Preferred Stock or Equivalent Preferred Stock so to
be offered (or the total initial conversion price of the convertible securities
so to be offered) would purchase at such current per share market price, and
the denominator of which shall be the number of shares of Preferred Stock
outstanding on such record date plus the number of additional shares of
Preferred Stock or Equivalent Preferred Stock to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
total par value, if any, of the shares of capital stock of the Corporation
issuable upon exercise of one Right.  In
case such subscription price may be paid in a consideration, part or all of
which shall be in a form other than cash, the value of such consideration shall
be determined in good faith by the Board. 
The Board’s determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent and the holders of
the Rights.  Preferred Stock owned by or
held for the account of the Corporation shall not be deemed outstanding for the
purpose of any such computation.  Such
adjustment shall be made successively whenever such a record date is
fixed.  If such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price that would then be in effect if such record date had not been
fixed.

 

11.3.        If the Corporation fixes a record date
for the making of a distribution to all holders of the Preferred Stock
(including any such distribution made in connection with a consolidation or
merger in which the Corporation is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend or a dividend payable in Preferred Stock) or subscription rights or
warrants (excluding those referred to in

 

15

 

Section 11.2 hereof),
the Purchase Price in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately before such record date by
a fraction, the numerator of which shall be the then current per share market
price (as determined pursuant to Section 11.4 hereof) of the Preferred
Stock on such record date, less the fair market value (as determined in good
faith by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the holders
of the Rights) of the portion of the assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to one
share of Preferred Stock, and the denominator of which shall be such current
per share market price of the Preferred Stock; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the total par value, if any, of the shares of capital stock
of the Corporation to be issued upon exercise of one Right.  Such adjustments shall be made successively
whenever such a record date is fixed.  If
the distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price that would then be in effect if such record date had not
been fixed.

 

11.4.         Computation of Current
Per Share Market Price.

 

11.4.1.     For the purpose of any computation
hereunder, the “current per share market
price” of any security (a “Security” for the purpose of this
Section 11.4.1) on any date shall be the average of the daily closing
prices per share of such Security for the 30 consecutive Trading Days
immediately before and not including such date; provided, however,
that, if the current per share market price of the Security is determined
during a period after the announcement by the issuer of such Security of (A) a
dividend or distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and before the expiration of 30 Trading Days
after (but not including) the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security.  The
closing price for each day shall be the last sale price, on the National Association
of Securities Dealers, Inc. Automated Quotations  (“NASDAQ”)
National Market System, or, in case the Security is listed on the NASDAQ
National Market System but no such sale takes place on that day, the last sale
price on the NASDAQ National Market System on the last day such a sale took
place or if, on any such day, the Security is not listed on the NASDAQ National
Market System, the last sale price, regular way, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by (“NASDAQ”)
or, if on any such the Security is not traded in the over-the-counter market,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board.  If, on any such date, no such market maker is
making a market in the Security, the fair value of the Security on such date as
determined in good faith by the Board shall be used.  “Trading Day”
means a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.

 

16

 

11.4.2.     For the purpose of any computation
hereunder, the “current per share market
price” of the Preferred Stock shall be determined in accordance with
the method set forth in Section 11.4.1 hereof.  If the shares of Preferred Stock are not
publicly traded, the “current per share
market price” of the Preferred Stock shall be the current per share
market price of the Common Stock as determined pursuant to Section 11.4.1
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by 1,000.  If neither the Common Stock nor the Preferred
Stock is publicly held or so listed or traded, “current per share market price” shall mean, with respect to
the Preferred Stock, the fair value per share as determined in good faith by
the Board.  That determination shall be
described in a statement filed with the Rights Agent and shall be binding on
the Rights Agent and the holders of the Rights.

 

11.5.        Anything herein to the contrary
notwithstanding, no adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments that by
reason of this Section 11.5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.  All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-thousandth
(1/1000th) of a share of Preferred Stock or of any other share or security as
the case may be.  Notwithstanding the
first sentence of this Section 11.5, any adjustment required by this
Section 11 shall be made no later than the earlier of (A) three years from
the date of the transaction that mandates such adjustment or (B) the Final
Expiration Date.

 

11.6.        If, as a result of an adjustment made
pursuant to Section 11.1.2 or Section 13.1 hereof, the holder of any
Right thereafter exercised shall become entitled to receive any shares of
capital stock of the Corporation other than Preferred Stock, thereafter the
number of other shares so receivable upon exercise of any Right shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Stock
contained in Section 11.1 through 11.3, inclusive, and Sections 7, 9, 10,
13 and 14 with respect to the Preferred Stock shall apply on like terms to any
such other shares.

 

11.7.        All Rights originally issued by the
Corporation subsequent to any adjustment made to the Purchase Price hereunder
shall evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-thousandths (1/1000ths) of a share of Preferred Stock
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.

 

11.8.        The Board may elect, on or after the date
of any adjustment of the Purchase Price, to adjust the number of Rights in lieu
of any adjustment in the number of one one-thousandths (1/1000ths) of a share
of Preferred Stock purchasable upon the exercise of a Right.  Each Right outstanding after any such
adjustment of the number of Rights shall be exercisable for the number of one
one-thousandths (1/1000ths) of a share of Preferred Stock for which a Right was
exercisable immediately before such adjustment. 
Each Right held of record before such adjustment of the number of Rights
shall become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately before the
adjustment of the Purchase Price by the Purchase Price in effect immediately
after

 

17

 

adjustment of the
Purchase Price.  The Corporation shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment and, if known at the time, the
amount of the adjustment to be made, and shall deliver a copy of such public
announcement to the Rights Agent.  This
record date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be at least
ten days later than the date of the public announcement.  If Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11.8, the
Corporation shall, as promptly as practicable, cause to be distributed, to the
holders of record of Right Certificates on such record date, Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which
such holders shall be entitled as a result of such adjustment or, at the option
of the Corporation, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
before the date of adjustment, and upon surrender thereof, if required by the
Corporation, new Right Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment.  Right Certificates to be so distributed shall
be issued, executed and countersigned in the manner provided for herein and
shall be registered in the names of the holders of record of Right Certificates
on the record date specified in the public announcement.

 

11.9.        Irrespective of any adjustment or change
in the Purchase Price or the number of one one-thousandths (1/1000ths) of a
share of Preferred Stock issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of one one-thousandths (1/1000ths) of a share of
Preferred Stock that were expressed in the initial Right Certificates issued
hereunder.

 

11.10.      Before taking any action that would cause
an adjustment reducing the Purchase Price below the then par value, if any, of
the number of one one-thousandths (1/1000ths) of a share of Preferred Stock,
share of Common Stock or other securities issuable upon exercise of the Rights,
the Corporation shall take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue such number of fully paid and non-assessable one one-thousandths
(1/1000ths) of a share of Preferred Stock, share of Common Stock or other
securities at such adjusted Purchase Price.

 

11.11.      In any case in which this Section 11
shall require that an adjustment in the Purchase Price be made effective as of
a record date for a specified event, the Corporation may elect to defer, until
the occurrence of such event, the issuance to the holder of any Right exercised
after such record date of the Preferred Stock, shares of Common Stock or other
securities of the Corporation, if any, issuable upon such exercise over and
above the Preferred Stock, shares of Common Stock or other securities of the
Corporation, if any, issuable upon such exercise on the basis of the Purchase
Price in effect before such adjustment; provided, however, that
the Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder’s right to receive such additional shares
upon the occurrence of the event requiring such adjustment and shall deliver to
the Rights Agent a notice describing the terms of such due bill or other
appropriate instrument.

 

11.12.      Anything in this Section 11 to the
contrary notwithstanding, the Corporation shall be entitled to make such
reductions in the Purchase Price, in addition to those

 

18

 

adjustments expressly
required by this Section 11, as and to the extent that the Board in its
sole discretion shall determine to be advisable in order that any (A)
consolidation or subdivision of the Preferred Stock, (B) issuance wholly for
cash of Preferred Stock at less than the current market price, (C) issuance
wholly for cash of Preferred Stock or securities that by their terms are
convertible into or exchangeable for Preferred Stock, (D) stock dividends or
(E) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Corporation to holders of its Preferred
Stock shall not be taxable to such holders.

 

11.13.      The Corporation shall not, at any time
after the Distribution Date, (A) consolidate with any other Person (other than
a Subsidiary of the Corporation in a transaction that does not violate
Section 11.14 hereof), (B) merge with or into any other Person (other than
a Subsidiary of the Corporation in a transaction that does not violate
Section 11.14 hereof), or (C) sell or transfer (or permit any Subsidiary
to sell or transfer), in one transaction, or a series of related transactions,
assets or earning power totaling more than 50% of the assets or earning power
of the Corporation and its Subsidiaries (taken as a whole) to any other Person
or Persons (other than the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11.14 hereof), if
(i) at the time of or immediately after such consolidation, merger, sale or transfer,
there are any charter or bylaw provisions or any rights, warrants or other
instruments or securities outstanding or agreements in effect or other actions
taken that would materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (ii) before, simultaneously with or
immediately after such consolidation, merger, sale or transfer, the
shareholders of the Person who constitutes, or would constitute, the “Principal
Party” for purposes of Section 13.1 hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.  The Corporation shall
not complete any such consolidation, merger, sale or transfer unless, prior
thereto, the Corporation and such other Person shall have executed and
delivered to the Rights Agent a supplemental agreement evidencing compliance
with this Section 11.13.

 

11.14.      After the Distribution Date, the
Corporation shall not, except as permitted by Section 23 or
Section 25.2 hereof, take (or permit any Subsidiary to take) any action
the purpose of which is to, or if at the time such action is taken it is
reasonably foreseeable that the effect of such action will be to, materially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights.

 

11.15.      The exercise of Rights under
Section 11.1.2 hereof shall only result in the loss of rights under
Section 11.1.2 to the extent so exercised and shall not otherwise affect
the rights represented by the Rights under this Agreement, including the rights
represented by Section 13 hereof.

 

12.           Certificate of Adjusted
Purchase Price or Number of Shares.  Whenever an
adjustment is made as provided in Section 11 or Section 13 hereof,
the Corporation shall promptly (A) prepare a certificate setting forth such
adjustment and a brief, reasonably detailed statement of the facts,
computations and methodology accounting for such adjustment, (B) file with the
Rights Agent and with each transfer agent for the Common Stock and the
Preferred Stock a copy of such certificate and (C) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25.1
hereof.  The Rights Agent shall be fully
protected in

 

19

 

relying on any such certificate
and on any adjustment therein contained and shall have no duty with respect to,
and shall not be deemed to have knowledge of, such adjustment unless and until
it shall have received such certificate.

 

13.           Consolidation, Merger or
Sale or Transfer of Assets or Earning Power

 

13.1.        If, on or after the Shares Acquisition
Date, directly or indirectly, (A) the Corporation shall consolidate with, or
merge with and into, any Interested Shareholder or, if in such merger or
consolidation all holders of shares of Common Stock are not treated alike, any
other Person, (B) the Corporation shall consolidate with, or merge with, any
Interested Shareholder or, if in such merger or consolidation all holders of
shares of Common Stock are not treated alike, any other Person, and the
Corporation shall be the continuing or surviving corporation of such
consolidation or merger (other than, in a case of any transaction described in
(A) or (B), a merger or consolation that would result in all of the securities
generally entitled to vote in the election of directors of the Corporation (“voting securities”)
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) all of the voting securities of the Corporation or such voting
surviving entity outstanding immediately after such merger or consolidation and
the holders of such securities not having changed as a result of such merger or
consolidation), or (C) the Corporation shall sell or otherwise transfer (or one
or more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
totaling more than 50% of the assets or earning power of the Corporation and its
Subsidiaries (taken as a whole) to any Interested Shareholder or Shareholders
or, if in such transaction (including any subsequent liquidating distribution
or distributions) all holders of Common Stock are not treated alike, any other
Person (other than the Corporation or any Subsidiary of the Corporation in one
or more transactions each of which does not violate Section 11.14 hereof),
then, and in each such case (except as provided in Section 13.4 hereof),
the Corporation shall make proper provision so that (i) each holder of a Right,
except as provided in Section 7.6 hereof, shall thereafter have the right
to receive, upon the exercise thereof at a price equal to the then current
Purchase Price, in accordance with this Agreement and in lieu of Preferred Stock,
such number of freely tradable shares of Common Stock of the Principal Party,
not subject to any liens, encumbrances, rights of first refusal or other
adverse claims, as shall equal the result obtained by (1) multiplying the then
current Purchase Price by the number of one one-thousandths (1/1000ths) of a
share of Preferred Stock for which a Right is then exercisable (without taking
into account any adjustment previously made pursuant to Section 11.1.2)
and dividing that product by (2) 50% of the then current per share market price
of the Common Stock of such Principal Party (determined pursuant to
Section 11.4 hereof) on the date of completion of such Section 13
Event; (ii) such Principal Party shall thereafter be liable for, and shall assume,
by virtue of such Section 13 Event, all the obligations and duties of the
Corporation pursuant to this Agreement; (iii) the term “Corporation” shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that Section 11 hereof shall apply only to such Principal Party
after the first occurrence of a Section 13 Event and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of
a sufficient number of its shares of Common Stock) in connection with the
completion of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the shares of Common Stock thereafter deliverable upon the
exercise of the Rights.

 

20

 

13.2.         “Principal Party” means:

 

13.2.1.     in the case of any transaction described
in clause (A) or (B) of the first sentence of Section 13.1 hereof, the
Person that is the issuer of any securities into which shares of Common Stock
of the Corporation are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such merger or
consolidation (including, if applicable, the Corporation if it is the surviving
corporation) and

 

13.2.2.     in the case of any transaction described
in clause (C) of the first sentence of Section 13.1 hereof, the Person
that is the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions; provided, however,
that in any of the foregoing cases, (A) if the Common Stock of such Person is
not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the shares of Common Stock of
which are and have been so registered, “Principal Party” shall refer to such
other Person; (B) in case such Person is a Subsidiary, directly or indirectly,
of more than one Person, the shares of Common Stock of two or more of which are
and have been so registered, “Principal Party” shall refer to whichever of such
Persons is the issuer of the Common Stock having the greatest total market
value and (C) in case such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in (A) and (B) above shall
apply to each of the chains of ownership having an interest in such joint
venture as if such party were a “Subsidiary” of both or all of such joint
venturers and the Principal Party or Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct
or indirect interests in such Person bear to the total of such interests.

 

13.3.         The Corporation shall not complete any
such consolidation, merger, sale or transfer unless the Principal Party shall
have a sufficient number of its authorized shares of Common Stock that have not
been issued or reserved for issuance to permit the exercise in full of the
Rights in accordance with this Section 13 and unless, prior thereto, the
Corporation and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
Sections 13.1 and 13.2 and further providing that, as soon as practicable after
the date of any consolidation, merger, sale or transfer mentioned in
Section 13.1, the Principal Party at its own expense shall (A) prepare and
file a registration statement under the Act with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate form, and
will use its best efforts to cause such registration statement to (i) become
effective as soon as practicable after such filing and (ii) remain effective
(with a prospectus at all times meeting the requirements of the Act) until the
Final Expiration Date; (B) use its best efforts to qualify or register the
Rights and the securities purchasable upon exercise of the Rights under the
blue sky laws of such jurisdictions as may be necessary or appropriate and (C)
deliver to holders of the Rights historical financial statements for the
Principal Party that comply in all respects with the requirements for
registration on Form 10 under the Exchange Act. 
This Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. 
The rights under this Section 13 shall be in addition to the rights
to exercise Rights and adjustments under Section 11.1.2 and shall survive
any exercise thereof.

 

21

 

13.4.        Notwithstanding anything in this
Agreement to the contrary, the foregoing provisions of this Section 13
shall not be applicable to a transaction described in clauses (A) and (B) of
Section 13.1 if:  (A) such
transaction is completed with a Person or Persons who acquired shares of Common
Stock pursuant to a Permitted Offer (or a wholly owned Subsidiary of any such
Person or Persons); (B) the price per share of Common Stock offered in such
transaction is not less than the price per share of Common Stock paid to all
holders of shares of Common Stock whose shares were purchased pursuant to such
Permitted Offer and (C) the form of consideration offered in such transaction
is the same as the form of consideration paid pursuant to such Permitted
Offer.  Upon completion of any such
transaction contemplated by this Section 13.4, all Rights hereunder shall
expire.

 

14.           Fractional Rights and
Fractional Shares

 

14.1.        The Corporation shall not be required to
issue fractions of Rights or to distribute Right Certificates that evidence
fractional Rights.  In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right.  For the purposes
of this Section 14.1, the current market value of a whole Right shall be
the closing price of the Rights for the Trading Day immediately before the date
on which such fractional Rights would otherwise have been issuable.  The closing price for any day shall be the
last sale price for the Rights, regular way, or, in case no such sale takes
place on such day, the last sale price on the last day such a sale took place,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to which securities listed on the
principal national securities exchange on which Rights are listed or admitted
to trading or, if the Rights are not listed or admitted to trading on a
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by NASDAQ or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board.  If on
any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the Board shall
be used.

 

14.2.        The Corporation shall not be required to
issue fractions of shares of Preferred Stock (other than fractions that are one
one-thousandth (1/1000th) or integral multiples of one one-thousandth
(1/1000th) of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates that evidence fractional shares of Preferred Stock
(other than fractions that are one one-thousandth (1/1000th) or integral
multiples of one one-thousandth (1/1000th) of a share of Preferred Stock).  Fractions of shares of Preferred Stock in
integral multiples of one one-thousandth (1/1000th) of a share of Preferred
Stock may, at the election of the Corporation, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Corporation and a
depositary selected by it; provided, however, that such agreement
shall provide that the holders of such depositary receipts shall have the
rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Stock represented by such depositary receipts.  In lieu of fractional shares of Preferred
Stock that are not one one-thousandth (1/1000th) or integral multiples of one
one-thousandth (1/1000th) of a share of Preferred Stock, the

 

22

 

Corporation shall pay to
the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of
the current market value of one share of Preferred Stock.  For the purposes of this Section 14.2,
the current market value of a share of Preferred Stock shall be the closing
price of a share of Preferred Stock (as determined pursuant to
Section 11.4.2 hereof) for the Trading Day immediately before the date of
such exercise.

 

14.3.        After the occurrence of one of the
transactions or events specified in Section 11 hereof giving rise to the
right to receive shares of Common Stock, Capital Stock Equivalents (other than
Preferred Stock) or other securities upon the exercise of a Right, the
Corporation shall not be required to issue fractions of shares or units of such
shares of Common Stock, Capital Stock Equivalents or other securities upon
exercise of the Rights or to distribute certificates that evidence fractions of
such shares of Common Stock, Capital Stock Equivalents or other
securities.  In lieu of fractional shares
or units of such shares of Common Stock, Capital Stock Equivalents or other
securities, the Corporation may pay to the registered holders of Right
Certificates, at the time such Rights are exercised as herein provided, an
amount in cash equal to the same fraction of the current market value of a
share or unit of such shares of Common Stock, Capital Stock Equivalents or
other securities.  For purposes of this
Section 14.3, the current market value shall be determined in the manner
set forth in Section 11.4 hereof for the Trading Day immediately before
the date of such exercise and, if such Capital Stock Equivalent is not traded,
each such Capital Stock Equivalent shall have the value of one one-thousandth
(1/1000th) of a share of Preferred Stock.

 

14.4.        The holder of a Right by the acceptance
of the Right expressly waives such holder’s right to receive any fractional
Rights or any fractional share upon exercise of a Right (except as provided
above).  The Rights Agent shall not be
deemed to have knowledge of, and shall have no duty in respect of, the issuance
of fractional Rights or fractional shares unless and until it shall have
received instructions from the Corporation concerning the issuance of such
fractional Rights or fractional shares.

 

15.           Rights of Action. 
All rights of action in respect of this Agreement, except the rights of
action given to the Rights Agent under this Agreement, are vested in the
respective registered holders of the Right Certificates (and, before the
Distribution Date, the registered holders of shares of the Common Stock).  Any registered holder of any Right
Certificate (or, before the Distribution Date, of shares of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, before the Distribution Date, of shares of the Common Stock),
may, in such registered holder’s own behalf and for such registered holder’s
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Corporation to enforce, or otherwise act in respect of,
such registered holder’s right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this
Agreement.  Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.  Nothing in this
Section 15 is intended to modify or limit the authority of the Board under
Section 25.3.

 

23

 

16.           Agreement of Right
Holders.  Every holder of a Right, by accepting the
same, consents and agrees with the Corporation and the Rights Agent and with
every other holder of a Right that:

 

16.1.        Before the Distribution Date, the Rights
will be transferable only in connection with the transfer of the associated
shares of Common Stock;

 

16.2.        After the Distribution Date, the Right
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer and with the
appropriate form fully executed;

 

16.3.        Subject to Section 6 and Section 7.7
hereof, the Corporation and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, before the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Stock
certificate made by any Person other than the Corporation or the Rights Agent)
for all purposes whatsoever, and neither the Corporation nor the Rights Agent,
subject to the last sentence of Section 7.6 hereof, shall be required to
be affected by any notice to the contrary and

 

16.4.        Notwithstanding anything in this
Agreement to the contrary, neither the Corporation nor the Rights Agent shall
have any liability to any holder of a Right or a beneficial interest in a Right
or other Person as a result of its inability to perform any of its obligations
under this Agreement by reason of any preliminary or permanent injunction or
other order, decree, judgment or ruling (whether interlocutory or final) issued
by a court or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, that the
Corporation shall use its best efforts to have any such order, decree, judgment
or ruling lifted or otherwise overturned as soon as practicable.

 

17.           Right Certificate Holder
Not Deemed a Shareholder.   No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of shares of the Preferred Stock or any
other securities of the Corporation that may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Corporation or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 24 hereof), or to receive
dividends or other distributions or to exercise any preemptive or subscription
rights, or otherwise, until the Right or Rights evidenced by such Right
Certificate shall have been exercised in accordance with this Agreement.

 

24

 

18.           Concerning the Rights
Agent

 

18.1.        The Corporation shall pay the Rights
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the administration,
preparation, delivery, amendment and execution of this Agreement and the
exercise and performance of its duties hereunder.  The Corporation shall also indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, damage,
judgment, fine, penalty, claim, demand, settlement, cost or expense incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent, as finally determined by a court of competent jurisdiction, for
any action taken, suffered or omitted by the Rights Agent in connection with
the acceptance and administration of this Agreement including, without limitation,
the costs and expenses of defending against any claim of liability in respect
of any such action.  The Corporation
shall also pay the costs and expenses of enforcing this right of
indemnification.  The indemnity,
exculpation and compensation provisions provided for in this Agreement,
including, but not limited to, Sections 18 and 20, shall survive the expiration
of the Rights, the termination of this Agreement, and the resignation or
removal of the Rights Agent hereunder.

 

18.2.        The Rights Agent may conclusively rely
upon and shall be authorized and protected and shall incur no liability for, or
in respect of, any action taken, suffered or omitted by it in connection with
the acceptance and administration of this Agreement in reliance upon any Right
Certificate or certificate for shares of Common Stock or for other securities
of the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it in good faith to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons.  The Rights
Agent shall not be deemed to have knowledge of, and shall have no duty in
respect of, any fact contained in such Right Certificate or certificate for
shares of Common Stock or for other securities of the Corporation, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other paper or document
unless and until it shall have received the same.

 

18.3.        Anything in this Agreement to the
contrary notwithstanding, in no event shall the Rights Agent be liable for
special, indirect, punitive, incidental or consequential loss or damage of any
kind whatsoever (including, but not limited to, lost profits), even if the
Rights Agent has been advised of the likelihood of such loss or damage and
regardless of the form of the action. 
Any liability of the Rights Agent hereunder will be limited to the
amount of fees paid by the Corporation to the Rights Agent hereunder.

 

19.           Merger or Consolidation
or Change of Name of Rights Agent

 

19.1.        Any Person into which the Rights Agent or
any successor Rights Agent may be merged or with which it may be consolidated,
or any Person resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any Person succeeding
to all or substantially all of the shareholder services business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent
under this

 

25

 

Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided, however, that such Person would be
eligible for appointment as a successor Rights Agent under Section 21
hereof.

 

19.2.        In case at any time the name of the
Rights Agent shall be changed and at such time any of the Right Certificates
shall have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned.  In case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name.  In all such cases, such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

 

20.           Duties of Rights Agent

 

20.1.        The Rights Agent undertakes those duties
and obligations, and only those duties and obligations, expressly imposed by
this Agreement (and no implied duties or obligations) upon the following terms
and conditions, and no implied duties or obligations shall be read into this
Agreement against the Rights Agent, by all of which the Corporation and the
holders of Right Certificates, by their acceptance thereof, shall be bound.

 

20.2.        Before the Rights Agent acts or refrains
from acting, the Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the advice or opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent, and the
Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it in good faith and in accordance with such advice or
opinion.

 

20.3.        Whenever in the performance of its duties
under this Agreement, the Rights Agent shall deem it necessary or desirable
that any fact or matter (including, without limitation, the identity of an
Acquiring Person and the determination of the current market price of any
security) be proved or established by the Corporation before taking, suffering
or omitting any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Corporation and delivered to
the Rights Agent, and such certificate shall be full authorization and
protection to the Rights Agent and the Rights Agent shall incur no liability
for or in respect of any action taken, 
suffered or omitted in good faith by it under this Agreement in reliance
upon such certificate.

 

20.4.        The Rights Agent shall be liable
hereunder only for its own gross negligence, bad faith or willful misconduct,
as finally determined by a court of competent jurisdiction.

 

20.5.        The Rights Agent shall not be liable for,
or by reason of, any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature on such
Right Certificates) or be required to verify the same.

 

26

 

20.6.        The Rights Agent shall not have any
liability in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof).  The Rights
Agent shall not be responsible for any breach by the Corporation of any of the
Corporation’s covenants contained in this Agreement or in any Right
Certificate, or any change in the exercisability of the Rights (including the
Rights becoming null and void pursuant to Section 7.6 hereof) or any
adjustment required under Section 11, Section 13 or Section 26
hereof or be responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after receipt of the certificate described in
Section 12 hereof).  The Rights
Agent shall not, by any act hereunder, be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Preferred
Stock or Common Stock to be issued pursuant to this Agreement or any Right
Certificate or as to whether any shares of Preferred Stock or Common Stock
will, when issued, be validly authorized and issued, fully paid or
non-assessable.

 

20.7.        The Corporation shall perform, execute,
acknowledge and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performance
by the Rights Agent of this Agreement.

 

20.8.        The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President or the Secretary of the Corporation,
and to apply to such officers for advice or instructions in connection with its
duties.  Such instructions shall be full
authorization and protection of the Rights Agent, and the Rights Agent shall
incur no liability for or in respect of any action taken, suffered or omitted
by it in good faith or lack of action in accordance with instructions of any
such officer or for any delay in acting while waiting for those
instructions.  The Rights Agent shall
incur no liability for or in respect of its reliance upon the most recent
instructions received by any such officer. 
Any application by the Rights Agent for written instructions from the
Corporation may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on or after which such action shall be taken or such omission
shall be effective.  The Rights Agent
shall not be liable for any action taken or suffered by, or omission of, the
Rights Agent in accordance with a proposal included in any such application on
or after the date specified in such application (which date shall not be less
than five Business Days after the date any officer of the Corporation actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, before taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have
received written instruction in response to such application specifying the
action to be taken, suffered or omitted.

 

20.9.        The Rights Agent and any shareholder,
affiliate, director, officer or employee of the Rights Agent may buy, sell or
deal in any of the Rights or other securities of the Corporation or become
pecuniarily interested in any transaction in which the Corporation may be
interested, or contract with or lend money to the Corporation or otherwise act
as fully and freely

 

27

 

as though it were not
Rights Agent under this Agreement. 
Nothing herein shall preclude the Rights Agent from acting in any other
capacity for the Corporation or for any other Person.

 

20.10.      The Rights Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, negligence or
misconduct of any such attorneys or agents or for any loss to the Corporation
or any other Person resulting from any such act, default, negligence or
misconduct, absent gross negligence, bad faith or willful misconduct, as
finally determined by a court of competent jurisdiction, in the selection and
continued employment thereof.

 

20.11.      No provision of this Agreement shall
require the Rights Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in the
exercise of its rights, if it believes that repayment of such funds or adequate
indemnification against such risk or liability is not reasonably assured to it.

 

20.12.      If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has not been completed, the Rights Agent shall not take any further
action with respect to such requested exercise or transfer without first
consulting with the Corporation.

 

20.13.      The Rights Agent shall not be required to
take notice or be deemed to have notice of any fact, event or determination
(including, without limitation, any dates or events defined in this Agreement
or the designee of a Person as an Acquiring Person, Affiliate or Associate),
under this Agreement unless and until the Rights Agent shall be specifically
notified in writing by the Corporation of such fact, event or determination.

 

21.           Change of Rights Agent

 

21.1.        The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
days’ notice in writing mailed to the Corporation and to each transfer agent of
the Common Stock or Preferred Stock by registered or certified mail, and, at
the expense of the Corporation, to the holders of the Right Certificates by
first-class mail.  The Corporation may
remove the Rights Agent or any successor Rights Agent upon 60 days’ notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Stock or Preferred Stock by
registered or certified mail, and to holders of the Right Certificates by
first-class mail.  If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Corporation shall appoint a successor to the Rights Agent.

 

21.2.        If the Corporation shall fail to make
such appointment within a period of 60 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit the holder’s Right Certificate
for inspection by the Corporation), then the registered holder of any Right
Certificate may apply to

 

28

 

any court of competent
jurisdiction for the appointment of a new Rights Agent.  Any successor Rights Agent, whether appointed
by the Corporation or by such a court, shall be (A) a Person organized and
doing business under the laws of the United States or of any of the States of
New York, Delaware or California (or of any other state of the United States,
so long as such Person is authorized to do business in any of the States of New
York, Delaware or California), in good standing, having an office in any of
such States, which is subject to supervision or examination by federal or state
authority and which (or the parent corporation of which) has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (B) an affiliate of such Person.

 

21.3.        After appointment, the successor Rights
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Rights Agent without further act or deed;
provided, however, that the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time
held by it hereunder, and execute and deliver, at the Corporation’s sole
expense, any further assurance, conveyance, act or deed necessary for that
purpose.  In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of a predecessor
Rights Agent and deliver such Right Certificates so countersigned and, in case
at that time, any of the Right Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Right Certificates either in
the name of the predecessor or in the name of the successor Rights Agent.  In all such cases, such Right Certificates
shall have the full force provided in the Right Certificates and this
Agreement.  Not later than the effective
date of any such appointment, the Corporation shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Stock or Preferred Stock, and mail a notice thereof in writing to the
registered holders of the Right Certificates. 
Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.

 

22.           Issuance of New Right
Certificates

 

22.1.        Notwithstanding any of the provisions of
this Agreement or of the Rights to the contrary, the Corporation may, at its
option, issue new Right Certificates evidencing Rights in such form as may be
approved by the Board to reflect any adjustment or change in the Purchase Price
and the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with this
Agreement.

 

22.2.        In connection with the issuance or sale
of Common Stock after the Distribution Date and before the earlier of the
Redemption Date and the Final Expiration Date, the Corporation (A) shall with
respect to shares of Common Stock so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities, notes or debentures issued by the
Corporation, and (B) may in any other case, if deemed necessary or appropriate
by the Board, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale;  provided, however, that (i) the
Corporation shall not be obligated to issue any such Right

 

29

 

Certificates if and to
the extent the Corporation shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the
Corporation or the Person to whom such Right Certificate would be issued, and
(ii) no Right Certificate shall be issued if and to the extent that appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.

 

23.           Redemption and
Termination

 

23.1.         Redemption

 

23.1.1.     The Board may, at its option, redeem all
but not less than all of the then outstanding Rights at a redemption price of
$0.0001 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the “Redemption Price”), at any time
before the earlier of the occurrence of a Section 11.1.2 Event or the
Final Expiration Date.  The Corporation
may, at its option, pay the Redemption Price either in shares of Common Stock
(based on the current per share market price of the Common Stock at the time of
redemption) or cash; provided, however, that, if the Corporation
elects to pay the Redemption Price in shares of Common Stock, the Corporation
shall not be required to issue any fractional shares of Common Stock and the
number of shares of Common Stock issuable to each holder of Rights shall be
rounded down to the next whole share.

 

23.1.2.     In addition, the Board may, at its
option, at any time after the occurrence of a Section 11.1.2 Event, and
the expiration of any period during which the holder of Rights may exercise the
Rights under Section 11.1.2 but before any Section 13 Event, redeem
all but not less than all of the then outstanding Rights at the Redemption
Price (A) in connection with any merger, consolidation or sale or other
transfer (in one transaction or in a series of related transactions) of assets
or earning power totaling 50% or more of the earning power of the Corporation
and its Subsidiaries (taken as a whole) in which all holders of shares of
Common Stock are treated alike and not involving (other than as a holder of
shares of Common Stock being treated like all other such holders) an Interested
Shareholder or (B) (i) if and for so long as the Acquiring Person is not
thereafter the Beneficial Owner of 20% or more of the Common Stock, and (ii) at
the time of redemption no other Persons are Acquiring Persons.

 

23.2.        In the case of a redemption permitted
under Section 23.1.1 hereof, immediately upon the date for redemption set
forth in (or determined in the manner specified in) a resolution of the Board
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and,
thereafter, the only right of the holders of Rights shall be to receive the
Redemption Price for each Right so held. 
In the case of a redemption permitted only under Section 23.1.2
hereof, the right to exercise the Rights will terminate and represent only the
right to receive the Redemption Price upon the later of ten Business Days after
the giving of such notice or the expiration of any period during which the
Rights may be exercised under Section 11.1.2 hereof.  The Corporation shall promptly give public
notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the
validity of such redemption.  Within ten
days after such date for redemption set forth in a resolution of the Board
ordering the redemption of the Rights,

 

30

 

the Corporation shall
mail a notice of redemption to the Rights Agent and all the holders of the then
outstanding Rights at (in the case of notice to holders) their addresses as
they appear upon the registry books of the Rights Agent or, before the
Distribution Date, on the registry books of the transfer agent for the Common
Stock.  Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice.  Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.  Neither the Corporation
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than as specifically set forth
in this Section 23 and other than in connection with the purchase of
shares of Common Stock before the Distribution Date.

 

23.3.        The Corporation may, at its option,
discharge all of its obligations with respect to the Rights by (A) issuing a
press release announcing the manner of redemption of the Rights in accordance
with this Agreement and (B) mailing payment of the Redemption Price to the
registered holders of the Rights at their addresses as they appear on the
registry books of the Rights Agent or, before the Distribution Date, on the
registry books of the Transfer Agent of the Common Stock, and upon such action,
all outstanding Rights and Right Certificates shall be null and void without
any further action by the Corporation.

 

24.           Notice of Certain Events.

 

24.1.        If the Corporation proposes (A) to pay
any dividend payable in stock of any class to the holders of its Preferred
Stock or to make any other distribution to the holders of its Preferred Stock
(other than a regular quarterly cash dividend), (B) to offer to the holders of
its Preferred Stock rights or warrants to subscribe for or to purchase any
additional Preferred Stock or shares of stock of any class or any other
securities, rights or options, (C) to effect any reclassification of its
Preferred Stock (other than a reclassification involving only the subdivision
of outstanding Preferred Stock), (D) to effect any consolidation or merger into
or with any other Person (other than a Subsidiary of the Corporation in a
transaction which does not violate Section 11.14 hereof), or to effect any
sale or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer) in one or more transactions, of 50% or more of the
assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Corporation and/or any of
its Subsidiaries in one or more transactions each of which does not violate
Section 11.14 hereof), or (E) to effect the liquidation, dissolution or
winding up of the Corporation, then, in each such case, the Corporation shall
give the Rights Agent and to each holder of a Right Certificate, in accordance
with Section 25 hereof, a notice of such proposed action.  The notice shall specify the record date for
the purposes of such stock dividend or distribution of rights or warrants, or
the date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Preferred Stock, if any such date
is to be fixed.  Such notice shall be so
given in the case of any action covered by clause (A) or (B) above at least 20
days before the record date for determining the holders of the Preferred Stock
for purposes of such action, and in the case of any such other action, at least
20 days before the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Stock, whichever shall be
the earlier.

 

31

 

24.2.        In case of a Section 11.1.2 Event,
(A) the Corporation shall as soon as practicable thereafter give to each holder
of a Right Certificate, in accordance with Section 25.1.3 hereof, a notice
of the occurrence of such event.  The
notice shall describe such event and the consequences of such event to holders
of Rights under Section 11.1.2 hereof, and (B) all references in the
preceding Section 24.1 to Preferred Stock shall be deemed thereafter to
refer also to shares of Common Stock or, if appropriate, other securities of
the Corporation.

 

25.           Miscellaneous

 

25.1.        Notices

 

25.1.1.     Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Corporation shall be sufficiently given or made if
sent by registered or certified mail and shall be deemed given upon receipt,
addressed (until another address is filed in writing with the Rights Agent) as
follows:

 

Depomed, Inc.

1360 O’Brien Drive

Menlo Park,
California  94025

Attention:  Chief Financial Officer

 

25.1.2.     Subject to Section 21 hereof, any
notice or demand authorized by this Agreement to be given or made by the
Corporation or by the holder of any Right Certificate to or on the Rights Agent
shall be sufficiently given or made if sent registered or certified mail and
shall be deemed given upon receipt, addressed (until another address is filed
in writing with the Corporation) as follows:

 

Continental Stock
Transfer & Trust Company

17 Battery Place

New York, New York  10004

Attention:  Compliance Department

 

25.1.3.     Notices or demands authorized by this
Agreement to be given or made by the Corporation or the Rights Agent to the
holder of any Right Certificate or, if before the Distribution Date, to the
holder of certificates representing shares of Common Stock, shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Corporation.

 

25.2.        Supplements and
Amendments.   The
Corporation may from time to time supplement or amend any provision of this
Agreement without the approval of any holders of Rights in order to cure any
ambiguity, to correct, supplement or amend any provision herein, or to make any
other provision with respect to the Rights which the Corporation may deem
necessary or desirable, any such supplement or amendment to be evidenced by a
writing signed by the Corporation and the Rights Agent; provided, however,
that from and after any Shares

 

32

 

Acquisition Date, this
Agreement shall not be amended in any manner which will adversely affect the
interests of the holders of Rights.  Upon
the delivery of a certificate from an appropriate officer of the Corporation which
states that the proposed supplement or amendment is in compliance with the
terms of this Section 25.2 and, if requested by the Rights Agent, an
opinion of counsel, the Rights Agent shall execute such supplement or
amendment.  Before the Distribution Date,
the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of shares of Common Stock.  This Agreement shall not be amended, without
the prior written consent of the Rights Agent, in any manner that changes or increases
the duties, liabilities or obligations of the Rights Agent.

 

25.3.        Determination and
Actions by the Board Etc.   The Board
shall have the exclusive power and authority to administer this Agreement and
to exercise all rights and powers specifically granted to the Board, or the
Corporation, or as may be necessary or advisable in the administration of this
Agreement, including without limitation, the right and power to (A) interpret
this Agreement, and (B) make all determinations deemed necessary or advisable
for the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders
of Right Certificates).  For all purposes
of this Agreement, any calculation of the number of shares of Common Stock or
other securities outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common
Stock or any other securities of which any Person is the Beneficial Owner,
shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of
the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement, or any successor sentence or rule.  All such actions, calculations,
interpretations and determinations (including, for purposes of clause (ii)
below, all omissions with respect to the foregoing) which are done or made by
the Board in good faith, shall (i) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Right Certificates and all
other Persons, and (ii) not subject the Board to any liability to the holders
of the Right Certificates or any other Person. 
The Rights Agent shall be fully protected and shall incur no liability
for or in respect of its reliance on the good faith of the Board with respect
to actions done or made in connection with such calculation.  Nothing in Section 15 hereof is intended
to modify or limit this Section 25.3.

 

25.4.        Successors.  
All the covenants and provisions of this Agreement by or for the benefit
of the Corporation or the Rights Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.

 

25.5.        Benefits of this
Agreement.   Nothing in this Agreement shall be construed
to give to any Person other than the Corporation, the Rights Agent and the
registered holders of the Right Certificates (and, before the Distribution
Date, the shares of Common Stock) any legal or equitable right, remedy or claim
under this Agreement.  This Agreement
shall be for the sole and exclusive benefit of the Corporation, the Rights
Agent and the registered holders of the Right Certificates (and, before the
Distribution Date, the shares of Common Stock).

 

25.6.        Severability.  
If any provision of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the other

 

33

 

provisions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated unless, and then only to the extent that,
that is a necessary consequence of that holding.

 

25.7.        Governing Law.  
This Agreement, and each Right and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
California and for all purposes shall be governed by and construed in
accordance with the laws of that state applicable to contracts to be made and
performed entirely within that state.

 

25.8.        Counterparts.  
This Agreement may be executed in any number of counterparts.  Each counterpart shall for all purposes be
deemed to be an original, and all counterparts shall together constitute one and
the same instrument.

 

25.9.        Descriptive Headings.  
Descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.

 

26.           Exchange

 

26.1.        Notwithstanding any other provision
hereof, the Board may, at its option, at any time after any Person becomes an
Acquiring Person, exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have become null and void pursuant
to Section 7.6 hereof) for shares of Common Stock of the Corporation at an
exchange ratio determined by dividing the then-applicable exercise price of the
Rights determined under Section 7.2 by the “current per share market price”
as defined in Section 11.4.1 (such exchange ratio being hereinafter
referred to as the “Exchange Ratio”).  Notwithstanding the foregoing, the Board
shall not be empowered to effect such exchange at any time after any Person
(other than the Corporation, any Subsidiary of the Corporation, any employee
benefit plan of the Corporation or any such Subsidiary, or any Person
organized, appointed or established by the Corporation for or pursuant to the
terms of any such plan or any trustee, administrator or fiduciary of such a
plan), together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Stock then outstanding.

 

26.2.        Immediately upon the action of the Board
ordering the exchange of any Rights pursuant to Section 26.1 and without
any further action and without any notice, the right to exercise such rights
shall terminate and the only right thereafter of the holder of such Rights
(other than a holder of Rights that have become null and void pursuant to Section 7.6
hereof) shall be to receive that number of shares of Common Stock equal to the
number of such Rights held by such holder multiplied by the Exchange
Ratio.  The Corporation shall promptly
give public notice, and shall promptly give notice to the Rights Agent, of any
such exchange; provided, however, that the failure to give, or
any defect in, such notice shall not affect the validity of such exchange.  The Corporation shall promptly mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent.  Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice.  Each such notice of exchange
shall state the method by which the exchange of the Common Stock for Rights
will be effected and, in the

 

34

 

event of any partial
exchange, the number of Rights which will be exchanged.  Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights which have become void
pursuant to Section 7.6 hereof) held by each holder of Rights.

 

26.3.        If there shall not be a sufficient number
shares of Common Stock authorized but unissued and unreserved to permit any
exchange of Rights as contemplated by this Section 26, the Corporation
shall take all such action as may be necessary to issue additional shares of
Common Stock, Preferred Stock and/or Capital Stock Equivalents with a total current
market value (as determined by the Board) equal to the total of current market
value of a number of shares of Common Stock equal to the Exchange Ratio.

 

27.           Certain Beneficial
Owners.  The Company is aware that Biovail
Laboratories Incorporated (“Biovail”) (i) beneficially owns 4,092,032 outstanding
shares of the Common Stock (the “Biovail Outstanding Shares”), (ii) holds
warrants issued on April 21, 2003 to purchase 569,154 shares of the Common
Stock (the “Biovail
Warrants”) and (iii) has the option (the “Biovail Purchaser’s Option”
and together with the Biovail Outstanding Shares and Biovail Warrants, the “Biovail Securities”),
exercisable at any time prior to July 9, 2005, to acquire additional shares of
the Common Stock issuable pursuant to the stock purchase agreement (the “Biovail Stock Purchase Agreement”),
dated as of May 28, 2002, between the Corporation and Biovail, up to the
amount sufficient for Biovail to have purchased or been granted pursuant to the
provisions of the Biovail Stock Purchase Agreement 20% of the issued and
outstanding Common Stock.  Neither (i)
the beneficial ownership by Biovail of the Biovail Securities or the Common
Stock underlying the Biovail Warrants or the Biovail Purchaser’s Option (ii)
the acquisition by Biovail of the Common Stock underlying Biovail Warrants or
the Biovail Purchaser’s Option shall constitute Biovail an Acquiring Person; provided, however,
that, Biovail shall be deemed an Acquiring Person in the event that Biovail
becomes, subsequent to the first public announcement of the execution of this
Agreement, the Beneficial Owner of shares of Common Stock (other than the
Biovail Securities or the Common Stock underlying the Biovail Warrants or the
Biovail Purchaser’s Option) that, when aggregated with Biovail’s then current
beneficial ownership of Common Stock (including the Biovail Securities or the
Common Stock underlying the Biovail Warrants or the Biovail Purchaser’s
Option), represent 20% or more of the Common Stock.

 

 

[signature page follows]

 

35

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the date and year first written above.

 

	
   

  	
  DEPOMED, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John F. Hamilton

  	
   

  
	
   

  	
  Name: John F. Hamilton

  	
   

  
	
   

  	
  Title: Vice President - Finance and Chief Financial
  Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONTINENTAL STOCK TRANSFER &
  TRUST COMPANY

  
	
   

  	
  as Rights Agent

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William F. Seegraber

  	
   

  
	
   

  	
  Name: William F. Seegraber

  	
   

  
	
   

  	
  Title: Vice President

  	
   

  
						

 

36

 

Exhibit A

 

Certificate of Determination 

of 

Series RP Preferred Stock

of

Depomed, Inc.

(Pursuant to Section 401 of the California Corporations Code)

 

1.             I, John F. Hamilton, Vice President -
Finance and Chief Financial Officer of Depomed, Inc., a corporation organized
and existing under the Corporations Code of the State of California (the “Corporation”), in
accordance with Section 401 Corporations Code of the State of California, DO
HEREBY CERTIFY:

 

2.             That pursuant to the authority conferred
upon the Board of Directors of the Corporation by the Amended and Restated
Articles of Incorporation of the Corporation, the Board of Directors on April
21, 2005, adopted the following resolutions creating a series of 100,000 shares
of Preferred Stock designated as Series RP Preferred Stock, none of which have
been issued, and that the following resolutions are a true and correct copy of
the resolutions adopted by the Board of Directors in respect of the creation of
the Corporation’s Series RP Preferred Stock.

 

RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Corporation under its Amended and Restated
Articles of Incorporation, the Board of Directors hereby creates a series of
100,000 shares of Series RP Preferred Stock, without par value, of the
Corporation and hereby determines that the designation and number of shares
that stock and their rights, preferences and limitations (in addition to the
provisions set forth in the Amended and Restated Articles of Incorporation of
the Corporation, which are applicable to preferred stock of all classes and
series), shall be as set forth below:

 

Series RP Preferred Stock

 

Section
1.               Designation, Par Value and Amount. 
The shares of such series shall be designated as “Series RP Preferred
Stock” (hereinafter referred to as “Series RP Preferred Stock”),
the shares of such series shall be without par value, and the number of shares
constituting such series shall be 100,000; provided, however,
that, if more than a total of 100,000 shares of Series RP Preferred Stock shall
be issuable upon the exercise of Rights (the “Rights”)
issued pursuant to the Rights Agreement dated as of April 21, 2005 between the
Corporation and Continental Stock Transfer and Trust Company, a New York
corporation, as Rights Agent (as amended from time to time, the “Agreement”), the Board of Directors
of the Corporation shall direct by resolution or resolutions that a certificate
be properly executed, acknowledged and filed providing for the total number of
shares of Series RP Preferred Stock authorized to be issued to be increased (to
the extent that the Restated Articles of Incorporation then permits) to the
largest

 

1

 

number of whole shares of Series RP Preferred Stock
(rounded up to the nearest whole number) issuable upon exercise of the Rights.

 

Section
2.               Dividends and Distributions

 

2.1           Subject to the prior and superior rights
of the holders of any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series RP Preferred Stock with respect to dividends
(including without limitation the Corporation’s Series A Preferred Stock), the
holders of shares of Series RP Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of assets legally
available for that purpose, quarterly dividends payable in cash on the first
business day of March, June, September and December in each year (each such
date being referred to herein as a “Quarterly Dividend Payment
Date”), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series RP
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (A) $1.00 or (B) subject to the provision for adjustment set
forth in Section 6.1, 1,000 times the total per share amount of any and all
cash dividends, and 1,000 times the total per share amount (payable in kind) of
any and all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock, no par value, of the Corporation (the “Common Stock”) or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series RP
Preferred Stock.

 

2.2           The Corporation shall declare a dividend
or distribution on the Series RP Preferred Stock as provided in Section 2.1
above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, if no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series RP Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.

 

2.3           Dividends shall begin to accrue and be
cumulative on outstanding shares of Series RP Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series RP Preferred Stock, unless the date of issue of such shares is before
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issuance of
such shares, or unless the date of issuance is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
shares of Series RP Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date.  Accrued but unpaid
dividends shall not bear interest. 
Dividends paid on the shares of Series RP Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.  The
Board of Directors may fix a record date for the determination of holders of
shares of Series RP Preferred Stock entitled to receive payment of a dividend
or

 

2

 

distribution declared thereon, which record date shall
be not more than 30 days before the date fixed for the payment thereof.

 

Section
3                Voting Rights. 
The holders of shares of Series RP Preferred Stock shall have the
following voting rights:

 

3.1           Subject to the provision for adjustment
hereinafter set forth, each share of Series RP Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
shareholders of the Corporation.

 

3.2           Except as otherwise provided herein or by
law, the holders of shares of Series RP Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.

 

Section
4.               Certain Restrictions

 

4.1           Whenever quarterly dividends or other
dividends or distributions payable on the Series RP Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series RP
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not: (A) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series RP Preferred Stock, (B) declare or pay
dividends, or make any other distributions, on any shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series RP Preferred Stock, except dividends paid ratably on the Series
RP Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all such
shares are then entitled, (C) purchase or otherwise acquire for consideration
(except as provided below) shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series RP
Preferred Stock, provided that the Corporation may at any time purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series RP Preferred Stock, or
(D) purchase or otherwise acquire for consideration any shares of Series RP
Preferred Stock, or any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series RP
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.

 

4.2           The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless the Corporation
could, under Section 4.1, purchase or otherwise acquire such shares at such
time and in such manner.

 

3

 

Section
5.               Reacquired Shares. 
Any shares of Series RP Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. 
All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Articles of Incorporation, in any other certificate or
amendment creating a series of Preferred Stock or as otherwise required by law.

 

Section
6.               Liquidation, Dissolution or Winding Up

 

6.1           Subject to the prior and superior rights
of holders of any shares of any series of Preferred Stock (including without
limitation the Corporation’s Series A Preferred Stock) ranking prior and
superior to the shares of Series RP Preferred Stock with respect to rights upon
liquidation, dissolution or winding up (voluntary or otherwise), if the assets
available to permit payment to the holders of Series RP Preferred Stock and
Common Stock pursuant to this Section 6 are:

 

(a)           less than or equal to the greater of (i)
1,000 times $35.00 per share of Series RP Preferred Stock, or (ii) 1,000 times
any payments made pursuant to this Section 6 for each share of Common Stock
plus an amount equal to accrued and unpaid dividends and distributions thereon
whether or not declared (such greater amount is referred to as the “Series RP Liquidation Preference”),
then all such assets shall be distributed ratably to the holders of shares of
Series RP Preferred Stock.

 

(b)           greater than the Series RP Liquidation
Preference but less than or equal to the sum of (i) the Series RP Liquidation
Preference plus (ii) an amount in respect of each share of Common Stock (the “Capital Adjustment”)
equal to the quotient obtained by dividing (A) the Series RP Liquidation
Preference by (B) 1,000 (as appropriately adjusted as set forth in Section 6.3
to reflect such events as stock splits, stock dividends and recapitalizations
with respect to the Common Stock) (such number in clause (B) being hereafter
referred to as the “Adjustment
Number”), then no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series RP Preferred Stock unless, prior
thereto, the holders of shares of Series RP Preferred Stock shall have received
per share an amount equal to the Series RP Liquidation Preference.  Subject to the prior and superior rights of
holders of any shares of any series of Preferred Stock (including without limitation
the Corporation’s Series A Preferred Stock), the remaining assets available for
distribution shall be distributed ratably to the holders of shares of Common
Stock.

 

(c)           greater than
the amount necessary to pay the Series RP Liquidation Preference in full and
the Capital Adjustment in full, then all such assets shall be distributed to
the holders of Series RP Preferred Stock and holders of Common Stock in the
ratio of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.

 

6.2           If, in applying Section 6.1, there are some,
but not sufficient, assets available to permit payment in full of the Series RP
Liquidation Preference and the liquidation

 

4

 

preferences of all other
series of preferred stock, if any, which rank on a parity with the Series RP
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of Series RP Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.

 

6.3           If the Corporation shall (A) declare any
dividend on Common Stock payable in shares of Common Stock, (B) subdivide the
outstanding Common Stock, or (C) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in
effect immediately before such event shall be adjusted by multiplying such
Adjustment Number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event, and the denominator
of which is the number of shares of Common Stock outstanding immediately before
such event.

 

Section
7.               Consolidation, Merger, Etc.  If the
Corporation is party to any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then, in any
such case, the shares of Series RP Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number (as appropriately adjusted as set forth in Section 6.3 to reflect such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) times the total amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged.

 

Section
8.               No Redemption. 
The shares of Series RP Preferred Stock shall not be redeemable.

 

Section
9.               Ranking. 
The Series RP Preferred Stock shall rank junior to all other series of
the Corporation’s Preferred Stock (including without limitation the Corporation’s
Series A Preferred Stock) as to the payment of dividends, the distribution of
assets and other rights, unless the terms of any such other series shall
provide otherwise.

 

Section
10.             Amendment. 
The Amended and Restated Articles of Incorporation of the Corporation
shall not be further amended in any manner that would materially alter or
change the powers, preferences or special rights of the Series RP Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of Series RP Preferred
Stock, voting separately as a class.

 

Section
11.             Fractional Shares. 
Series RP Preferred Stock may be issued in fractions of a share which
shall entitle the holder, in proportion to such holder’s fractional shares, to
exercise voting rights, receive dividends, participate in distributions and
have the benefit of all other rights of holders of Series RP Preferred Stock.

 

RESOLVED FURTHER, that each officer of the Corporation be, and each of
them hereby is, authorized to sign a Certificate of Determination with respect
to the Series RP Preferred Stock pursuant to Section 401 of the California
Corporations Code and to cause that certificate to be filed with the Secretary
of State of the State of California.

 

5

 

IN WITNESS WHEREOF, I further declare under penalty of perjury under the
laws of the state of California that the matters set forth in the foregoing
certificate are true and correct of my own knowledge.

 

 

Dated  April 21,
2005

 

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  John F. Hamilton

  
	
   

  	
   

  	
  Vice President -
  Finance and

  
	
   

  	
   

  	
  Chief Financial Officer

  
					

 

6

 

Exhibit B

 

Form of Right
Certificate

 

	
  Certificate No. RP–                    

  	
                 Rights

  

 

NOT EXERCISABLE AFTER
APRIL 21, 2015 OR EARLIER IF REDEEMED BY THE CORPORATION.  THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$.0001 PER RIGHT ON THE TERMS SET FORTH IN THE AGREEMENT.

 

Right
Certificate

DEPOMED, INC.

This certifies that                   ,
or registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement dated as of April 21, 2005
(the “Agreement”), between Depomed,
Inc., a California corporation (the “Corporation”),
and Continental Stock Transfer & Trust Company, a New York corporation,
(the “Rights Agent”), to purchase
from the Corporation at any time after the Distribution Date (as that term is
defined in the Agreement) and before 5:00 P.M., New York time, on April 21,
2015, unless the Rights evidenced hereby shall have been previously redeemed by
the Corporation, at the principal office or offices of the Rights Agent
designated for such purpose, or at the office of its successor as Rights Agent,
one one-thousandth (1/1000th) of a fully paid non-assessable share of Series RP
Preferred Stock (the “Preferred Stock”)
of the Corporation, at a purchase price of $35.00 per one one-thousandth
(1/1000th) of a share of Preferred Stock (the “Purchase
Price”), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed.  The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths (1/1000ths) of a share of
Preferred Stock that may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
April 21, 2005 based on the Preferred Stock as constituted at such date.

 

Upon the occurrence of a
Section 11.1.2 Event (as that term is defined in the Agreement), if the Rights
evidenced by this Right Certificate are beneficially owned by (A) an Acquiring
Person or an Affiliate or Associate of an Acquiring Person, (B) a transferee of
an Acquiring Person (or of any Affiliate or Associate thereof) who becomes a
transferee after the Acquiring Person becomes such, or (C) a transferee of an
Acquiring Person (or of an Affiliate or Associate thereof) who becomes a
transferee before or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (i) a transfer (whether or not for
consideration) from the Acquiring Person (or from any Affiliate or Associate
thereof) to holders of equity interests in such Acquiring Person or to any
Person with whom the Acquiring Person has a continuing agreement, arrangement
or understanding regarding the transferred Rights or (ii) a

 

1

 

transfer that the Board
of Directors of the Corporation has determined is part of a plan, arrangement
or understanding that has as a primary purpose or effect the avoidance of
Section 7.6 of the Agreement, the Rights shall become null and void
without any further action and no holder hereof shall have any rights
whatsoever with respect to such Rights, whether under the Agreement or otherwise.

 

As provided in the
Agreement, the Purchase Price and the number of one one-thousandths (1/1000ths)
of a share of Preferred Stock or other securities that may be purchased upon
the exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events, including
Triggering Events (as that term is defined in the Agreement).

 

This Right Certificate is
subject to all of the terms, covenants and restrictions of the Agreement, which
terms, covenants and restrictions are hereby incorporated herein by reference
and made a part hereof and to which Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Corporation and the holders of
the Right Certificates.  Copies of the
Agreement are on file at the principal executive offices of the Corporation and
the office of the Rights Agent.  The
Corporation will mail, to the holder of this Right Certificate, a copy of the
Agreement without charge after receipt of a written request therefor addressed
to the Secretary of the Corporation at its principal executive offices.

 

This Right Certificate,
with or without other Right Certificates, upon surrender at the designated
office of the Rights Agent, may be exchanged for another Right Certificate or
Right Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like total number of shares of Preferred Stock or other
securities as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase.  If this Right Certificate shall be exercised
in part, the holder shall be entitled to receive upon surrender hereof another
Right Certificate or Right Certificates for the number of whole Rights not
exercised.

 

Subject to the Agreement,
the Rights evidenced by this Certificate may be redeemed by the Corporation at
a redemption price of $0.0001 per Right (subject to adjustment as provided in
the Agreement) payable in cash.

 

No fractional shares of
Preferred Stock will be issued upon the exercise of any Right or Rights
evidenced hereby (other than fractions that are one one-thousandth (1/1000th)
or integral multiples of one one-thousandth (1/1000th) of a share of Preferred
Stock, which may, at the election of the Corporation, be evidenced by
depository receipts), but in lieu thereof a cash payment will be made, as
provided in the Agreement.

 

No holder of this Right
Certificate shall be entitled to vote or receive dividends or be deemed for any
purpose the holder of shares of the Preferred Stock or of any other securities
of the Corporation that may at any time be issuable on the exercise hereof, nor
shall anything contained in the Agreement or herein be construed to confer upon
the holder hereof, as such, any

 

2

 

of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Agreement), or to receive dividends or other distributions or to exercise any
preemptive or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in
the Agreement.

 

This Right Certificate
shall not be valid or obligatory for any purpose until it shall have been
countersigned by the Rights Agent.

 

WITNESS
the facsimile signature of the proper officers of the Corporation.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DEPOMED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONTINENTAL STOCK TRANSFER &
  TRUST COMPANY

  
	
   

  	
  as Rights Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Officer

  
								

 

3

 

Form of Reverse
Side of Right Certificate

 

FORM
OF ASSIGNMENT

(To be executed by
the registered holder if such holder desires to transfer the Right
Certificate.)

 

	
  FOR
  VALUE RECEIVED 

  	
   

  
	
  hereby sells, assigns and transfers unto 

  	
   

  
	
   

  
	
  (Please print name and
  address of transferee)

  
	
   

  
	
  this Right Certificate, together with all right,
  title and interest therein, and does hereby irrevocably constitute and
  appoint                 
  attorney-in-fact to transfer the Right Certificate on the books of the
  Corporation with full power of substitution.

  
	
   

  
	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  
	
   

  
	
  Signature Guaranteed:

  
	
   

  
	
   

  	
   

  
						

 

 

The undersigned hereby
certifies that (A) the Rights evidenced by this Right Certificate are not being
sold, assigned or transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as those terms are
defined in the Agreement), (B) this Right Certificate is not being sold,
assigned or transferred to or on behalf of any such Acquiring Person, Affiliate
or Associate, and (C) after due inquiry and to the best knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any Person who is or was an Acquiring Person or an Affiliate
or Associate thereof (as those terms are defined in the Agreement).

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

4

 

FORM
OF ELECTION TO PURCHASE

 

(To be executed by the
registered holder if such holder desires to exercise Rights represented by the
Right Certificate)

 

To the Rights Agent:

 

	
  The undersigned hereby
  irrevocably elects to exercise                              
  Rights represented by this Right Certificate to purchase the shares of
  Preferred Stock, shares of Common Stock or other securities issuable upon the
  exercise of such Rights and requests that certificates for such shares of
  Preferred Stock, shares of Common Stock or other securities be issued in the name
  of:         

  
	
   

  
	
   

  
	
  (Please print
  name and address)

  
	
   

  
	
  Please insert social
  security

  or other identifying number

  	
  number

   

  
	
   

  
	
  If such number of
  Rights shall not be all the Rights evidenced by this Right Certificate, a new
  Right Certificate for the

  
	
  balance remaining of
  such Rights shall be registered in the name of and delivered to:

  	
   

  
	
   

  
	
  (Please print
  name and address)

  
	
   

  
	
  Please insert social
  security 

  or other identifying number

  	
  number

   

  
				

 

	
  Dated:

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  
	
  Signature Guaranteed:

  
	
   

  
	
   

  	
   

  
				

 

5

 

The undersigned hereby
certifies that (A) the Rights evidenced by this Right Certificate are not being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate thereof (as those terms are defined in the Agreement),
(B) this Right Certificate is not being sold, assigned or transferred by or on
behalf of any such Acquiring Person, Affiliate or Associate, and (C) after due
inquiry and to the best knowledge of the undersigned, the undersigned did not
acquire the Rights evidenced by this Right Certificate from any Person who is
or was an Acquiring Person or an Affiliate or Associate thereof (as those terms
are defined in the Agreement).

 

 

	
   

  	
   

  
	
   

  	
  Signature

  

 

Notice

 

The signature on the
foregoing Forms of Assignment and Election and certificates must conform to the
name as written upon the face of this Right Certificate in every particular,
without alteration, enlargement or any change whatsoever.

 

If the certification set
forth above in the Form of Assignment or the Form of Election to Purchase, as
the case may be, is not completed, the Corporation and the Rights Agent may
deem the Beneficial Owner of the Rights evidenced by this Right Certificate to
be an Acquiring Person or an Affiliate or Associate thereof (as those terms are
defined in the Right Agreement) and such Assignment or Election to Purchase may
not be honored.

 

6

 

Exhibit C

DEPOMED, INC.

1360 O’Brien Drive

Menlo Park, California 94588

 

SUMMARY
OF RIGHTS TO PURCHASE

SERIES RP PREFERRED SHARES

 

On April 21, 2005, the
Board of Directors (the “Board”) of
Depomed, Inc. (the “Corporation”) declared a
dividend distribution of one preferred share purchase right (a “Right”) for each outstanding share
of Common Stock (the “Common Stock”)
of the Corporation.  The dividend is
payable to the shareholders of record on May 5, 2005 (the “Record
Date”), and with respect to shares of Common Stock issued
thereafter until the Distribution Date (as defined below) and, in certain
circumstances, with respect to shares of Common Stock issued after the
Distribution Date.  Except as set forth
below, when it becomes exercisable, each Right entitles the registered holder
to purchase from the Corporation one one-thousandth (1/1000th) of a share of
Series RP Preferred Stock, without par value (the “Preferred
Stock”), of the Corporation at a price of $35.00 per one
one-thousandth (1/1000th) of a share of Preferred Stock (the “Purchase Price”), subject to adjustment.  The description and terms of the Rights are
set forth in a Rights Agreement (the “Agreement”)
between the Corporation and Continental Stock Transfer & Trust Company, a
New York corporation, as rights agent (the “Rights
Agent”), dated as of April 21, 2005.

 

Initially, the Rights
will be attached to all certificates representing shares of Common Stock then
outstanding, and no separate certificates representing the Rights (“Right Certificates”) will be
distributed.  The Rights will separate
from the Common Stock upon the earlier to occur of (A) a person or group of
affiliated or associated persons having acquired, without the prior approval of
the Board, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (except pursuant to a Permitted Offer, as explained below) or (B)
ten days (or such later date as the Board may determine) after the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the completion of which would result in a person or group of affiliated or
associated persons becoming an Acquiring Person (as defined below) (the “Distribution Date”).  A person or group whose acquisition of shares
of Common Stock cause a Distribution Date pursuant to clause (A) above is an “Acquiring
Person,” with certain exceptions set forth in the Agreement.  The date that a person or group is first
publicly announced to have become such by the Corporation or such Acquiring
Person is referred to below and in the Agreement as the “Shares Acquisition
Date”.

 

The Rights Agreement
contains provisions which clarify that Biovail Laboratories Incorporated shall
not be deemed an Acquiring Person solely by virtue of its beneficial ownership
of shares of Common Stock as of the date of the execution of the Rights Agreement.

 

1

 

The Agreement provides
that, until the Distribution Date, the Rights will be transferred with and only
with the associated shares of Common Stock. 
Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuance of shares of Common Stock will contain a notation
incorporating the Agreement by reference. 
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for shares of Common
Stock outstanding as of the Record Date, even without such notation or a copy
of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the shares of Common Stock represented
by such certificate.  As soon as
practicable after the Distribution Date, Right Certificates will be mailed to
the holders of record of the shares of Common Stock as of the Close of Business
(as defined in the Agreement) on the Distribution Date (and to each initial
record holder of certain shares of Common Stock issued after the Distribution
Date), and such separate Right Certificates alone will evidence the Rights.

 

The Rights are not
exercisable until the Distribution Date and will expire at the Close of
Business on April 21, 2015, unless earlier redeemed by the Corporation as
described below.

 

If any person becomes an
Acquiring Person (except pursuant to a tender or exchange offer which is for
all outstanding shares of Common Stock at a price and on terms which a majority
of certain members of the Board determines to be adequate and in the best
interests of the Corporation, its shareholders and other relevant constituencies,
other than such Acquiring Person, its affiliates and associates (a “Permitted Offer”)), each holder of a
Right will thereafter have the right (the “Flip-In Right”)
to receive, upon exercise, the number of shares of Common Stock (or, in certain
circumstances, of one one-thousandths (1/1000ths) of a share of Preferred Stock
or other securities of the Corporation) having a value (immediately before such
triggering event) equal to two times the exercise price of the Right.  Notwithstanding the foregoing, after the
occurrence of the event described above, all Rights that are, or (under certain
circumstances specified in the Agreement) were, beneficially owned by any
Acquiring Person or any affiliate or associate thereof will be null and void.  The Board has the option, at any time after
any person becomes an Acquiring Person, to exchange all or part of the
then-exercisable Rights (excluding those that have become void, as described in
the immediately preceding sentence) for shares of Common Stock, at an exchange
ratio determined by dividing the then-applicable Purchase Price by the
then-current market price per share of Common Stock as determined in accordance
with the Agreement.  However, this option
generally terminates if any person becomes the beneficial owner of 50% or more
of the Common Stock.

 

If, at any time after the
Shares Acquisition Date, (A) the Corporation is acquired in a merger or other
business combination transaction in which the holders of all the outstanding
shares of Common Stock immediately before the completion of the transaction are
not the holders of all the surviving corporation’s voting power, or (B) more
than 50% of the Corporation’s assets or earning power is sold or transferred,
in either case with or to (i) an Acquiring Person or any affiliate or associate
thereof or (ii) any other person acting on behalf of or in concert with such
Acquiring Person, affiliate or associate, or (iii) if, in such transaction, all
holders of shares of Common Stock are not treated alike, any other person, then
each holder of a Right (except Rights which previously have been voided as set
forth above) shall thereafter have

 

2

 

the right (the “Flip-Over Right”) to receive, upon
exercise, common shares of the acquiring company (or, in certain circumstances,
its parent), having a value equal to two times the exercise price of the
Right.  The holder of a Right will
continue to have the Flip-Over Right whether or not such holder exercises or
surrenders the Flip-In Right.

 

The Purchase Price
payable, and the number of shares of Preferred Stock, shares of Common Stock or
other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (A) in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the Preferred Stock,
(B) upon the grant to holders of shares of the Preferred Stock of certain
rights or warrants to subscribe for or purchase Preferred Stock at a price, or
securities convertible into Preferred Stock with a conversion price, less than
the then current market price of the Preferred Stock or (C) upon the
distribution to holders of shares of the Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).

 

The number of outstanding
Rights and the number of one one-thousandths (1/1000ths) of a share of
Preferred Stock issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
before the Distribution Date.

 

Preferred Stock
purchasable upon exercise of the Rights will not be redeemable.  Each share of Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per
share but, if greater, will be entitled to an total dividend per share of 1,000
times the dividend declared per share of Common Stock.  In the event of liquidation, the holders of
shares of the Preferred Stock will be entitled to a minimum preferential
liquidation payment per share in an amount equal to the greater of $35.00 or
1,000 times the payment made per share of Common Stock plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the “Series
RP Liquidation Preference”). 
Thereafter, and after the holders of shares of the Common Stock receive
a liquidation payment of an amount equal to the quotient obtained by dividing
the Series RP Liquidation Preference by 1,000 (subject to certain adjustments
for stock splits, stock dividends and recapitalizations with respect to the
Common Stock), the holders of shares of the Preferred Stock and the holders of
the Common Stock will share the remaining assets in the ratio of 1,000 to 1 (as
adjusted) for each share of Preferred Stock and Common Stock so held,
respectively.  Finally, in the event of
any merger, consolidation or other transaction in which shares of Common Stock
are exchanged, each share of Preferred Stock will be entitled to receive 1,000
times the amount received per share of Common Stock.  These rights are protected by customary
antidilution provisions.  If the amount
of accrued and unpaid dividends on the Preferred Stock is equivalent to six
full quarterly dividends or more, the holders of shares of the Preferred Stock
will have the right, voting as a class, to elect two directors in addition to
the directors elected by the holders of shares of the Common Stock until all
cumulative dividends on the Preferred Stock have been paid or set apart for
payment through the last quarterly dividend payment date.  No fractional shares of Preferred Stock will
be issued (other than fractions which are one one-thousandth (1/1000th) or
integral multiples of one one-thousandth (1/1000th) of a share of

 

3

 

Preferred Stock, which
may, at the election of the Corporation, be evidenced by depositary receipts)
and in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading day before the date of exercise.

 

With certain exceptions,
no adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in the Purchase Price.

 

At any time before the
earlier to occur of (A) a person becoming an Acquiring Person or (B) the
expiration of the Rights, and under certain other circumstances, the
Corporation may redeem the Rights in whole, but not in part, at a price
(payable in cash or, at the Corporation’s election, in Common Stock) of $0.0001
per Right (the “Redemption Price”).  Any redemption would be effective upon the
action of the Board.  Additionally, after
the Shares Acquisition Date, the Corporation may redeem the then outstanding
Rights in whole, but not in part, at the Redemption Price, provided that such
redemption is in connection with a merger or other business combination
transaction or series of transactions involving the Corporation in which all
holders of shares of Common Stock are treated alike but not involving an
Acquiring Person or its affiliates or associates.

 

Other than those
provisions relating to the rights, duties and obligations of the Rights Agent
and certain principal economic terms of the Rights, all the provisions of the
Agreement may be amended by the Board before the Distribution Date.  After the Distribution Date, the Agreement
may only be amended by the Board in order to cure any ambiguity, defect or
inconsistency, to make changes that do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or,
subject to certain limitations, to shorten or lengthen any time period under
the Agreement.

 

Until a Right is
exercised, the holder thereof, as such, will have no rights as a shareholder of
the Corporation, including, without limitation, the right to vote or to receive
dividends.  While the distribution of the
Rights will not be taxable to shareholders of the Corporation, shareholders
may, depending upon the circumstances, recognize taxable income should the
Rights become exercisable or upon the occurrence of certain events thereafter.

 

A copy of the Agreement
has been filed with the Securities and Exchange Commission as an Exhibit to a
Registration Statement on Form 8-A.  A
copy of the Agreement is available free of charge from the Corporation.  This summary description of the Rights does
not purport to be complete.  It is
qualified in its entirety by reference to the Agreement, which is hereby
incorporated herein by reference.

 

4

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