-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ovl5C8wxi8O+KiSLMZ/l6AX4q81R2lV5VpgMjfe7e7Z9WtrEvcOfvPA2QC2iaPQj jg3jDEuNAOIW/4tC52G9JQ== 0000950162-02-001468.txt : 20021025 0000950162-02-001468.hdr.sgml : 20021025 20021025170428 ACCESSION NUMBER: 0000950162-02-001468 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20021025 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BIOVAIL LABORATORIES INC CENTRAL INDEX KEY: 0001199191 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: CHELSTON PARK BLDG 2 GROUNG FLOOR STREET 2: COLLYMORE ROCK ST MICHAEL BARBADOS CITY: WEST INDIES STATE: C8 ZIP: 00000 BUSINESS PHONE: 2464377080 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DEPOMED INC CENTRAL INDEX KEY: 0001005201 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943229046 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-53683 FILM NUMBER: 02799009 BUSINESS ADDRESS: STREET 1: 1360 O'BRIEN DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 6504625900 MAIL ADDRESS: STREET 1: 1360 O'BRIEN DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 SC 13D 1 biovaildepo13d.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSIONOMB APPROVAL Washington, D.C. 20549 -------------------------------------------- SCHEDULE 13D Under the Securities Exchange Act of 1934 DepoMed, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, no par value - -------------------------------------------------------------------------------- (Title of Class of Securities) 249908-10-4 - -------------------------------------------------------------------------------- (CUSIP Number) Arlene Fong Biovail Laboratories Incorporated Chelston Park, Building 2 Collymore Rock St. Michaels, Barbados, West Indies Tel: (246) 437-7080 - -------------------------------------------------------------------------------- with a copy to: - -------------------------------------------------------------------------------- Roger Andrus, Esq. Cahill Gordon & Reindel 80 Pine Street New York, NY 10005 (212) 701-3000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 9, 2002 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box / /. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See ss. 240.13d-7 for other parties to whom copies are to be sent. CUSIP No. 249908-10-4 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only) Biovail Laboratories Incorporated - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) N/A (b) N/A - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS (See Instructions) WC - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) N/A - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Barbados, West Indies - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 2,465,878 shares plus a presently exercisable option to purchase a number of additional shares such that Biovail Laboratories Incorporated shall have purchased (after giving effect to the exercise of such option) up to 20% of the outstanding shares, and a presently exercisable option to purchase an additional 821,959 shares, in each case, on Number of terms described herein. Shares ------------------------------------------------------------------- Beneficially 8 SHARED VOTING POWER Owned by Each 0 Reporting ------------------------------------------------------------------- Person 9 SOLE DISPOSITIVE POWER With 2,465,878 shares plus a presently exercisable option to purchase a number of additional shares such that Biovail Laboratories Incorporated shall have purchased (after giving effect to the exercise of such option) up to 20% of the outstanding shares, and a presently exercisable option to purchase an additional 821,959 shares, in each case, on terms described herein. ------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,465,878 shares plus a presently exercisable option to purchase a number of additional 2 shares such that Biovail Laboratories Incorporated shall have purchased (after giving effect to the exercise of such option) up to 20% of the outstanding shares, and a presently exercisable option to purchase an additional 821,959 shares, in each case, on terms described herein. - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) N/A - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 15% of the total outstanding shares (based on the number of shares outstanding as of July 8, 2002) plus a presently exercisable option to purchase a number of additional shares such that Biovail Laboratories Incorporated shall have purchased up to 20% of the outstanding shares (calculated immediately after giving effect to the exercise of such option), and a presently exercisable option to purchase an additional 5% of the total outstanding shares (based on the number of shares outstanding as of July 8, 2002), in each case, on terms described herein. - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON (See Instructions) CO - -------------------------------------------------------------------------------- 3 Item 1. Security and Issuer. This Schedule 13D relates to the common stock, no par value, ("Common Stock"), of DepoMed, Inc., a California corporation ("DepoMed"), whose principal offices are located at: 1360 O'Brien Drive, Menlo Park, California, 94025-1436, USA, Tel: (650) 462-5900. Item 2. Identity and Background. This statement is filed on behalf of Biovail Laboratories Incorporated ("Biovail Laboratories" or the "Reporting Person"), a Barbados, West Indies corporation. Biovail Laboratories is a wholly owned subsidiary of Biovail Corporation, a corporation amalgamated under the laws of Ontario, Canada. Biovail Corporation is an international full service pharmaceutical company, engaged in the formulation, clinical testing, registration and manufacture of drug products utilizing advanced drug delivery technologies. Biovail Laboratories has its principal office at: Chelston Park, Building 2, Ground Floor, Collymore Rock, St. Michael, Barbados, West Indies, Tel: (246) 437-7080, Fax: (246) 437-7085. Biovail Corporation has its principal office at: 7150 Mississauga Road, Mississauga, Ontario, L5N 8M5, Canada, Tel: (905) 286-3000, Fax: (905) 286-3050. Appendix A attached hereto and incorporated herein by reference sets forth, with respect to each executive officer and director of Biovail Laboratories and each executive officer and director of Biovail Corporation, the following information: (a) name; (b) residence or business address; (c) present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted; and (d) citizenship of such person. Biovail Laboratories has not and, to the best of Biovail Laboratories' knowledge, neither Biovail Corporation nor any of the persons listed on Appendix A hereto has, during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. On July 9, 2002 (the "Closing Date"), Biovail Laboratories acquired 2,465,878 shares of Common Stock (representing 15% of the DepoMed's issued and outstanding Common Stock, based on the number of shares issued and outstanding on July 8, 2002) pursuant to a stock purchase agreement between Biovail Laboratories and DepoMed dated as of May 28, 2002. The per share purchase price was US$5.00, for an aggregate amount of US$12,329,390. The funds necessary to purchase the Common Stock were obtained from working capital of Biovail Laboratories. The stock purchase agreement provides that so long as Biovail Laboratories holds not less than 10% of the outstanding Common Stock it shall be granted (a) a right to appoint a non-voting observer to the board of directors of DepoMed, who shall have the right to attend each meeting of the board and (b) a right of first offer in connection with any proposed sale of all or substantially all the assets of DepoMed or relating to any merger, recapitalization, restructuring or similar transaction. Additionally, for three years after the 4 Closing Date, Biovail Laboratories has the right to participate in any offering of Common Stock to purchase up to the number of shares that will allow Biovail Laboratories to retain an ownership interest in DepoMed equal to its ownership interest immediately preceding such offering. In connection with its purchase of Common Stock, Biovail Laboratories also received an option to purchase a number of additional shares such that Biovail Laboratories shall have purchased pursuant to the stock purchase agreement, in the aggregate, up to 20% (calculated after giving effect to the exercise of such option) of the total outstanding shares. This option will terminate three years after the Closing Date. The exercise price of this option is initially equal to US$5.00 per share and increases by 20% per year following the first year after the grant of the option, compounded monthly, subject to customary anti-dilution price adjustment provisions. Subsequent to the time that Biovail Laboratories exercises this option to acquire 20% of the outstanding Common Stock, and so long as it holds not less than 10% of the outstanding Common Stock, it will have the right to appoint at least one member to the board of directors of DepoMed and DepoMed will be required to obtain such board members' approval in order to effect certain extraordinary transactions. Biovail Laboratories will have the right to appoint additional directors according to an agreed upon schedule if the size of the board increases or if Biovail's ownership interest in DepoMed increases. Additionally, Biovail Laboratories received an option to purchase an additional 821,959 shares of Common Stock at an exercise price of US$5.125 per share, subject to customary anti-dilution price adjustment provisions. This option terminates on the earlier of one year from the Closing Date or 15 days after DepoMed stock trades above US$6.50 for any 20 out of 30 trading days (but in no event earlier than 120 days from the Closing Date). Biovail Laboratories and DepoMed also entered into a development and license agreement that grants Biovail Laboratories an exclusive license in the United States (including Puerto Rico) and Canada to manufacture and market DepoMed's Metformin GR(TM). Metformin GR is a once daily metformin HCI product that is currently undergoing Phase III clinical trials. Under terms of the development and license agreement, DepoMed will be responsible for completing the clinical development program in support of Metformin GR. The agreement provides for a US$25 million milestone payment to DepoMed within 30 days of regulatory approval of the product from the Food and Drug Administration and further provides for a multi-tiered royalty rate on net sales of Metformin GR. Biovail Laboratories has an option to reduce certain of the royalties for a one-time payment to DepoMed of US$35 million. If DepoMed does not continue to fund development costs of Metformin GR, Biovail Laboratories has the right to assume that expense in return for reduction in royalties and the one-time US$35 million optional payment to be paid by Biovail Laboratories. The transaction was subject to review by US antitrust regulatory authorities, and the review period expired on July 8, 2002 without objection by the regulatory authorities. Item 4. Purpose of Transaction. The purpose of the transactions was to acquire an equity interest in the DepoMed, thereby providing DepoMed with additional working capital. Other than as described in Item 3 above, Biovail Laboratories has no present plans or proposals which relate to or would result in any transaction, change or event specified in clauses (a) through (j) of Item 4 of Schedule 13D. 5 Item 5. Interest in Securities of Issuer. (a) Biovail Laboratories is the beneficial owner of 2,465,878 shares of Common Stock (15% of the outstanding Common Stock, based on the number of shares outstanding as of July 8, 2002) plus a presently exercisable option to purchase a number of additional shares of Common Stock such that Biovail Laboratories shall have purchased (after giving effect to the exercise of such option) up to 20% of the outstanding shares of Common Stock, and a presently exercisable option to purchase an additional 821,959 shares of Common Stock (5%), in each case, on the terms described in Item 3 above. (b) Biovail Laboratories has the sole power to vote and the sole power to dispose of all such shares referred to in (a) above. (c) Except as stated in Item 3 above, neither Biovail Laboratories nor, to the best of its knowledge, any of the persons listed on Appendix A hereto, engaged in any transactions in the Common Stock effected by or for the account of Biovail Laboratories during the past 60 days. (d) N/A (e) N/A Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Other than as described in Item 3 above, there are no contracts, arrangements, understandings or relationships with respect to Common Stock of DepoMed to which Biovail Laboratories is a party. Item 7. Material to Be Filed as Exhibits. Exhibit 1: Stock Purchase Agreement by and between Biovail Laboratories Incorporated and DepoMed, Inc., dated as of May 28, 2002. 6 Signature. After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: October 25, 2002. By: /s/ Arlene Fong ------------------------------------------------ Name: Arlene Fong Title: Controller, Biovail Laboratories Incorporated 7 APPENDIX A The tables below set forth with respect to each executive officer and director of Biovail Laboratories and each executive officer and director of Biovail Corporation, the following information: (a) name; (b) residence or business address; (c) present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted; and (d) citizenship of such person. Executive Officers and Directors of Biovail Laboratories Incorporated: (a) Eugene N. Melnyk (b) Chelston Park, Building 2, Ground Floor, Collymore Rock, St. Michael, Barbados, West Indies (c) President and Chief Executive Officer of Biovail Laboratories Incorporated, Chairman of the Board, Chief Executive Officer and Director of Biovail Corporation (d) Canada (a) Larry Davis (b) St. James House, Second Street, Holetown, St. James, Barbados, West Indies (c) Director of Biovail Laboratories Incorporated; President of Mark Anthony International SRL (d) Canada 8 (a) Arlene Fong (b) Chelston Park, Building 2, Ground Floor, Collymore Rock, St. Michael, Barbados, West Indies (c) Controller of Biovail Laboratories Incorporated (d) Canada Executive Officers and Directors of Biovail Corporation: (a) Eugene N. Melnyk (b) Chelston Park, Building 2, Ground Floor, Collymore Rock, St. Michael, Barbados, West Indies (c) President and Chief Executive Officer of Biovail Laboratories Incorporated, Chairman of the Board, Chief Executive Officer and Director of Biovail Corporation (d) Canada (a) Wilfred Bristow (b) Main Level, 35 Crawford Cres., Unit 9, Campbellville, Ontario L0P 1B0 Canada (c) Director of Biovail Corporation; Senior Vice President of Bank of Montreal Nesbitt Burns Inc. (d) Canada (a) Kenneth C. Cancellara (b) 7150 Mississauga Road, Mississauga, Ontario L5N 8M5 Canada (c) Senior Vice President, Chief Legal Officer, Corporate Secretary and ex officio Board Member of Biovail Corporation (d) Canada (a) Paul W. Haddy (b) Life of Barbados Building, Wildey, St. Michael, Barbados, West Indies (c) Director of Biovail Corporation; Chairman and Chief Executive Officer of London Life Bank & Trust Corporation (d) U.S.A. (a) Laurence E. Paul (b) 1620 26th Street, Santa Monica, California 90404 USA (c) Director of Biovail Corporation; Managing Director of Laurel Crown Ventures (d) U.S.A. (a) Sheldon Plener (b) Suite 2100, Scotia Plaza, 40 King Street West, Toronto, Ontario M5H 3C2 Canada (c) Director of Biovail Corporation; Senior Partner at Cassels Brock & Blackwell LLP (d) Canada (a) Rolf K. Reininghaus (b) 7150 Mississauga Road, Mississauga, Ontario L5N 8M5 Canada (c) Senior Vice President of Corporate & Strategic Development and Director of Biovail Corporation (d) Canada (a) Roger Rowan (b) 55 University Avenue, Suite 610, P.O. Box 47, Toronto, Ontario M5J 2H7 Canada (c) Director of Biovail Corporation; President and Chief Operating Officer of Watt Carmichael Inc. (d) Canada (a) William S. Poole (b) 7150 Mississauga Road, Mississauga, Ontario L5N 8M5 Canada (c) President of North American Pharmaceuticals (d) U.S.A. (a) Brian Crombie (b) 7150 Mississauga Road, Mississauga, Ontario L5N 8M5 Canada (c) Senior Vice President and Chief Financial Officer of Biovail Corporation (d) Canada 9 EX-1 3 biovailstockpurex.txt STOCK PURCHASE AGREEMENT ================================================================================ STOCK PURCHASE AGREEMENT by and between BIOVAIL LABORATORIES INCORPORATED and DEPOMED, INC. Dated as of May 28, 2002 ================================================================================ TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.01. Definitions....................................................1 ARTICLE II ISSUE OF SHARES AND GRANT OF OPTION SECTION 2.01. Purchase and Sale of New Shares................................6 SECTION 2.02. Purchaser's Option.............................................6 SECTION 2.03. Delivery.......................................................9 ARTICLE III RIGHTS OF PURCHASER SECTION 3.01. Rights Granted at Closing.....................................10 SECTION 3.02. Rights Granted Upon the Exercise of the Purchaser's Option....13 SECTION 3.03. Board Approval................................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01. Organization and Qualification; Subsidiaries..................15 SECTION 4.02. Authority Relative to this Agreement..........................16 SECTION 4.03. No Conflict; Required Filings and Consents....................17 SECTION 4.04. Brokers.......................................................18 SECTION 4.05. Capitalization................................................18 SECTION 4.06. SEC Reports and Financial Statements..........................19 SECTION 4.07. Litigation....................................................20 SECTION 4.08. Compliance with Applicable Laws; Permits......................21 SECTION 4.09. Employee Benefit Plans........................................24 SECTION 4.10. Intellectual Property.........................................27 SECTION 4.11. Environmental Matters.........................................28 SECTION 4.12. Material Adverse Change.......................................30 SECTION 4.13. Taxes.........................................................32 SECTION 4.14. Material Contracts............................................33 SECTION 4.15. Insurance.....................................................34 SECTION 4.16. Takeover Statutes.............................................34 -i- Page SECTION 4.17. Private Offering..............................................35 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 5.01. Organization and Qualification................................35 SECTION 5.02. Authority Relative to this Agreement..........................35 SECTION 5.04. Financing.....................................................36 SECTION 5.05. Brokers.......................................................36 SECTION 5.06. Restricted Securities.........................................36 ARTICLE VI COVENANTS SECTION 6.01. Access to Information.........................................37 SECTION 6.02. Reasonable Efforts............................................38 SECTION 6.03. Public Announcements..........................................39 SECTION 6.04. Notification of Certain Matters...............................39 SECTION 6.05. Confidentiality of Board Proceedings..........................40 SECTION 6.06. Reservation of Shares Issuable Upon Exercise of Purchaser's Option..........................................40 SECTION 6.07. Rule 144 Reporting............................................40 SECTION 6.08. Conditional Option............................................41 SECTION 6.05. Use of Proceeds...............................................41 ARTICLE VII CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS SECTION 7.01. Conditions to Each Party's Obligation to Effect the Transactions................................................41 SECTION 7.02. Conditions to the Obligations of Purchaser....................42 SECTION 7.03. Conditions to the Obligations of the Company..................43 ARTICLE VIII TERMINATION SECTION 8.01. Termination...................................................44 SECTION 8.02. Termination by Purchaser......................................44 SECTION 8.03. Termination by the Company....................................45 SECTION 8.04. Procedure for Termination.....................................45 SECTION 8.05. Extension; Waiver.............................................45 -ii- Page ARTICLE IX CLOSING SECTION 9.01. Time and Place................................................46 ARTICLE X INDEMNIFICATION ARTICLE XI MISCELLANEOUS SECTION 11.01. Non-Survival of Representations and Warranties................48 SECTION 11.02. Entire Agreement; Assignment..................................48 SECTION 11.03. Validity......................................................49 SECTION 11.04. Notices.......................................................49 SECTION 11.05. Governing Law; Jurisdiction...................................50 SECTION 11.06. Descriptive Headings..........................................50 SECTION 11.07. Counterparts..................................................50 SECTION 11.08. Parties in Interest...........................................50 SECTION 11.09. Remedies......................................................50 SECTION 11.10. EIS Right of Participation....................................50 ANNEX I - Form of Registration Rights Agreement ANNEX II Form of Nominee Voting Commitment ANNEX III Committed Voters -iii- STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT dated as of May 28, 2002, by and between Biovail Laboratories Incorporated, a corporation organized under the laws of Barbados ("Purchaser"), and Depomed, Inc., a California corporation (the "Company"). WHEREAS, Purchaser wishes to subscribe for and the Company wishes to issue, sell and transfer to Purchaser 2,465,878 shares of Company Common Stock (the "New Shares") to Purchaser at a subscription price of US$5.00 per share, in cash (the "Initial Share Consideration"); and WHEREAS, in connection with and conditioned upon the aforementioned sale, transfer and issuance, the Company wishes to grant and Purchaser wishes to accept the Purchaser's Option and, subject to the terms hereof, the Conditional Option and the Company and Purchaser each wish to enter into the Registration Rights Agreement; and WHEREAS, Purchaser and the Company desire to make certain representations, warranties, covenants and agreements in connection with the transactions contemplated herein and in the other Transaction Documents and also to prescribe various conditions to each such transaction; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, Purchaser and the Company agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the terms defined in this Article have the meanings assigned to them in this Article: "affiliate", as applied to any person, means any other person directly or indirectly controlling, controlled by, or under common control with, that person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities, by contract or otherwise. "Bankruptcy Exceptions" has the meaning set forth in Section 4.02(a). "Business Day" means any day on which commercial banks are not required or authorized to close in the City of New York or the City of Toronto. "Closing" has the meaning set forth in Section 9.01. "Closing Date" has the meaning set forth in Section 9.01. "Code" means the United States Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the recitals hereto. "Company Articles of Incorporation" has the meaning set forth in Section 4.03(b). "Company Balance Sheet" has the meaning set forth in Section 4.06(c). "Company Change of Control" means an event whereby (1) any person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act has become the direct or beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the voting stock of the Company, (ii) the Company is merged with or into or amalgamated or consolidated with another corporation and, immediately after giving effect to the merger, amalgamation or consolidation, less than 50% of the outstanding voting stock of the surviving or resulting entity are then beneficially owned (within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x) the stockholders of the Company immediately prior to such merger, amalgamation or consolidation, or (y) if the record date has been set to determine the stockholders of the Company entitled to vote on such merger, amalgamation or consolidation, the stockholders of Company as of such a record date, (iii) the sale, lease, transfer, conveyance or other distribution (other than by way of merger, amalgamation or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any Person or group of related persons for purposes of Section 13(d) of the Exchange Act, or (iv) the adoption of -2- a plan relating to the liquidation or dissolution of the Company (which for the avoidance of doubt shall not include the adoption of any plan relating to an internal restructuring of the Company or a change in the jurisdiction of organization of the Company). "Company Common Stock" means the common stock, no par value, of the Company. "Company Disclosure Statement" has the meaning set forth in the preamble to Article IV. "Conditional Option" shall have the meaning set forth in Section 6.08. "Confidentiality Agreement" has the meaning set forth in Section 11.02(a). "Consent" has the meaning set forth in Section 4.03(a). "Convertible Note" has the meaning set forth in Section 4.05. "Designee" shall mean a person designated by the Purchaser that is reasonably acceptable to the Company. "Environmental Laws" has the meaning set forth in Section 4.11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "FDA" means the U.S. Food and Drug Administration. "GAAP" has the meaning set forth in Section 4.06(b). "Governmental Entity" has the meaning set forth in Section 4.03(a). "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Initial Share Consideration" has the meaning set forth in the recitals hereto. "Intellectual Property" has the meaning set forth in Section 4.10(b). "knowledge" shall mean the actual knowledge or such knowledge as would exist after reasonable inquiry directed to employees who would reasonably be expected to have knowledge of relevant matters, with respect to the Company, the Company's -3- executive officers and, with respect to Purchaser, Purchaser's executive officers. "Law" has the meaning set forth in Section 4.08(b). "Lien" has the meaning set forth in Section 4.05. "Material Adverse Effect on the Company" means any change in, or effect on, the business, results of operations, assets, financial condition or prospects of the Company or any of the Subsidiaries that is or would reasonably be expected to be materially adverse to the Company and the Subsidiaries taken as a whole, other than any change or effect (i) relating to the economy in general or (ii) relating to the industry in which the Company operates in general and not specifically relating to the Company. "Material Contracts" means (i) agreements of the Company or any of the Subsidiaries containing an unexpired covenant not to compete applying to the Company or any of the Subsidiaries; (ii) employment or consulting agreements, or arrangements; (iii) collective bargaining agreements; (iv) interest rate, currency or commodity hedging, swap or similar derivative transactions to which the Company or any of the Subsidiaries is a party; (v) material agreements providing for payment based on revenues, sales or profits; (vi) agreements between the Company or any of the Subsidiaries, on the one hand, and any affiliate of the Company, on the other hand; (vii) other material agreement not entered into in the ordinary course of business or; (viii) other contracts or amendments thereto that would be required to be filed and have not been filed as a exhibit to a Form 10-K filed by the Company with the SEC as of the date of this Agreement. "New Shares" has the meaning set forth in the recitals hereto. "Option Delivery Date" has the meaning set forth in Section 2.03. "Permitted Encumbrance" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) liens for taxes, assessments and governmental charges or levies not yet due and payable which are not in excess of $50,000 in the aggregate; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar liens arising in the ordinary course of business securing obligations that (i)are not overdue for a period of more than 30 days and (ii) are not in excess of $5,000 in the case of a single property or $50,000 in the aggregate at any time; -4- (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) minor survey exceptions, reciprocal easement agreements and other customary Liens on title to real property that (i) were not incurred in connection with any indebtedness, (ii) do not render title to the property encumbered thereby unmarketable and (iii) do not, individually or in the aggregate, materially adversely affect the value or use of such property for its current and anticipated purposes. "person" shall include individuals, corporations, partnerships, trusts, other entities and groups (which term shall include a "group" as such term it defined in Section 13(d)(3) of the Exchange Act). "Purchaser" has the meaning set forth in the recitals hereto. "Purchaser Nominees" has the meaning set forth in Section 3.02. "Purchaser's Option" has the meaning set forth in Section 2.02. "Registration Rights Agreement" means the Registration Rights Agreement, to be dated the Closing Date, between Purchaser and the Company, a form of which is attached hereto as Annex I. "Regulatory Law" means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal, state and non-U.S., if any, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate (i) non-U.S. investment or (ii) actions having the purpose or effect of monopolization or restraint of trade or lessening of competition. "SEC" means the Securities and Exchange Commission. "SEC Reports" has the meaning set forth in Section 4.06(a). "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" or "Subsidiaries" has the meaning set forth in Section 4.01. -5- "subsidiary" or "subsidiaries" means, with respect to any party, any person of which such party (either alone or through or together with any other subsidiary), owns, directly or indirectly, stock or other equity interests the holders of which are generally entitled to more than 50% of the votes for the election of the board of directors or other governing body of such person. "Tax" means (i) all federal, state, provincial, local or non-U.S. taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all income, alternative minimum, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or other additional amounts imposed by any taxing authority in connection with any item described in clause (i), and (iii) all transferee, successor, joint and several, contractual or other liability (including, without limitation, liability pursuant to Treas. Reg. ss. 1.1502-6 (or any similar state, local or non-U.S. provision)) in respect of any items described in clause (i) or (ii). "Tax Return" means all returns, declarations, reports, estimates, information returns and statements filed or required to be filed in respect of any Taxes. "Transaction Documents" has the meaning set forth in Section 4.02. "Warrants" has the meaning set forth in Section 4.05. ARTICLE II ISSUE OF SHARES AND GRANT OF OPTION SECTION 2.01. Purchase and Sale of New Shares. Subject to the terms and conditions set forth herein, the Company agrees that it will sell to Purchaser, and Purchaser agrees that it will, at the Closing Date, purchase from the Company, the New Shares at the Initial Share Consideration per share of Company Common Stock purchased. SECTION 2.02. Purchaser's Option. (a) The Company hereby grants the Purchaser or its Designee, subject to the Closing occurring on the Closing Date, the right (the "Purchaser's Option") to purchase up to such number of additional shares of -6- Company Common Stock as shall cause the Purchaser (and its subsidiaries and its Designee, if any, taken together) to (directly or indirectly) have purchased or been granted pursuant to the provisions of this Agreement up to (but not exceeding) 20.0% of the Company's issued and outstanding Common Stock (calculated immediately after exercise of the Purchaser's Option). The option exercise price shall be payable on the Option Delivery Date in accordance with the provisions of Section 2.03. The Purchaser's rights to exercise the Purchaser's Option shall expire on the date that is three years from the Closing Date. Notwithstanding anything to the contrary herein, the Purchaser's Option (i) shall expire immediately upon any sale or transfer to a party other than a Designeee or affiliate or other disposition by the Purchaser, Designee or any affiliate of the Purchaser of any of the shares of Company Common Stock purchased hereunder and (ii) may only be exercised once during the duration of the Purchaser's Option. (b) Subject to the adjustments set forth in subsection (c) below, the Option exercise price per share purchased pursuant to exercise of the Purchaser's Option shall equal the Initial Share Consideration plus, beginning one year from the date hereof, an additional 20.0% per annum, compounded monthly. (c)(I) If, prior to the expiration of the Purchaser's Option, the Company shall issue any Company Common Stock as a share dividend or subdivide the number of outstanding shares of Company Common Stock, the Option exercise price per share purchasable pursuant to the Purchaser's Option in effect at the time of such action shall be proportionately reduced and the number of shares of Company Common Stock purchasable upon exercise of the Purchaser's Option shall be proportionately increased. If the Company shall, at any time during the life of the Purchaser's Option, declare a dividend payable in cash on Company Common Stock and shall at substantially the same time offer to its shareholders a right to purchase new Company Common Stock from the proceeds of such dividend or for an amount substantially equal to the dividend, all Company Common Stock so issued shall, for the purpose of the Purchaser's Option, be deemed to have been issued as a share dividend. Any dividend paid or distributed upon Company Common Stock in shares of any other class of securities convertible into Company Common Stock shall be treated as a dividend paid in Company Common Stock to the extent that Company Common Stock is issuable upon the conversion thereof. -7- (II) If, prior to the expiration of the Purchaser's Option by exercise or by its terms, the Company desires to recapitalize by reclassifying the outstanding Company Common Stock, or the Company or a successor corporation desires to consolidate or merge with or convey all or substantially all of its or any successor corporation's property and assets to any other corporation or corporations (any such corporation being included within the meaning of the term "successor corporation" used above in the event of any consolidation or merger of any such corporation with, or the sale of all or substantially all of the property of any such corporation, to another corporation or corporations), then the Company shall deliver to the holder of the Purchaser's Option prior written notice from the Company stating that the Company intends to engage in certain of the foregoing transactions set out in this Section 2.02(C)(II), and the Purchaser shall have the right to exercise the Purchaser's Option within 30 days of receipt of the foregoing notice failing which the Purchaser's Option shall terminate. (III) If: (i) the Company shall take a record of holders of Company Common Stock for the purpose of entitling them to receive a dividend payable otherwise than in cash, or any other distribution in respect of the Company Common Stock (including cash), pursuant to, without limitation, any spin-off, split-off, or distribution of the Company's assets; or (ii) the Company shall take a record of the holders of Company Common Stock for the purpose of entitling them to subscribe for or purchase any shares of any class or to receive any other rights; or (iii) in the event of any classification, reclassification or other reorganization of the securities which the Company is authorized to issue, consolidation or merger by the Company with or into another corporation, or conveyance of all or substantially all of the assets of the Company; or (iv) in the event of any voluntary or involuntary dissolution, liquidation or winding up of the Company; then, and in any such case, the Company shall mail to the holder of the Purchaser's Option, at least 15 days prior thereto, a notice stating the date or expected date on which a record is to be taken for the purpose of such dividend, distribution or rights, or the date on which such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, as the case may be, will be effected. Such notice shall also specify the date or expected date, if any is to be fixed, as to which holders of Company Common Stock of record shall be entitled to participate in such dividend, distribution or rights, or shall be entitled to exchange their Company Common Stock or securities or other property de- -8- liverable upon such classification, reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, as the case may be. (IV) If the Company, at any time while the Purchaser's Option shall remain unexpired, shall sell all or substantially all of its property, dissolve, liquidate or wind up its affairs, the holder of the Purchaser's Option may thereafter receive upon exercise thereof, in lieu of each Company Common Share which it would have been entitled to receive, the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation or winding up with respect to each share of Company Common Stock purchased upon exercise of the Purchaser's Option. (V) The Company shall as promptly as practicable after the occurrence of any of the events set forth in Section 2.02(c)(I)-(IV) notify the Purchaser in writing of the occurrence of such event or events. (d) No fractional shares or scrip representing fractional shares shall be issued pursuant to any provision of this Agreement. With respect to any fraction of a share of Company Common Stock called for upon exercise of the Purchaser's Option or upon exercise of the rights granted in Section 3.01(d), the Company shall issue to the party so exercising cash in lieu of such fractional share. SECTION 2.03. Delivery. Delivery of the Company Common Stock constituting the New Shares to be purchased by Purchaser pursuant to this Agreement shall be made at the Closing, and delivery of the Company Common Stock to be issued upon exercise of the Purchaser's Option shall be made within three Business Days of the Purchaser's notice to the Company of any exercise of the Purchaser's Option (such date, the "Option Delivery Date"), by the Company delivering certificates representing such Company Common Stock to the Purchaser or the Designee, as applicable, against payment therefor in immediately available same day funds to an account designated by the Company. The Company will bear all expenses of shipping such Company Common Stock (including, without limitation, insurance expenses) to such places within the United States of America, Canada or Barbados as Purchaser or the Designee, as applicable, shall specify. -9- ARTICLE III RIGHTS OF PURCHASER SECTION 3.01. Rights Granted at Closing. At and from the Closing Date: (a) So long as the Purchaser (together with its subsidiaries) holds, directly or indirectly, not less than 10% of the of the issued and outstanding shares of Company Common Stock, the Purchaser shall be entitled, but not obligated, to have a non-voting observer (the "Purchaser Observer") in attendance at each meeting of the Board of Directors of the Company and each meeting of any committee thereof (each such meeting, a "Board Meeting"). The Purchaser, and if the Purchaser has notified the Company that it has appointed a Purchaser Observer, the Purchaser Observer, shall receive notice of each Board Meeting at least five Business Days prior to such meeting. Such notice shall specify the time, date, location and purpose of such meeting. The Purchaser, and the Purchaser Observer, if any, shall also be provided with the same agenda and other information provided to board or committee members, as the case may be, in connection with such meeting and at the same time such materials are provided to such board or committee members, as the case may be; the Purchaser shall be entitled to appoint, dismiss or replace the Purchaser Observer at its sole discretion; provided, however, that the Board of Directors of the Company may exclude the Purchaser Observer from access to any meeting or portion thereof if the Company reasonably believes, upon advice of counsel, that such exclusion is advisable: (i) to preserve attorney-client privilege, (ii) to protect such proprietary information relating to DepoMed Development, Ltd. or (iii) due to a conflict of interest between the Company and the Purchaser. (b) So long as the Purchaser (together with its subsidiaries) holds, directly or indirectly, not less than 5% of the of the issued and outstanding shares of Company Common Stock (calculated on a fully diluted basis), whether or not the Company is subject to Section 13 or 15(d) of the Exchange Act, the Company shall provide the Purchaser with audited annual financial information prepared in accordance with GAAP and quarterly financial information prepared on a basis substantially consistent with the audited annual financial information and provide the Purchaser with access to executives of the Company responsible for the preparation of such financial information; such information shall be provided in a timely manner and shall be in such form as will allow the Purchaser to include such -10- relevant financial information regarding the Company as may be reasonably necessary for the Purchaser to comply with any and all requirements related to the Purchaser's regulatory filings or for the Purchaser to determine its pro rata share of the Company's income or loss, including the amount, if any, of adjustments to such income or loss for the Purchaser to apply SAB 101 and reflect an in-process research and development write-off. (c) So long as the Purchaser (together with its subsidiaries) holds, directly or indirectly, not less than 10% of the of the issued and outstanding shares of Company Common Stock, in the event that the Company receives a bona fide offer from any person other than the Purchaser relating to the sale of substantially all of the Company's assets or relating to any amalgamation, merger or business combination with, or recapitalization or restructuring or similar transaction involving, the Company and a person unaffiliated with the Company (each, a "Proposed Transaction"), or where the Company elects to initiate a Proposed Transaction, then, prior to the Company entering into any agreements with respect to the Proposed Transaction, including without limitation any exclusive negotiation agreement, letter of intent or definitive agreement providing for a Proposed Transaction, the Company shall deliver to the Purchaser written notice of such Proposed Transaction setting forth all of the terms and conditions of the Proposed Transaction (an "Offer Notice"). Upon receipt of the Offer Notice, representatives of the parties shall meet in person as soon is reasonably practicable and discuss the terms set out in the Offer Notice. If the parties, acting reasonably, are unable to conclude a binding agreement within 15 Business Days of receipt of the Offer Notice with respect to the Proposed Transaction more particularly described in the Offer Notice, or if the Purchaser provides the Company with written notice that it does not wish to pursue the Proposed Transaction within that 15 Business Day Period, then the Company shall be free to pursue the Proposed Transaction without again providing the Purchaser with further notice so long as the terms upon which the Company closes such Proposed Transaction are not less favourable, taken as a whole, than those, if any, offered to the Company by the Purchaser in the course of the discussions between the Company and the Purchaser contemplated by this Section 3.01(c); and (d) (1) until the date that is three (3) years from the Closing Date, at any time that the Company offers for sale Company Common Stock or securities convertible or exchangeable into, or exercisable for, Company Common Stock, whether newly issued or not and whether registered pursuant the Securities Act or not (such securities offered, the "Offered Securities"), -11- the Purchaser or its Designee shall be given the opportunity to participate in such offering, on terms identical to those offered to other offerees of the Offered Securities, and purchase, at its discretion, up to such number of Offered Securities that, upon the completion of such offering, shall cause the Purchaser (taken together with its subsidiaries and the Designee) to own the same percentage of issued and outstanding Company Common Stock (such percentage, the "Pre-Offering Ownership Percentage") purchased pursuant to any provision of this Agreement (calculated on an issued and outstanding basis) as the Purchaser (and its subsidiaries, taken together) owned immediately prior to the completion of such offering; (2) the foregoing rights set out in Section 3.01(d)(1) shall not apply to any: (i) offering or issuance of securities under an option plan or other stock plan; (ii) asset or company acquisition paid for, in whole or in part, in shares of stock; (iii) issuances of warrants to purchase shares of stock as part of an equipment financing; (iv) underwritten or registered direct public offering of securities of the Company; or (v) in connection with a strategic licensing transaction (each, a "Qualified Offering"); (3) notwithstanding the issuance of stock or other securities pursuant to Section 3.01(d)(2), in no event shall securities issued in any Qualified Offering be included for the purposes of calculating the Pre-Offering Ownership Percentage, provided that if the Company offers for sale or issuance further securities in which the Purchaser is entitled to participate pursuant to Section 3.01(d)(1) (a "Post-Qualified Offering") subsequent to a Qualified Offering, the Purchaser shall be entitled to purchase in such Post-Qualified Offering a sufficient number of securities to cause the Purchaser (taken together with its subsidiaries and the Designee) to own the Pre-Offering Ownership Percentage as the Purchaser (and its subsidiaries, taken together) owned by the Purchaser immediately prior to the completion of such Qualified Offering; (4) if the Purchaser is unable to purchase a sufficient number of securities in a Post-Qualified Offering due to the number of shares offered for sale in such offering in no event shall such Qualified Offering be included for the purposes of calculating the Pre-Offering Ownership Percentage until such time as a Post-Qualified Offering provides the Purchaser with a sufficient number of securities to cause the Purchaser (taken -12- together with its subsidiaries and the Designee) to own the Pre-Offering Ownership Percentage as the Purchaser (and its subsidiaries, taken together) owned by the Purchaser immediately prior to the completion of such Qualified Offering; and (5) where the Purchaser declines to purchase in a Post-Qualified Offering, or where in a Post-Qualified Offering there are sufficient securities available to cause the Purchaser (taken together with its subsidiaries and the Designee) to own the Pre-Offering Percentage as the Purchaser (and its subsidiaries, taken together) owned immediately prior to the completion of such Qualified Offering and the Purchaser declines to purchase such securities (a "Non-Purchase Event"), then immediately subsequent to the Non-Purchase Event the shares issued in the Qualified Offering shall be included in calculating the Pre-Offering Ownership Percentage. (6) The Company shall give written notice to the Purchaser indicating the number of Offered Securities available to the Purchaser pursuant to this Section 3.01(d) specifying the per share price and other terms upon which it proposes to offer the Offered Shares and shall provide to the Purchaser the information proposed to be supplied to any third party offeree. Within 15 days of the receipt of such notice, the Purchaser shall deliver a response notice to the Company. If the Purchaser shall state in such notice that it intends to participate in such offering, the parties shall take all actions necessary to consummate the offering of the Offered Securities. SECTION 3.02. Rights Granted Upon the Exercise of the Purchaser's Option. (a) Provided that the Purchaser has purchased at least 2,400,000 New Shares under this Agreement, and further provided that upon the exercise of the Purchaser's Option the Purchaser (and its subsidiaries, taken together)owns not less than 20% of the of the issued and outstanding shares of Company Common Stock (calculated on an issued and outstanding basis), and as soon as is reasonably practicable but in no event later than 15 Business Days following the time of the exercise of the Purchaser's Option, the Company shall take all action necessary to cause to be appointed to the Board of Directors of the Company such number of Designees identified by the Purchaser (the "Purchaser Nominees") as is set forth in the table below. At each annual meeting of shareholders of the Company following the exercise of the Purchaser's Option: if at the time of such nomination the Purchaser (and its subsidiaries, taken together) holds, directly or indirectly, not less than 20% of the of the issued and outstanding shares of Company Common Stock (calculated on an issued and outstanding basis) the Company shall nominate the Purchaser Nominees for election to the Board of Directors of the Company set forth in the following table under "Number of Purchaser Nominees at 20.0% or -13- more"; and (ii) pursuant to following table: if at the time of such nomination the Purchaser (and its subsidiaries, taken together) holds, directly or indirectly, not less than 10.0%, and less than 20.0%, of the of the issued and outstanding shares of Company Common Stock (calculated on an issued and outstanding basis), the Company shall nominate the Purchaser Nominees for election to the Board of Directors of the Company set forth in the following table under "Number of Purchaser Nominees at 10% - 20%": - -------------------------------------------------------------------------------- Number of Directors Number of Pur- Number of Purchaser chaser Nominees at Nominees at 10%- 20% or more 20% - -------------------------------------------------------------------------------- 1 - 4 1 1 - -------------------------------------------------------------------------------- 5 - 9 2 1 - -------------------------------------------------------------------------------- 10 - 15 3 2 - -------------------------------------------------------------------------------- For each additional 5 1 additional Director 1 additional Director Directors beyond 15 - -------------------------------------------------------------------------------- (b) Provided that the Company fulfills its obligations under Section 3.02(a), the Purchaser shall not, and shall cause its affiliates not to: (i) nominate for election, or solicit proxies in favor of the election, to the Board of Directors of the Company any person other than nominees designated by the Board of Directors of the Company; or (ii) cumulate its votes in the election of directors of the Company as permitted by the Company's by-laws except in favor of Purchaser Nominees. (c) The Board of Directors of the Company may exclude the Purchaser Nominees from access to any meeting or portion thereof if the Company reasonably believes, upon advice of counsel, that such exclusion is advisable: (i) to protect proprietary information relating to DepoMed Development, Ltd. or (ii) due to a conflict of interest between the Company and the Purchaser. SECTION 3.03. Board Approval. The parties hereto agree, that so long as at least one Purchaser Nominee is a member of the Board of Directors of the Company, the Board of Directors of the Company shall duly approve, either at a meeting or by unanimous written consent, each of the following corporate actions: (a) approval of capital expenditures by the Company or any of its Subsidiaries in excess of $20 million; -14- (b) approval of any incurrence of any material indebtedness or material change in the capital structure of the Company; (c) approval of any sale, lease, exchange, other disposition of, or the creation of any pledge, hypothecation, encumbrance or lien on, any material asset of the Company or the Subsidiaries; (d) the execution or of any material licensing agreement with respect to Intellectual Property of the Company or a Subsidiary; (e) the approval of a material acquisition of the of stock or assets or the making of a material investment in another person; (f) the provision of financial assistance to a third party in an amount in excess of $250,000; (g) the placement of loans or other incurrence of indebtedness in an amount in excess of $250,000 not negotiated in an arms-length transaction, including loans to directors and officers of the Company and its Subsidiaries; (h) the adoption of a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of the Subsidiaries; or (i) a Company Change of Control (structured in a form that would permit board approval). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Purchaser that except as set forth in the section or subsection of the Company Disclosure Statement corresponding to the section or subsection of this Article IV delivered to Purchaser prior to the execution hereof (the "Company Disclosure Statement"): SECTION 4.01. Organization and Qualification; Subsidiaries. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each subsidiary of the Company (together, the "Subsidiaries") is a corporation duly organized, validly exist- -15- ing and in good standing under the laws of the jurisdiction of its incorporation. The Company and each of the Subsidiaries has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted, and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, other than such jurisdictions where the failure to be so qualified or licensed and to be so in good standing would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation (other than a Subsidiary), partnership, joint venture or other business association or entity. SECTION 4.02. Authority Relative to this Agreement. (a) The Company has the requisite corporate power and authority to execute and deliver each of this Agreement and the Registration Rights Agreement (collectively, the "Transaction Documents") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of each of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been duly and validly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize or approve this Agreement or the any other Transaction Document or to consummate the transactions contemplated hereby or thereby. This Agreement has been, and each other Transaction Document will be upon execution, duly and validly executed and delivered by the Company and, assuming the due and valid authorization, execution and delivery by the other parties thereto, if any, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally (the "Bankruptcy Exceptions") and (ii) is subject to general principles of equity. (b) The Board of Directors of the Company, by resolutions duly adopted by unanimous vote of those voting at a meeting duly called and held and not subsequently rescinded or modified in any way (the "Company Board Approval"), has duly approved each of this Agreement and the transactions contemplated hereby. -16- (c) Other than as set forth on Section 4.02 of the Company Disclosure Statement, the Company Board Approval is the only vote, approval or consent of any Person or entity necessary to approve this Agreement or any Transaction Document and the transactions contemplated hereby or thereby. SECTION 4.03. No Conflict; Required Filings and Consents. (a) None of the execution and delivery of this Agreement or the other Transaction Documents, the consummation by the Company of the transactions contemplated hereby or thereby or compliance by the Company with any of the provisions hereof or thereof will require any consent, waiver, approval, authorization or permit of, or registration or filing with or notification to (any of the foregoing being a "Consent"), any government, subdivision thereof, or any administrative, governmental, regulatory or self-regulatory authority, agency, commission, tribunal or body, domestic, non-U.S. or supranational (a "Governmental Entity") or person who is not a Governmental Entity, except for (i) compliance with any applicable requirements of the Exchange Act, the American Stock Exchange, the Securities Act or applicable state securities "Blue Sky" laws in connection with the registration rights granted pursuant to the Registration Rights Agreement and (ii) compliance with the HSR Act, if required. (b) Except as set forth in clause (a) of this Section 4.03, none of the execution and delivery of this Agreement or the other Transaction Documents by the Company, the consummation by the Company of the transactions contemplated hereby and thereby or compliance by the Company with any of the provisions hereof or thereof will (i) conflict with or violate the Articles of Incorporation of the Company as in effect on the date hereof (the "Company Articles of Incorporation") or by-laws of the Company as in effect on the date hereof or the comparable organizational documents of any of the Subsidiaries, (ii) conflict with or violate any statute, ordinance, rule, regulation, order, judgment or decree applicable to the Company or the Subsidiaries, or by which any of them or any of their respective properties or assets may be bound or affected, or (iii) result in a violation or breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any material benefit or the creation of any Lien on any of the property or assets of the Company or any of the Subsidiaries (any of the foregoing referred to in clause (ii) or this clause (iii) being a "Violation") pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries or any of their -17- respective properties may be bound or affected, except, in the case of clause (ii) and (iii), for any such Violation which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. SECTION 4.04. Brokers. None of the Company, any of the Subsidiaries or any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. SECTION 4.05. Capitalization. The Company has heretofore made available to Purchaser complete and correct copies of the Company Articles of Incorporation and the by-laws, in effect on the date hereof, of the Company. The authorized capital stock of the Company as of the date of this Agreement consists of 13,973,309 shares of Company Common Stock and 12,015 shares of Series A Preferred Stock, no par value ("Preferred Stock"). As of the close of business on May 21, 2002 there were (i) 13,973,309 shares of Company Common Stock issued and outstanding, of which no shares were owned by the Company or a wholly-owned Subsidiary and (ii) 12,015 shares of Preferred Stock issued and outstanding, of which no shares were owned by the Company or a wholly-owned Subsidiary. As of the close of business on May 21, 2002, there were issued and outstanding Common Stock Purchase Warrants, no par value ("Warrants") to purchase 3,215,270 shares of Company Common Stock with a weighted average exercise price of $5.89. The Company has no capital stock reserved for issuance, except that, as of the day prior to execution of this Agreement, there were (i) 2,562,540 shares of Company Common Stock reserved for issuance pursuant to options outstanding on the date hereof pursuant to the Company's option plan, (ii) 3,215,270 shares of Company Common Stock reserved for issuance upon exercise of Warrants, (iii) 1,323,396 shares of Company Common Stock reserved for issuance upon conversion of the Preferred Stock and (iv) 641,741 shares of Company Common Stock reserved for issuance upon conversion of the Convertible Promissory Note of the Company dated January 21, 2000 (the "Convertible Note"). Since the day prior to execution of this Agreement, the Company has not issued any options, Warrants or capital stock except pursuant to the exercise of Options or Warrants or the conversion of the outstanding Preferred Stock or the outstanding Convertible Note outstanding as of such date and in accordance with their terms. The New Shares and the Company Common Stock to be issued upon exercise of the Purchaser's Option have been duly authorized and, when issued, will be validly issued, fully paid and non-assessable and, with respect to (iii), upon exercise, will be validly issued, fully paid and non-assessable. All the outstanding Company Common Stock and Preferred Stock are, and -18- all Company Common Stock which may be issued pursuant to the exercise of outstanding options or Warrants or the conversion of the outstanding Preferred Stock or the outstanding Convertible Note will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable. Except for the Convertible Note, there are no bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having such rights) ("Voting Debt") of the Company or any of the Subsidiaries issued and outstanding. Except as stated above, there are no existing options, warrants, calls, subscriptions or other rights, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of the Company or any of the Subsidiaries, obligating the Company or any of the Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any capital stock or Voting Debt of, or other equity interest in, the Company or any of the Subsidiaries or securities convertible into or exchangeable for such shares or equity interests or obligations of the Company or any of the Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment. There are no outstanding contractual obligations of the Company or any of the Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of the Company or any of the Subsidiaries and the issuance of Company Common Stock pursuant to any provision of this Agreement will not give rise to any preemptive rights or rights of first refusal on behalf of any person, other than as set forth in Section 4.05 of the Company Disclosure Statement. Each of the outstanding capital stock of each of the Company's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and such shares of the Subsidiaries as are owned by the Company or by a wholly owned Subsidiary are free and clear of any lien, claim, option, charge, security interest, limitation, encumbrance and restriction of any kind (any of the foregoing being a "Lien"), except for Permitted Encumbrances. SECTION 4.06. SEC Reports and Financial Statements. (a) The Company has filed with the SEC all forms, reports, schedules, registration statements and definitive proxy statements required to be filed by the Company with the SEC through the date hereof (the "SEC Reports"). As of their respective dates and except as subsequently amended prior to the date hereof, the SEC Reports complied in all material respects with the requirements of the Exchange Act or the Securities Act and the rules and regulations of the SEC promulgated thereunder applicable, as the case may be, to such SEC Reports, and none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in -19- light of the circumstances under which they were made, not misleading. (b) (i) The balance sheets as of December 31, 2000 and 2001 and the related statements of operations, shareholders' equity and cash flows (including the notes thereto) for each of the three years in the period ended December 31, 2001 and for the period from inception (August 7, 1995) to December 31, 2001 (including the related notes and schedules thereto) of the Company contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (the "Form 10-K") included in the SEC Reports present fairly the financial position and the results of operations and cash flows of the Company as of the dates or for the periods presented therein in conformity with United States generally accepted accounting principles applied on a consistent basis as of and during the periods involved ("GAAP"). (ii) The balance sheet as of December 31, 2001 and the related statements of operations, shareholders' deficit and cash flows (including the notes thereto) for the period from formation (November 30, 1999) to December 31, 2001 of Depomed Development, Ltd. contained in the Form 10-K included in the SEC Reports present fairly the financial position and the results of operations and cash flows of Depomed Development, Ltd. as of the dates or for the periods presented therein in conformity with GAAP. (c) The Company and the Subsidiaries have no liabilities or obligations of any nature (whether absolute, accrued, contingent, unliquidated, conditional or otherwise) except for liabilities or obligations (i) reflected or reserved against on the balance sheet as at December 31, 2001 included in the Form 10-K (the "Company Balance Sheet") or (ii) which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. SECTION 4.07. Litigation. There is no suit, action, proceeding or governmental investigation before any commission or other administrative authority pending or, to the knowledge of the Company, threatened against or affecting the Company or any of the Subsidiaries, with respect to or affecting the Company's or any of the Subsidiaries' operations, business, products, sales practices or financial condition, except for suits, actions and proceedings that, individually or in the aggregate, would not have a Material Adverse Effect on the Company, nor is there any judgment, decree, injunction or order of any Governmental Entity or arbitrator outstanding against the Company or any of the Subsidiaries, except for judgments, decrees, injunctions and orders that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. There are -20- no facts known to the Company which, if known by a potential claimant or any Governmental Entity, would reasonably give rise to a claim or proceeding which, if asserted or conducted would be reasonably likely to have a Material Adverse Effect on the Company. SECTION 4.08. Compliance with Applicable Laws; Permits. (a) The Company and the Subsidiaries are and have been in compliance with all Laws, regulations and orders of any Governmental Entity applicable to the Company or the Subsidiaries, except for such failures so to comply which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. The business operations of the Company and the Subsidiaries have not been conducted in violation of any Law, ordinance or regulation of any Governmental Entity, except for possible violations which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. (b) Each of the Company and the Subsidiaries is in possession of all franchises, grants, authorizations, licenses, establishment registrations, product listings, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity, including, without limitation, the FDA, the United States Drug Enforcement Administration (the "DEA"), and similar authorities in any U.S. and non-U.S. jurisdictions, necessary for the Company or any Subsidiary to own, lease and operate its properties or to produce, store, distribute and market its products or otherwise to carry on its business as it is now being conducted (the "Company Permits"), and, as of the date of this Agreement, no suspension or cancellation of any of the Company Permits is pending or, to the knowledge of the Company, threatened, except, with regard to any Company Permits about which a representation and warranty is given by the Company in any other section in this Article IV and such other representation and warranty expressly includes a qualification as to Material Adverse Effect on the Company, where the failure to have, or the suspension or cancellation of, such Company Permits would not individually or in the aggregate have a Material Adverse Effect on the Company. Neither the Company nor any Subsidiary is in conflict with, or in default or violation of, (i) any Law applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected except for such conflict, default or violation as would not individually or in the aggregate have a Material Adverse Effect on the Company or (ii) any Company Permits. As used in this Agreement, "Law" means any federal, state or local statute, law, ordinance, regulation, rule, code, order, other requirement or rule of law of the United States or any other U.S. or non-U.S. jurisdiction, including, without limitation, the Federal Food, Drug, and Cos- -21- metic Act (the "FDCA"), the Controlled Substances Act, and any other similar act or law. (c) Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company: (i) all manufacturing operations of the Company and the Subsidiaries are being conducted in substantial compliance with applicable good manufacturing practices; (ii) all necessary clearances or approvals from governmental agencies for all drug and device products which are manufactured or sold by the Company and the Subsidiaries have been obtained, and the Company and the Subsidiaries are in substantial compliance with the most current form of each applicable clearance or approval with respect to the manufacture, storage, distribution, promotion and sale by the Company and the Subsidiaries of such products; (iii) to the Company's knowledge, all of the clinical studies which have been, or are being, conducted by or for the Company and the Subsidiaries are being conducted in substantial compliance with generally accepted good clinical practices and all applicable government regulatory requirements; (iv) as of the date of this Agreement, neither the Company nor any of the Subsidiaries has received written notice of any petition or other attempt by a brand name drug company to have the therapeutic equivalence rating of a product of the Company or a Subsidiary withheld or altered; (v) none of the Company, the Subsidiaries or, to the knowledge of the Company, any of their respective officers, employees or agents (during the term of such person's employment by the Company or a Subsidiary or while acting as an agent of the Company or a Subsidiary) has made any untrue statement of a material fact or fraudulent statement to the FDA or any similar governmental agency (including, -22- without limitation, non-U.S. regulatory agencies), failed to disclose a material fact required to be disclosed to the FDA or any similar governmental agency (including, without limitation, non-U.S. regulatory agencies), or committed an act, made a statement or failed to make a statement that could reasonably be expected to provide a basis for the FDA or any similar governmental agency (including, without limitation, non-U.S. regulatory agencies) to invoke its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities" set forth in 56 Fed. Reg. 46191 (September 10, 1991) or similar governmental policy or regulation (including, without limitation, non-U.S. policies or regulations), rule, regulation or law; (vi) neither the Company nor any of the Subsidiaries has received any written notice that the FDA or any similar governmental agency (including, without limitation, non-U.S. regulatory agencies) has commenced, or threatened to initiate, any action to withdraw its approval or request the recall of any product of the Company or any of the Subsidiaries, or commenced, or overtly threatened to initiate, any action to enjoin production at any facility of the Company or any of the Subsidiaries; (vii) as to each article of drug, device, cosmetic or vitamin manufactured and/or distributed by the Company or any of the Subsidiaries, such article is not adulterated or misbranded within the meaning of the FDCA or any similar governmental act or Law of any jurisdiction (including, without limitation, non-U.S. jurisdictions); and (viii) none of the Company, the Subsidiaries or, to the knowledge of the Company, any of their respective officers, employees or agents (during the term of such person's employment by the Company or a Subsidiary or while acting as an agent of the Company or a Subsidiary, subsidiaries or affiliates has been convicted of any crime or engaged in any conduct for which debarment or similar punishment is mandated or permitted by any applicable Law. (d) As to each product subject to FDA's jurisdiction under the FDCA and the jurisdiction of the Drug Enforcement Agency under the Comprehensive Drug Abuse Prevention and Control Act of 1970 ("CSA") which is manufactured, tested, distributed, held, and/or marketed by the Company, such product is being manufactured, held and distributed in compliance with all applicable requirements under the FDCA and the CSA, if applicable, including, but not limited to, those relating to investigational use, premarket clearance, good manufacturing practices, labeling, advertising, record keeping, filing of reports, and security. (e) None of the Company, any of the Subsidiaries or any product manufactured, tested, distributed, held, developed and/or marketed by the Company or any of the Subsidiaries is subject to the jurisdiction of the Health Protection Branch of the Ministry of Health Canada. (f) The Company will promptly provide Purchaser with copies of any document that is issued, prepared, or otherwise becomes available from the date of this Agreement until the -23- Closing Date which bears on the regulatory status under the FDCA or the CSA of the Company, any Subsidiary or any product of the Company or any Subsidiary, including, but not limited to, any deficiency letter, warning letter, non-approvable letter/order, and withdrawal letter/order, except for documents reflecting such matters which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. (g) Section 4.08(g) of the Company Disclosure Statement sets forth a complete and accurate list of (A) each investigational new drug filing made by the Company or any of the Subsidiaries with the FDA or similar U.S. or non-U.S. governmental agency, (B) each clinical trial protocol submitted by the Company or any of the Subsidiaries to the FDA or similar U.S. or non-U.S. governmental agency, (C) each new drug application and abbreviated or supplemental new drug application filed by the Company or any of the Subsidiaries pursuant to the FDCA, or any non-U.S. equivalents, (D) each product license application filed by the Company or any of the Subsidiaries pursuant to the Public Health Service Act, as amended, or any non-U.S. equivalents and (E) each establishment license application filed with respect to any product of the Company or any of the Subsidiaries under the Public Health Service Act, as amended, or any non-U.S. equivalents. SECTION 4.09. Employee Benefit Plans. (a) Except as set forth in Section 4.09(a) of the Company Disclosure Statement there are no "employee pension benefit plans" as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("Pension Plans"), "welfare benefit plans" as defined in Section 3(1) of ERISA ("Welfare Plans") or stock bonus, stock option, restricted stock, stock appreciation right, stock purchase, bonus, incentive, deferred compensation, severance, or vacation plans, employment or consulting agreement, or any other employee benefit plan, program, policy or arrangement, covering employees (or former employees) employed in the United States, maintained or contributed to by the Company or any of the Subsidiaries or any ERISA Affiliates (as hereinafter defined), or to which the Company or any of the Subsidiaries or any of their ERISA Affiliates contributes or is obligated to make payments thereunder or otherwise may have any liability (collectively, the "Employee Benefit Plans"). For purposes of this Agreement, "ERISA Affiliate" shall mean any person (as defined in Section 3(9) of ERISA) that is or has been a member of any group of persons described in Section 414(b), (c), (m) or (o) of the Code including the Company or a Subsidiary. (b) The Company and each of the Subsidiaries, and any Pension Plans and Welfare Plans, are in compliance in all -24- material respects with the applicable provisions of ERISA, the Code and other applicable Laws. (c) All contributions to, and payments from, any Pension Plans that are required to have been made in accordance with the Pension Plans have been timely made. (d) Any Pension Plans intended to qualify under Section 401 of the Code have been determined by the Internal Revenue Service ("IRS") to be so qualified and no event has occurred and no condition exists with respect to the form or operation of such Pension Plans that would cause the loss of such qualification or exemption therefrom or the imposition of any material liability, penalty or Tax under ERISA or the Code. (e) Each Pension Plan that is not qualified under Code section 401(a) or 403(a) is exempt from Part 2, 3 and 4 of Title I of ERISA as an unfunded plan that is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, pursuant to Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. No assets of the Company are allocated to or held in a "rabbi trust" or similar funding vehicle. (f) There are (i) no investigations pending by any governmental entity (including the Pension Benefit Guaranty Corporation ("PBGC")) involving the Pension Plans or Welfare Plans, and (ii) no pending or threatened claims (other than routine claims for benefits), suits or proceedings against any Pension Plan or Welfare Plan, against the assets of any of the trusts under any Pension Plan or Welfare Plan or against any fiduciary of any Pension Plan or Welfare Plan with respect to the operation of such plan or asserting any rights or claims to benefits under any Pension Plan or against the assets of any trust under such plan, nor, to the knowledge of the Company, are there any facts that would give rise to any material liability. (g) None of the Company, any of the Subsidiaries or any employee of the foregoing, nor any trustee, administrator, other fiduciary or any other "party in interest" or "disqualified person" with respect to the Pension Plans or Welfare Plans, has engaged in a "prohibited transaction" (as such term is defined in Section 4975 of the Code or Section 406 of ERISA) that could result in a material tax or penalty on the Company or any of the Subsidiaries under Section 4975 of the Code or Section 502(i) of ERISA. (h) None of the Company, any of the Subsidiaries, or any of their ERISA Affiliates maintain or contribute to, nor have they ever maintained or contributed to, any pension plan -25- subject to Title IV of ERISA or Sections 412 of the Code or 302 of ERISA. (i) Neither the Company, any Subsidiary of the Company nor any ERISA Affiliate has incurred, or is reasonably likely to incur liability under Title IV of ERISA. (j) Neither the Company nor any ERISA Affiliates has liability (including any contingent liability under Section 4204 of ERISA) with respect to any multiemployer plan, within the meaning of Section 3(37) of ERISA, covering employees (or former employees) employed in the United States. (k) With respect to each of the Employee Benefit Plans, true, correct and complete copies of the following documents have been made available to Purchaser: (i) the plan document and any related trust agreement, including amendments thereto, (ii) any current summary plan descriptions and other material communications to participants relating to the Employee Benefit Plans, (iii) the most recent Forms 5500, if applicable, (iv) the most recent IRS determination letter, if applicable and (v) the most recent actuarial report or valuation with respect to each Pension Plan subject to Title IV of ERISA. (l) None of the Welfare Plans maintained by the Company or any of the Subsidiaries provide for continuing benefits or coverage for any participant or any beneficiary of a participant following termination of employment, except as may be required under Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA ("COBRA"), or except at the expense of the participant or the participant's beneficiary. The Company, the Subsidiaries, and any ERISA Affiliates which maintain a "group health plan" within the meaning of Section 5000(b)(1) of the Code have complied in all material respects with the "COBRA" notice and continuation requirements. (m) As of the Closing, the Company, the Subsidiaries and any entity with which the Company or the Subsidiaries could be considered a single employer under 29 U.S.C. Section 2101(a)(1) or under any relevant case-law, has not incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act, as it may be amended from time to time, and within the 90-day period immediately following the Closing, will not incur any such liability or obligation if, during such 90-day period, only terminations of employment in the normal course of operations occur. (n) The consummation of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable to or -26- in respect of any employee of the Company or any of the Subsidiaries. (o) The consummation of the transactions contemplated by this Agreement will not result in or satisfy a condition to the payment of compensation that would, in combination with any other payment, result in an "excess parachute payment" within the meaning of Section 280G(b) of the Code. (p) The Company and the Subsidiaries do not maintain or contribute to any plan, program, policy, arrangement or agreement with respect to employees (or former employees) employed outside the United States. SECTION 4.10. Intellectual Property. (a) Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (i) the Company and each of the Subsidiaries owns, has the right to acquire or is licensed or otherwise has the right to use and has maintained in good standing (in each case, clear of any Liens of any kind other than Permitted Encumbrances), all Intellectual Property used in or necessary for the conduct of its business as currently conducted; (ii) no claims are pending or, to the knowledge of the Company, threatened that the Company or any of the Subsidiaries is infringing on or otherwise violating the rights of any person with regard to any Intellectual Property; (iii) to the knowledge of the Company, no person is infringing on or otherwise violating any right of the Company or any of the Subsidiaries with respect to any Intellectual Property owned by and/or licensed to the Company or the Subsidiaries; (iv) to the knowledge of the Company, no other firm, corporation, association or person claims the right to use in connection with similar or closely related goods and in the same geographic area, any mark which is identical or confusingly similar to any of the Intellectual Property; (v) the Company has no knowledge of any claim that any third party asserts ownership rights in any of the Intellectual Property; (vi) the Company has no knowledge of any claim or knowledge of any facts that would give the Company any reason to reasonably believe that the Company's or the Subsidiaries' use of any Intellectual Property infringes any right of any third party or would result in the breach of any contract or other obligation to which the Company or any Subsidiary is a party; (vii) the Company has no knowledge and there are no facts known to the Company that would give the Company any reasonable basis to believe that any third party is infringing on any of the Company's or the Subsidiaries' rights in any of the Intellectual Property; (viii) the Company has no knowledge and there are no facts known to the Company that would give the Company any reasonable basis to believe that any of its actions or the actions of the Subsidiaries has infringed or is infringing on any third party's Intellectual Property rights; (ix) to -27- the knowledge of the Company, there are no undisclosed government restrictions, domestic or non-U.S., which specifically limit the manner in which any of the Intellectual Property may be used or licensed; (x) to the knowledge of the Company, none of the Company, the Subsidiaries or any of their respective officers or directors has disclosed any confidential information of the Company or any of the Subsidiaries which would constitute trade secrets, except in the ordinary course of business of the Company and the Subsidiaries or with the authority of the Company or the Subsidiaries; and (xi) to the knowledge of the Company, none of the Company, the Subsidiaries or any of their respective officers or directors has used any confidential information or trade secrets of any Third Party in any manner or any purpose not permitted by that Third Party. (b) For purposes of this Agreement, "Intellectual Property" shall mean all inventions, whether patentable or not and whether patented or unpatented, patents, copyrights, trademarks (registered or unregistered), service marks, brand names, trade dress, trade names, computer software programs and applications (including imbedded software), and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing; trade secrets and rights in any jurisdiction to limit the use or disclosure thereof by any person; all technical advances and other improvements made by or used in the operation or business of the Company; and, with respect to products under development and all intermediates useful in the manufacture of those products, all unpatented know-how, formulae, formulations, test procedures and protocols, processes, test results and data, and clinical data. SECTION 4.11. Environmental Matters. Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (i) no Hazardous Materials are present at, on or under any real property or facility currently, or to the knowledge of the Company, formerly owned, leased or operated by the Company or any Subsidiary which now require investigation, response, or other corrective action by the Company or any Subsidiary or for which the Company or any Subsidiary is financially responsible, or that would reasonably be expected to result in liability of, or costs to, the Company or any of the Subsidiaries, in each case under any Environmental Law; (ii) there is currently no civil, criminal or administrative action, suit, demand, hearing, proceeding, notice of violation, investigation, notice or demand letter, or request for information pending or to the knowledge of the Company, threatened, under any Environmental Law against the Company or any of the Subsidiaries; (iii) the Company and the Subsidiaries have not received any written claims or notices alleging liability under any Environmental Law currently pending, and the Company has no knowledge of any circumstances that -28- would reasonably be expected to result in such claims or notices; (iv) to the knowledge of the Company, the Company and each of the Subsidiaries are currently in compliance, and within the period of applicable statutes of limitation have complied, with all, and have no liability under any, applicable Environmental Laws; (v) to the knowledge of the Company, no property or facility currently or formerly owned, leased or operated by the Company or any of the Subsidiaries or any of their respective predecessors-in-interest, or at which Hazardous Materials have been manufactured, handled, tested, formulated, prepared, encapsulated, packaged, bottled or stored for the Company or any of the Subsidiaries, or at which Hazardous Materials of the Company or any of the Subsidiaries have been stored, treated or disposed of, is listed or proposed for listing on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System, both promulgated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any comparable list established under any Environmental Law; (vi) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not affect the validity of any Environmental Permits held by the Company or any of the Subsidiaries, and will not require any filing, notice, or remediation under any Environmental Law; (vii) to the knowledge of the Company, no friable asbestos is present in, on, or at any property, facility or equipment of the Company or any of the Subsidiaries; (viii) to the knowledge of the Company, there are no past or present events, conditions, activities, or practices, including, without limitation, the disposal, emission or release of any Hazardous Materials, which would reasonably be expected to prevent the Company's and the Subsidiaries' compliance with any Environmental Law, or which would reasonably be expected to give rise to any liability of the Company or any of the Subsidiaries under any Environmental Law; (ix) no Lien has been asserted or recorded, or to the knowledge of the Company threatened, under any Environmental Law with respect to any assets, facility, inventory, or property currently owned, leased or operated by the Company or any of the Subsidiaries; (x) neither the Company nor any of the Subsidiaries has assumed by contract, agreement or otherwise any liabilities or obligations arising under any Environmental Law, or is currently performing any investigation, response or other corrective action under any Environmental Law; (xi) neither the Company nor any of the Subsidiaries has entered into or agreed to any judgment, decree or order by any judicial or administrative tribunal or agency and neither the Company nor any of the Subsidiaries is subject to any judgment, decree order or agreement, in each case relating to compliance with any Environmental Law or requiring the Company or any of the Subsidiaries to conduct any investigation, response, corrective or other action under any Environmental Law; and -29- (xii) to the knowledge of the Company, there are no underground storage tanks or related piping, or impoundments, at any real property owned, operated or leased by the Company or any of the Subsidiaries, and any former such tanks, piping, or impoundments, on any such property which have been removed or closed, have been removed or closed in accordance with applicable Environmental Laws. For purposes of this Agreement, the term "Environmental Laws" means the common law and all applicable federal, state, local and non-U.S. Laws, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder relating to pollution or protection of human health safety or the environment (including, without limitation, ambient air, indoor air, surface water, ground water, land surface, subsurface strata, and natural resources such as wetlands, flora, fauna), including without limitation, laws relating to experimental use of animals or disposal of animal carcasses, emissions, discharges, releases or threatened releases of Hazardous Materials into the environment, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. For purposes of this Agreement, the term "Hazardous Materials" means any pollutant, contaminant, substance, constituent or waste, including without limitation, medical, biohazardous, or infectious waste, animal carcass, any toxin, virus, infectious disease or disease-causing agent, or any other chemical, compound or material, including without limitation, petroleum or any petroleum product, including crude oil or any fraction thereof, subject to regulation or that can give rise to liability under any Environmental Law. For purposes of this Agreement, the term "Environmental Permit" means any permit, license, approval, consent or other authorization provided or issued by any Governmental Entity pursuant to an Environmental Law. The Company has made available to Purchaser all records and files, including, but not limited to, all assessments, reports, studies, audits, analyses, and data in the possession, custody or control of the Company or any Subsidiary relating to the existence of Hazardous Materials at facilities or properties currently or formerly owned, operated, leased or used by the Company or any of the Subsidiaries or concerning compliance by the Company and any Subsidiaries with, or liability of any of them under, any Environmental Law. SECTION 4.12. Material Adverse Change. (a) Since March 31, 2002, there has not been any change, or any development that is reasonably likely to result in a change, that would have a Material Adverse Effect on the Company. Since March 31, 2002, the Company and the Subsidiaries have conducted -30- their businesses only in the ordinary course of business consistent with past practices and there has not been, directly or indirectly: (i) any declaration, setting aside or payment of any dividend or other distribution with respect to any capital stock of the Company; (ii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for the Company's capital stock; (iii) any payment or granting by the Company or any of the Subsidiaries of any increase in compensation to any director, officer or, other than in the ordinary course of business consistent with past practice, employee of the Company or any of the Subsidiaries; (iv) any granting by the Company or any of the Subsidiaries to any director, officer or, other than in the ordinary course of business consistent with past practice, employee of any increase in severance or termination pay; (v) any entry by the Company or any of the Subsidiaries into any employment, consulting, severance or termination agreement with any such director or officer, other than in the ordinary course of business consistent with past practice; (vi) any adoption or increase in payments to or benefits under any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement or other employee benefit plan for or with any employees of the Company or any of the Subsidiaries; (vii) any change in accounting methods, principles or practices by the Company or any of the Subsidiaries, except insofar as may have been required by changes in GAAP; (viii) any cancellation of any Material Contract by any person a party thereto; (ix) any resignation of one or more key employees of the Company; (x) any material litigation instituted against the Company or the Subsidiaries; or -31- (xi) any agreement to do any of the things described in the preceding clauses (i) through (x). SECTION 4.13. Taxes. (a) Except as disclosed in Section 4.13 of the Company Disclosure Statement, (i) the Company and each of the Subsidiaries have prepared and timely filed with the appropriate governmental agencies all Tax Returns required to be filed on or before the date hereof, taking into account any extension of time to file granted to or obtained on behalf of the Company and/or the Subsidiaries, and each such Tax Return is complete and accurate in all material respects; (ii) the Company and each of the Subsidiaries have timely paid all Taxes due and payable by them through the date hereof and have made adequate accruals for any Taxes attributable to any taxable period or portion thereof of the Company and/or the Subsidiaries ending on or prior to the date hereof that are not yet due and payable; (iii) all asserted Tax deficiencies or Tax assessments against the Company or any of the Subsidiaries have been paid or finally settled and no issue previously raised by any taxing authority reasonably could be expected to result in a proposed deficiency or assessment for any prior, parallel or subsequent period (including periods subsequent to the Closing Date); (iv) no Tax audit or Tax examination of the Company or any of the Subsidiaries is in progress or pending or, to the knowledge of the Company, threatened by any taxing authority; (v) no extension of the period for assessment or collection of any Tax of the Company or any of the Subsidiaries is currently in effect and no extension of time within which to file any Tax Return has been requested, which Tax Return has not since been filed; (vi) no Liens have been filed with respect to any Taxes of the Company or any of the Subsidiaries other than in respect of property taxes that are not yet due and payable; (vii) neither the Company nor any of the Subsidiaries has made, or is or will be required to make, any change in its accounting methods for any period (or portion thereof) ending on or before the Closing Date that would result in an adjustment for any period (or portion thereof) ending on or after the Closing Date under Section 481 of the Code (or any similar provision of state, provincial, local or non-U.S. law); (viii) the Company and each of the Subsidiaries have made timely payments of all Taxes required to be deducted and withheld from the wages paid to their employees and from all other amounts paid to third parties; (ix) neither the Company nor any of the Subsidiaries is a party to any tax sharing, tax matters, tax indemnification or similar agreement; (x) neither the Company nor any of the Subsidiaries owns any interest in any "controlled foreign corporation" (within the meaning of Section 957 of the Code) or "passive foreign investment company" (within the meaning of Section 1296 of the Code); (xi) neither the Company nor any of the Subsidiaries has made an election under Section 341(f) of the Code; (xii) neither the Company nor -32- any of the Subsidiaries is a party to any agreement or arrangement that provides for the payment of any amount, or the provision of any other benefit, that could constitute a "parachute payment" within the meaning of Section 280G of the Code; (xiii) no claim has ever been made in writing by a taxing authority in a jurisdiction where the Company or any of the Subsidiaries does not file Tax Returns that such entity is or may be subject to taxation by that jurisdiction; (xiv) none of the assets of the Company or any of the Subsidiaries is "tax-exempt use property" (as defined in Section 168(h)(1) of the Code), "tax-exempt bond financed property" (as defined in Section 168(g)(5) of the Code) or may be treated as owned by any other person pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954 (as in effect immediately prior to the enactment of the Tax Reform Act of 1986); (xv) the Company is not and will not be at the Closing Date a "United States real property holding corporation," within the meaning of Section 897 of the Code; (xvi) neither the Company nor any of the Subsidiaries has made any elections under Sections 108, 168, 338, 441, 472, 1017, 1033 or 4977 of the Code; (xvii) neither the Company nor any of the Subsidiaries has accounted or is accounting for any transaction pursuant to Section 467 of Code; (xviii) there are no "excess loss accounts" (as defined in Treas. Reg. ss. 1.1502-19) with respect to any stock of any Subsidiary; and (xix) neither the Company nor any of the Subsidiaries has any (a) deferred gain or loss (1) arising from any deferred intercompany transactions (as described in Treas. Reg. ss.ss. 1.1502-13 and 1.1502-13T prior to amendment by Treasury Decision 8597 (issued July 12, 1995)) or (2) with respect to the stock or obligations of any other member of any affiliated group (as described in Treas. Reg. ss.ss. 1.1502-14 and 1.1502-14T prior to amendment by Treasury Decision 8597) or (b) any gain subject to Treas. Reg. ss. 1.1502-13, as amended by Treasury Decision 8597. (b) Depomed Development, Ltd. operates only in Bermuda and is not subject to U.S. taxation. SECTION 4.14. Material Contracts. Assuming each Material Contract constitutes a valid and binding obligation of each other party thereto, each Material Contract is a valid and binding obligation of the Company or the applicable Subsidiary, as the case may be. To the knowledge of the Company, each Material Contract is a valid and binding obligation of each other party thereto, and each such Material Contract is in full force and effect and is enforceable by the Company or the applicable Subsidiary in accordance with its terms, except as such enforcement may be limited by the Bankruptcy Exceptions and subject to general principles of equity. To the knowledge of the Company, there are no existing defaults (or circumstances or events that, with the giving of notice or lapse of time or both would become defaults) of the Company, any Subsidiary or any -33- third party under any of the Material Contracts. Neither the Company nor any of the Subsidiaries is a party to, or bound by any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by the Company or the Subsidiaries according to the terms of this Agreement will be a default of a material provision under or an event of acceleration, or grounds for termination, or whereby timely performance by the Company of this Agreement may be prohibited or delayed. SECTION 4.15. Insurance. The Company and the Subsidiaries have obtained and maintained in full force and effect insurance with responsible and reputable insurance companies or associations in such amounts, on such terms and covering such risks, as is in the Company's judgment adequate to insure against risks to which the Company is normally exposed in its day-to-day operations, consistent with industry practice for companies (i) engaged in similar businesses and (ii) of at least similar size to that of the Company and the Subsidiaries, and have maintained in full force and effect public liability insurance, insurance against claims for personal injury or death or property damage occurring in connection with any of the activities of the Company or the Subsidiaries or any of the properties owned, occupied or controlled by the Company or any of the Subsidiaries, in such amount as reasonably deemed necessary by the Company. To the knowledge of the Company, each such policy is in full force and effect, no notice of termination, cancellation or reservation of rights has been received with respect to any such policy, there is no default with respect to any provision contained in any such policy, and there has not been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by any such policy, except for any such failures to be in full force and effect, any such terminations, cancellations, reservations or defaults, or any such failures to give notice or present claims which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company Balance Sheet reflects adequate reserves for any insurance programs which require (or have required) the Company or any of the Subsidiaries to retain a portion of each loss, including, but not limited to, deductible and self-insurance programs. SECTION 4.16. Takeover Statutes. No "fair price," "moratorium," "control share acquisition" or any other anti-takeover or similar statute or regulation enacted under the laws of any state or the federal laws of the United States is applicable to any of the transactions contemplated by this Agreement or the other Transaction Documents, except for such statutes or regulations as to which all necessary action has -34- been taken by the Company and its board of directors to permit the consummation of the transactions contemplated hereby in accordance with the terms hereof. SECTION 4.17. Private Offering. Assuming the representations and warranties of the Purchaser in this Agreement are true and accurate as of the date hereof, the offer, sale and issuance of the Company Common Stock as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and the qualification or registration requirements of applicable blue sky laws. Neither the Company nor any authorized agent acting on behalf of it has offered or will offer or sell any securities, or has taken or will take any other action (including any offering of any securities of the Company under circumstances that would required under the Securities Act, the integration of such offering with the offering and sale of the Company Common Stock being acquired hereunder),that would cause the loss of such exemptions. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Company as follows: SECTION 5.01. Organization and Qualification. Purchaser is a corporation duly organized and validly existing under the laws of Barbados. SECTION 5.02. Authority Relative to this Agreement. Purchaser has all necessary corporate power and authority to execute and deliver this Agreement and the other Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by Purchaser and the consummation by Purchaser of the transactions contemplated hereby and thereby have been duly and validly authorized and approved by the board of directors of Purchaser, and no other corporate proceedings on the part of Purchaser are necessary to authorize or approve this Agreement or the other Transaction Documents or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and the other Transaction Documents Agreement will, upon execution be, duly executed and delivered by Purchaser and, assuming the due and valid authorization, execution and delivery by the Company, constitute valid and binding obligations of Purchaser enforceable against each of them in accordance with their terms, except -35- that such enforceability (i) may be limited by the Bankruptcy Exceptions and (ii) is subject to general principles of equity. SECTION 5.03. No Conflict; Required Filings and Consents. (a) Based on the representations and warranties of the Company set out in Section 4.03, none of the execution and delivery of this Agreement or the other Transaction Documents by Purchaser, the consummation by Purchaser of the transactions contemplated hereby or thereby or compliance by Purchaser with any of the provisions hereof or thereof will require any Consent of any Governmental Entity or person who is not a Governmental Entity, except for compliance with the HSR Act, if required. SECTION 5.04. Financing. Purchaser will have available funds sufficient to deliver the Initial Share Consideration and the Purchaser's Option at the Closing. SECTION 5.05. Brokers. Except for the engagement of Lazard Freres & Co. LLC, none of Purchaser, any of the other its subsidiaries or any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with he transactions contemplated by this Agreement. SECTION 5.06. Restricted Securities. (a) The Purchaser is an investor in securities and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Company Common Stock. (b) The Purchaser is an "accredited investor" within the meaning of SEC Rule 501 of Regulation D, as presently in effect. (c) The Purchaser understands that the shares of Company Common Stock it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from an "affiliate" (as defined in SEC Rule 144) of the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Company Common Stock may be resold without registration under the Act only pursuant to an exemption from registration under the Act. In the absence of an effective registration statement covering the Common Stock or an available exemption from registration under the Act, the Common Stock must be held indefinitely. In this connection, such Investor repre- -36- sents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act, including without limitation the Rule 144 condition that current information about the Company be available to the public. (d) The Purchaser understands that the certificates evidencing the Company Common Stock acquired pursuant to this Agreement may bear legends to the following effect, which legends shall be removed, upon the request of the Purchaser and to the extent permitted by applicable securities laws, upon the effectiveness of a registration statement filed with the SEC pursuant to the Registration Rights Agreement: "The securities represented hereby have not been registered under the Securities Act of 1933, as amended or any state securities laws and neither the securities nor any interest therein may be offered, sold, transferred, pledged, hypothecated or otherwise disposed of except pursuant to an effective registration under such act or an available exemption therefrom." ARTICLE VI COVENANTS SECTION 6.01. Access to Information. (a) From and after the date hereof and provided that the Purchaser (and its subsidiaries, taken together) holds, directly or indirectly not less than 10% of the issued and outstanding Company Common Stock (calculated on a fully diluted basis), the Company will, and will cause the Subsidiaries, and each of its and their respective officers, directors, employees, counsel, advisors and representatives (collectively, the "Company Representatives") to, provide Purchaser and its officers, employees, counsel, advisors and representatives (collectively, the "Purchaser Representatives") reasonable access, during normal business hours and upon reasonable notice, to the officers, employees, offices and other facilities and to the books and records of the Company and the Subsidiaries, as will permit Purchaser to make inspections of such as any of them may reasonably require and will cause the Company Representatives and the Subsidiaries to furnish Purchaser and the Purchaser Representatives to the extent available with such other information with respect to the business, operations and prospects of the Company and the Subsidiaries as Purchaser may from time to time reasonably request; provided, however, that the Company shall not be re- -37- quired to provide the Purchaser or the Purchaser Representatives access to any such information if the Company reasonably believes, upon advice of counsel, that not providing such information to the Purchaser or the Purchaser Representatives is advisable: (i) to preserve attorney-client privilege, (ii) to protect proprietary information relating to DepoMed Development, Ltd. or (iii) due to a conflict of interest between the Company and the Purchaser. In the event of termination of this Agreement for any reason, Purchaser will, and will cause the Purchaser Representatives to, return to the Company or destroy all copies of written information furnished by the Company or any of the Company Representatives to Purchaser or the Purchaser Representatives and destroy all memoranda, notes and other writings prepared by Purchaser or the Purchaser Representatives based upon or including the information furnished by the Company or any of the Company Representatives to Purchaser or the Purchaser Representatives (and Purchaser will certify to the Company that such destruction has occurred). Subject to Section 3.01(b) hereof, Purchaser shall, and shall cause the Purchaser Representatives to, hold the information provided by the Company pursuant to this Section 6.01 in confidence in accordance with the terms of the Confidentiality Agreement. (b) From the date hereof until the Closing Date, Purchaser will, and will cause its Subsidiaries, and each of the Purchaser Representatives to, provide the Company and any Company Representatives access to Purchaser's publicly available documents. SECTION 6.02. Reasonable Efforts. (a) Subject to the terms and conditions of this Agreement, each party will use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under this Agreement and the other Transaction Documents and applicable laws and regulations to consummate the transactions contemplated hereby and thereby as soon as practicable after the date hereof, including (i) preparing and filing as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings and other documents and to obtain as promptly as practicable all consents, waivers, licenses, orders, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity in order to consummate the transactions contemplated by this Agreement and the other Transaction Documents and (ii) taking all reasonable steps as may be necessary to obtain all such material consents, waivers, licenses, registrations, permits, authorizations, orders and approvals. In fur- -38- therance and not in limitation of the foregoing, (i) each party hereto agrees to make appropriate filings as required pursuant to the HSR Act and any other Regulatory Law with respect to the transactions contemplated hereby as promptly as practicable after the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and any other Regulatory Law and to take all other actions necessary to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable and (ii) subject to the terms and conditions of this Agreement, the Company will use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to obtain all waivers with respect to each and every preemptive right and right of first refusal to which the issuance of Company Common Stock pursuant to this Agreement would, if not for such waivers, give rise. SECTION 6.03. Public Announcements. (a) So long as this Agreement is in effect, Purchaser and the Company agree to consult with each other before issuing any press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement except as may be required in securities regulatory filings or otherwise required by law. (b) So long as this Agreement is in effect, the Company agrees to provide Purchaser under an obligation of Confidentiality Agreement with notice and copies of any press release or any public statement at least 24 hours prior to issuance that involve directly or indirectly the Purchaser, unless, on the advice of counsel, the Company has a legal obligation to issue such press release or make such public statement prior to the expiration of such 24 hour period, in which case the Company agrees to provide Purchaser with such notice and copies at the earliest practicable time. The 24 hour period shall commence at 8:00 a.m. New York time on the next Business Day following the day notice was received if such day was not a Business Day. Subject to Section 3.01(b), Purchaser shall, and shall cause the Purchaser Representatives to, hold the information provided by the Company pursuant to this Section 6.03 in confidence in accordance with the terms of the Confidentiality Agreement. SECTION 6.04. Notification of Certain Matters. Purchaser on the one hand and the Company on the other shall promptly notify each other of (a) the occurrence or non-occurrence of any fact or event which would (i) cause any representation or warranty contained in this Agreement to be un- -39- true or inaccurate in any material respect at any time from the date hereof to the Closing Date or (ii) cause any covenant, condition or agreement hereunder not to be complied with or satisfied in all material respects and (b) any failure of the Company or Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in any material respect; provided, however, that no such notification shall affect the representations or warranties of any party or the conditions to the obligations of any party hereunder. SECTION 6.05. Confidentiality of Board Proceedings. The Company shall use commercially reasonable efforts to ensure that any member of, or observer to, the Company's Board of Directors is excluded from access to any meeting or portion thereof if the Company reasonably believes, upon advice of counsel, that exclusion of such member or observer is advisable: (x) with respect to any board member or observer designated by the Purchaser, to protect proprietary information relating to DepoMed Development, Ltd. and (y) with respect to any board member or observer designated by EIS or any of its affiliates, to protect proprietary information related to the Company's Metformin GR product or any other project or business being pursued by the Company and the Purchaser, Designee, or an affiliate of Purchaser. SECTION 6.06. Reservation of Shares Issuable upon Exercise of Purchaser's Option. At all times until the expiration of the Purchaser's Option, the Company will reserve and keep available out of its authorized Company Common Stock, solely for issuance upon exercise of the Purchaser's Option such number of shares of Company Common Stock as may be issuable upon exercise of the Purchaser's Option. SECTION 6.07. Rule 144 Reporting. With a view to making available to the Purchaser the benefits of Rule 144 promulgated by the SEC under the Securities Act, the Company agrees and covenants to: (a) make and keep adequate current public information with respect to the Company available, as such terms are used within the meaning of Rule 144, at all times after the Closing; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act, if any; and -40- (c) furnish to the Purchaser promptly upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as the Purchaser may reasonably request in order to permit the Purchaser to avail itself of any rule or regulation of the SEC allowing the Purchaser to sell its shares of Company Common Stock without an effective registration statement. SECTION 6.08. Conditional Option. The Company hereby grants the Purchaser a Conditional Option (the "Conditional Option") to purchase additional Company Common Stock in an amount equal to one third of the New Shares rounded up or down, as the case may be, to the nearest whole share. The exercise price of the Conditional Option shall be equal to the Initial Share Consideration plus $0.125. All other terms of the Conditional Option with respect to, adjustments in the exercise price and number of shares of Company Common Stock purchasable pursuant to the Conditional Option shall be the same as set forth in the Purchaser's Option. The Conditional Option shall be exercisable for 365 days from the Closing Date provided, however, that if the Company Common Stock trades above US$6.50 for 20 Trading Days out of any 30 Trading Day period (for the purposes of this Section 6.08, Trading Day shall be defined as any Business Day during which the Company Common Stock is available to trade on the American Stock Exchange), the Conditional Option shall terminate 15 Business Days after the 20th Trading Day during which the Company Common Stock traded above US$6.50. Notwithstanding anything to the contrary in this Section 6.08, in no event shall the Conditional Option terminate earlier than 120 days from the Closing Date. SECTION 6.09. Use of Proceeds. The Company shall use the net proceeds from the issuance of the New Shares in furtherance of its business as described in the Form 10-K, including research and development of pharmaceutical products, protection of intellectual property rights and compliance with obligations under the Convertible Note. ARTICLE VII CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS SECTION 7.01. Conditions to Each Party's Obligation to Effect the Transactions. The respective obligations of each -41- party to effect the transactions contemplated in this Agreement to be consummated at the Closing shall be subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: (a) No Injunctions or Restraints; Illegality. No laws shall have been adopted or promulgated, and no temporary restraining order, preliminary or permanent injunction or other order issued by a court or other Governmental Entity of competent jurisdiction shall be in effect having the effect of making the transactions contemplated hereby illegal or other wise prohibiting consummation of the transactions contemplated hereby. (b) HSR Act. To the extent applicable, the waiting period (and any extension thereof) applicable to the transactions contemplated hereby under the HSR Act shall have been terminated or shall have expired. (c) Approval in Authorized Share Increase. The Company's shareholders shall have approved of an increase in the number of authorized shares of Company Common Stock by 75,000,000 shares to 100,000,000 shares at the Company's annual meeting of shareholders to be held on May 30, 2002, or at any postponement or adjournment thereof. SECTION 7.02. Conditions to the Obligations of Purchaser. The obligation of Purchaser to perform its obligations pursuant to this Agreement to be performed at or subsequent to the Closing shall be subject to the satisfaction at or prior to the Closing of the following additional conditions, any one or more of which may be waived by Purchaser: (a) Performance. The Company shall have performed and complied in all material respects with all agreements, obligations and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (b) Representations and Warranties. Each of the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects (except that where any statement in a representation or warranty expressly includes a standard of materiality, such statement shall be true and correct in all respects giving effect to such standard) at and as of the Closing Date as if made at and as of such time or, if made as of a specified date other than the date hereof, as of such date. -42- (c) Consents, Waivers and Approval. The Company shall have received all consents, approvals and waivers necessary for the consummation of the transactions contemplated hereby, including, without limitation, all waivers with respect to each and every preemptive right, with the exception of the preemptive right granted to EIS as set out in that certain EIS Securities Purchase Agreement as more particularly described in Section 11.10 of this Agreement, and right of first refusal to which the issuance of Company Common Stock pursuant to this Agreement would, if not for such waiver, give rise. (d) Officer's Certificate. Purchaser shall have received a certificate, dated the Closing Date, of the chief executive officer of the Company to the effect that the conditions specified in paragraphs (a) through (c) above have been satisfied. (e) Purchaser Nominees Approval Commitment. The Purchaser shall have received the written voting commitment (substantially in the form of Annex II attached hereto) of each of the persons set forth in Annex III attached hereto. (f) Registration Rights Agreement. The Company shall have executed the Registration Rights Agreement for the benefit of the Purchasers. (g) Listing of Company Common Stock. The Company shall have received approval from the American Stock Exchange for listing of all Company Common Stock that may be purchased by the Purchaser hereunder. SECTION 7.03. Conditions to the Obligations of the Company. The obligations of the Company under this Agreement to effect the transactions contemplated hereby shall be subject to the satisfaction on or before the Closing Date of each of the following additional conditions, any one or more of which may be waived by the Company: (a) Performance. Purchaser shall have performed and complied in all material respects with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing Date except for those failures to so perform or comply that, individually or in the aggregate, would not impair the ability of Purchaser to consummate the transactions contemplated hereby. (b) Representations and Warranties. Each of the representations and warranties of Purchaser set forth in -43- this Agreement shall be true and correct in all material respects (except where any statements in a representation or warranty expressly includes a standard of materiality, such statement shall be true in all respects giving effect to such standard) at and as of the Closing Date as if made at and as of such time or, if made as of a specified date other than the date hereof, as of such date. (c) Officer's Certificate. The Company shall have received a certificate, dated the Closing Date, of an executive officer of Purchaser to the effect that the conditions specified in paragraphs (a) and (b) above are fulfilled. ARTICLE VIII TERMINATION SECTION 8.01. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned any time prior to the Closing Date: (a) by the written agreement of Purchaser and the Company duly authorized by their respective boards of directors; (b) by either Purchaser or the Company if, without fault of such terminating party, the Closing shall not have been consummated on or before July 31, 2002, which date may be extended by mutual consent of the parties hereto; or (c) by either Purchaser or the Company, if any court of competent jurisdiction or other governmental body shall have issued an order (other than a temporary restraining order), decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby, and such order, decree, ruling or other action shall have become final and nonappealable. SECTION 8.02. Termination by Purchaser. This Agreement may be terminated and the transactions contemplated hereby may be abandoned by action of the board of directors of Purchaser, at any time prior to the Closing Date, if: (a) the Company shall have failed to perform in all material respects its covenants or agreements contained in this Agreement which failure would have a Material Adverse Effect on the Company or materially adversely affect (or -44- materially delay) the ability of Purchaser or the Company to consummate the transactions contemplated hereby, and the Company has not cured such breach within ten Business Days after notice by Purchaser thereof; or (b) the representations and warranties of the Company contained in this Agreement shall not be true and correct in any respect that is reasonably likely to have a Material Adverse Effect on the Company (or if such representations and warranties are qualified by reference to materiality or a Material Adverse Effect on the Company) and the Company has not cured such breach within 10 Business Days after notice by Purchaser. SECTION 8.03. Termination by the Company. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date by action of the Board of Directors of the Company, if: (a) Purchaser shall have failed to perform in all material respects its covenants or agreements contained in this Agreement which would materially adversely affect (or materially delay) the ability of Purchaser or the Company to consummate the transactions contemplated hereby, and Purchaser has not cured such breach within 10 Business Days after notice by the Company thereof; or (b) the representations and warranties of Purchaser contained in this Agreement shall not be true and correct in any respect, the effect of which is that the consummation of the transactions contemplated is reasonably likely to have a Material Adverse Effect on the Company and Purchaser has not cured such breach within 10 Business Days after notice by the Company. SECTION 8.04. Procedure for Termination. In the event of termination and abandonment of the transactions contemplated herein by Purchaser or the Company pursuant to this Article VIII, written notice thereof shall forthwith be given to the other. SECTION 8.05. Extension; Waiver. At any time prior to the Closing Date, the parties hereto may (i) extend the time for the performance of any of the obligations or other acts of any other party hereto, (ii) waive any inaccuracies in the representations and warranties contained herein by any other party or in any document, certificate or writing delivered pursuant hereto by any other party or (iii) waive compliance with any of the agreements of any other party or with any conditions to its own obligations. Any agreement on the part of any -45- party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX CLOSING SECTION 9.01. Time and Place. Subject to the provisions of Articles VII and VIII, the closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Heller Ehrman White & McAuliffe LLP, 275 Middlefield Road, Menlo Park, California on June 3, 2002 or on such date and time to be agreed upon by the parties, but in no event later than 9:00 A.M., local time, on the first Business Day after the date on which each of the conditions set forth in Articles VII and VIII have been satisfied or waived by the party or parties entitled to the benefit of such conditions; or at such other place, at such other time, or on such other date as Purchaser and the Company may mutually agree. The time and date on which the Closing actually occurs is herein referred to as the "Closing Date." ARTICLE X INDEMNIFICATION SECTION 10.01 Indemnification. In addition to all rights and remedies available to the parties hereto at law or in equity, the Company shall indemnify the Purchaser, its stockholders, officers, directors, employees, agents, representatives, successors and assigns, its affiliates, and it's affiliates' stockholders, officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Indemnified Persons"), and save and hold each Indemnified Person harmless from and against and pay on behalf of or reimburse each such Indemnified Person, as and when incurred, for any and all loss, liability, demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not arising out of any claims by or on behalf of such Indemnified Person or any third party, including interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing (collectively, "Losses"), that any such Indemnified Person may suffer, sustain incur or become subject to, as a result of, in connection with, relating or incidental to or by virtue of: (i) any misrepresentation or breach of warranty on the part of the Company under this Agreement; or (ii) any -46- nonfulfillment, default or breach of any covenant or agreement on the part of the Company under this Agreement or any of the other Transaction Documents. 10.02 Maximum Recovery. Notwithstanding anything in this Agreement to the contrary, in no event shall the Company be liable for indemnification under this Article X in an amount in excess of the purchase price of the New Shares and the shares of Company Common Stock issued upon exercise of the Purchaser's Option and the Conditional Option. 10.03 Exception. Notwithstanding the foregoing, upon judicial determination that is final and no longer appealable, that the act or omission giving rise to the indemnification set forth above resulted primarily out of or was based primarily upon the Indemnified Person's negligence (unless such Indemnified Person's negligence was based upon the Indemnified Person's reliance in good faith upon any of the representations, warranties, covenants or promises made by the Company herein or in any of the other Transaction Documents) the Company shall not be responsible for any Losses sought to be indemnified in connection therewith, and the Company shall be entitled to recover from the Indemnified Person all amounts previously paid in full or partial satisfaction of such indemnity, together with all costs and expenses (including reasonable attorneys fees) of the Company reasonably incurred in connection with the Indemnified Persons claim for indemnity, together with interest at the rate per annum publicly announced by Citibank, N.A. as its prime rate from the time of payment of such amounts to the Indemnified Person until repayment to the Company. 10.04 Investigation. All indemnification rights hereunder shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby to the extent provided in Section 10.06 below, irrespective of any investigation, inquiry or examination made for or on behalf of, or any knowledge of the Indemnified Person or the acceptance of any certificate or opinion. 10.05 Contribution. If the indemnity provided for in this Section 10.01 shall be, in whole or in part, unavailable to any Indemnified Person, due to Section 10.01 being declared unenforceable by a court of competent jurisdiction based upon reasons of public policy, so that Section 10.01 shall be insufficient to hold each such Indemnified Person harmless from Losses which would otherwise be indemnified hereunder, then the Company and the Indemnified Person shall each contribute to the amount paid or payable for such Loss in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and the Indemnified Person on the other, but also the relative fault of the Company and be in -47- addition to any liability that the Company may otherwise have. The indemnity, contribution and expense reimbursement obligations that the Company has under this Article X shall survive the expiration of the Transaction Documents. The parties hereto further agree that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Person is a formal party to any such lawsuit, claims or other proceedings. 10.06 Limitation. Except as set forth in Section 10.02 above with respect to indemnification, this Article X is not intended to limit the rights or remedies otherwise available to any party hereto with respect to this Agreement or the other Transaction Documents. ARTICLE XI MISCELLANEOUS SECTION 11.01. Survival of Representations and Warranties. Other than the representations and warranties set out in Sections 4.11 and 4.13, the representations and warranties made in this Agreement shall survive for a period of three years beyond the Closing Date. The representations and warranties set out in Sections 4.11 and 4.13 shall until the expiration of the applicable statutory period. SECTION 11.02. Entire Agreement; Assignment. (a) This Agreement (including the documents and the instruments referred to herein) and the confidentiality agreement executed by Purchaser and the Company dated April 5, 2001 and the confidentiality provision set forth in numbered paragraph 8 of the letter between Purchaser and the Company dated August 24, 2001 (together, the "Confidentiality Agreement") constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. (b) Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, however, that Purchaser may assign this Agreement and any of its rights, interests and obligations hereunder to an affiliate of such party without such consent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. -48- SECTION 11.03. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. SECTION 11.04. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by overnight courier or facsimile (with receipt confirmed) to the respective parties as follows: If to Purchaser: Biovail Laboratories Incorporated Chelston Park, Building 2, Ground Floor, Collymore Rock, St. Michael, Barbados, West Indies and copies to: Biovail Corporation 2488 Dunwin Drive Mississauga, Ontario Canada L5L 1J9 Attention: General Counsel Fax: (416) 285-6499 Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Attention: Roger Andrus, Esq. Fax: (212) 269-5420 If to the Company: Depomed, Inc. 1360 O'Brien Drive Menlo Park, California 94025 Attention: Chief Financial Officer Fax: (650) 462-9991 with a copy to: Heller Ehrman White & McAuliffe LLP 275 Middlefield Road Menlo Park, California 94025 Attention: Julian N. Stern, Esq. Fax: (650) 324-0638 or to such other address as the person to whom notice is given may have previously furnished to the other in writing in the -49- manner set forth above (provided that notice of any change of address shall be effective only upon receipt thereof). SECTION 11.05. Governing Law; Jurisdiction. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof; provided, however, that issues involving the corporate governance of any of the parties hereto shall be governed by their respective jurisdictions. (b) In addition, each of the parties hereto agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a federal or state court sitting in New York, New York. SECTION 11.06. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 11.07. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. SECTION 11.08. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and, except with respect to Sections 2.02, 3.01(d), nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 11.09. Remedies. Except as set forth below, the parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, and, accordingly, it is agreed that the parties shall be entitled to an injunction or injunctions to prevent such breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 11.10 EIS Right of Participation. (a) The Purchaser and the Company acknowledge that Elan International Services, Ltd. ("EIS") may elect to purchase securities of the Company on the same terms and subject to the same conditions as those set forth -50- herein in accordance with that certain Securities Purchase Agreement, dated as of January 21, 2000, between the Company and EIS (the "EIS Securities Purchase Agreement"). In the event that Elan elects to exercise its preemptive right under the EIS Securities Purchase Agreement, the Company shall enter into a Stock Purchase Agreement with EIS on the same terms and conditions as those set forth herein; provided that the number of shares of Company Common Stock to be purchased by EIS shall be no greater than the number of shares of Common Stock which EIS is entitled to purchase under the EIS Securities Purchase Agreement and the number of shares of Company Common Stock subject to the Purchaser's Option and Conditional Option provided for in such agreement shall be proportionately adjusted as more particularly described below. Any such agreement shall provide, with respect to the restriction of access to proprietary information, that proprietary information will include information relating to the Company's Metformin GR product or any other project or business being pursued by the Company and the Purchaser, Designee, or an affiliate of Purchaser in lieu of proprietary information relating to DepoMed Development, Ltd. (b) If pursuant to the EIS Securities Purchase Agreement EIS chooses to exercise its pre-emptive right in respect of any proposed issuances of Company Common Stock issued to the Purchaser pursuant to the terms of this Agreement (the "Issuance"), then the number of Company Common Stock to be issued by the Company to the Purchaser on such Issuance shall be increased to the number of Company Common Stock that results in the Purchaser owning the same percentage of (i) the total number of issued and outstanding Company Common Stock immediately subsequent to the Issuance of Company Common Stock to the Purchaser and to EIS; as (ii) the total number of issued and outstanding Company Common Stock calculated as if EIS had not exercised its pre-emptive right in respect of the Issuance of Company Common Stock to the Purchaser. (c) If EIS chooses to exercise its pre-emptive right in respect of the Issuance, the number of Company Common Stock to be issued by the Company to the Purchaser will -51- be calculated as the amount determined as Y by the formulae in Part B-2 of Schedule 11.10, where: (1) B is the number of Company Common Stock owned by the Purchaser prior to the Issuance; (2) B% is the percentage of the issued and outstanding Company Common Stock that the Purchaser would own upon the Issuance (calculated without reference to any Company Common Stock that may be issued to EIS should it exercise its pre-emptive right); (3) E is the number of Company Common Stock owned by EIS prior to the Issuance; (4) E% is the percentage of issued and outstanding Company Common Stock that EIS is entitled to own upon the acquisition of Company Common Stock on the exercise of its pre-emptive right and the Issuance; and (5) T is the total number of issued and outstanding Company Common Stock prior to the Issuance and the issuance of any Company Common Stock to EIS on the exercise of its pre-emptive right. The number of shares to be issued to EIS on the exercise of its pre-emptive right is the number determined as X by the formulae in Part B-2 of Schedule 11.10. [The remainder of this page has been left intentionally blank] -52- IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its respective officer thereunto duly authorized, all as of the day and year first above written. BIOVAIL LABORATORIES INCORPORATED By: /s/ Eugene Melnyk ------------------------------------------------- Name: Eugene Melnyk Title: President DEPOMED, INC. By: /s/ John W. Fara ------------------------------------------------- Name: John W. Fara Title: President ANNEX I Form of Registration Rights Agreement -2- ANNEX II Form of Nominee Voting Commitment Letter [Form of Nominee Voting Commitment] Reference is hereby made to the Stock Purchase Agreement, dated May 28, 2002 (the "Stock Purchase Agreement"), by and between Depomed, Inc., a California corporation (the "Company"), and Biovail Laboratories Incorporated, a corporation organized under the laws of Barbados ("Purchaser"). This letter shall be effective as of the Closing (as defined in the Stock Purchase Agreement). In consideration of the Purchaser's agreement to enter into the Stock Purchase Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned hereby commits to vote or cause to be voted all shares of Company Voting Stock owned or beneficially owned by the undersigned in favor of the election of the Purchaser Nominees (as defined in the Stock Purchase Agreement), if any, designated by the Purchaser in accordance with Section 3.02 of the Stock Purchase Agreement as in effect on the date hereof, to the Board of Directors of the Company at each election of the Board of Directors of the Company with respect to which the Purchaser is entitled to designate Purchaser Nominees. For purposes of this letter, "Company Voting Stock" means any and all shares, interests, participations or other equivalents (however designated) of corporate stock of the Company entitling the holders thereof to vote in an election of the Board of Directors of the Company. Signature: ----------------------------------------------------------- Name of Shareholder: ---------------------------------------- Title of Signatory if Shareholder is an entity: ----------------- Address: ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- Date: ----------------------------- -3- ANNEX III Committed Voters 1. Orbimed Advisors LLC 2. Easton Hunt Capital Partners 3. John W. Shell, Ph.D. 4. John N. Shell COMPANY DISCLOSURE STATEMENT 4.02 Authority Relative to this Agreement. 1. The Company is required to file an Additional Listing Application with the American Stock Exchange with respect to the New Shares and the shares of Company Common Stock issuable pursuant to the Purchaser's Option and the Conditional Option. 2. The number of shares of Company Common Stock not currently issued and outstanding or reserved for issuance for another purpose is insufficient to consummate the transactions contemplated by the Agreement. This insufficiency will be cured if the Company's shareholders approve an increase in the number of authorized shares of Company Common Stock by 75,000,000 shares to 100,000,000 shares at the annual meeting of the Company's shareholders to be held on May 30, 2002. 3. The transactions contemplated by the Agreement are subject to a filing under the HSR Act. 4.03 No Conflict; Required Filings and Consents. 1. See Section 4.02 2. The consummation of the transactions contemplated by the Agreement will be a "Change in Control" under the License Agreement, dated as of January 21, 2000, by and among Elan Corporation, plc ("Elan"), Elan Pharma International Limited ("EPIL"), the Company and DepoMed Development, Ltd. (the "Elan License Agreement"), which allows Elan to terminate the Elan License Agreement. A termination of the Elan License Agreement: (i) allows the Company to terminate the License Agreement, dated as of January 21, 2000, by and among Elan, the Company and DepoMed Development, Ltd.; (ii) could lead to the termination of the Subscription, Joint Development and Operating Agreement, dated as of January 21, 2000 by and among Elan, EPIL, EIS, the Company and DDL (the "JDOA"). Any termination of the JDOA is an event of default under the Convertible Promissory Note, which allows EIS to accelerate the Company's payment obligation under the Convertible Promissory Note. 4.05 Capitalization. 1. EIS has a right of participation in offerings of the Company's securities, as set forth in the EIS Purchase Agreement. 2. See Item 2 of Section 4.02. 3. The Company's agreements with Elan and its affiliates provide for the exchange, at the election of Elan, of shares of Preferred Stock held by EIS for securities of DepoMed Development, Ltd. owned by the Company. The Company has deposited in escrow 3,612 preferred shares of DepoMed Development, Ltd., which will be exchanged for the Preferred in the event that Elan exercises that exchange right. 4.06 SEC Reports and Financial Statements. 1. In connection with the SEC's review of the Company's Registration Statement on Form S-3 (File No. 333-86542) and the Company's Form 10-K for the fiscal year ended December 31, 2001, the Company plans to file an amendment to such Form S-3 and may be required to file an amendment to the Form 10-K. A copy of the SEC comment letter, dated May 15, 2002, has been provided to the Purchaser. 2. Subject to approval of the Company's shareholders at the annual meeting of the Company's shareholders to be held on May 30, 2002, the Company has amended its 1995 Stock Option Plan to increase the number of shares available for issuance thereunder by 500,000 shares to 2,900,000 shares, and has granted stock options under that option plan subject to shareholder approval of such increase. 3. See Item 2 of Section 4.03. 4.07 Litigation. In January 2002, the Company filed a complaint against Bristol-Myers Squibb Company ("BMS") claiming that BMS's once-daily metformin product, Glucophage XR, infringes the Company's United States Patent No. 6,340,475 (the "BMS Lawsuit"). The BMS Lawsuit may result in successful counterclaims by BMS against the Company based on an allegation that the Company has breached the terms of a letter agreement dated the 11th of July, 1996, relating to a joint research project for the production of a product consisting of formulations of metformin hydrochloride incorporated in the Company's GR System, or alleging that United States Patent No. 6,340,475 is invalid. 4.08 Compliance with Applicable Laws; Permits. 1. IND no. 60,747 related to Metformin GR. 2. IND no. 62,386 related to Ciprofloxacin GR. 3. Clinical trial protocol no. 81-0003 related to Metformin GR NDA Phase III study. 4. Clinical trial protocol no. 81-0005 related to randomized, double-blind parallel group pilot study to assess the comparative efficacy, safety and tolerability of once-daily extended release Ciprofloxacin GR. 5. Clinical trial protocol no. 00-004 related to Phase II Metformin GR safety and efficacy. 6. Clinical trial protocol no. 00-009 related to Food effect on pharmokinetics of Metformin GR. 4.09 Employee Benefit Plans. 1. 1995 Stock Option Plan. 2. Section 125 Cafeteria Plan. 3. 401(k) Plan. 4. Vacation policy. 4.10 Intellectual Property. See Section 4.07 4.12 Material Adverse Change. See Section 4.07 See Item 2. of Section 4.03. 4.14 Material Contracts. See Item 2. of Section 4.03. -----END PRIVACY-ENHANCED MESSAGE-----