S-1/A

As filed with the Securities and Exchange Commission on October 12, 2010

Registration No. 333-169210

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 TO

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

ZOGENIX, INC.

(Exact name of registrant as specified in its charter)

Delaware	2834	20-5300780
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

12671 High Bluff Drive, Suite 200

San Diego, CA 92130

(858) 259-1165

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Roger L. Hawley

Chief Executive Officer

Zogenix, Inc.

12671 High Bluff Drive, Suite 200

San Diego, CA 92130

(858) 259-1165

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Scott N. Wolfe, Esq. Cheston J. Larson, Esq. Matthew T. Bush, Esq. Latham & Watkins LLP 12636 High Bluff Drive, Suite 400 San Diego, CA 92130 (858) 523-5400	Eric S. Haueter, Esq. Heather A. Childress, Esq. Sidley Austin LLP 555 California Street, 20th Floor San Francisco, CA 94104 (415) 772-1200

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting  company)	Smaller reporting company	¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 12, 2010

             Shares

Common Stock

This is an initial public offering of Zogenix, Inc. We are offering              shares of our common stock. We currently estimate that the initial public offering price of our common stock will be between $             and $             per share.

Prior to this offering there has been no public market for our common stock. We have filed an application for our common stock to be listed on The NASDAQ Global Market under the symbol “ZGNX.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 10.

	Per Share	Total
Initial price to public	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to Zogenix, Inc.	$	$

We have granted the underwriters an option to purchase up to              additional shares of our common stock to cover over-allotments, if any, exercisable at any time until 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares on or about                     , 2010.

Wells Fargo Securities Leerink Swann

Oppenheimer & Co. Stifel Nicolaus Weisel

Prospectus dated                     , 2010.

We launched our first product, Sumavel™DosePro™, using our proprietary DosePro technology in January 2010.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	10
Special Note Regarding Forward-Looking Statements and Market Data	60
Use of Proceeds	62
Dividend Policy	62
Capitalization	63
Dilution	65
Selected Financial Data	68
Management’s Discussion and Analysis of Financial Condition and Results of Operations	70
Business	97
Management	137
Compensation Discussion and Analysis	147
Principal Stockholders	177
Certain Relationships and Related Party Transactions	181
Description of Capital Stock	186
Shares Eligible for Future Sale	191
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock	194
Underwriting	198
Legal Matters	204
Experts	204
Where You Can Find Additional Information	204
Index to Consolidated Financial Statements	F-1

You should rely only on the information contained in this prospectus and in any free writing prospectus that we may provide to you in connection with this offering. Neither we nor any of the underwriters has authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any such free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor any of the underwriters is making an offer to sell or seeking offers to buy these securities in any jurisdiction where or to any person to whom the offer or sale is not permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.

For investors outside the United States: Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

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PROSPECTUS SUMMARY

This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the “Risk Factors” section and our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in shares of our common stock. Unless the context requires otherwise, references in this prospectus to “Zogenix,” “we,” “us” and “our” refer to Zogenix, Inc., including, as of June 7, 2010, its consolidated subsidiary.

Overview

We are a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. Our first commercial product, Sumavel™ DosePro™ (sumatriptan injection) Needle-free Delivery System, was launched in January 2010. Sumavel DosePro offers fast-acting, easy-to-use, needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. Sumavel DosePro is the first drug product approved by the U.S. Food and Drug Administration, or FDA, that allows for the needle-free, subcutaneous delivery of medication. Our lead product candidate, ZX002, is a novel, oral, single-entity controlled-release formulation of hydrocodone currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. Sumavel DosePro and ZX002 each has the potential to address significant unmet medical needs and become important and widely-used additions to the treatment options available to patients and physicians in the United States’ multi-billion dollar migraine and chronic pain markets, respectively.

Sumavel DosePro may offer a faster-acting and more efficacious treatment alternative to oral and nasal triptans and simple, convenient administration when compared to traditional, needle-based sumatriptan injection. According to its Prescribing Information, Sumavel DosePro can provide onset of migraine pain relief in as little as ten minutes for some patients. As a result, we believe that Sumavel DosePro has the potential to be prescribed by a broad physician audience, especially for difficult to treat migraine episodes.

Migraine is a syndrome that affects approximately 30 million people in the United States, according to a 2004 National Headache Foundation report. Triptans are the class of drugs most often prescribed for treating migraines. In the United States in the 12 months ended June 2010, triptans generated sales of approximately $3.45 billion and sumatriptan, including branded and generic forms, represented the biggest market share of the seven approved triptans, with sales of approximately $1.97 billion, according to Wolters Kluwer Pharma Solutions (Source^® Pharmaceutical Audit Suite (PHAST)).

We launched the commercial sale of Sumavel DosePro in the United States in January 2010 with our co-promotion partner, Astellas Pharma US, Inc., or Astellas. Our sales and marketing organization is comprised of approximately 100 professionals. Our field sales force of approximately 80 representatives is promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. Our promotional efforts are complemented by our collaboration with Astellas and approximately 400 of its sales representatives, who are promoting Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists in the United States. We also have entered into a partnership for Sumavel DosePro with Desitin Arzneimittel GmbH to accelerate development and regulatory approvals in Europe and further enhance the global commercial potential of Sumavel DosePro.

Since launch, Sumavel DosePro has demonstrated consistent monthly growth in both total and new prescriptions. The product continues to add new and repeat prescribers in both the neurology and primary care settings, including a significant number of prescribers who had not prescribed sumatriptan injection in the prior 12 months. The product is gaining use from a range of patient segments, including

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new triptan users, patients being converted to the product from other migraine drugs and patients who have been prescribed Sumavel DosePro and also have other triptan prescriptions. This experience is consistent with our belief that many patients will selectively use Sumavel DosePro for their more challenging migraine episodes, while continuing to use oral triptans to treat their less severe migraine episodes. Through our ongoing efforts with the largest commercial health plans, Sumavel DosePro is achieving broad coverage in the United States, with a reimbursement claims approval rate of approximately 78% since launch (Source^® Dynamic Claims January 2010 – June 2010). Total gross sales of Sumavel DosePro through June 30, 2010 were $10.8 million. For the same period, we recognized $6.1 million in net product revenue from these sales, represented by more than 11,500 aggregate dispensed prescriptions written by more than 3,600 prescribers. (Source^® Pharmaceutical Audit Suite (PHAST) and Source^® Prescriber January 2010 – June 2010)

ZX002 is a novel, oral, single-entity controlled-release formulation of hydrocodone currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. ZX002 utilizes Elan Pharma International Limited’s, or Elan’s, proprietary Spheroidal Oral Drug Absorption System, or SODAS^® Technology, which serves to enhance the release profile of hydrocodone to provide consistent 12-hour pain relief relative to existing immediate-release combination formulations. Most marketed hydrocodone products contain the analgesic combination ingredient acetaminophen, which if taken in high quantities over time can cause liver toxicity. In June 2009, the FDA organized a joint advisory committee meeting that highlighted the public health problem of liver injury related to the use of acetaminophen in both over-the-counter and prescription products. ZX002, if approved, may represent the first available controlled-release version of hydrocodone and also the first hydrocodone product that is not combined with another analgesic. As a result, we believe ZX002 could generate sales from both patients who are using immediate-release opioid products on a chronic basis and patients already using extended-release opioids. We initiated the Phase 3 clinical development program for ZX002 in March 2010 and, if successful, expect to submit a New Drug Application with the FDA by early 2012. We in-licensed exclusive U.S. rights to ZX002 from Elan in 2007.

The American Pain Society estimated in 1999 that 9% of the U.S. adult population suffers from moderate to severe non-cancer related chronic pain. Chronic pain is treated with both immediate-release and extended-release opioids. We define our target market for ZX002 as prescription, non-injectable codeine-based and extended-release morphine-based pain products. This market generated U.S. sales of approximately $13.0 billion for the 12 months ended June 2010, based on average wholesale price, on approximately 202 million prescriptions. During the same period, existing hydrocodone products, the most commonly prescribed pharmaceutical products in the United States, generated $3.1 billion in sales on approximately 126 million prescriptions. (Source^® Pharmaceutical Audit Suite (PHAST)). We believe ZX002 has the potential to be an important therapeutic alternative to existing hydrocodone products, including the branded product Vicodin and its generic equivalents.

Our DosePro technology is a novel, patent-protected, needle-free drug delivery system designed for self-administration of a pre-filled, single dose of liquid drug. We believe the FDA’s approval of Sumavel DosePro represents an important validation of the technology. Results from our pre-clinical and clinical studies demonstrate that DosePro can be used successfully with small molecules and biological products, including protein therapeutics and monoclonal antibodies. We are building our internal product pipeline by investigating proven drugs that can be paired with DosePro to enhance their benefits and commercial attractiveness. Specifically, we have initiated pre-clinical development on a proprietary long-acting formulation of an injectable central nervous system, or CNS, drug product and are also evaluating the market potential, formulation requirements and clinical development pathway of an additional CNS compound that could be paired with DosePro to enhance its commercial attractiveness. If these efforts are successful, we may be able to submit an Investigational New Drug

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Application for one or both product candidates in 2011. We are also seeking to capitalize on our DosePro technology by out-licensing it to potential partners enabling them to enhance, differentiate or extend the life cycle of their proprietary injectable products. We acquired the DosePro technology and related intellectual property from Aradigm Corporation in August 2006.

Our management team has a proven clinical, regulatory, business development and commercialization track record at Zogenix and prior organizations, as well as significant expertise in CNS disorders and pain. Since our inception in 2006, our management team has successfully acquired, developed, obtained regulatory approval for and launched the commercial sale of Sumavel DosePro and completed a significant primary care co-promotion agreement in the United States and secured a European partnership for the product. We also completed an in-licensing transaction and initiated Phase 3 development for our ZX002 product candidate.

Sumavel DosePro Market Experience to Date

Selected market highlights since we launched Sumavel DosePro in January 2010 include:

• Prescription Trends.     Monthly prescription data shows that more than 11,500 aggregate prescriptions of Sumavel DosePro have been dispensed and that monthly total prescriptions have increased in each month since launch. In June 2010, more than 3,000 total prescriptions were dispensed and nearly 24% of total prescriptions were classified as refill prescriptions. (Source^® Pharmaceutical Audit Suite (PHAST) January 2010 – June 2010)

• Prescriber Base.     Weekly prescribing data shows that more than 4,300 physicians have prescribed Sumavel DosePro. In each month since launch, the number of repeat prescribers for Sumavel DosePro has increased. In addition, 32% of Sumavel DosePro prescribers had not written a prescription for needle-based sumatriptan injection in the previous 12 months and an additional 35% of prescribers had written, on average, less than one prescription per month for needle-based sumatriptan injection. (Source^® Prescriber January 2010 – June 2010 and Source^® Launchtrac Week ended January 15, 2010 – Week ended July 30, 2010)

• Patient Dynamics.     Analysis of patient data indicates that approximately 37% of patients filling a Sumavel DosePro prescription were new to the triptan market (i.e., had not filled a triptan prescription in the prior 18 months), 34% had active prescriptions for Sumavel DosePro and at least one additional triptan and 17% of patients had converted to Sumavel DosePro from another triptan. The remaining 12% of patients were continuing users of Sumavel DosePro. Importantly, of the patients who converted from another triptan, 75% converted from oral triptans, including tablets and fast melt formulations. (Source^® Lx APLD January 2010 – June 2010)

• Patients’ Experience.     Patients’ experience with Sumavel DosePro has been positive based on feedback provided via the Connects Program from Infomedics. This internet-based program invites patients that received a Sumavel DosePro prescription to register online at the time of their prescription and then provide feedback after they have used the product to treat a migraine episode. Through August 7, 2010, 877 patient respondents who had used Sumavel DosePro have rated their satisfaction with Sumavel DosePro at an average score of 7.1 versus 5.5 for their prior migraine medication (9-point satisfaction scale, with 9 being “very satisfied”).

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Investment Highlights

We believe we are differentiated by the unique characteristics of our marketed product and late stage product candidate, each of which addresses large market opportunities, as well as our established commercial infrastructure, our innovative technology and the depth of experience of our management team. The following represents the key attributes that help differentiate our company:

• Fully-integrated pharmaceutical company with established commercial infrastructure.

• Sumavel DosePro, a differentiated new entrant in the migraine market that has demonstrated consistent monthly prescription growth since its launch.

• ZX002, a novel, controlled-release chronic pain therapy in Phase 3 clinical development.

• Validated, proprietary DosePro technology with broad range of potential applications.

• Experienced management team with unique commercial and development expertise, including CNS sales and marketing experience.

Our Strategy

Our core strategy is to commercialize and develop differentiated CNS and pain therapeutics that can address significant unmet medical needs and overcome limitations of existing products. Key elements of our strategy include:

• Increasing sales and continuing to drive patient and physician adoption of Sumavel DosePro in the United States.

• Developing and commercializing ZX002 for the treatment of moderate to severe chronic pain.

• Expanding our product pipeline in CNS disorders and/or pain.

• Obtaining regulatory approvals for Sumavel DosePro outside of the United States.

• Out-licensing our proprietary DosePro technology.

• Securing rights to complementary products and product candidates that address CNS disorders and/or pain.

Our Risks

Our business and our ability to execute our business strategy are subject to a number of risks that you should be aware of before you decide to buy our common stock. In particular, you should consider the following risks, which are discussed more fully in “Risk Factors”:

• We are largely dependent on the commercial success of Sumavel DosePro. Through June 30, 2010, we have only recognized $6.1 million in net product revenue from sales of Sumavel DosePro, and we may never significantly increase these sales or become profitable.

• We are at an early stage of commercialization and have incurred significant net losses since our inception and anticipate that we will incur continued net losses for at least the next several years. Our net loss applicable to common stockholders was $27.7 million in 2007, $45.6 million in 2008, $45.9 million in 2009 and $49.3 million for the six months ended June 30, 2010.

• We may not be successful in executing our sales and marketing strategy for the commercialization of Sumavel DosePro. As part of this strategy, we are dependent on our collaboration with Astellas to promote Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists. If we are unable to successfully execute such strategy, we may not be able to generate significant revenue.

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• We expect intense competition, including from generic products, and if our competitors market and/or develop treatments for migraine or pain that are marketed more effectively, approved more quickly than our product candidates or demonstrated to be safer or more effective than our products, our commercial opportunities may be reduced or eliminated.

• We are dependent on numerous third parties in our supply chain, all of which are currently single source suppliers, for the commercial supply of Sumavel DosePro and a sole source supplier for the clinical supply of ZX002, and if we experience problems with any of these suppliers, the manufacturing of Sumavel DosePro and ZX002 could be delayed.

• ZX002 is subject to extensive regulation, and we cannot give any assurance that it or any of our other product candidates will receive regulatory approval or be successfully commercialized.

• Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy of ZX002 or any of our other product candidates, which could prevent or significantly delay their regulatory approval.

• Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for our other product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval for, or generate additional revenues from, such product candidates.

• Our success depends in part on our ability to protect our intellectual property. It may be difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.

• We may encounter unexpected safety, manufacturing, supply, regulatory or other issues relating to Sumavel DosePro, which may limit its commercial sales or regulatory acceptance.

Company Information

We were formed as a Delaware corporation on May 11, 2006 as SJ2 Therapeutics, Inc. We commenced our operations on August 25, 2006 and changed our name to Zogenix, Inc. on August 28, 2006. Our principal executive offices are located at 12671 High Bluff Drive, Suite 200, San Diego, CA 92130, and our telephone number is 1-866-ZOGENIX (1-866-964-3649). We formed a wholly-owned subsidiary, Zogenix Europe Limited, in June 2010, a company organized under the laws of England and Wales and which is located in the United Kingdom, and whose principal operations are to support the manufacture of the DosePro technology. Our website address is www.zogenix.com. The information on, or accessible through, our website is not part of this prospectus.

Sumavel™, DosePro™, Intraject^® and Zogenix™ are our trademarks. This prospectus also contains trademarks of other companies including Amerge^®, Axert^®, BOTOX^®, Cambia™, Frova™, Imigran^®, Imitrex^®, Imitrex STATdose System^®, Lortab^®, Maxalt^®, Neurontin^®, Relpax^®, SODAS^®, Treximet™, Vicodin^®, Vicoprofen^® , Voltaren^® and Zomig™. Unless otherwise specified, all prescription, prescriber and patient data in this prospectus is from Wolters Kluwer Pharma Solutions, Source^® Pharmaceutical Audit Suite (PHAST), Source^® Prescriber, Source^® Launchtrac, Source^® Dynamic Claims or Source^® Lx APLD.

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The Offering

Common stock offered              shares (or              shares if the underwriters’ over-allotment option is exercised in full)

Common stock to be outstanding after this offering              shares (or              shares if the underwriters’ over-allotment option is exercised in full)

Use of proceeds We intend to use the net proceeds from this offering to fund Phase 3 clinical trials and related development activities for ZX002, to fund the ongoing commercialization of Sumavel DosePro and for working capital and other general corporate purposes.

Risk factors You should read the “Risk Factors” section of this prospectus for a discussion of the factors to consider carefully before deciding to purchase any shares of our common stock.

Proposed Nasdaq Global Market symbol ZGNX

The number of shares of common stock to be outstanding after this offering is based on 156,842,830 shares outstanding as of June 30, 2010, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into 142,398,142 shares of common stock upon completion of this offering, and excludes:

• 13,886,339 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2010, at a weighted average exercise price of $1.10 per share;

• 14,783,521 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2010, at a weighted average exercise price of $0.33 per share;

•              additional shares of common stock reserved for future issuance under our 2010 Equity Incentive Award Plan, or the 2010 Plan, which will become effective immediately prior to the completion of this offering (including 2,439,479 shares of common stock reserved for future grant or issuance under our 2006 Equity Incentive Plan, or the 2006 Plan, as of June 30, 2010, which shares will be added to the shares to be reserved under our 2010 Plan upon the effectiveness of the 2010 Plan), plus any annual increases in the number of shares of common stock reserved for future issuance under the 2010 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2010 Plan pursuant to its terms, as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Equity Incentive Award Plan;” and

•              shares of common stock reserved for issuance under our 2010 Employee Stock Purchase Plan, or the Purchase Plan, which will become effective immediately prior to the completion of this offering, plus any annual increases in the number of shares of common stock reserved for issuance under the Purchase Plan pursuant to an “evergreen provision,” as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Employee Stock Purchase Plan.”

Except as otherwise indicated, all information in this prospectus assumes:

• no exercise by the underwriters of their option to purchase up to an additional              shares of common stock to cover over-allotments, if any;

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• the filing of our amended and restated certificate of incorporation and adoption of our amended and restated bylaws upon completion of this offering;

• the conversion of all outstanding shares of our convertible preferred stock into 142,398,142 shares of common stock upon completion of this offering;

• no exercise of outstanding options or warrants since June 30, 2010;

• the issuance of              shares of our common stock upon completion of this offering as a result of the automatic conversion of the $15.0 million in aggregate principal amount of convertible promissory notes issued in July 2010, or the 2010 Notes, (including accrued interest thereon), assuming an initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010; and

• a one-for-          reverse stock split of our common stock to be effected before the completion of this offering.

Each $1.00 increase or decrease in the assumed initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, the number of shares of our common stock issued on conversion of the 2010 Notes (and therefore the number of shares to be outstanding after this offering) by              shares, assuming that the closing date of this offering (and therefore the conversion date of the 2010 Notes) is                     , 2010. To the extent the closing date of this offering occurs after                     , 2010, the 2010 Notes will continue to accrue interest at a rate of 8% per annum and additional shares of our common stock will be issued upon conversion of this additional accrued interest. Likewise, if the closing date occurs prior to                     , 2010, fewer shares will be issued on conversion of the 2010 Notes.

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Summary Financial Data

The following table summarizes certain of our financial data. The summary statement of operations data for the years ended December 31, 2007, 2008 and 2009 are derived from our audited financial statements included elsewhere in this prospectus. The summary statement of operations data for the six months ended June 30, 2009 and 2010 and the balance sheet data as of June 30, 2010 have been derived from our unaudited interim financial statements, which are included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, consisting primarily of normal recurring adjustments, necessary to fairly present our financial position as of June 30, 2010 and results of operations for the six months ended June 30, 2009 and 2010. Our historical results of operations and financial condition are not necessarily indicative of the results or financial condition that may be expected in the future. The summary financial data set forth below should be read together with our financial statements and related notes, “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Year Ended December 31,									Six Months Ended June 30,
	2007			2008			2009			2009			2010
	(In Thousands, except Per Share Amounts)
Statement of Operations Data
Revenue:
Net product revenue	$	—		$	—		$	—		$	—		$	6,118
Contract revenue		—			—			—			—			1,461
Total revenue		—			—			—			—			7,579
Operating expenses:
Cost of sales		—			—			—			—			5,829
Royalty expense		—			—			—			—			382
Research and development		24,329			33,910			21,438			14,739			11,389
Selling, general and administrative		4,725			11,820			14,102			3,753			24,895
Total operating expenses		29,054			45,730			35,540			18,492			42,495
Loss from operations		(29,054	)		(45,730	)		(35,540	)		(18,492	)		(34,916	)
Other income (expense):
Interest income		927			696			10			6			3
Interest expense		(377	)		(1,718	)		(9,188	)		(2,326	)		(1,511	)
Change in fair value of warrant liability		(107	)		1,119			(755	)		(447	)		(13,020	)
Other financing income		906			—			—			—			—
Other income (expense)		25			63			(416	)		(265	)		139
Total other income (expense)		1,374			160			(10,349	)		(3,032	)		(14,389	)
Net loss		(27,680	)		(45,570	)		(45,889	)		(21,524	)		(49,305	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock		(18,360	)		—			—			—			—
Net loss attributable to common stockholders	$	(46,040	)	$	(45,570	)	$	(45,889	)	$	(21,524	)	$	(49,305	)
Net loss per share, basic and diluted	$	(8.08	)	$	(5.27	)	$	(4.10	)	$	(2.03	)	$	(3.74	)
Weighted-average shares outstanding, basic and diluted		5,701			8,655			11,197			10,620			13,174
Pro forma net loss per share, basic and diluted (unaudited)(1)							$	(0.45	)				$	(0.23	)
Weighted-average pro forma shares outstanding, basic and diluted (unaudited)(1)								100,572						155,572

(1) See Note 2 of Notes to Financial Statements for an explanation of the method used to calculate net loss per share and the number of shares used in the computation of the per share amounts.

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	As of June 30, 2010
	Actual(1)			Pro Forma As Adjusted
	(In Thousands)
Balance Sheet Data:
Cash and cash equivalents	$	4,493		$
Working capital (deficit)		(4,389	)
Total assets		44,111
Long-term debt, less current portion		5,616
Convertible preferred stock warrant liability		18,061
Convertible preferred stock		149,312
Accumulated deficit		(173,843	)
Total stockholders’ equity (deficit)		(170,730	)

(1) Does not include (a) our borrowing of $25.0 million under a term loan entered into with Oxford Finance Corporation and Silicon Valley Bank, and our repayment of $12.8 million outstanding under our prior term loan, in July 2010, (b) our borrowing of $2.2 million under a revolving credit facility from Oxford Finance Corporation and Silicon Valley Bank in August 2010, and (c) our issuance of $15.0 million in aggregate principal amount of 2010 Notes in July 2010.

The summary pro forma as adjusted balance sheet data above gives effect to the following transactions as if they had occurred as of June 30, 2010:

(1)     the sale of              shares of common stock in this offering and our receipt of the estimated net proceeds therefrom, based on an assumed initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us;

(2)     the conversion of the 2010 Notes into              shares of our common stock upon the completion of this offering, assuming an initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010;

(3)     the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 142,398,142 shares of our common stock upon the completion of this offering; and

(4)     the adjustment of our outstanding warrants to purchase convertible preferred stock into warrants to purchase our common stock upon the completion of this offering, and the resultant reclassification of our convertible preferred stock warrant liability to stockholders’ equity (deficit).

Each $1.00 increase or decrease in the assumed initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, the pro forma as adjusted amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We are largely dependent on the commercial success of Sumavel DosePro and although we have generated revenue from sales of Sumavel DosePro, we may never become profitable.

We anticipate that, for at least the next several years, our ability to generate revenues and become profitable will depend in large part on the commercial success of our only marketed product, Sumavel DosePro, which in turn, will depend on several factors, including our ability to:

• successfully maintain and increase market demand for, and sales of, Sumavel DosePro through our sales and marketing efforts and those of Astellas Pharma US, Inc., or Astellas, our co-promotion partner;

• obtain greater acceptance of Sumavel DosePro by physicians and patients;

• maintain adequate levels of coverage and reimbursement for Sumavel DosePro from commercial health plans and government health programs, which we refer to collectively as third-party payors, particularly in light of the availability of other branded and generic competitive products;

• maintain compliance with regulatory requirements;

• establish and maintain agreements with wholesalers and distributors on commercially reasonable terms;

• maintain commercial manufacturing arrangements with third-party manufacturers as necessary to meet commercial demand for Sumavel DosePro and continue to manufacture commercial quantities at acceptable cost levels; and

• successfully maintain intellectual property protection for Sumavel DosePro.

We cannot be certain that our continued marketing of Sumavel DosePro will result in increased demand for, and sales of, the product. If we fail to successfully increase sales of Sumavel DosePro, we may be unable to generate sufficient revenues to grow or sustain our business and we may never become profitable, and our business, financial condition and results of operations will be materially adversely affected.

We are at an early stage of commercialization and have a history of net losses and negative cash flow from operations. We cannot predict if or when we will become profitable and anticipate that our net losses and negative cash flow from operations will continue for at least the next several years.

We were organized in 2006, have a limited operating history and there is little historical basis upon which to assess how we will respond to competitive, economic or technological challenges. Our business and prospects must be considered in light of the risks and uncertainties frequently encountered by pharmaceutical companies in the early stages of commercialization.

We have generated substantial net losses and negative cash flow from operations since our inception in 2006. For example, for 2007, 2008 and 2009 and the six months ended June 30, 2010, we incurred net losses of $27.7 million, $45.6 million, $45.9 million and $49.3 million, respectively, our net cash used in operating activities was $26.8 million, $41.3 million, $32.4 million and $35.8 million,

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respectively, and, at June 30, 2010, our accumulated deficit was $173.8 million. We expect our losses and negative cash flow to continue for at least the next several years as a result of the increasing development expenses in connection with our ongoing clinical development for ZX002 and the cost of the sales and marketing expense associated with Sumavel DosePro. Our ability to generate revenues from Sumavel DosePro or any of our product candidates will depend on a number of factors, including, in the case of Sumavel DosePro, the factors described in the following two risk factors and, in the case of our product candidates, our ability to successfully complete clinical trials, obtain necessary regulatory approvals and negotiate arrangements with third parties to help finance the development of, and market and distribute, any product candidates that receive regulatory approval. In addition, we will be subject to the risk that the marketplace will not accept our products.

Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable and it is possible we will never become profitable. Our failure to increase sales of Sumavel DosePro or to successfully commercialize any of our product candidates that may receive regulatory approval would likely have a material adverse effect on our business, results of operations, financial condition and prospects and could result in our inability to continue operations.

We may not be successful in executing our sales and marketing strategy for the commercialization of Sumavel DosePro and, as part of this strategy, we are dependent on our collaboration with Astellas to promote Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists. If we are unable to successfully execute such strategy, we may not be able to generate significant revenue.

Prior to the launch of Sumavel DosePro in January 2010, we built a commercial sales and marketing organization including sales, marketing, communications, managed markets, trade and distribution functions, which is now focused exclusively on marketing and selling Sumavel DosePro primarily to physicians, nurses and other healthcare professionals in the United States. Our field sales force includes approximately 80 sales representatives who are promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists in the United States. Although we believe we have adequately sized our sales force in order to reach this targeted audience, we could lose sales personnel or the performance of our sales personnel as measured by actual sales may be disappointing. Many of our competitors have significantly larger sales and marketing organizations, and significantly greater experience than we do in selling, marketing and distributing pharmaceuticals, and we may not be able to compete successfully with them with the commercial infrastructure we have developed.

To complement our sales force, we entered into an exclusive co-promotion agreement with Astellas in July 2009 under which Sumavel DosePro is also being promoted primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists, or collectively the Astellas Segment, in the United States by approximately 400 Astellas sales representatives. Although the agreement stipulates annual minimum levels of sales effort, we have limited control over the amount and timing of resources that Astellas dedicates to the promotion of Sumavel DosePro, and we do not hire, train or manage such resources. The ability to generate revenue from our arrangement with Astellas depends on Astellas’ efforts in promoting Sumavel DosePro and its ability to achieve broad market acceptance and prescribing of Sumavel DosePro in the Astellas Segment.

We are subject to a number of additional risks associated with our dependence on our co-promotion arrangement with Astellas, including:

• Astellas could fail to devote sufficient resources to the promotion of Sumavel DosePro, including by failing to develop, deploy or expand its sales force as necessary;

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• Astellas could terminate the co-promotion agreement for any or no cause upon 180-days written notice at any time following September 30, 2010, which may negatively impact our ability to generate, or prevent us from generating, sufficient revenue;

• Astellas could fail to comply with applicable regulatory guidelines with respect to the promotion of Sumavel DosePro, which could result in administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, and injunctions; and

• disputes regarding the co-promotion agreement that negatively impact or terminate the commercialization efforts of Astellas may negatively impact or prevent the generation of sufficient revenue or result in significant litigation or arbitration.

Furthermore, Astellas may terminate the co-promotion agreement in the event we undergo a change of control (as defined in the agreement), if a governmental authority takes action that prevents or makes it unlawful for Astellas to perform its obligations under the agreement, in the event of our inability to supply commercial product, under certain circumstances where a third party asserts that the making or selling of Sumavel DosePro infringes the intellectual property rights of a third party, if we materially breach our minimum sales effort obligations and do not cure that breach within a specified period, upon the occurrence of a large scale recall or market withdrawal of Sumavel DosePro, upon a failure of the Sumavel DosePro brand to achieve certain minimum sales levels in 2010 or 2011, upon a material uncured breach by us or in the event of our insolvency or bankruptcy or other event which affects our ability to perform our obligations under the agreement. Accordingly, we cannot assure you that Astellas will not terminate the agreement under these circumstances.

In addition, our co-promotion agreement with Astellas expires on June 30, 2013, subject to a one-year extension at the option of Astellas. We cannot assure you that Astellas will enter into any extension of the agreement or, if it does so, that it will not condition any such extension upon changes in the agreement that could have a material adverse effect on us. If Astellas were to terminate the agreement or elect not to extend the agreement upon its expiration, we would lose the efforts of their sales force, and we would need to make arrangements with another third party to replace Astellas’ sales force, or significantly expand our sales and marketing organization. We may not be able to enter into such arrangements with third parties in a timely manner, on acceptable terms or at all. To the extent that we enter into another co-promotion or other licensing arrangement, our portion of retained product revenues is likely to be lower than if we directly marketed and sold Sumavel DosePro solely on our own, and a portion of those revenues generated will depend upon the efforts of such third parties similar to our dependence on Astellas, and these efforts may not be successful. If our co-promotion agreement with Astellas is terminated and we are unable to find another partner for the promotion of Sumavel DosePro in the primary care segment in the United States, we may not be able to expand our own sales and marketing capabilities to cover this segment and any such expansion could, in any event, substantially increase our expenses and capital requirements that we might not be able to fund.

If we are unable to successfully implement our commercialization plans and drive adoption by patients and physicians of Sumavel DosePro through our sales, marketing and commercialization efforts and the efforts of Astellas, then we will not be able to generate significant revenue which will have a material adverse effect on our business, results of operations, financial condition and prospects.

If Sumavel DosePro, ZX002, if approved, or any other product candidate for which we receive regulatory approval does not achieve broad market acceptance or coverage by third-party payors, the revenues that we generate will be limited.

The commercial success of Sumavel DosePro, ZX002, if approved, and any product candidates for which we obtain marketing approval from the U.S. Food and Drug Administration, or FDA, or other regulatory authorities will depend upon the acceptance of these products by physicians, patients, healthcare payors and the medical community. Coverage and reimbursement of our approved product by third-party payors is also necessary for commercial success. The degree of market acceptance of

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Sumavel DosePro and any other product candidates for which we may receive regulatory approval will depend on a number of factors, including:

• our ability to provide acceptable evidence of safety and efficacy;

• acceptance by physicians and patients of the product as a safe and effective treatment;

• the relative convenience and ease of administration;

• the prevalence and severity of adverse side effects;

• limitations or warnings contained in a product’s FDA-approved labeling;

• the clinical indications for which the product is approved;

• in the case of product candidates that are controlled substances, the U.S. Drug Enforcement Agency, or DEA, scheduling classification;

• availability and perceived advantages of alternative treatments;

• any negative publicity related to our or our competitors’ products;

• the effectiveness of our or any current or future collaborators’ sales, marketing and distribution strategies;

• pricing and cost effectiveness;

• our ability to obtain sufficient third-party payor coverage or reimbursement; and

• the willingness of patients to pay out of pocket in the absence of third-party payor coverage.

For example, while we believe the needle-free nature of our DosePro technology will appeal to patients, some patients may not react favorably to the subcutaneous delivery of drug products by DosePro. Our experience indicates that some patients will experience pain upon injection with the DosePro technology and/or reactions at the site of injection. Any undesirable side effects have the potential to limit market acceptance of our product candidates.

In addition, products used to treat and manage pain, especially in the case of opioids, are from time to time subject to negative publicity, including illegal use, overdoses, abuse, diversion, serious injury and death. These events have led to heightened regulatory scrutiny. Controlled substances are classified by the DEA as Schedule I through V substances, with Schedule I substances being prohibited for sale in the United States, Schedule II substances considered to present the highest risk of abuse and Schedule V substances being considered to present the lowest relative risk of abuse. ZX002 contains hydrocodone, and we anticipate it will be regulated as a Schedule II controlled substance, and despite the strict regulations on the marketing, prescribing and dispensing of such substances, illicit use and abuse of hydrocodone is well-documented. Thus, the regulatory approval process and the marketing of ZX002 may generate public controversy that may adversely affect regulatory approval and market acceptance of ZX002.

Our efforts to educate the medical community and third-party payors on the benefits of Sumavel DosePro, ZX002, if approved, and any of our product candidates for which we obtain marketing approval from the FDA or other regulatory authorities and gain broad market acceptance may require significant resources and may never be successful. If our products do not achieve an adequate level of acceptance by physicians, third-party payors and patients, we may not generate sufficient revenue from these products to become or remain profitable.

Our short operating history makes it difficult to evaluate our business and prospects.

We commenced our operations on August 25, 2006. Our operations to date have been limited to organizing and staffing our company, scaling up manufacturing operations with our third-party contract

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manufacturers, building a sales and marketing organization, conducting product development activities for our product and product candidates, in-licensing rights to ZX002, and commercializing Sumavel DosePro. Moreover, Sumavel DosePro is our only product that is approved for sale. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

We depend on wholesale pharmaceutical distributors for retail distribution of Sumavel DosePro, and if we lose any of our significant wholesale pharmaceutical distributors, our business could be harmed.

The majority of our sales of Sumavel DosePro are to wholesale pharmaceutical distributors who, in turn, sell the products to pharmacies, hospitals and other customers. Three wholesale pharmaceutical distributors, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation, individually comprised 46.4%, 38.8% and 9.9%, respectively, of our total gross sales of Sumavel DosePro for the six months ended June 30, 2010, which may result in substantial fluctuations in our results of operations from period to period. The loss of any of these wholesale pharmaceutical distributors’ accounts or a material reduction in their purchases could have a material adverse effect on our business, results of operations, financial condition and prospects.

In addition, these wholesale customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. In addition, at times, wholesaler purchases may exceed customer demand, resulting in reduced wholesaler purchases in later quarters, which may result in substantial fluctuations in our results of operations from period to period. We cannot assure you that we can manage these pricing pressures or that wholesaler purchases will not decrease as a result of this potential excess buying.

Our sales can be greatly affected by the inventory levels our wholesalers carry. We monitor wholesaler inventory of Sumavel DosePro using a combination of methods. Pursuant to distribution service agreements with our three largest wholesale customers, we receive inventory level reports. For most other wholesalers where we do not receive inventory level reports, however, our estimates of wholesaler inventories may differ significantly from actual inventory levels. Significant differences between actual and estimated inventory levels may result in excessive production (requiring us to hold substantial quantities of unsold inventory), inadequate supplies of products in distribution channels, insufficient product available at the retail level, and unexpected increases or decreases in orders from our wholesalers. These changes may cause our revenues to fluctuate significantly from quarter to quarter, and in some cases may cause our operating results for a particular quarter to be below our expectations or the expectations of securities analysts or investors. If our financial results are below expectations for a particular period, the market price of our common stock may drop significantly.

We expect intense competition, including from generic products, and if our competitors market and/or develop treatments for migraine or pain that are marketed more effectively, approved more quickly than our product candidates or demonstrated to be safer or more effective than our products, our commercial opportunities will be reduced or eliminated.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources, some of which may target the same indications as our product or product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater financial resources, marketing capabilities, including well-established sales forces,

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manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than us. Many large, well-capitalized companies offer products in the United States that compete with Sumavel DosePro. Sumavel DosePro currently competes with branded products in the triptan class such as Imitrex and Treximet marketed by GlaxoSmithKline, or GSK, as well as six other branded triptan therapies being sold by AstraZeneca PLC, Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, Merck & Co., Inc., and Pfizer Inc. Nautilus Neurosciences, Inc. also began selling Cambia, diclofenac potassium for oral solution, for the treatment of migraine in June 2010. In addition, we face competition from generic sumatriptan injection, now marketed in the United States as an authorized generic of the Imitrex STATdose System, or Imitrex STATdose, by Par Pharmaceutical Companies, Inc. and Sandoz Inc. (a Novartis AG company). In addition, the FDA recently approved Alsuma (sumatriptan injection), a needle-based autoinjector which was developed and is manufactured by Meridian Medical Technologies, a subsidiary of King Pharmaceuticals, Inc., and will be distributed by US WorldMeds, LLC. Finally, generic injectable sumatriptan in the form of vials and prefilled syringes is available from nine companies including from APP Pharma (Fresenius Kabi), Bedford Laboratories, Cura Pharmaceutical Co., Inc., JHP Pharmaceuticals, LLC, Par Pharmaceutical Companies, Sagent Pharmaceuticals, Inc./ Strides Arcolab, Ltd., Sandoz, Teva Pharmaceutical Industries Limited, and Wockhardt Limited. Although these products may not be directly substituted for Sumavel DosePro, generic versions of sumatriptan injection and alternative autoinjector forms of sumatriptan injection may reduce the future adoption of Sumavel DosePro by third-party payors and consumers, as financial pressure to use generic products may encourage the use of a generic product over Sumavel DosePro. Sumavel DosePro is currently more expensive on a per dose basis than most of the competing branded and all of the generic triptan products for migraine, which may also limit the coverage and reimbursement by third-party payors, which could adversely affect adoption by physicians and patients.

If approved for the treatment of moderate to severe chronic pain, we anticipate that ZX002 would compete against other marketed branded and generic pain therapeutics. Opioid therapeutics generally fall into two classes: codeines, which include oxycodones and hydrocodones, and morphines. ZX002 is a hydrocodone, the most commonly prescribed opioid in the United States, and we expect ZX002 will compete with therapeutics within both the codeine and morphine classes. These therapeutics include both Schedule II and Schedule III products being marketed by companies such as Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, King Pharmaceuticals, Inc., Mallinckrodt Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc.

In addition to already marketed therapeutics, we also face competition from product candidates that are or could be under development by many of the above-mentioned entities and others. For example, there are several products for the treatment of migraine under development by large pharmaceutical companies such as GSK and Merck & Co., Inc., and other smaller companies such as NuPathe, Inc. and MAP Pharmaceuticals, Inc. If approved, ZX002 may also compete with at least fifteen opioid product candidates under development, including abuse and diversion resistant formulations of currently available opioids, novel opioids and alternative delivery forms of various opioids under development at other pharmaceutical companies, including extended-release hydrocodone product candidates being developed by Cephalon, Inc., Egalet A/S and King Pharmaceuticals, Inc. ZX002 may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of non-steroidal anti-inflammatory drugs. These new opioid and non-opioid product candidates are being developed by companies such as Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Elite Pharmaceuticals, Inc., Javelin Pharmaceuticals, Inc., Pfizer Inc. and QRxPharma Ltd.

We expect Sumavel DosePro and, if approved, ZX002 and any of our other product candidates to compete on the basis of, among other things, product efficacy and safety, time to market, price, patient reimbursement by third-party payors, extent of adverse side effects and convenience of treatment procedures. One or more of our competitors may develop needle-free injectable products, products to

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address chronic pain or other products that compete with ours, obtain necessary approvals for such products from the FDA, or other agencies, if required, more rapidly than us or develop alternative products or therapies that are safer, more effective and/or more cost effective than any products developed by us. If any of our product candidates receive the requisite regulatory approval and classification and are marketed, the competition which we will encounter will have, and the competition we are currently encountering with our Sumavel DosePro product has had and will continue to have, an effect on our product prices, market share and results of operations. We may not be able to differentiate any products that we are able to market from those of our competitors, successfully develop or introduce new products that are less costly or offer better results than those of our competitors, or offer purchasers of our products payment and other commercial terms as favorable as those offered by our competitors.

In addition, competitors may seek to develop alternative formulations of our product candidates and/or alternative drug delivery technologies that address our targeted indications. The commercial opportunity for Sumavel DosePro and our product candidates could be significantly harmed if competitors are able to develop alternative formulations and/or drug delivery technologies outside the scope of our products. Compared to us, many of our potential competitors have substantially greater:

• capital resources;

• research and development resources and experience, including personnel and technology;

• drug development, clinical trial and regulatory resources and experience;

• sales and marketing resources and experience;

• manufacturing and distribution resources and experience;

• name recognition; and

• resources, experience and expertise in prosecution and enforcement of intellectual property rights.

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit or block us from developing or commercializing our product candidates. Our competitors may also develop drugs that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If we are unable to compete effectively with the marketed therapeutics of our competitors or if such competitors are successful in developing products that compete with Sumavel DosePro or any of our product candidates that are approved, our business, results of operations, financial condition and prospects may be materially adversely affected.

We are dependent on numerous third parties in our supply chain, all of which are currently single source suppliers, for the commercial supply of Sumavel DosePro and a sole source supplier for clinical supply of ZX002, and if we experience problems with any of these suppliers, the manufacturing of Sumavel DosePro and ZX002 could be delayed.

While we own most of the specialized equipment used to manufacture critical components of Sumavel DosePro, we do not own or operate manufacturing facilities and currently lack the in-house capability to manufacture Sumavel DosePro, ZX002 or any other products or product candidates. Our DosePro device and Sumavel DosePro are manufactured by contract manufacturers, component fabricators and secondary service providers. Final aseptic fill, finish, assembly and packaging of Sumavel DosePro are performed at Patheon UK Limited, Swindon, United Kingdom, a specialist in the aseptic fill/finish of injectables and other sterile pharmaceutical products. In addition, Nypro Limited, located in Bray, Ireland, manufactures the actuator assemblies and injection molded components for our DosePro device and MGlas AG, located in Schweinfurt, Germany, manufactures the specialized glass

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capsule that houses the sumatriptan active pharmaceutical ingredient, or API, in our DosePro device. Each of these manufacturers and each other company that supplies, fabricates or manufactures any component used in our DosePro device is currently the only qualified source of their respective components. We currently rely on Dr. Reddy’s as the only supplier of sumatriptan API for use in Sumavel DosePro. We also outsource all manufacturing and packaging of the clinical trial materials for ZX002 to third parties. Although we plan to qualify additional manufacturers and suppliers of some of the components used in Sumavel DosePro, there can be no assurance that we will be able to do so and the current manufacturers and suppliers of these components will likely be single source suppliers to us for a significant period of time. Similarly, under our license agreement, Elan is the exclusive manufacturer of ZX002. We may never be able to establish additional sources of supply for ZX002.

Manufacturers and suppliers are subject to regulatory requirements covering, among other things, manufacturing, testing, quality control and record keeping relating to our product and product candidates, and are subject to ongoing inspections by regulatory agencies. Failure by any of our manufacturers or suppliers to comply with applicable regulations may result in long delays and interruptions to our manufacturing supply, and increase our costs, while we seek to secure another supplier who meets all regulatory requirements. Accordingly, the loss of any of our current third-party manufacturers or suppliers could have a material adverse effect on our business, results of operations, financial condition and prospects.

Reliance on third-party manufacturers and suppliers entails risks to which we would not be subject if we manufactured Sumavel DosePro or our product candidates ourselves, including:

• reliance on the third parties for regulatory compliance and quality assurance;

• the possible breach of the manufacturing agreements by the third parties because of factors beyond our control or the insolvency of any of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and

• the possibility of termination or non-renewal of the agreements by the third parties, at a time that is costly or inconvenient for us, because of our breach of the manufacturing agreement or based on their own business priorities.

If our contract manufacturers or suppliers fail to deliver the required commercial quantities of Sumavel DosePro and its various components, the quantities of ZX002 or any of our other product candidates required for our clinical trials and, if approved, for commercial sale, on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers or suppliers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for our products and would have to delay or terminate our pre-clinical or clinical trials, and we would lose potential revenue. It may also take a significant period of time to establish an alternative source of supply for our product, product candidates and components and to have any such new source approved by the FDA or any applicable foreign regulatory authorities. Furthermore, any of the above factors could cause the delay or suspension of initiation or completion of clinical trials, regulatory submissions or required approvals of our product candidates, cause us to incur higher costs and could prevent us from commercializing our product candidates successfully.

We may encounter delays in the manufacturing of Sumavel DosePro or fail to generate revenue if our supply of the components of our DosePro drug delivery system is interrupted.

Our DosePro drug delivery system is sourced, manufactured and assembled by multiple third parties across different geographic locations in Europe, including the United Kingdom, Germany and Ireland. All contract manufacturers and component suppliers have been selected for their specific competencies in the manufacturing processes and materials that make up the DosePro system. The

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components of DosePro include the actuator subassembly, capsule subassembly, and the setting mechanism. The actuator subassembly is comprised of nine individual components which are collectively supplied by six different third-party manufacturers. The capsule subassembly that houses the sterile drug formulation sumatriptan is comprised of five different components also supplied by four third-party manufacturers. Each of these third-party manufacturers is currently the single source of their respective components. If any of these manufacturers is unable to supply its respective component for any reason, including due to violations of the FDA’s Quality System Regulation, or QSR, requirements, our ability to manufacture the finished DosePro device will be adversely affected and our ability to meet the distribution requirements for any product sales of Sumavel DosePro and the resulting revenue therefrom will be negatively affected. Accordingly, there can be no assurance that any failure in any part of our supply chain will not have a material adverse effect on our ability to generate revenue from Sumavel DosePro, which in turn could have a material adverse effect on our business, results of operations, financial condition and prospects.

We rely on third parties to perform many necessary services for our commercial products, including services related to the distribution, invoicing, storage and transportation of our products.

We have retained third-party service providers to perform a variety of functions related to the sale and distribution of our products, key aspects of which are out of our direct control. For example, we rely on Cardinal Health 105, Inc. (a/k/a Specialty Pharmaceutical Services) to provide key services related to logistics, warehousing and inventory management, distribution, contract administration and chargeback processing, accounts receivable management and call center management, and, as a result, most of our inventory is stored at a single warehouse maintained by the service provider. We place substantial reliance on this provider as well as other third-party providers that perform services for us, including entrusting our inventories of products to their care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical damage or natural disaster at their facilities, our ability to deliver product to meet commercial demand would be significantly impaired. In addition, we utilize third parties to perform various other services for us relating to sample accountability and regulatory monitoring, including adverse event reporting, safety database management and other product maintenance services. If the quality or accuracy of the data maintained by these service providers is insufficient, our ability to continue to market our products could be jeopardized or we could be subject to regulatory sanctions. We do not currently have the internal capacity to perform these important commercial functions, and we may not be able to maintain commercial arrangements for these services on reasonable terms.

The perception that our DosePro needle-free drug delivery system should be pain free may limit patient adoption.

We believe that there is a perception among some patients, physicians and other customers that a needle-free delivery system should be pain free. While our experience indicates that some patients will experience pain upon injection with the DosePro technology, this pain sensation is consistent with the pain sensation associated with injection with a fine gauge needle and can be generally characterized as transient mild discomfort. In addition, some patients will experience local injection site signs and reactions following injection with DosePro. The fact that the use of our DosePro system may be accompanied by a certain amount of pain upon injection and local injection site signs and reactions may limit its adoption by patients, physicians and other customers.

ZX002 is subject to extensive regulation, and we cannot give any assurance that it or any of our other product candidates will receive regulatory approval or be successfully commercialized.

We currently are developing ZX002 for the treatment of moderate to severe chronic pain. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of opioid drug

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products, among other things, are subject to extensive regulation by the FDA, the DEA and other regulatory authorities in the United States. We are not permitted to market ZX002 in the United States unless and until we receive regulatory approval from the FDA. We cannot provide any assurance that we will obtain regulatory approval for ZX002 or any of our other product candidates, or that any such product candidates will be successfully commercialized.

We have not yet completed all necessary studies, nor submitted a new drug application, or NDA, or received marketing approval, for ZX002. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

• the FDA may not deem a product candidate safe and effective;

• the FDA may not find the data from pre-clinical studies and clinical trials sufficient to support approval;

• the FDA may require additional pre-clinical studies or clinical trials;

• the FDA may not approve of our third-party manufacturers’ processes and facilities; or

• the FDA may change its approval policies or adopt new regulations.

ZX002 has undergone Phase 1 pharmacokinetics studies as well as Phase 2 clinical trials. However, these studies and trials were conducted by a third party and, accordingly, we did not directly participate in their design or execution. In addition, we will also need to successfully complete Phase 3 clinical trials to establish its safety and efficacy, additional Phase 1 studies, and additional pre-clinical studies prior to our submission of an NDA to the FDA for approval. We initiated the Phase 3 clinical development program for ZX002 in March 2010. ZX002 and any of our other product candidates may fail to achieve their specified endpoints in clinical trials. Furthermore, product candidates such as ZX002 may not be approved even if they achieve their specified endpoints in clinical trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates.

If we are unable to obtain regulatory approval for ZX002 or any other product candidates on the timeline we anticipate, we will not be able to execute our business strategy effectively and our ability to generate additional revenues beyond Sumavel DosePro will be limited, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy of ZX002 or any of our other product candidates, which could prevent or significantly delay their regulatory approval.

Our ZX002 product candidate and our other product candidates are prone to the risks of failure inherent in drug development. Before obtaining U.S. regulatory approval for the commercial sale of ZX002 or any other product candidate, we must gather substantial evidence from well-controlled clinical trials that demonstrate to the satisfaction of the FDA that the product candidate is safe and effective, and similar regulatory approvals would be necessary to commercialize the product candidate in other countries.

In light of widely publicized events concerning the safety risk of certain drug products, particularly opioid drug products, regulatory authorities, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for

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instance, restrict distribution of drug products after approval. In addition, the Federal Food, Drug, and Cosmetic Act, or FFDCA, as amended by the Food and Drug Administration Amendments Act of 2007, grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the FFDCA authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information and require a risk evaluation and mitigation strategy, or REMS, for certain drugs, including certain currently approved drugs. It also significantly expands the federal government’s clinical trial registry and results databank, which we expect will result in significantly increased government oversight of clinical trials. Under the FFDCA, companies that violate these and other provisions of the law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties.

The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review of our clinical trials. Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that may result in a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

With regard to ZX002, data from a Phase 2 clinical trial in osteoarthritis patients has shown what we believe is a clinically acceptable safety profile and a pharmacodynamic profile which supports further product development for the treatment of moderate to severe pain in patients requiring around-the-clock opioid therapy. In the two Phase 2 clinical trials conducted to date, patients experienced mild to moderate adverse events, including nausea, vomiting, headache, dizziness, sweating, constipation and drowsiness, which are similar to the reported side effects of opioids currently prescribed for chronic pain. However, our licensor, Elan Pharma International Ltd., or Elan, conducted these trials and we have not independently verified the data or completed any of our own Phase 2 or Phase 3 trials for this product candidate. In addition, these results may not be predictive of results obtained in our ongoing Phase 3 clinical trials or any other required future trials, and we may be unable to demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or approvals for commercially viable uses. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If ZX002 is not shown to be safe and effective in clinical trials, this program could be delayed or terminated, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for any of our other product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval or generate revenues.

Clinical trials are very expensive, time consuming and difficult to design and implement. Even if the results of our clinical trials are favorable, the clinical trials of ZX002 will continue for several years and may take significantly longer than expected to complete. Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for any of our other product candidates could significantly affect our product development costs and business plan. In March 2010, we initiated a Phase 3 clinical development program for ZX002, including a pivotal efficacy trial. Phase 3 clinical efficacy trials, in general, are significantly more complex and time-consuming and involve more patients than the Phase 1 and 2 clinical trials that have been completed to date. We do not know whether our Phase 3 clinical trials of ZX002 or any other pre-clinical or clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

• obtaining regulatory authorization to commence a clinical trial;

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• reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, clinical investigators and trial sites;

• manufacturing or obtaining sufficient quantities of a product candidate for use in clinical trials;

• obtaining institutional review board, or IRB, approval to initiate and conduct a clinical trial at a prospective site;

• identifying, recruiting and training suitable clinical investigators;

• identifying, recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the treatment of pain, migraine or similar indications;

• retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues, or for any other reason they choose, or who are lost to further follow-up;

• uncertainty regarding proper dosing; and

• scheduling conflicts with participating clinicians and clinical institutions.

We believe that we have planned and designed an adequate Phase 3 clinical trial program for ZX002, and we presented the trial design for our Phase 3 trials to the FDA at our End of Phase 2 meeting in June 2008. Although we believe the FDA has generally agreed with the design of our Phase 3 clinical trial program, the FDA could still determine that it is not satisfied with our plan or the details of our pivotal clinical trial protocols and designs. While the FDA has provided us with a written record of our discussions and responses to our questions at our End of Phase 2 meeting, such records and responses do not guarantee that the FDA will deem our trial design to be sufficient for the purpose of obtaining marketing approval for ZX002. We did not seek a Special Protocol Assessment from the FDA for our ongoing pivotal Phase 3 efficacy study for ZX002 (Study 801).

In addition, chronic pain patients have historically been difficult to keep enrolled in clinical trials. If a significant number of patients fail to stay enrolled in any of our current or future clinical trials of ZX002 and such failure is not adequately accounted for in our trial design and enrollment assumptions, our clinical development program could be delayed. Clinical trials may also be delayed or repeated as a result of ambiguous or negative interim results or unforeseen complications in testing. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

• failure to design appropriate clinical trial protocols;

• failure by us, our employees, our CROs or their employees to conduct the clinical trial in accordance with all applicable FDA, DEA or other regulatory requirements or our clinical protocols;

• inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

• discovery of serious or unexpected toxicities or side effects experienced by study participants or other unforeseen safety issues;

• lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties;

• lack of effectiveness of any product candidate during clinical trials;

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• slower than expected rates of subject recruitment and enrollment rates in clinical trials;

• failure of our CROs or other third-party contractors to comply with all contractual requirements or to perform their services in a timely or acceptable manner;

• inability or unwillingness of medical investigators to follow our clinical protocols;

• in the case of ZX002, regulatory concerns with opioid products generally and the potential for abuse and diversion of the drugs; and

• unfavorable results from on-going clinical trials and pre-clinical studies.

Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for ZX002 and our other product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Our competitors could receive FDA approval for an extended-release hydrocodone product before we receive FDA approval for ZX002, and thus could be granted regulatory exclusivity that could significantly delay our ability to receive approval for and commercialize ZX002 and therefore dramatically reduce its market potential. Our competitors could also pursue regulatory and other strategies to combat competition from 505(b)(2) products, which also may negatively affect the approval and commercialization of ZX002 and any of our other product candidates.

The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the FFDCA, or Section 505(b)(2). Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. For example, we obtained FDA marketing approval of Sumavel DosePro under Section 505(b)(2), and we intend to submit the NDA for ZX002 under Section 505(b)(2), and as such the NDA will rely, in part, on the FDA’s previous findings of safety and effectiveness for hydrocodone.

Certain of our competitors may file a 505(b)(2) application for extended-release hydrocodone either before or shortly after we submit our own NDA for ZX002. The first approved 505(b)(2) applicant for a particular condition of use, or change to a marketed product, such as a new extended-release formulation for a previously approved product, may be granted three-year Hatch-Waxman exclusivity if one or more clinical studies, other than bioavailability or bioequivalence studies, was essential to the approval of the application and was conducted/sponsored by the applicant. Three-year Hatch-Waxman exclusivity delays the FDA’s approval of other 505(b)(2) applicants for the same condition of use or change to the drug product that was granted exclusivity, regardless of the date of submission of each NDA. We believe that several competitors are developing extended-release hydrocodone products, and if the FDA approves a competitor’s 505(b)(2) application for its extended-release hydrocodone product before our application, and granted the competitor three-year exclusivity, the FDA would be precluded from making effective our NDA for ZX002 until after that three-year exclusivity period has run, and such delay would dramatically reduce our expected market potential for ZX002. Additionally, even if our 505(b)(2) application for extended-release hydrocodone is approved first, we may still be subject to competition by other hydrocodone products, including approved products or other 505(b)(2) applications for different conditions of use that would not be restricted by the three-year exclusivity.

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In addition, approval under Section 505(b)(2) generally requires the absence of any other patents covering the product candidate in question and competitors and others have the ability to take numerous steps to block or delay approval of product candidates under Section 505(b)(2), including:

• extending patent protection for existing products that would block Section 505(b)(2) approval of the product candidate by pursuing new patents for existing products that may be granted just before the expiration of one patent, which could extend patent protection for a number of years or otherwise delay the launch of generic, 505(b)(2) or other competing products;

• submitting Citizen Petitions to request the FDA to take adverse administrative action with respect to approval of a generic, 505(b)(2) or other competing product;

• filing patent infringement lawsuits, whether or not meritorious, to trigger up to a 30-month stay in the approval of a generic, 505(b)(2) or other competing product; and

• engaging in state-by-state initiatives to enact legislation or regulatory policies that restrict the substitution of some generic, 505(b)(2) or other competing drugs for brand-name drugs.

If any of these strategies are successful, our ability to obtain approval of and commercialize ZX002 and any of our other product candidates for which we rely on Section 505(b)(2) will be adversely affected.

We rely on third parties to conduct our pre-clinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have agreements with third-party CROs to conduct our ongoing Phase 3 trials for ZX002, and anticipate that we may enter into other such agreements in the future regarding any of our other product candidates. We rely heavily on these parties for the execution of our clinical and pre-clinical studies, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol. We and our CROs are required to comply with current good clinical practices, or GCPs. The FDA enforces these GCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCP regulations, the data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA and similar foreign regulators will determine that any of our clinical trials comply or complied with GCP regulations. In addition, our clinical trials must be conducted with product produced under current good manufacturing practices, or cGMPs, regulations, and require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate additional revenues could be delayed.

Switching or adding additional CROs can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs,

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there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, results of operations, financial condition and prospects.

The development of a REMS for ZX002 could cause significant delays in the approval process for ZX002 and would add additional layers of regulatory requirements, including possible prescribing restrictions, requirements for post-marketing studies or restrictions on distribution and use, which could significantly impact our ability to commercialize ZX002 and dramatically reduce its market potential.

The Food and Drug Administration Amendments Act, or FDAAA, added Section 505-1 to the FFDCA. Section 505-1 permits FDA to require a REMS for a drug product to ensure the safe use of the drug. A REMS is a strategic safety program that the FDA requires to ensure that the benefits of a drug outweigh its risks. In determining whether a REMS is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug, requirements that patients enroll in a registry or undergo certain health evaluations or other measures that the FDA deems necessary to assure the safe use of the drug. In addition, the REMS must include a timetable to assess the strategy at 18 months, three years and seven years after the strategy’s approval.

In February 2009, the FDA informed drug manufacturers that it will require a REMS for all sustained-release opioid drug products. The FDA has since initiated efforts to develop a new standardized REMS for these opioid medications to ensure their safe use. A controlled-release formulation of hydrocodone, such as ZX002, would be required to have a REMS. The FDA’s authority to take this action is based on risk management and post-market safety provisions within the FDAAA. We intend to submit a REMS at the time of the NDA submission for ZX002. The development of the REMS could cause significant delays in the approval process for ZX002. In addition, as part of the REMS for ZX002, the FDA could require stringent restrictions on the prescribing, distribution, and patient use of the product, which could significantly impact our ability to commercialize ZX002 and dramatically reduce its market potential.

Our commercialization partner for Sumavel DosePro in the European Union and three other countries, Desitin, may not successfully develop, obtain approval for or commercialize Sumavel DosePro in those territories, which may adversely affect our ability to commercialize Sumavel DosePro both inside and outside the United States.

In March 2008, we entered into a licensing and distribution agreement with Desitin pursuant to which we granted Desitin the exclusive right under our intellectual property rights related to Sumavel DosePro to develop, use, distribute, sell, offer for sale, and import Sumavel DosePro and any potential modified versions of Sumavel DosePro in the European Union, Norway, Switzerland and Turkey. In that regard, Desitin is not obligated under the agreement to pursue regulatory approval or commercialization of Sumavel DosePro in any of these countries except for Germany. Since we will depend on Desitin to develop, obtain regulatory approval for and, if regulatory approval is granted, commercialize Sumavel DosePro in these countries, we will have limited control over the success of Desitin’s development, regulatory approval and commercialization efforts. Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose. However, any additional clinical studies Desitin may be required to conduct as part of the regulatory approval process may not corroborate the results of the clinical studies

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we have conducted or may have adverse results or effects on our ability to maintain regulatory approvals in the United States or obtain them in other countries. In addition, although we believe that the U.S. market represents the largest commercial opportunity for Sumavel DosePro, Desitin may not develop Sumavel DosePro as fast or generate as large of a market as we would like or as the market may expect and Desitin may not seek to develop, obtain approval for or commercialize Sumavel DosePro in countries for which it has exclusive rights, other than in Germany, where Desitin is required to develop, seek approval for and commercialize Sumavel DosePro. Any failure by Desitin to successfully commercialize Sumavel DosePro or to successfully obtain applicable foreign regulatory approval for Sumavel DosePro would limit our opportunity to receive revenue from the territories licensed to Desitin. Furthermore, negative developments occurring in those territories controlled by Desitin could have a negative impact on physician and patient impressions of our product in the United States and elsewhere.

Our failure to successfully establish new partnerships with pharmaceutical companies or contract sales organizations to co-promote any additional product candidates that may receive regulatory approval may impair our ability to effectively market and sell such product candidates.

Major pharmaceutical companies usually employ groups of sales representatives numbering in the thousands to call on the large number of primary care physicians. In connection with the launch of Sumavel DosePro in January 2010 we built a sales and marketing organization to promote Sumavel DosePro in the United States, including a focused sales force of approximately 80 representatives primarily targeting neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. In addition, in July 2009, we entered into an exclusive agreement with Astellas under which Sumavel DosePro is also being marketed by Astellas in the United States and promoted primarily to primary care physicians, OB/GYNs, emergency medicine physicians, and urologists by approximately 400 Astellas sales representatives. In order to expand the market opportunity for any additional product candidates that receive regulatory approval into the broader primary care physician audiences, we will need to continue to expand our sales and marketing personnel and commercial infrastructure and/or establish partnerships with pharmaceutical companies or contract sales organizations to co-promote such product candidates. We currently, and on an ongoing basis will have to, compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. We also face competition in our search for collaborators and potential co-promoters. To the extent we rely on additional third parties to commercialize any product candidates that may receive regulatory approval, we are likely to receive less revenues than if we commercialized these products ourselves. Further, by entering into strategic partnerships or similar arrangements, we may rely in part on such third parties for financial and commercialization resources. Even if we are able to identify suitable partners to assist in the commercialization of our product candidates, they may fail to devote the resources necessary to realize the full commercial potential of our products. In addition, we may lack the financial and managerial resources to increase the size of our sales and marketing organization to adequately commercialize any product candidates that may be approved, and any increase in our sales force would result in an increase in our expenses, which could be significant before we generate revenues from any newly approved product candidate. If we are unable to expand our sales and marketing infrastructure or enter into a third-party arrangement, we would not be able to successfully commercialize any approved products. Even if we are able to expand our sales and marketing personnel or successfully establish partnership arrangements, such sales force and marketing teams may not be successful in commercializing our products, which would adversely affect our ability to generate revenue for such products, which will have a material adverse effect on our business, results of operations, financial condition and prospects.

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Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow our business. In that regard, our DosePro delivery system cannot be used with drug formulation volumes greater than 0.5 mL, which will likely limit its use with drugs requiring larger formulation volumes.

As part of our growth strategy we intend to seek to expand our product pipeline by exploring acquisition or in-licensing opportunities of proven drugs that can be paired with our DosePro needle-free drug delivery system. However, the current version of our DosePro drug delivery system cannot be used with drug formulation volumes greater than 0.5 mL. Many marketed and development-stage injectable products, including most biologics, have formulation volumes greater than 0.5 mL and would require reformulation, if possible, to accommodate the approved doses in smaller volumes that are compatible with DosePro. Any reformulation may increase the risk of failure during development, extend the development timelines, increase development costs and add complexity to the regulatory approval process and in some cases reformulation may not be possible. If we are not able to identify additional drug compounds that can be delivered via the current version of our DosePro technology, or if we are unable to successfully develop higher dose versions of this technology, our ability to develop additional product candidates and grow our business would be adversely affected. We will also seek opportunities to out-license the DosePro technology to partners seeking to enhance, differentiate, or extend the life-cycle of their injectable products. If we are unable to secure partnerships with companies that have compounds that can be delivered via the current version of our DosePro technology, or if we are unable to successfully develop higher dose versions of this technology, we will not be able to generate revenues from out-licensing our DosePro technology.

We have initiated early stage design and development of a larger volume, second generation version of our DosePro technology to accommodate drug formulation volumes greater than 0.5 mL, which if successfully developed, would allow for a broader range of potential applications for our technology. However, the full development of such technology will require substantial investment and we may consider entering into a third-party collaboration in order to obtain third-party financing to help fully develop such technology. There is no guarantee that we or any potential future third-party collaborator will be able to successfully develop such a device technology, whether for financial or technical reasons or otherwise.

Furthermore, we intend to in-license, acquire, develop and/or market additional products and product candidates in the areas of pain and central nervous system, or CNS, disorders. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates, or license the rights to our DosePro technology, on terms that we find acceptable, or at all.

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including pre-clinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot

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provide assurance that any products that we develop or approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.

If we are unable to license or acquire additional product candidates or approved products and successfully develop and commercialize them, or if we are otherwise unable to pair our DosePro delivery system with other drugs or out-license the DosePro technology to others, it would likely have a material adverse effect on our business, results of operations, financial condition and prospects.

We have recently substantially increased the size of our organization and may need to continue to increase the size of our organization, and we may experience difficulties in managing and financing growth.

In a short period of time from November 2009 until January 2010, we hired approximately 80 field-based sales employees and related sales and managed markets management personnel to complete our commercial infrastructure in order to launch Sumavel DosePro. This additional hiring contributed to an increase in our full-time employees from 48 as of October 31, 2009 to 144 as of August 31, 2010. We may need to continue to expand our managerial, operational and other resources in order to grow, manage and fund our existing business. Our management and personnel, systems and facilities currently in place may not be adequate to support this recent and any future growth, and we may be unable to fund the costs and expenses required to increase our necessary headcount and infrastructure. Our need to effectively manage our operations, any future growth and various projects requires that we:

• manage our internal and external commercialization efforts for Sumavel DosePro effectively while carrying out our contractual obligations to Astellas and other third parties and complying with all applicable laws, rules and regulations;

• manage our internal development efforts for ZX002 and our other product candidates effectively while carrying out our contractual obligations to licensors, collaborators and other third parties and complying with all applicable laws, rules and regulations;

• continue to improve our operational, financial and management controls, reporting systems and procedures; and

• attract and retain sufficient numbers of talented employees.

We may be unable to successfully implement or fund these tasks on a larger scale and, accordingly, may not achieve our commercialization and development goals. In addition, our management may have to divert a disproportionate amount of its attention away from day-to-day activities and towards managing these growth-related activities. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and our failure to effectively manage any growth could have a material adverse effect on our business, results of operations, financial condition and prospects.

If we are unable to attract and retain key personnel, we may not be able to manage our business effectively or develop our product candidates or commercialize our product.

Our success depends on our continued ability to attract, retain and motivate highly qualified management and key clinical development, regulatory, sales and marketing and other personnel. We are highly dependent on the development, regulatory, commercial and financial expertise of our senior management team. We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the areas in Southern and Northern California, where we currently operate. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly

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impede the achievement of our development and commercialization objectives, our ability to raise additional capital and our ability to implement our business strategy. The loss of the services of any members of our senior management team, especially our Chief Executive Officer, Roger L. Hawley, and President and Chief Operating Officer, Stephen J. Farr, Ph.D., could negatively impact the commercialization of Sumavel DosePro and could delay or prevent the development and commercialization of any other product candidates, including ZX002. In addition, under the terms of our amended and restated loan and security agreement with Oxford Finance Corporation and Silicon Valley Bank, if our Chief Executive Officer, Chief Financial Officer or President resigns, is terminated or is no longer actively involved in his or her current position and is not replaced by a person acceptable to our board of directors within 120 days, an event of default would be triggered under the agreement, and the lenders would be able to demand immediate repayment of all borrowings outstanding under the agreement. Further, if we lose any members of our senior management team, we may not be able to find suitable replacements, and our business may be harmed as a result. In addition to the competition for personnel, our locations in California in particular are characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.

Although we have employment agreements with each of our executive officers, these agreements are terminable by them at will at any time with or without notice and, therefore, do not provide any assurance that we will be able to retain their services. We do not maintain “key man” insurance policies on the lives of our senior management team or the lives of any of our other employees. In addition, we have clinical advisors who assist us in formulating our clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may compete with ours. If we are unable to attract and retain key personnel, our business, results of operations, financial condition and prospects will be adversely affected.

We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational and financial risks, including:

• exposure to unknown liabilities;

• disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies;

• incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions;

• higher than expected acquisition and integration costs;

• write-downs of assets or goodwill or impairment charges;

• increased amortization expenses;

• difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;

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• impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

• inability to retain key employees of any acquired businesses.

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

If we are unable to achieve and maintain adequate levels of coverage and reimbursement for Sumavel DosePro, ZX002, if approved, or any of our other product candidates for which we may receive regulatory approval on reasonable pricing terms, their commercial success may be severely hindered.

Successful sales of our products depend on the availability of adequate coverage and reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

In addition, the market for our products will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for Sumavel DosePro or any of our other product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.

The commercial use of our product and clinical use of our product and product candidates expose us to the risk of product liability claims. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, such as the case with Sumavel DosePro, or an applicable foreign regulatory authority. Our product and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with Sumavel DosePro or our product candidates could result in

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injury to a patient or even death. For example, because our DosePro technology is designed to be self-administered by patients, it is possible that a patient could fail to follow instructions and as a result apply a dose in a manner that results in injury. In addition, ZX002 is an opioid pain reliever that contains hydrocodone, which is a regulated “controlled substance” under the Controlled Substances Act of 1970, or CSA, and could result in harm to patients relating to its potential for abuse. In addition, a liability claim may be brought against us even if our product or product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

• the inability to commercialize our product or product candidates;

• decreased demand for our product or product candidates;

• impairment of our business reputation;

• product recall or withdrawal from the market;

• withdrawal of clinical trial participants;

• costs of related litigation;

• distraction of management’s attention from our primary business;

• substantial monetary awards to patients or other claimants; or

• loss of revenues.

We have obtained product liability insurance coverage for commercial product sales and clinical trials with a $5 million per occurrence and a $5 million annual aggregate coverage limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. If we determine that it is prudent to increase our product liability coverage based on sales of Sumavel DosePro, approval of ZX002 or otherwise, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that are less severe than those of Sumavel DosePro and our product candidates. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and have a material adverse affect our business, results of operations, financial condition and prospects.

Our business and operations would suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our commercialization activities, drug development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on a large number of third parties to supply components for and manufacture our product and product candidates, warehouse and distribute Sumavel DosePro and conduct clinical

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trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product and product candidates could be delayed.

We may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in San Diego and the San Francisco Bay Area, which in the past have both experienced severe earthquakes. We do not carry earthquake insurance. As a result, earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

Our enterprise financial systems are located in our San Diego, California headquarters. Our manufacturing resource planning and enterprise quality systems are located in our Emeryville, California facility. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters or our Emeryville facility, that damaged critical infrastructure, such as enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations at either location, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending use and disposal. We cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our employees and others, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage.

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In connection with the reporting of our financial condition and results of operations, we are required to make estimates and judgments which involve uncertainties, and any significant differences between our estimates and actual results could have an adverse impact on our financial position, results of operations and cash flows.

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. In particular, as part of our revenue recognition policy, our estimates of product returns, rebates and chargebacks require our most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain. Any significant differences between our actual results and our estimates and assumptions could negatively impact our financial position, results of operations and cash flows.

Changes in accounting standards and their interpretations could adversely affect our operating results.

GAAP are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or SEC, and various other bodies that promulgate and interpret appropriate accounting principles. These principles and related implementation guidelines and interpretations can be highly complex and involve subjective judgments. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Fluctuations in the value of the Euro or U.K. pound sterling could negatively impact our results of operations and increase our costs.

Payments to our material suppliers and contract manufactures are denominated in the Euro and U.K. pounds sterling. Our reporting currency is the U.S. dollar and to date all of the revenues generated by sales of Sumavel DosePro have been in U.S. dollars. For the six months ended June 30, 2010, $15.4 million of our materials and contract manufacturing costs were denominated in foreign currencies. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and the Euro or U.K. pound sterling. A significant appreciation in the Euro or U.K. pound sterling relative to the U.S. dollar will result in higher expenses and cause increases in our net losses. Likewise, to the extent that we generate any revenues denominated in foreign currencies, or become required to make payments in other foreign currencies, fluctuations in the exchange rate between the U.S. dollar and those foreign currencies could also negatively impact our results of operations. We currently have not entered into any foreign currency hedging contracts to reduce the effect of changes in foreign currency exchange rates, and foreign currency hedging is inherently risky and may result in unanticipated losses.

Our operating results are partially dependent on freight costs and our costs may increase significantly if we are unable to ship and transport finished products efficiently and economically across long distances and international borders.

Our Sumavel DosePro product is manufactured in Europe and we transport significant volumes of that product across long distances and international borders. As a result, our operating results can be affected by changes in transportation costs. We generally ship our product by air freight, and freight rates can vary significantly due to a large number of factors beyond our control, including changes in fuel prices or general economic conditions. If demand for air freight should increase substantially, it could make it difficult for us to procure transportation space at prices we consider acceptable.

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Because our products must cross international borders, we are subject to risk of delay due to customs inspection, if our documentation does not comply with customs rules and regulations or for similar reasons. In addition, any increases in customs duties or tariffs, as a result of changes to existing trade agreements between countries or otherwise, could increase our costs or the final cost of our products to our customers or increase our expenses. The laws governing customs and tariffs in many countries are complex, subject to many interpretations and often includes substantial penalties for noncompliance.

Risks Related to Our Financial Position and Capital Requirements

We have never generated net income or positive cash flow from operations and are dependent upon external sources of financing to fund our business and development.

We are at an early stage of commercialization, having launched our only approved product, Sumavel DosePro, in January 2010. Without a long history of sales, we may not accurately predict future sales, and we may never be able to significantly increase these sales, especially in light of our reliance on our partnership with Astellas to co-promote Sumavel DosePro. We have financed our operations almost exclusively through private placements of preferred stock and debt and have incurred losses and negative cash flow from operations in each year since our inception. Our net loss applicable to common stockholders was $27.7 million in 2007, $45.6 million in 2008, $45.9 million in 2009 and $49.3 million for the six months ended June 30, 2010, and our cash used in operating activities was $26.8 million in 2007, $41.3 million in 2008, $32.4 million in 2009 and $35.8 million for the six months ended June 30, 2010. As of June 30, 2010, we had an accumulated deficit of $173.8 million. These losses and negative cash flow from operations have had a material adverse effect on our stockholders’ equity and working capital. Further, despite the revenues from Sumavel DosePro, we expect our losses to continue for at least the next several years as a result of the cost of the sales and marketing expense associated with Sumavel DosePro and the increasing development expenses in connection with our ongoing Phase 3 clinical trials for ZX002. In addition, if we obtain regulatory approval for ZX002 or any of our other product candidates, we expect to incur significant sales, marketing and manufacturing expenses as well as continued development expenses. As a result, we are and will remain dependent upon external sources of financing to finance our business and the development and commercialization of our approved product and product candidates. We cannot assure you that debt or equity financing will be available to us in amounts, at times or on terms that will be acceptable to us, or at all. Any shortfall in our cash resources could require that we delay or abandon certain development and commercialization activities and could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.

In its report accompanying our audited financial statements for the year ended December 31, 2009, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and lack of sufficient working capital raise substantial doubt as to our ability to continue as a going concern. A “going concern” opinion could impair our ability to finance our operations through the sale of debt or equity securities or commercial bank loans. Our ability to continue as a going concern will depend, in large part, on our ability to generate positive cash flow from operations and obtain additional financing, neither of which is certain. If we are unable to achieve these goals, our business would be jeopardized and we may not be able to continue operations and may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or a part of their investment. In addition, our amended loan and security agreement with Oxford Finance Corporation and Silicon Valley Bank includes a covenant that the audit reports accompanying our annual financial statements for fiscal year 2010 and thereafter not include a going concern qualification and any breach of that covenant would permit the lenders to demand immediate repayment of all loans outstanding under the agreement and to seize and sell the collateral.

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Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.

As of July 31, 2010, the principal amount of our total indebtedness was approximately $41.2 million. We have and expect to continue to make borrowings under our $10.0 million revolving credit facility to fund working capital and other cash needs and we may incur substantial additional indebtedness in the future, both under our $10.0 million revolving credit facility and any other debt facilities we may enter into in the future. Our outstanding debt and related debt service obligations could have important adverse consequences to us, including:

• heightening our vulnerability to downturns in our business or our industry or the general economy and restricting us from making improvements or acquisitions, or exploring business opportunities;

• requiring a significant portion of our available cash to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our available cash to fund our operations, capital expenditures and future business opportunities;

• limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

• limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have greater capital resources; and

• subjecting us to financial and other restrictive covenants in our debt instruments, the failure with which to comply could result in an event of default under the applicable debt instrument that allows the lender to demand immediate repayment of the related debt.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay product development, sales and marketing, capital and other expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. This risk is increased by the fact that borrowings under certain of our credit facilities bear interest at a variable rates, exposing us to the risk that the amount of cash required to pay interest will increase to the extent that market interest rates increase.

Our debt instruments contain a number of financial covenants and other provisions, including a requirement that we attain specified future levels of revenues, which, if violated, could result in the immediate acceleration of our outstanding indebtedness.

Our $35.0 million amended and restated loan and security agreement with Oxford Finance Corporation and Silicon Valley Bank includes covenants requiring, among other things, that (1) we achieve, as of the last day of each month measured on a trailing three-month basis, actual revenues of at least a specified percentage of our projected revenue as provided to Oxford Finance Corporation and Silicon Valley Bank in the event we fail to maintain a liquidity ratio (defined, in general, as the ratio of (a) cash and cash equivalents deposited with Silicon Valley Bank plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00, (2) we complete an equity or subordinated debt financing of at least $10.0 million prior to November 30, 2010 and (3) the audit report accompanying our year-end financial statements for fiscal year 2010 and thereafter not include a going concern qualification. As discussed above, the audit report accompanying our 2009 financial statements includes a going concern qualification and, as a result, our results of operations and financial condition will have to improve to a point where our auditors can deliver their audit report without this qualification in order to avoid a breach of this covenant. In addition, the amended and restated loan and security agreement prohibits the occurrence of a change in control (as

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defined in the agreement) of our company. The agreement provides that an event of default will occur if, among other customary events of default, (1) there is a material adverse change in our business, operations or condition (financial or otherwise) or material impairment in the prospects of us repaying any portion of our obligations under the agreement, (2) there is a material impairment in the value of the collateral pledged to secure our obligations under the agreement, (3) we default in the payment of any amount payable under the agreement when due, or (4) we breach any covenant in the agreement (subject to a grace period in some cases). Our loan and security agreement with General Electric Capital Corporation, or GE Capital, does not have any financial covenants, but it provides that an event of default will occur if, among other things, we fail to pay amounts owing under the agreement when due or if a material adverse change in our business occurs. In both 2009 and 2010, we were required to obtain amendments or waivers under our credit facilities, and we may in the future need to obtain waivers or amendments under our credit facilities or other debt instruments, in order to avoid a breach or default, particularly if our business deteriorates or does not perform in accordance with our expectations.

Our $35.0 million amended and restated loan and security agreement with Oxford Finance Corporation and Silicon Valley Bank is secured by our personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash), but excluding, among other things, copyrights, patents, patent applications, trademarks, service marks, trade secret rights and equipment pledged to secure the GE Capital credit facility, and our loan and security agreement with GE Capital is secured by a pledge of specific equipment used to manufacture DosePro. Each agreement contains provisions which allow the lenders to demand immediate repayment of the debt and to seize and sell the collateral to pay that debt upon the occurrence of an event of default under the agreement. If we are unable to pay the indebtedness secured by collateral when due, whether at maturity or if declared due and payable by the lender following a default, the lender generally has the right to seize and sell the collateral securing that indebtedness.

There can be no assurance that we will not breach the covenants or other terms of, or that an event of default will not occur under, our credit facilities or any other debt instruments and, if a breach or event of default occurs, there can be no assurance that we will be able to obtain necessary waivers or amendments from the lenders or refinance the related indebtedness on terms we find acceptable, or at all. As a result, any failure to pay our debt service obligations when due, any breach or default of our covenants or other obligations under debt instruments, or any other event that allows any lender to demand immediate repayment of borrowings, could have a material adverse effect on our business, results of operations, financial condition and prospects.

We will likely need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

Our operations have consumed substantial amounts of cash since inception. To date, our operations have been primarily financed through the proceeds from the issuance of our preferred stock and borrowings under our loan agreements with GE Capital and Oxford Finance Corporation, Silicon Valley Bank and CIT Corporation. We expect to continue to spend substantial amounts on commercialization activities for Sumavel DosePro, development activities for ZX002 and our other product candidates and, if ZX002 or our other product candidates are approved, the commercialization of those products, including significant amounts on conducting clinical trials, manufacturing, clinical supplies and expanding our product development and sales and marketing programs. Developing products for the pain-relief market, conducting clinical trials, establishing outsourced manufacturing relationships and successfully manufacturing and marketing Sumavel DosePro and any other approved drugs is expensive and we expect that our monthly cash used by operations will increase substantially for the next several years. We will likely need to raise additional capital to:

• maintain and continue to increase our sales and marketing activities for Sumavel DosePro;

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• qualify secondary sources for the manufacturing of Sumavel DosePro;

• fund our operations and continue to conduct clinical trials of ZX002 and any other product candidate to support potential regulatory approval of marketing applications; and

• commercialize any of our product candidates or any products or product candidates that we may develop, in-license or otherwise acquire, if any of these product candidates receive regulatory approval.

In addition, our estimates of the amount of cash necessary to fund our business and development and commercialization activities may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Our future funding requirements will depend on many factors, including, but not limited to:

• the commercial success of Sumavel DosePro;

• the timing of regulatory approval, if granted, of ZX002 or any other product candidates;

• the rate of progress and cost of our clinical trials and other product development programs for ZX002 and our other product candidates and any other product candidates that we may develop, in-license or acquire;

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with Sumavel DosePro, ZX002 and any of our other product candidates;

• the costs and timing of completion of outsourced commercial manufacturing supply arrangements for any product candidate;

• the costs of maintaining and expanding our sales and marketing infrastructure or establishing distribution capabilities, should we elect to do so;

• the effect of competing technological and market developments; and

• the terms and timing of any additional collaborative, licensing, co-promotion or other arrangements that we may establish.

Until we can generate a sufficient amount of product revenue and cash flow from operations and achieve profitability, we expect to finance future cash needs through public or private equity offerings, debt financings, receivables or royalty financings or corporate collaboration and licensing arrangements. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to significantly delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts. We also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.

Our results of operations and liquidity could be materially negatively affected by economic conditions generally, both in the U.S. and elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these

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economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations and liquidity could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are not federally insured. If economic instability continues, we cannot provide assurance that we will not experience losses on these investments.

Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.

We may raise additional funds through public or private equity offerings, debt financings, receivables or royalty financings or corporate collaboration and licensing arrangements. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership interest in us will be diluted. Debt financing typically contains covenants that restrict operating activities. Our loan and security agreement with Oxford Finance Corporation and Silicon Valley Bank is secured by our personal property, including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general and tangibles and cash, but excluding, among other things, copyrights, patents, patent applications, trademarks, service markets, trade secret rights and equipment pledged to secure the GE Capital loan facility and our loan and security agreement with GE Capital is secured by a pledge of specific equipment used to manufacture DosePro. Each such agreement contains provisions which allow such lenders to accelerate the debt and seize and sell the collateral if, among other things, we fail to pay principal or interest when due or breach our obligations under the agreements or if a material adverse change in our business or any other event of default occurs. Any future debt financing we enter into may involve more onerous covenants that restrict our operations, may be secured by some or all of our assets and will likely allow the lenders to accelerate the debt and seize and sell any collateral following a default. Our obligations under these loan and security agreements or any future debt financing will need to be repaid, which creates additional financial risk for our company, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations.

If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our current product or product candidates or proprietary technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the commercialization and development of our product or product candidates.

Our ability to utilize our net operating loss and research and development income tax credit carryforwards may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the IRC, substantial changes in our ownership may limit the amount of net operating loss and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income, if any. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the net operating loss carryforwards before they expire. We performed a Section 382 and 383 analysis and determined that we had one ownership change, as defined by IRC Sections 382 and 383, which occurred in August 2006 upon the issuance of Series A-1 preferred shares. As a result of this ownership change, we reduced our net operating loss carryforwards by $1.9 million and research and development income tax credit by $8,000. The closing of this offering, together with private placements and other transactions that have occurred since our inception, may trigger an ownership change pursuant to Sections 382 and 383, which could further limit the amount of net

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operating loss carryforwards that could be utilized annually in the future to offset taxable income, if any. Any such limitation, whether as the result of prior private placements, sales of common stock by our existing stockholders or additional sales of common stock by us after this offering, could have a adverse effect on our results of operations.

Risks Related to Regulation of our Product and Product Candidates

Our currently marketed product, Sumavel DosePro, is and any of our other product candidates that receive regulatory approval will be subject to ongoing and continued regulatory review, which may result in significant expense and limit our ability to commercialize such products.

Even after we achieve U.S. regulatory approval for a product, the FDA may still impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. For example, a product’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and with GCPs and good laboratory practices, which are regulations and guidelines enforced by the FDA for all of our products in clinical and pre-clinical development, and for any clinical trials that we conduct post-approval. To the extent that a product is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.

In the case of ZX002 and any other product candidates or products containing controlled substances, we and our contract manufacturers will also be subject to ongoing DEA regulatory obligations, including, among other things, annual registration renewal, security, recordkeeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations, QSR requirements for medical device components or similar requirements, if applicable. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturer or us, including requiring product recall, notice to physicians, withdrawal of the product from the market or suspension of manufacturing. In that regard, because all of our contract manufacturers for Sumavel DosePro are located outside the United States, they may be subject to foreign laws and regulations governing the manufacture of drugs and devices, and any failure by them to comply with those laws and regulations may delay or interrupt supplies of our product.

If we, our product or product candidates or the manufacturing facilities for our product or product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

• impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses;

• issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available;

• commence criminal investigations and prosecutions;

• impose injunctions, suspensions or revocations of necessary approvals or other licenses;

• impose fines or other civil or criminal penalties;

• suspend any ongoing clinical trials;

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• deny or reduce quota allotments for the raw material for commercial production of our controlled substance products;

• delay or refuse to approve pending applications or supplements to approved applications filed by us;

• refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States;

• suspend or impose restrictions on operations, including costly new manufacturing requirements; or

• seize or detain products or require us to initiate a product recall.

In addition, our product labeling, advertising and promotion are subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription drug products. In particular, a drug may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling, although the FDA does not regulate the prescribing practices of physicians. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.

The FDA’s regulations, policies or guidance may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our drugs, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

Sumavel DosePro, ZX002 and our other product candidates may cause undesirable side effects or have other unexpected properties that could result in post-approval regulatory action.

If we or others identify undesirable side effects, or other previously unknown problems, caused by our products, other products or our product candidates with the same or related active ingredients, after obtaining U.S. regulatory approval, a number of potentially significant negative consequences could result, including:

• regulatory authorities may withdraw their approval of the product;

• regulatory authorities may require us to recall product;

• regulatory authorities may require the addition of warnings in the product label or narrowing of the indication in the product label;

• we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;

• we may be required to change the way the product is administered or modify the product in some other way;

• the FDA may require us to conduct additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product;

• we could be sued and held liable for harm caused to patients; and

• our reputation may suffer.

The most common treatment-emergent adverse reactions (reported by at least 5% of patients) for sumatriptan injection as described in the Sumavel DosePro Prescribing Information summarizing two

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large placebo-controlled clinical trials were injection site reaction (59%), atypical sensations (42%), dizziness (12%), flushing (7%), chest discomfort (5%), weakness (5%), and neck pain/stiffness (5%).

While the adverse reaction profile for ZX002 has not yet been fully characterized in Phase 3 clinical trials, in two completed Phase 2 studies of ZX002 patients experienced mild to moderate adverse events, such as nausea, vomiting, headache, dizziness, sweating, constipation and drowsiness, which are similar to the reported effects of opioids currently prescribed for chronic pain.

Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates.

Our development and commercialization strategy for ZX002 depends upon the FDA’s prior findings of safety and effectiveness of ZX002 based on data not developed by us, but which the FDA may rely upon in reviewing our NDA.

The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the FFDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Under this statutory provision, the FDA may rely, for purposes of approving an NDA, on findings of safety and effectiveness based on data not developed by the filer of the NDA. Similar to Sumavel DosePro, we intend to submit the NDA for ZX002 under Section 505(b)(2), and as such the NDA will rely, in part, on the FDA’s previous findings of safety and effectiveness for hydrocodone. Even though we may be able to take advantage of Section 505(b)(2) to support potential U.S. approval for ZX002, the FDA may require us, and did require us with respect to Sumavel DosePro, to perform additional studies or measurements to support approval. In addition, the FDA’s interpretation and use of Section 505(b)(2) has been controversial and has previously been challenged in court, but without a definitive ruling on the propriety of the FDA’s approach. Future challenges, including a direct challenge to the approval of our products, may be possible and, if successful, could limit or eliminate our ability to rely on the Section 505(b)(2) pathway for the approval of our products. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of our products.

ZX002 will be subject to DEA regulations and, failure to comply with these regulations, or the cost of compliance with these regulations, may adversely affect our business.

ZX002 contains hydrocodone, a regulated “controlled substance” under the CSA, which establishes, among other things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. ZX002, because it is a single-entity hydrocodone product, is expected to be regulated by the DEA as a Schedule II controlled substance under the CSA. All Schedule II substance prescriptions, such as prescriptions for ZX002, must be in writing and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

The manufacture, shipment, storage, sale and use, among other things, of controlled substances that are pharmaceutical products are subject to a high degree of regulation, including security, record-keeping and reporting obligations enforced by the DEA. Our failure to comply with these requirements could result in the loss of our DEA registration, significant restrictions on ZX002, civil penalties or criminal prosecution.

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The DEA, and some states, also conduct periodic inspections of registered establishments that handle controlled substances. Facilities that conduct research, manufacture, store, distribute, import or export controlled substances must be registered to perform these activities and have the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, results of operations, financial condition and prospects. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

Individual states also have controlled substances laws. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule drugs, as well. While some states automatically schedule a drug when the DEA does so, in other states there has to be rulemaking or a legislative action. State scheduling may delay commercial sale of any controlled substance drug product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate state registrations in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

The FDA, in consultation with the DEA, will require us to develop a comprehensive risk management program to reduce the inappropriate use of our product candidate, including restrictions on the manner in which it is marketed and sold, so as to reduce the risk of improper patient selection and diversion or abuse of the product. Developing such a program in consultation with the FDA may be a time-consuming process and could delay approval of our product candidate. Such a program or delays of any approval from the FDA could limit market acceptance of the product.

Under the terms of our license agreement with Elan, Elan has the exclusive right to manufacture and supply both clinical and commercial supplies of ZX002. While Elan is required to comply with applicable laws and regulations regarding controlled substances, we do not have any direct control over Elan’s compliance in these regards, and any failure by Elan to comply with those laws and regulations could result in a reduction or cessation of production of ZX002.

Annual DEA quotas on the amount of hydrocodone allowed to be produced in the United States and our specific allocation of hydrocodone by the DEA could significantly limit the clinical development of ZX002 as well as the production or sale of ZX002 even if we obtain FDA approval.

The DEA limits the availability and production of all Schedule II substances through a quota system which includes a national aggregate quota and individual quotas. Because hydrocodone is subject to the DEA’s production and procurement quota scheme, the DEA establishes annually an aggregate quota for how much hydrocodone may be produced in total in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of hydrocodone that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas to manufacturers. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Elan, which has licensed us the right to sell ZX002 in the United States, if approved, was allocated a sufficient quantity of hydrocodone to meet our planned clinical and pre-clinical needs during 2010. However, in future years, we may need greater amounts of hydrocodone to sustain and complete our Phase 3 development program for ZX002 which we commenced in March 2010, and we will need significantly greater amounts of hydrocodone to implement our commercialization plans if the FDA approves ZX002.

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Moreover, we do not know what amounts of hydrocodone other companies developing product candidates containing hydrocodone may request for future years. The DEA, in assessing factors such as medical need, abuse and diversion potential and other policy considerations, may choose to set the aggregate hydrocodone quota lower than the total amount requested by the companies. Elan is permitted to petition the DEA to increase the annual aggregate quota after it is initially established, but there is no guarantee that the DEA would act favorably upon such a petition. Our procurement quota of hydrocodone may not be sufficient to meet our future clinical development needs or commercial demand if we receive regulatory approval for ZX002. Any delay or refusal by the DEA in establishing the procurement quota or a reduction in our quota for hydrocodone or a failure to increase it over time as we anticipate could delay or stop the clinical development of ZX002 or if approved, the product launch or commercial sale of ZX002 or cause us to fail to achieve our expected operating results, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We will need to obtain FDA approval of our proposed product trade names and any failure or delay associated with such approval may adversely impact our business.

Any trade name we intend to use for our products will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or PTO. The FDA typically conducts a rigorous review of proposed trade names, including an evaluation of potential for confusion with other trade names. The FDA may also object to a trade name if it believes the name inappropriately implies medical claims. If the FDA objects to our proposed trade names, we may be required to adopt an alternative name for our product candidate. If we adopt an alternative name, we would lose the benefit of our existing trademark applications and may be required to expend significant additional resources in an effort to identify a suitable trade name that would qualify under applicable trademark laws, and not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to generate revenues from our products.

Even though Sumavel DosePro has received regulatory approval in the United States, we, Desitin, or any other potential partners may never receive approval or commercialize our products outside of the United States.

We have established an exclusive commercial partnership for Sumavel DosePro with Desitin in the European Union and three other countries in order to seek to accelerate the development and regulatory approvals in those territories. We may also seek to establish commercial partnerships for Sumavel DosePro in other foreign countries. In order to market Sumavel DosePro or any other products outside of the United States, we, Desitin, or any potential partner must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our products. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed in these “Risk Factors” and elsewhere in this prospectus regarding FDA approval in the United States, as well as other risks. For example, legislation analogous to Section 505(b)(2) of the FFDCA in the United States does not exist in other countries. In territories where data is not freely available, we or our partners may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require the expenditure of significant additional funds. We, Desitin, or any potential partner may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety effectiveness dossiers. Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose. However, regulatory approval

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in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others.

Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed in these “Risk Factors” and elsewhere in this prospectus regarding FDA approval in the United States. As described above, such effects include the risks that our product candidates may not be approved at all or for all requested indications, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly, post-marketing studies. In addition, we, Desitin, or any potential partner may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution if we fail to comply with applicable foreign regulatory requirements.

Health care reform measures and changes in policies, funding, staffing and leadership at the FDA and other agencies could hinder or prevent the commercial success of Sumavel DosePro and any of our product candidates that may be approved by the FDA.

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future results of operations and the future results of operations of our potential customers. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a new Part D prescription drug benefit, which became effective January 1, 2006. Under the prescription drug benefit, Medicare beneficiaries can obtain prescription drug coverage from private sector plans that are permitted to limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies. If Sumavel DosePro or any of our product candidates that are approved by the FDA are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could suffer.

Furthermore, there have been and continue to be a number of initiatives at the federal and state levels that seek to reduce healthcare costs. Most recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, which includes measures to significantly change the way health care is financed by both governmental and private insurers. Among the provisions of the PPACA of greatest importance to the pharmaceutical industry are the following:

• an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, beginning in 2011;

• an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23% and 13% of the average manufacturer price for most branded and generic drugs, respectively;

• a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D, beginning in 2011;

• extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, effective March 23, 2010;

• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in April 2010 and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing both the volume of sales and manufacturers’ Medicaid rebate liability;

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• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program, effective in January 2010;

• new requirements to report certain financial arrangements with physicians and others, including reporting any “transfer of value” made or distributed to prescribers and other healthcare providers and reporting any investment interests held by physicians and their immediate family members during each calendar year beginning in 2012, with reporting starting in 2013;

• a new requirement to annually report drug samples that manufacturers and distributors provide to physicians, effective April 1, 2012;

• a licensure framework for follow-on biologic products;

• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

• creation of the Independent Payment Advisory Board which, beginning in 2014, will have authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law even if Congress does not act on the recommendations; and

• establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending beginning by January 1, 2011.

Many of the details regarding the implementation of the PPACA are yet to be determined, and at this time, it remains unclear the full effect that the PPACA would have on our business.

Additionally, individual states have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects.

In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This can reduce demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

In certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement and may, in some cases, be unavailable. In the United States, the commercial success of Sumavel DosePro and our product candidates, if and when commercialized, will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Third-party payors include governmental programs such as Medicare or Medicaid, private insurance plans and managed care plans. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Also, third-party payors have attempted to control costs by limiting coverage through the use of formularies and other cost-containment mechanisms and the amount of reimbursement for particular procedures or drug treatments.

Additionally, given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce prescription drug

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prices. This could harm our ability to market our products and generate revenues. In addition, legislation has been introduced in Congress that, if enacted, would permit more widespread importation or re-importation of pharmaceutical products from foreign countries into the United States, including from countries where the products are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decision to decrease our prices to better compete, which, in turn, could adversely affect our business, results of operations, financial condition and prospects. Alternatively, in response to legislation such as this, we might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re-importation, which could also reduce the revenue we generate from our product sales. It is also possible that other legislative proposals having similar effects will be adopted.

Furthermore, regulatory authorities’ assessment of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, changing policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects. For example, average review times at the FDA for marketing approval applications have fluctuated over the last ten years, and we cannot predict the review time for any of our submissions with any regulatory authorities. In addition, review times can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

We may incur liability if our continuing medical or health education programs and/or product promotions are determined, or are perceived, to be inconsistent with regulatory guidelines.

The FDA provides guidelines with respect to appropriate promotion and continuing medical and health education activities. Although we endeavor to follow these guidelines, the FDA or the Office of the Inspector General: U.S. Department of Health and Human Services may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management’s attention could be diverted and our reputation could be damaged.

If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

• the federal Anti-Kickback Law, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

• federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers;

• the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing regulations, and the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, which prohibit executing a scheme to

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defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

• federal physician self-referral laws, such as the Stark law, which prohibit a physician from making a referral to a provider of certain health services with which the physician or the physician’s family member has a financial interest, and prohibit submission of a claim for reimbursement pursuant to a prohibited referral; and

• state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. To the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Import/export regulations and tariffs may change and increase our costs.

We are subject to risks associated with the regulations relating to the import and export of products and materials. We cannot predict whether the import and/or export of our products will be adversely affected by changes in, or enactment of, new quotas, duties, taxes or other charges or restrictions imposed by India (where our supplier of the sumatriptan used in Sumavel DosePro is located), the United Kingdom (where the assembly of Sumavel DosePro takes place) or any other country in the future. Any of these factors could adversely affect our business, results of operations, financial condition and prospects.

Risks Related to Intellectual Property

Our success depends in part on our ability to protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.

Our commercial success will depend in large part on obtaining and maintaining patent, trademark and trade secret protection of our product, Sumavel DosePro, and our product candidate, ZX002, their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing Sumavel DosePro or our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

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We in-license certain intellectual property for ZX002 from Elan, and we rely on Elan to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property. We have not had and do not have primary control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. We cannot be certain that such activities by Elan have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Elan has retained the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer of the intellectual property rights that Elan has licensed to us, and enforcement of our licensed patents or defense of any claims asserting the invalidity or unenforceability of these patents would also be subject to the control or cooperation of Elan. We are not entitled to control the manner in which Elan may defend the intellectual property that is licensed to us and it is possible that their defense activities may be less vigorous than had we conducted the defense ourselves.

Most of our patents related to DosePro were acquired from Aradigm, who acquired those patents from a predecessor owner. Our patents related to ZX002 are licensed from Elan. Thus, most of our patents, as well as many of our pending patent applications, were not written by us or our attorneys, and we did not have control over the drafting and prosecution of these patents. Further, the former patent owners and our licensor might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting and prosecution. In addition, the former patent owners and Elan may not have been completely familiar with U.S. patent law, possibly resulting in inadequate disclosure and/or claims. This could possibly result in findings of invalidity or unenforceability of the patents we own and in-license, patents issuing with reduced claim scope, or in pending applications not issuing as patents.

In addition, as part of the agreement where we acquired patents related to DosePro from Aradigm, Aradigm retained, and we granted to Aradigm, a non-exclusive, world-wide, royalty free license to the acquired patents solely for purposes of the delivery of one or more aerosolized APIs directly into the bronchia or lungs. The agreement with Aradigm also includes a covenant not to compete with us regarding technologies or products for the delivery of one or more APIs via needle free injection. That covenant expired on August 26, 2010, giving Aradigm or its licensees the right to develop and sell other needle-free injection technologies and products.

The patent positions of pharmaceutical, biopharmaceutical and medical device companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the United States. There have been recent changes regarding how patent laws are interpreted, and both the PTO and Congress have recently proposed radical changes to the patent system. We cannot accurately predict future changes in the interpretation of patent laws or changes to patent laws which might be enacted into law. Those changes may materially affect our patents, our ability to obtain patents and/or the patents and applications of our collaborators and licensors. The patent situation in these fields outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or to which we have a license or third-party patents.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

• others may be able to make or use compounds that are similar to the pharmaceutical compounds used in Sumavel DosePro and our product candidates but that are not covered by the claims of our patents;

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• the APIs in Sumavel DosePro and our current product candidates are, or will soon become, commercially available in generic drug products, and no patent protection will be available without regard to formulation or method of use;

• we or our licensor, as the case may be, may not be able to detect infringement against our in-licensed patents, which may be especially difficult for manufacturing processes or formulation patents;

• we or our licensor, as the case may be, might not have been the first to make the inventions covered by our owned or in-licensed issued patents or pending patent applications;

• we or our licensor, as the case may be, might not have been the first to file patent applications for these inventions;

• others may independently develop similar or alternative technologies or duplicate any of our technologies;

• it is possible that our pending patent applications will not result in issued patents;

• it is possible that there are dominating patents to Sumavel DosePro or our product candidates of which we are not aware;

• it is possible that there are prior public disclosures that could invalidate our inventions, or our licensor’s as the case may be, or parts of our inventions of which we or they are not aware;

• it is possible that others may circumvent our owned or in-licensed patents;

• it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours;

• the laws of foreign countries may not protect our or our licensor’s, as the case may be, proprietary rights to the same extent as the laws of the Untied States;

• the claims of our owned or in-licensed issued patents or patent applications when issued may not cover our device or product candidates;

• our owned or in-licensed issued patents may not provide us with any competitive advantages, or may be narrowed in scope, be held invalid or unenforceable as a result of legal challenges by third parties;

• we may not develop additional proprietary technologies for which we can obtain patent protection; or

• the patents of others may have an adverse effect on our business.

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and our ability to successfully penetrate our target markets could be severely compromised.

If any of our owned or in-licensed patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material adverse impact on our

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business and our ability to commercialize or license our technology and products. Likewise, our patents covering certain technology used in our DosePro device are expected to expire on various dates from 2014 through 2023 and the patents licensed to us by Elan are expected to expire in 2019. Three of our patents, U.S. Patent Nos. 5,891,086, 5,957,886 and 6,135,979, are expected to expire in 2014, 2016 and 2017, respectively. U.S. Patent No. 5,891,086 covers a particular actuator mechanism forming a part of the needleless injector device; U.S. Patent No. 5,597,886 claims a needleless injector system using a viscous damping medium; and U.S. Patent No. 6,137,979 covers the needleless injector with particular safety mechanisms. Upon the expiration of these patents, we will lose the right to exclude others from practicing these inventions. Additionally, since these three patents are the only patents currently listed in the FDA Orange Book for Sumavel DosePro, their expiration will mean that we lose certain advantages that come with Orange Book listing of patents. The expiration of these patents could also have a similar material adverse effect on our business, results of operations, financial condition and prospects. Moreover, if Elan decides not to commence or continue any action relating to the defense of the patents they have licensed to us, they are required to notify us and we have the right to initiate proceedings after receiving their notice. Such proceedings will require the assistance of Elan, and we have limited control over the amount or timing of resources Elan devotes on our behalf or the priority they place on enforcing these patent rights.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to a license agreement with Elan, pursuant to which we license key intellectual property for ZX002. This existing license imposes various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, Elan may have the right to terminate the license, in which event we would not be able to develop or market ZX002. If we lose such license rights, our business, results of operations, financial condition and prospects may be materially adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer similar consequences.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and we may be unable to protect our rights to our products and technology.

If we or our collaborators or licensors choose to go to court to stop a third party from using the inventions claimed in our owned or in-licensed patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we or they, as the case may be, were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we or they, as the case may be, do not have the right to stop others from using the inventions.

There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the third party on the ground that such third-party’s activities do not infringe our owned or in-licensed patents. In addition, the U.S. Supreme Court has recently changed some tests regarding granting patents and assessing the validity of patents. As a consequence, issued patents may be found to contain invalid claims according to the newly revised standards. Some of our own or in-licensed patents may be subject to challenge and subsequent invalidation or significant narrowing of claim scope in a reexamination proceeding before the PTO, or during litigation, under the revised criteria which make it more difficult to obtain patents.

We may also not be able to detect infringement of our own or in-licensed patents, which may be especially difficult for methods of manufacturing or formulation products. While we intend to take actions reasonably necessary to enforce our patent rights, we depend, in part, on our licensors and collaborators to protect a substantial portion of our proprietary rights. For example, Elan, our licensor,

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is primarily responsible for the enforcement of the intellectual property rights related to ZX002. Under the agreement, Elan has the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer. If Elan decides not to commence or continue any action, they are required to notify us and grant us step in rights to enforce the in-licensed intellectual property. Such enforcement will require the cooperation of Elan, and we will be responsible for Elan’s reasonable expenses and attorney’s fees incurred as a result of that cooperation. We have limited control over the amount or timing of resources Elan devotes on our behalf or the priority they place on enforcing these patent rights to our advantage.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our device and product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields relating to Sumavel DosePro and our product candidates. As the medical device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert our product or product candidates infringe the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of medical devices, drugs, products or their methods of use. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product, product candidates, technology or methods.

In addition, there may be issued patents of third parties of which we are currently unaware, that are infringed or are alleged to be infringed by our product, product candidates or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our owned and in-licensed issued patents or our pending applications, or that we or, if applicable, a licensor were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering our products or technology similar to ours. Any such patent application may have priority over our owned and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed technology, the licensor may have to participate in an interference proceeding declared by the PTO to determine priority of invention in the United States. If another party has reason to assert a substantial new question of patentability against any of our claims in our owned and in-licensed U.S. patents, the third party can request that the PTO reexamine the patent claims, which may result in a loss of scope of some claims or a loss of the entire patent. In addition to potential infringement claims, interference and reexamination proceedings, we may become a party to patent opposition proceedings in the European Patent Office where either our patents are challenged, or we are challenging the patents of others. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if the other party had independently arrived at the same or similar invention prior to our own or, if applicable, our licensor’s invention, resulting in a loss of our U.S. patent position with respect to such inventions.

We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our device and/or product candidates and/or proprietary technologies infringe their intellectual property rights. These lawsuits are costly and could adversely affect our results of operations and divert the attention of managerial and technical personnel. There is a

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risk that a court would decide that we or our commercialization partners are infringing the third party’s patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other party’s patents.

If a third-party’s patents was found to cover our device and/or product candidates, proprietary technologies or their uses, we or our collaborators could be enjoined by a court and required to pay damages and could be unable to commercialize Sumavel DosePro or our product candidates or use our proprietary technologies unless we or they obtained a license to the patent. A license may not be available to us or our collaborators on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our products, technologies or methods pending a trial on the merits, which could be years away.

There is a substantial amount of litigation involving patent and other intellectual property rights in the device, biotechnology and pharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

• infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;

• substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees;

• a court prohibiting us from selling or licensing the product unless the third party licenses its product rights to us, which it is not required to do;

• if a license is available from a third party, we may have to pay substantial royalties, upfront fees and/or grant cross-licenses to intellectual property rights for our products; and

• redesigning our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Although we own worldwide rights to Sumavel DosePro, we do not have patent protection for the product in a significant number of countries, and we will be unable to prevent infringement in those countries.

Our patent portfolio related to DosePro includes patents in the United States, Canada, Germany, Spain, France, the United Kingdom, Italy, and Japan. The covered technology and the scope of coverage varies from country to country. For those countries where we do not have granted patents, we have no ability to prevent the unauthorized use of our intellectual property, and third parties in those countries may be able to make, use, or sell products identical to, or substantially similar to DosePro.

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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on our owned and in-licensed patents are due to be paid to the PTO in several stages over the lifetime of the patents. Future maintenance fees will also need to be paid on other patents which may be issued to us. We have systems in place to remind us to pay these fees, and we employ outside firms to remind us or our in-licensor to pay annuity fees due to foreign patent agencies on our pending foreign patent applications. The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

For the patents and patent applications related to ZX002, Elan is obligated to maintain our in-licensed patents in the United States under our license agreement. Should Elan fail to pursue maintenance of our licensed patents and patent applications, Elan is obligated to notify us and, at that time, we will be granted an opportunity to maintain the prosecution and avoid withdrawal, cancellation, expiration or abandonment of the licensed U.S. patents and applications.

We also may rely on trade secrets and confidentiality agreements to protect our technology and know-how, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and our ability to successfully generate revenues from Sumavel DosePro and, if approved by the FDA or other regulatory authorities, our product candidates could be adversely affected.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the device, biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other device, biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management, which would adversely affect our financial condition.

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Risks Relating to this Offering and an Investment in Our Stock

We expect that the price of our common stock will fluctuate substantially.

The initial public offering price for the shares of our common stock sold in this offering has been determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. The price of our common stock may decline, perhaps substantially. In addition, following this offering the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including those described elsewhere in this “Risk Factors” section in this prospectus and the following:

• announcements concerning our and Astellas’ commercial progress in promoting and selling Sumavel DosePro, including sales and revenue trends;

• the development status of ZX002 or any of our other product candidates, including the results from our clinical trials;

• FDA or international regulatory actions, including whether and when we receive regulatory approval, for any of our product candidates;

• other regulatory developments, including the FDA’s potential grant of regulatory exclusivity to a competitor who receives FDA approval before us for an extended-release hydrocodone product, which could significantly delay our ability to receive approval for ZX002;

• announcements of the introduction of new products by us or our competitors;

• announcements concerning product development results or intellectual property rights of others;

• announcements relating to litigation, intellectual property or our business, and the public’s response to press releases or other public announcements by us or third parties;

• variations in the level of expenses related to ZX002 or any of our other product candidates or clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites;

• market conditions or trends in the pharmaceutical sector or the economy as a whole;

• changes in operating performance and stock market valuations of other pharmaceutical companies and price and volume fluctuations in the overall stock market;

• litigation or public concern about the safety of Sumavel DosePro or our product candidates;

• actual and anticipated fluctuations in our quarterly operating results;

• the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

• deviations from securities analysts’ estimates or the impact of other analyst comments;

• ratings downgrades by any securities analysts who follow our common stock;

• additions or departures of key personnel;

• third-party payor coverage and reimbursement policies;

• developments concerning current or future strategic collaborations, and the timing of payments we may make or receive under these arrangements;

• developments affecting our contract manufacturers, component fabricators and service providers;

• the development and sustainability of an active trading market for our common stock;

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• future sales of our common stock by our officers, directors and significant stockholders;

• other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events;

• changes in accounting principles; and

• discussion of us or our stock price by the financial and scientific press and in online investor communities.

In addition, the stock markets, and in particular the Nasdaq Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The realization of any of the above risks or any of a broad range of other risks, including those or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.

There may not be a viable public market for our common stock.

Prior to this offering, there has been no public market for our common stock, and there can be no assurance that a regular trading market will develop and continue after this offering or that the market price of our common stock will not decline, perhaps substantially, below the initial public offering price. The initial public offering price has been determined through negotiations between us and the representatives of the underwriters and may not be indicative of the market price of our common stock following this offering. Among the factors considered in such negotiations were prevailing market conditions; our results of operations and financial condition; financial and operating information and market valuations with respect to other companies that we and the representatives of the underwriters believe to be comparable or similar to us; the present state of our development; and our future prospects. See “Underwriting” for additional information. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products, product candidates or technologies by using our shares of common stock as consideration.

If you purchase shares of our common stock sold in this offering, you will experience immediate and substantial dilution in the net tangible book value of your shares.

The initial public offering price of our common stock in this offering is considerably more than the net tangible book value (deficit) per share of our outstanding common stock. Investors purchasing shares of common stock in this offering will pay a price that substantially exceeds the value of our tangible assets after subtracting liabilities. As a result, investors will:

• incur immediate dilution of $              per share in net tangible book value per share, based on an assumed initial public offering price of $              per share, the mid-point of the price range set forth on the cover page of this preliminary prospectus; and

• contribute     % of the total amount invested to date to fund our company based on an assumed initial offering price to the public of $              per share, the mid-point of the price range set forth on the cover page of this preliminary prospectus, but will own only     % of the shares of common stock outstanding after the offering.

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For additional information on how the foregoing amounts were calculated, see “Dilution.” To the extent outstanding stock options or warrants are exercised, there will be further dilution to new investors.

Because we may need to raise additional capital to fund our commercialization efforts and clinical development programs, among other things, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and warrants and any additional shares issued in connection with acquisitions, if any, may result in further dilution to investors. See the “Dilution” section in this prospectus.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return.

Our management will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. The failure of our management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.

Our quarterly operating results may fluctuate significantly.

Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period, particularly because the commercial success of, and demand for, Sumavel DosePro, as well as the success and costs of our ZX002 and other product candidate development programs are uncertain and therefore our future prospects are uncertain. Our net loss and other operating results will be affected by numerous factors, including:

• fluctuations in the quarterly revenues of Sumavel DosePro, including based on our distributors’ inventory management practices and buying patterns and the performance by Astellas;

• the level of underlying demand for Sumavel DosePro or any of our other product candidates that may receive regulatory approval;

• variations in the level of development expenses related to ZX002 or other development programs;

• results of clinical trials for ZX002;

• any intellectual property infringement lawsuit in which we may become involved;

• regulatory developments and legislative changes, including healthcare reform, affecting our product and product candidates or those of our competitors; and

• our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

We may become involved in securities class action litigation that could divert management’s attention and adversely affect our business and could subject us to significant liabilities.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations as well a broad range of other factors, including the realization of any of the risks

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described in these “Risk Factors,” may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies generally experience significant stock price volatility. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock, publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Our executive officers, key employees and directors and their affiliates will exercise significant control over stockholder voting matters in a manner that may not be in the best interests of all of our stockholders.

Immediately following this offering, our executive officers, key employees and directors and their affiliates will together control approximately     % of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option shares and no exercise of outstanding options or warrants. Six of our non-employee directors are, or are representatives designated by, significant stockholders and two of our directors are executive officers. As a result, these stockholders will collectively be able to significantly influence and may be able to control all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, impede a merger, consolidation, takeover or other business combination involving us, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might adversely affect the prevailing market price of our common stock.

In addition, sales of shares beneficially owned by executive officers and directors and their affiliates could be viewed negatively by third parties and have a negative impact on our stock price. Moreover, we cannot assure you as to how these shares will may be distributed and subsequently voted.

Future sales of our common stock or securities convertible or exchangeable for our common stock may depress our stock price.

If our existing stockholders or holders of our currently outstanding options or warrants sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. The perception in the market that these sales may occur could also cause the trading price of our common stock to decline. Based on shares of common stock outstanding as of June 30, 2010, upon completion of this offering, we will have outstanding a total of              shares of common stock, assuming no exercise of the underwriters’ overallotment option and no exercise of

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outstanding options and warrants. Of these shares, only the shares of common stock sold by us in this offering, plus any shares sold upon exercise of the underwriters’ overallotment option will be freely tradable, without restriction, in the public market immediately following this offering. Our underwriters may, however, in their sole discretion, permit our officers, directors and other stockholders and the holders of our outstanding options and warrants who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

We expect that the lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus (subject to extension upon the occurrence of specified events). After the lock-up agreements expire, up to an additional              shares of common stock, and up to approximately              shares of common stock issuable upon exercise of our outstanding warrants (assuming cashless exercise of those warrants), will be eligible for sale in the public market, subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, with respect to shares held by directors, executive officers and other affiliates. In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act and, in any event, we plan to file a registration statement permitting shares of common stock issued on exercise of options to be freely sold in the public market. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Certain holders of shares of our common stock, warrants to purchase our capital stock and the shares of common stock issuable upon exercise of those warrants are entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. In addition, after the lock-up agreements described above expire, our directors may and we expect that our executive officers will establish programmed selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders, or the perception that those sales may occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our common stock.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective at or prior to the closing of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

• a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

• a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

• a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the president or by a majority of the total number of authorized directors;

• advance notice requirements for stockholder proposals and nominations for election to our board of directors;

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• a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 66²/₃% of all outstanding shares of our voting stock then entitled to vote in the election of directors;

• a requirement of approval of not less than 66²/₃% of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and

• the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

The continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. We have paid no cash dividends on any of our classes of capital stock to date and we currently intend to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. In addition, our ability to pay cash dividends is currently prohibited by the terms of our loan and security agreements. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to meet compliance obligations.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, or Nasdaq, that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. In addition, on July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. The requirements of these rules and regulations

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will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. In particular, commencing in fiscal 2011, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Although we may qualify for an exemption from the requirements of Section 404 as a result of provisions in the Dodd-Frank Act, we currently do not intend to take advantage of the exception even if it is available to us. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404. We currently do not have an internal audit function, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements or other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

This prospectus contains forward-looking statements that involve substantial risks and uncertainties, including statements regarding the future sales potential for Sumavel DosePro, the progress and timing of clinical trials, the safety and efficacy of our product candidates, the goals of our development activities, estimates of the potential markets for our product candidates, estimates of the capacity of manufacturing and other facilities to support our products, projected cash needs and our expected future revenues, operations and expenditures. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These risk and uncertainties, include, among others discussed in the “Risk Factors” section of this prospectus:

• our dependence on the commercial success of Sumavel DosePro, including our ability to maintain and increase market demand for, and sales of, Sumavel DosePro;

• our short operating history, our early stage of commercialization, our lack of significant revenue, our history of significant net losses and negative cash flow from operations and our ability to obtain additional funding to continue to operate our business, which funding may not be available on commercially reasonable terms, or at all;

• our ability to successfully execute our sales and marketing strategy for the commercialization of Sumavel DosePro and our dependence on our collaboration with Astellas Pharma US, Inc. to promote Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians, and urologists;

• the rate and degree of market acceptance of Sumavel DosePro;

• our recurring losses from operations, which raise substantial doubt about our ability to continue as a going concern;

• our reliance on a limited number of wholesale pharmaceutical distributors, of which the largest three collectively accounted for 95.1% of our total gross sales of Sumavel DosePro for the six months ended June 30, 2010;

• our ability to successfully complete Phase 3 clinical development of ZX002 or any of our other product candidates on expected timetables, or at all, which includes enrolling sufficient patients in our clinical trials and demonstrating the safety and efficacy of these product candidates in such trials;

• the risk that one of our competitors will receive FDA approval for an extended-release hydrocodone product for the same condition of use as ZX002 before we receive FDA approval for ZX002, which could significantly delay our ability to commercialize ZX002;

• the content and timing of submissions to, and decisions made by, the FDA and other regulatory agencies, including foreign regulatory agencies, and demonstrating the safety and efficacy of ZX002 or any other product candidates to the satisfaction of the FDA and such other agencies;

• our ability to maintain regulatory approval for Sumavel DosePro;

• the scope and validity of patent protection for Sumavel DosePro, ZX002 and our other product candidates and our ability to commercialize Sumavel DosePro, ZX002 and our other product candidates without infringing the patent rights of others;

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• adverse side effects or inadequate therapeutic efficacy of Sumavel DosePro that could result in product recalls, market withdrawals or product liability claims;

• the intense competition in the pharmaceutical industry and the ability of our competitors, many of whom have greater resources than we do, to offer different or better therapeutic alternatives than our products;

• our ability to obtain and maintain adequate levels of coverage and reimbursement for Sumavel DosePro or any of our other product candidates that may be approved for sale from the government or other third-party payors, and the extent of such coverage and reimbursement, and the willingness of third-party payors to pay for our products versus less expensive therapies;

• our reliance on third-party single source manufacturers and suppliers for the manufacture and supply of our product and product candidates;

• our ability to grow our business by identifying and acquiring or in-licensing new product candidates or approved products, increasing the size of our organization and attracting and retaining key personnel;

• our compliance with our agreements with Astellas, Elan and Desitin and the right of the other parties to terminate those agreements under specified circumstances or, in some cases, at will; and

• the impact of healthcare reform legislation.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual results may differ materially from what we expect and from those expressed or implied by our forward-looking statements. In light of the significant uncertainties in our forward-looking statements, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus regardless of the time of delivery of this prospectus or any sale of our common stock and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

This prospectus also contains estimates, projections and other information concerning our industry, our business, and the markets for Sumavel DosePro, ZX002 and other drugs, including data regarding the estimated size of those markets, their projected growth rates, the incidence of certain medical conditions, statements that certain drugs, classes of drugs or dosages are the most widely prescribed in the United States or other markets, the perceptions and preferences of patients and physicians regarding certain therapies and other prescription, prescriber and patient data, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In particular, unless otherwise specified, all prescription, prescriber and patient data in this prospectus is from Wolters Kluwer Pharma Solutions, Source^® Pharmaceutical Audit Suite (PHAST), Source^® Prescriber, Source^® Launchtrac, Source^® Dynamic Claims or Source^® Lx APLD. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $             million (or approximately $             million if the underwriters’ over-allotment option is exercised in full) from the sale of the shares of common stock offered by us in this offering, based on an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us. Each $1.00 increase or decrease in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, the net proceeds to us from this offering by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We intend to use approximately $             million of the net proceeds from this offering to fund Phase 3 clinical trials and related development activities for ZX002, approximately $                 million to fund the ongoing commercialization of Sumavel DosePro and the remainder for working capital and other general corporate purposes. Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, future product revenues and borrowings available under our $10.0 million revolving credit facility will be sufficient to fund our operations for at least the next 12 months. In particular, we believe the portion of the net proceeds from this offering intended to fund Phase 3 clinical trials and related development activities for ZX002, together with our existing cash and cash equivalents, future product revenues and borrowings available under our $10.0 million revolving credit facility, will enable us to complete the development of ZX002 through our planned submission of an NDA with the FDA, although we cannot assure you that this will occur. We may also use a portion of the net proceeds to in-license, acquire or invest in complementary businesses or products; however, we have no current commitments or obligations to do so.

The amounts and timing of our actual expenditures will depend on numerous factors, including the commercial success of Sumavel DosePro and the progress of our clinical trials and other development and commercialization efforts, as well as the amount of cash used in our operations. We therefore cannot estimate the amount of net proceeds to be used for the purposes described above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. Pending the uses described above, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. We expect to retain available cash to finance ongoing operations and the potential growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant. In addition, unless waived, the terms of our amended and restated loan and security agreement with Oxford Finance Corporation and Silicon Valley Bank prohibit us from paying dividends on our common stock.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2010:

• on an actual basis; and

• on a pro forma as adjusted basis to give effect to the following transactions as if they had occurred as of June 30, 2010:

(1)     the sale of              shares of common stock in this offering and our receipt of the estimated net proceeds therefrom, based on an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us;

(2)     the conversion of $15.0 million in aggregate principal amount of convertible promissory notes issued in July 2010, or the 2010 Notes, (including accrued interest thereon) into              shares of our common stock upon the completion of this offering, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                    , 2010;

(3)     the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 142,398,142 shares of our common stock upon the completion of this offering; and

(4)     the adjustment of our outstanding warrants to purchase convertible preferred stock into warrants to purchase our common stock upon the completion of this offering, and the resultant reclassification of our convertible preferred stock warrant liability to stockholders’ equity (deficit).

The information below is illustrative only and our capitalization following the completion of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

	As of June 30, 2010
	Actual(1)			Pro Forma As Adjusted(2)
	(In thousands, except per share amounts)
Cash and cash equivalents	$	4,493		$
Long-term debt, less current portion	$	5,616		$
Convertible preferred stock warrant liability		18,061
Series A and B convertible preferred stock, $0.001 par value; actual — 156,416 shares authorized, 142,398 shares issued and outstanding; pro forma as adjusted — no shares issued or outstanding		149,312
Stockholders’ equity (deficit)
Preferred stock, $0.001 par value; actual — no shares authorized, issued or outstanding; pro forma as adjusted —              shares authorized, no shares issued or outstanding		—
Common stock, $0.001 par value; actual — 193,000 shares authorized, 14,444 shares issued and outstanding; pro forma as adjusted —              shares authorized,             shares issued and outstanding		14
Additional paid-in capital		3,099
Accumulated deficit		(173,843	)
Total stockholders’ equity (deficit)		(170,730	)
Total capitalization	$	2,259		$

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(1) Does not include (a) our borrowing of $25.0 million under a term loan entered into with Oxford Finance Corporation and Silicon Valley Bank, and our repayment of $12.8 million outstanding under our prior term loan, in July 2010, (b) our borrowing of $2.2 million under a revolving credit facility from Oxford Finance Corporation and Silicon Valley Bank in August 2010, and (c) our issuance of $15.0 million in aggregate principal amount of 2010 Notes in July 2010.

(2) Each $1.00 increase or decrease in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, the amount of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, the number of shares of our common stock issued on conversion of the 2010 Notes (and therefore the number of pro forma as adjusted shares to be outstanding after this offering) by             shares, assuming that the closing date of this offering (and therefore the conversion date of the notes) is                    , 2010. To the extent the closing date of this offering occurs after                    , 2010, the 2010 Notes will continue to accrue interest at a rate of 8% per annum and additional shares of our common stock will be issued upon conversion of this additional accrued interest. Likewise, if the closing date occurs prior to                , 2010, fewer shares will be issued on conversion of the 2010 Notes.

The number of pro forma as adjusted shares of common stock shown in the prior table is based on 156,842,830 shares of common stock outstanding as of June 30, 2010, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into 142,398,142 shares of common stock upon completion of this offering, and excludes:

• 13,886,339 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2010, at a weighted average exercise price of $1.10 per share;

• 14,783,521 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2010, at a weighted average exercise price of $0.33 per share;

•              additional shares of common stock reserved for future issuance under our 2010 Equity Incentive Award Plan, or the 2010 Plan, which will become effective immediately prior to the completion of this offering (including 2,439,479 shares of common stock reserved for future grant or issuance under our 2006 Equity Incentive Plan, or the 2006 Plan, as of June 30, 2010, which shares will be added to the shares to be reserved under our 2010 Plan upon the effectiveness of the 2010 Plan), plus any annual increases in the number of shares of common stock reserved for future issuance under the 2010 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2010 Plan pursuant to its terms, as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Equity Incentive Award Plan;” and

•              shares of common stock reserved for issuance under our 2010 Employee Stock Purchase Plan, or the Purchase Plan, which will become effective immediately prior to the completion of this offering, plus any annual increases in the number of shares of common stock reserved for issuance under the Purchase Plan pursuant to an “evergreen provision,” as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Employee Stock Purchase Plan.”

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock upon the completion of this offering.

As of June 30, 2010, our historical net tangible book value (deficit) of our common stock was approximately $(170.7) million, or approximately $(11.82) per share, based on 14,444,688 shares of our common stock outstanding at June 30, 2010. Our historical net tangible book value (deficit) per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and convertible preferred stock, divided by the total number of shares of our common stock outstanding as of June 30, 2010.

On a pro forma basis as of June 30, 2010, after giving effect to (1) the conversion of $15.0 million in aggregate principal amount of convertible promissory notes issued in July 2010, or the 2010 Notes, (including accrued interest thereon) into              shares of our common stock upon the completion of this offering, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                 , 2010, (2) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 142,398,142 shares of our common stock upon the completion of this offering, and (3) the adjustment of our outstanding warrants to purchase convertible preferred stock into warrants to purchase our common stock upon the completion of this offering, and the resultant reclassification of our convertible preferred stock warrant liability to stockholders’ equity (deficit), our pro forma net tangible book value (deficit) of our common stock would have been approximately $             million, or approximately $             per share of our outstanding common stock.

Investors participating in this offering will incur immediate, substantial dilution. After giving effect to (1) the sale of             shares of common stock in this offering at an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us, and (2) the pro forma transactions and other adjustments described above, our pro forma as adjusted net tangible book value of our common stock as of June 30, 2010 would have been approximately $             million, or approximately $             per share of our outstanding common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $             per share to our existing stockholders and an immediate dilution in the pro forma as adjusted net tangible book value of $                 per share to investors participating in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus)				$
Historical net tangible book value (deficit) per share as of June 30, 2010	$	(11.82	)
Pro forma increase in net tangible book value (deficit) per share attributable to pro forma transactions and adjustments described above
Pro forma net tangible book value (deficit) per share before this offering
Increase in pro forma net tangible book value (deficit) per share attributable to investors participating in this offering
Pro forma as adjusted net tangible book value (deficit) per share after this offering
Pro forma as adjusted dilution per share to investors in this offering

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Each $1.00 increase or decrease in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, our pro forma net tangible book value before this offering by approximately $             million, our pro forma net tangible book value per share before this offering by approximately $             per share, our pro forma as adjusted net tangible book value after this offering by approximately $             million, our pro forma as adjusted net tangible book value per share after this offering by approximately $             per share, the increase in pro forma as adjusted net tangible book value per share to our existing stockholders by approximately $             per share and the pro forma as adjusted dilution to investors in this offering by approximately $             per share, assuming the number of shares offered by us, as set forth on the cover page of this preliminary prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us, and further assuming that the closing date of this offering (and therefore the date of conversion of the 2010 Notes into common stock) occurs on                    , 2010.

If the underwriters fully exercise their option to purchase             additional shares of common stock in the offering, our pro forma as adjusted net tangible book value per share after this offering would be $             per share, the increase in our pro forma as adjusted net tangible book value per share to existing stockholders would be $             per share and the pro form as adjusted dilution to new investors participating in this offering would be $             per share.

The following table summarizes, on the pro forma as adjusted basis described above, as of June 30, 2010, the differences between the number of shares of common stock purchased from us, the total effective cash consideration paid to us and the average price per share paid to us by our existing stockholders and by investors participating in this offering at an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) before deducting estimated underwriting discounts and commissions and estimated offering costs payable by us, as if those transactions had occurred as of June 30, 2010:

	Shares Purchased			Total Consideration			Average Price Per  Share
	Number	Percent		Amount	Percent
Existing stockholders before this offering			%	$		%	$
Investors participating in this offering
Total		100.0	%	$	100.0	%

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) would increase or decrease, respectively, total consideration paid by investors participating in this offering, total consideration paid by all stockholders and the average price per share paid by all stockholders by $             million, $             million and $            , respectively, assuming the number of shares offered by us, as set forth on the cover page of this preliminary prospectus, remains the same and before deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

If the underwriters fully exercise their option to purchase                 additional shares of common stock in this offering, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon completion of this offering.

The number of shares of common stock shown in the table is based on 156,842,830 shares of common stock outstanding as of June 30, 2010, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into 142,398,142 shares of common stock upon completion of this offering, and excludes:

• 13,886,339 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2010, at a weighted average exercise price of $1.10 per share;

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• 14,783,521 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2010, at a weighted average exercise price of $0.33 per share;

•              additional shares of common stock reserved for future issuance under our 2010 Equity Incentive Award Plan, or the 2010 Plan, which will become effective immediately prior to the completion of this offering (including 2,439,479 shares of common stock reserved for future grant or issuance under our 2006 Equity Incentive Plan, or the 2006 Plan, as of June 30, 2010, which shares will be added to the shares to be reserved under our 2010 Plan upon the effectiveness of the 2010 Plan), plus any annual increases in the number of shares of common stock reserved for future issuance under the 2010 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2010 Plan pursuant to its terms, as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Equity Incentive Award Plan;” and

•              shares of common stock reserved for issuance under our 2010 Employee Stock Purchase Plan, or the Purchase Plan, which will become effective immediately prior to the completion of this offering, plus any annual increases in the number of shares of common stock reserved for issuance under the Purchase Plan pursuant to an “evergreen provision,” as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Employee Stock Purchase Plan.”

To the extent that outstanding options or warrants are exercised, you will experience further dilution. If all of our outstanding options and warrants were exercised, our pro forma net tangible book value (deficit) as of June 30, 2010 would have been approximately $             million, or approximately $             per share, and the pro forma as adjusted net tangible book value (deficit) as of June 30, 2010 would have been approximately $              million, or approximately $             per share, causing immediate pro forma as adjusted dilution of $             per share to investors participating in this offering.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be further diluted.

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SELECTED FINANCIAL DATA

The following table summarizes certain of our selected financial data. The selected financial data for the years ended December 31, 2007, 2008 and 2009 and the period from inception (August 25, 2006) through December 31, 2006 have been derived from our audited financial statements, of which the 2007, 2008 and 2009 financial statements are included elsewhere in this prospectus. The selected financial data for the six months ended June 30, 2009 and 2010 and the balance sheet data as of June 30, 2010 have been derived from our unaudited interim financial statements which are included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting primarily of normal recurring adjustments, that, in the opinion of our management, are necessary to fairly present our financial position as of June 30, 2010 and results of operations for the six months ended June 30, 2009 and 2010. Our historical results and financial condition are not necessarily indicative of the results or financial condition that may be expected in the future. The selected financial data set forth below should be read together with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Inception (August 25, 2006) through December 31, 2006			Year Ended December 31,									Six Months Ended June 30,
				2007			2008			2009			2009			2010
	(In Thousands, except Per Share Amounts)
Statement of Operations Data
Revenue:
Net product revenue	$	—		$	—		$	—		$	—		$	—		$	6,118
Contract revenue		—			—			—			—			—			1,461
Total revenue		—			—			—			—			—			7,579
Operating expenses:
Cost of sales		—			—			—			—			—			5,829
Royalty expense		—			—			—			—			—			382
Research and development		4,902			24,329			33,910			21,438			14,739			11,389
Selling, general and administrative		1,474			4,725			11,820			14,102			3,753			24,895
Total operating expenses		6,376			29,054			45,730			35,540			18,492			42,495
Loss from operations		(6,376	)		(29,054	)		(45,730	)		(35,540	)		(18,492	)		(34,916	)
Other income (expense):
Interest income		395			927			696			10			6			3
Interest expense		—			(377	)		(1,718	)		(9,188	)		(2,326	)		(1,511	)
Change in fair value of warrant liability		—			(107	)		1,119			(755	)		(447	)		(13,020	)
Other financing income		582			906			—			—			—			—
Other income (expense)		—			25			63			(416	)		(265	)		139
Total other income (expense)		977			1,374			160			(10,349	)		(3,032	)		(14,389	)
Net loss		(5,399	)		(27,680	)		(45,570	)		(45,889	)		(21,524	)		(49,305	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock		—			(18,360	)		—			—			—			—
Net loss attributable to common stockholders	$	(5,399	)	$	(46,040	)	$	(45,570	)	$	(45,889	)	$	(21,524	)	$	(49,305	)
Net loss per share, basic and diluted(1)	$	(1.36	)	$	(8.08	)	$	(5.27	)	$	(4.10	)	$	(2.03	)	$	(3.74	)
Weighted average shares outstanding, basic and diluted(1)		3,970			5,701			8,655			11,197			10,620			13,174
Pro forma net loss per share, basic and diluted (unaudited)(1)										$	(0.45	)				$	(0.23	)
Weighted average pro forma shares outstanding, basic and diluted (unaudited)(1)											100,572						155,572

(1) See Note 2 of Notes to Financial Statements for an explanation of the method used to calculate net loss per share and the number of shares used in the computation of the per share amounts.

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	As of December 31,												As of June  30, 2010
	2006			2007			2008			2009
	(In Thousands)
Balance Sheet Data:
Cash and cash equivalents and investment securities, available for sale	$	22,103		$	43,255		$	14,225		$	44,911		$	4,493
Working capital (deficit)		20,035			38,836			3,032			42,102			(4,389	)
Total assets		26,942			53,007			27,625			74,568			44,111
Long-term debt, less current portion		—			2,870			15,336			8,778			5,616
Convertible preferred stock warrant liability		—			259			467			5,041			18,061
Convertible preferred stock		27,110			76,955			76,955			149,312			149,312
Accumulated deficit		(5,399	)		(33,079	)		(78,649	)		(124,538	)		(173,843	)
Total stockholders’ equity (deficit)		(5,385	)		(32,926	)		(77,534	)		(122,300	)		(170,730	)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data” and our financial statements and related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

Background

We are a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. Our first commercial product, Sumavel DosePro (sumatriptan injection) Needle-free Delivery System, offers fast-acting, easy-to-use, needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. We launched the commercial sale of Sumavel DosePro in the United States in January 2010 with our co-promotion partner, Astellas Pharma US, Inc., or Astellas. Our sales and marketing organization is comprised of approximately 100 professionals. Our field sales force of approximately 80 representatives is promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. Our promotional efforts are complemented by our collaboration with Astellas and approximately 400 of its sales representatives, who are promoting Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists in the United States, or the Astellas Segment. Our lead product candidate, ZX002, is a novel, oral, single-entity controlled-release formulation of hydrocodone currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. We initiated the Phase 3 clinical development program for ZX002 in March 2010 and, if successful, expect to submit a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, by early 2012. We in-licensed exclusive U.S. rights to ZX002 from Elan Pharma International Limited, or Elan, in 2007.

We have experienced net losses and negative cash flow from operating activities since inception, and as of June 30, 2010, had an accumulated deficit of $173.8 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next several years primarily as a result of the development expenses in connection with clinical trials and pre-clinical studies for ZX002 and the cost of the sales and marketing expenses associated with Sumavel DosePro. As of June 30, 2010, we had cash and cash equivalents of $4.5 million, and as of July 31, 2010, we had cash and cash equivalents of $22.1 million, which includes proceeds from an amended credit facility and the issuance of convertible promissory notes in July 2010. Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, future product revenues and borrowings available under our $10.0 million revolving credit facility, will be sufficient to fund our operations for at least the next 12 months. However, successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities and, unless and until we do, we will need to raise additional capital through debt or equity financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed would have a negative impact on our results of operations, financial condition and our ability to execute on our business plan. In its report on our financial statements for the year ended December 31, 2009, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern.

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Co-Promotion Agreement

Under our co-promotion agreement with Astellas that we entered into in July 2009, or the co-promotion agreement, Astellas primarily promotes Sumavel DosePro to the Astellas Segment in the United States. Our sales force promotes Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists in the United States. We jointly share in the cost of advertising, marketing and other promotional activities related to the Sumavel DosePro brand and are required to provide minimum levels of sales effort to promote Sumavel DosePro. Under the co-promotion agreement, we are responsible for the manufacture, supply and distribution of all Sumavel DosePro commercial product and are principally responsible for entering into any contracts and other arrangements with third parties regarding the sale of Sumavel DosePro.

At the inception of the co-promotion agreement and in exchange for the right to promote Sumavel DosePro, Astellas made a non-refundable up-front payment of $2.0 million to us and agreed to make an additional $18.0 million of payments to us upon the achievement of a series of milestones. As of December 31, 2009, we had received a total of $19.0 million from Astellas. The remaining $1.0 million was paid to us in March 2010. These proceeds are reflected as deferred revenues on our balance sheets at December 31, 2009 and June 30, 2010. Beginning with the launch of Sumavel DosePro in January 2010, we began recognizing these proceeds as contract revenues on a ratable basis over the remaining term of the agreement, which remains in effect through June 30, 2013, subject to extension by one year at Astellas’ option, contingent upon payment of a predetermined option fee.

In consideration for Astellas’ performance of its commercial efforts, we are required to pay Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to the Astellas Segment. In addition, upon completion of the co-promotion term, Astellas will be eligible to receive two additional annual tail payments calculated as decreasing fixed percentages (ranging from a mid-twenties down to a mid-teen percentage) of net sales in the Astellas Segment in the last 12 months of its active promotion. Astellas pays us the lesser of our direct out-of-pocket costs or a fixed fee for all sample units they order for distribution to their sales force. Amounts received from Astellas for shared marketing costs and sample product are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses. For the six months ended June 30, 2010, we incurred $1.1 million in service fee expenses.

We record the revenues related to all products sales, including sales generated by the Astellas sales force. Consequently, we record cost of sales for all product sales.

The co-promotion agreement may be terminated by Astellas or us for a number of specified reasons, some of which are beyond our control. In the event Astellas terminates the agreement for specified reasons, including our inability to supply commercial product or a material uncured breach by us of our minimum sales effort obligations, prior to July 31, 2011, we would be required to pay Astellas a specified royalty on net sales of Sumavel DosePro up to an aggregate specified dollar amount. Any such payments would be in lieu of the annual tail payments described above. We depend on Astellas and its sales force to promote Sumavel DosePro to the Astellas Segment and any inability of its sales force to effectively sell the product or any termination of the co-promotion agreement could have a material adverse effect on our results of operations and financial condition.

Revenues

Through the year ended December 31, 2009, we did not generate any product revenues or recognize any contract revenues. During the six months ended June 30, 2010, we began recognizing product revenues from sales of Sumavel DosePro made by us and Astellas under our co-promotion agreement. During this same period, we began recognizing contract revenues from license and milestone payments received under the Astellas co-promotion agreement. We recognized $6.1 million

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in net product revenues since the commercial launch of Sumavel DosePro in January 2010 through June 30, 2010. We recognized $1.5 million in contract revenues associated with license and milestone payments made to us by Astellas under the co-promotion agreement through June 30, 2010.

We sell Sumavel DosePro product in a package of six pre-filled, single-dose units to wholesale pharmaceutical distributors, and on a limited basis to retail pharmacies, or, collectively, our customers, at a wholesale acquisition cost, or gross sales price, of $498 per package as of June 30, 2010. Sales to our customers are subject to specified rights of return. We currently defer recognition of revenue on product shipments of Sumavel DosePro to our customers until the right of return no longer exists, which occurs at the earlier of the time Sumavel DosePro units are dispensed through patient prescriptions or expiration of the right of return. We do not have significant history estimating the number of patient prescriptions dispensed. If we underestimate or overestimate patient prescriptions dispensed for a given period, adjustments to net product revenue may be necessary in future periods.

As a result of this policy, of the $10.8 million in gross product sales of Sumavel DosePro to our customers in the first six months of 2010, we recognized $6.1 million in product revenue for the six months ended June 30, 2010, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. We had a deferred revenue balance of $3.5 million at June 30, 2010 for Sumavel DosePro product shipments, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs.

We will continue to recognize revenue upon the earlier to occur of prescription units dispensed or expiration of the right of return until we can reliably estimate product returns, at which time we will record a one-time increase in net revenue related to the recognition of revenue previously deferred.

Cost of Sales

Cost of sales consist primarily of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs associated with sales of Sumavel DosePro based on units dispensed through patient prescriptions, as well as reserves for excess, dated or obsolete commercial inventories and production manufacturing variances. For the six months ended June 30, 2010, our cost of sales was $5.8 million. The cost of sales associated with the deferred product revenues are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized. Deferred cost of sales totaled $1.0 million at June 30, 2010.

Royalty Expense

Royalty expense consists of the amortization of the $4.0 million milestone payment paid by us to Aradigm Corporation upon the first commercial sale of Sumavel DosePro in the United States (which occurred in January 2010) and royalties payable to Aradigm based on net sales of Sumavel DosePro by us or one of our licensees. We are not required to make any further milestone payments to Aradigm. Our ongoing royalty obligation payable to Aradigm is set forth in the asset purchase agreement we entered into with Aradigm in August 2006 pursuant to which we acquired the rights to the DosePro technology. During the six months ended June 30, 2010, we incurred $0.4 million in royalty expense to Aradigm.

Research and Development Expenses

Our research and development expenses consist of expenses incurred in developing, testing and seeking marketing approval of our product candidates, including:

• payments made to third-party contract research organizations, or CROs, and investigational sites, which conduct our trials on our behalf, and consultants;

• expenses associated with regulatory submissions, preclinical development and clinical trials;

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• payments to third-party manufacturers, which produce our active pharmaceutical ingredient and finished product;

• payments made to third-party CROs, laboratories and consultants in connection with preclinical studies;

• personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation; and

• facility, maintenance, depreciation and other related expenses.

We expense all research and development costs as incurred. Our research and development expenses through December 31, 2009 consisted primarily of costs associated with preclinical testing, clinical development, regulatory activities and the manufacturing development of Sumavel DosePro. These expenses include payments to contract manufacturing organizations. We received FDA approval for Sumavel DosePro in July 2009, after which we began capitalizing costs as inventory related to the production of Sumavel DosePro, including the cost of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs.

In March 2010, we initiated our Phase 3 clinical development program for ZX002. We utilize CROs, contract laboratories and independent contractors for the conduct of preclinical studies and clinical trials. In 2010, we began tracking third party costs by type of study being conducted. We recognize the expenses associated with the services provided by CROs based on the percentage of each study completed at the end of each reporting period. We coordinate clinical trials through a number of contracted investigational sites and recognize the associated expense based on a number of factors, including actual and estimated subject enrollment and visits, direct pass-through costs and other clinical site fees. For the six months ended June 30, 2010, we incurred $6.1 million and $1.1 million in third party research and development costs related to ZX002 and Sumavel DosePro, respectively.

We use our employee and infrastructure resources across our product and product candidate development programs. Therefore, we have not tracked salaries, other personnel related expenses, facilities or other related costs to our product development activities on a program-by-program basis. However, we estimate that the majority of our research and development expenses incurred to date are attributable to our Sumavel DosePro program. The following table illustrates, for each period presented, our research and development costs broken down by major categories of the cost:

	Inception (August 25, 2006) through December 31, 2006		Year Ended December 31,						Six Months Ended June 30,
			2007		2008		2009		2009		2010
	(In Thousands)
Research and development expenses:
Manufacturing development expenses	$	2,747	$	13,701	$	22,381	$	13,772	$	11,647	$	—
Clinical/regulatory expenses		835		10,628		11,529		7,666		3,092		11,389
Purchased in-process research and development(1)		1,320		—		—		—		—		—
Total	$	4,902	$	24,329	$	33,910	$	21,438	$	14,739	$	11,389

(1) This amount represents the value allocated to the DosePro technology in connection with the asset and technology purchased from Aradigm in 2006.

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We expect our research and development costs for 2010 will be higher than in 2009 as we progress through the Phase 3 clinical program of ZX002. At this time, due to the inherently unpredictable nature of clinical development we are unable to estimate with any certainty the costs we will incur in the continued development of ZX002. These expenditures are subject to numerous uncertainties regarding timing and cost to completion. Completion of our Phase 3 clinical trials may take longer than currently estimated. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

• the number of sites included in the trials;

• the length of time required to enroll suitable subjects;

• the duration of subject follow-ups;

• the length of time required to collect, analyze and report trial results;

• the cost, timing and outcome of regulatory review; and

• potential changes by the FDA in clinical trial and NDA filing requirements for a specific therapeutic area.

In addition, we may be obligated to pay Elan, from whom we in-licensed exclusive rights to ZX002 in November 2007, up to $4.5 million in total future milestone payments with respect to ZX002 depending upon the achievement of various development and regulatory events. If ZX002 is approved, we are also required to pay a mid single-digit percentage royalty on its net sales for a specified period of time and continue to pay royalties on net sales of the product thereafter at a reduced low single-digit percentage rate in accordance with the terms of the license agreement.

If our Phase 3 clinical trials are successful, we expect to submit an NDA for ZX002 with the FDA by early 2012. However, the successful development and commercialization of ZX002 is highly uncertain. We also expect to incur customary regulatory costs associated with the NDA, if and when submitted, which will be significant. If ZX002 is approved, we also expect to incur significant expenses related to manufacturing and marketing activities. However, at this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of ZX002, if or when ZX002 will receive regulatory approval and, if approved, if and when material net cash inflows may commence from ZX002 or the amount of any such inflows. This is due to the numerous risks and uncertainties associated with developing and commercializing drugs, including the uncertainty of:

• the costs, timing and outcome of our clinical trials and pre-clinical studies of ZX002;

• the costs, timing and outcome of regulatory review of ZX002;

• the costs of commercialization activities, including product marketing, sales and distribution;

• the potential for future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and commercialization plans and capital requirements;

• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

• the emergence of competing technologies and products and other adverse marketing developments;

• the effect on our product development activities of actions taken by the FDA or other regulatory authorities; and

• our degree of success in commercializing ZX002, if approved.

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A change in the outcome of any of these variables with respect to the development of ZX002 could mean a significant change in the costs and timing associated with these efforts.

We also expect to incur costs associated with preclinical studies and formulation work for our early-stage product candidates. However, at this time, due to the inherently unpredictable nature of preclinical development and given the early stage of such product candidates, we are unable to estimate with any certainty the costs we will incur for such preclinical work.

Selling, General and Administrative Expenses

Through the fiscal year ended December 31, 2009, our selling expenses, which include sales and marketing costs, have consisted primarily of salaries, benefits, consulting fees and market research studies related to preparation for the launch of Sumavel DosePro, including shared marketing and advertising costs under our co-promotion agreement with Astellas. In the fourth quarter of 2009 and in the first quarter of 2010, we expanded our commercial infrastructure, including the hiring of sales and marketing management and sales representatives. In addition, in 2010 we began incurring service fee costs for promotional efforts provided by Astellas and sample product costs.

Our general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, accounting, business development and internal support functions. In addition, general and administrative expenses include facility costs and professional fees for legal, consulting and accounting services. We expect general and administrative expense to increase as we begin to operate as a public company. These increases likely will include salaries and related expenses, legal and consultant fees, accounting fees, director fees, increased directors’ and officers’ insurance premiums, fees for investor relations services and enhanced business and accounting systems.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents.

Interest Expense

Interest expense consists of interest incurred in connection with the $4.5 million borrowed under our loan and security agreement with General Electric Capital Corporation, or GE Capital, entered into in March 2007, our $18.0 million loan and security agreement with Oxford Finance Corporation, or Oxford, and CIT Healthcare LLC, or CIT, entered into in June 2008, non-cash interest expense associated with amortization of debt discount and debt issuance costs and non-cash interest expense associated with the fair value of the beneficial conversion feature on convertible promissory notes we issued to certain investors between February 2009 and July 2009 in an aggregate amount of $14.8 million, or the 2009 Notes.

In July and October 2010, we amended and restated the loan and security agreement with Oxford and CIT, and Oxford and Silicon Valley Bank, or SVB, are now party to that amended and restated agreement, or the amended Oxford loan agreement. The amended Oxford loan agreement consists of a $25.0 million term loan and a $10.0 million revolving credit facility. New warrants were issued to Oxford and SVB in connection with the amended Oxford loan agreement. In connection with the execution of the amended Oxford loan agreement, we repaid the outstanding balance of the Oxford and CIT loan and security agreement totaling $12.8 million at June 30, 2010, which amount was repaid with borrowings under the amended Oxford loan agreement. Consequently, the net proceeds we received upon the execution of the amended Oxford loan agreement totaled $12.2 million. As of August 31, 2010, we had borrowed $2.2 million under the revolving credit facility. Concurrently with the amended Oxford loan agreement, we issued $15.0 million in new convertible promissory notes, or the 2010 Notes, to current investors. As a result of additional borrowings under the amended Oxford loan agreement and the 2010 Notes, interest expense will increase beginning in the third quarter of 2010.

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Change in Fair Value of Warrant Liability

Change in fair value of warrant liability represents non-cash (expense) income associated with changes in the fair value of the warrants to purchase preferred stock issued to GE Capital, Oxford, CIT and current investors.

Upon consummation of this offering, the liability reflected on our consolidated balance sheet for convertible preferred stock warrants will be reclassified to stockholders’ equity (deficit) and we will no longer be required to record the change in fair value of these warrants in the statement of operations.

Other Income (Expense)

Other income (expense) consists of foreign currency transaction gains and losses. All of our revenues are currently generated in U.S. dollars while a majority of our manufacturing expenses are payable in foreign currencies, primarily U.K. pounds sterling and the Euro.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2009, we had federal and state net operating loss carryforwards of approximately $108.4 million and $105.1 million, respectively. If not utilized, the net operating loss carryforwards will begin expiring in 2026 for federal tax purposes and 2016 for state tax purposes. As of December 31, 2009, we had federal and state research and development tax credit carryforwards of approximately $0.9 million and $0.9 million, respectively. The federal tax credits will begin expiring in 2026 unless previously utilized and the state tax credits carry forward indefinitely.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, or IRC, substantial changes in our ownership may limit the amount of net operating loss and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the net operating loss carryforwards before they expire. We performed a Section 382 and 383 analysis and determined that we had one ownership change, as defined by IRC Sections 382 and 383, which occurred in August 2006 upon the issuance of Series A-1 preferred shares. As a result of this ownership change, we reduced our net operating loss carryforwards by $1.9 million. The closing of this offering, together with private placements and other transactions that have occurred since our inception, may trigger an ownership change pursuant to Sections 382 and 383, which could further limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income, if any. Any such limitation, whether as the result of this offering, prior private placements, sales of common stock by our existing stockholders or additional sales of common stock by us after this offering, could have an adverse effect on our results of operations in future years. In each period since our inception, we have recorded a valuation allowance for the full amount of our deferred tax asset, as the realization of the deferred tax asset is uncertain. As a result, we have not recorded any federal or state income tax benefit in our statement of operations.

Internal Control Over Financial Reporting

Assessing our staffing and training procedures to improve our internal control over financial reporting is an ongoing process. We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting.

For the year ending December 31, 2011, pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to deliver a report that assesses the effectiveness of our internal control

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over financial reporting. Under current Securities and Exchange Commission, or SEC, rules, our independent registered public accounting firm will also be required to deliver an attestation report on the effectiveness of our internal control over financial reporting beginning with the year ending December 31, 2011, unless we qualify for an exemption as a non-accelerated filer under the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010. Although we may qualify for an exemption from the requirements of Section 404 of the Sarbanes-Oxley Act, as a result of provisions in the Dodd-Frank Wall Street Reform and Protection Act, we currently do not intend to take advantage of the exception even if it is available to us.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates.

While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We recognize revenues from the sale of Sumavel DosePro and from license fees and milestones earned on collaborative arrangements. Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable and we are reasonably assured of collecting the resulting receivable.

Product Revenue

Sales of Sumavel DosePro to our customers are subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. Given the limited sales history of Sumavel DosePro, we currently cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, we defer recognition of revenue on product shipments of Sumavel DosePro until the right of return no longer exists, which occurs at the earlier of the time Sumavel DosePro units are dispensed through patient prescriptions or expiration of the right of return. Units dispensed are not generally subject to return. We estimate patient prescriptions dispensed using an analysis of third-party information, including third-party market research data, information obtained from certain wholesalers with respect to inventory levels and inventory movement and retail pharmacy re-stocking activity. Sumavel DosePro was launched in January 2010 and, accordingly, we do not have significant history estimating the number of patient prescriptions dispensed. If we underestimate or overestimate patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods.

As a result of this policy, we recognized $6.1 million in Sumavel DosePro product revenue for the six months ended June 30, 2010, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. We had a deferred revenue balance of $3.5 million at June 30, 2010 for Sumavel DosePro product shipments, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs.

We will continue to recognize revenue upon the earlier to occur of prescription units dispensed or expiration of the right of return until we can reliably estimate product returns, at which time we will record a one-time increase in net revenue related to the recognition of revenue previously deferred. In addition, the costs of manufacturing Sumavel DosePro associated with the deferred revenue are

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recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.

Product Sales Allowances

We recognize products sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with customers and third-party payors and the levels of inventory within the distribution and retail channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, we recognize the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, we may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. Our product sales allowances include:

Wholesaler and Retail Pharmacy Discounts. We offer discounts to certain wholesale distributors and retail pharmacies based on contractually determined rates. We accrue the discount on shipment to the respective wholesale distributors and retail pharmacies and recognize the discount as a reduction of revenue in the same period the related revenue is recognized.

Prompt Pay Discounts. We offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. We account for cash discounts by reducing accounts receivable by the full amount and recognize the discount as a reduction of revenue in the same period the related revenue is recognized.

Chargebacks. We provide discounts to authorized users of the Federal Supply Schedule, or FSS, of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs. These federal entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to us the difference between the current retail price and the price the federal entity paid for the product. We estimate and accrue chargebacks based on estimated wholesaler inventory levels, current contract prices and historical chargeback activity.

Rebates. We participate in certain rebate programs, which provide discounted prescriptions to qualified insured patients. Under these rebate programs, we pay a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. We estimate and accrue these rebates based on current contract prices, historical and estimated future percentages of product sold to qualified patients and estimated levels of inventory in the distribution channel.

Patient Discount Programs. We offer discount card programs to patients for Sumavel DosePro in which patients receive discounts on their prescriptions that are reimbursed by us. We estimate the total amount that will be redeemed based on levels of inventory in the distribution and retail channels.

Stocking Allowances. We may offer discounts and extended payment terms, generally in the month of the initial commercial launch of a new product, on the first order made by certain wholesale distributors and retail pharmacies based on contractually determined rates. We accrue the discount on shipment to the respective wholesale distributors and retail pharmacies and recognize the discount as a reduction of revenue in the same period the related revenue is recognized. Revenue is deferred until the later of expiration of recourse terms under these stocking allowance incentive programs or when prescriptions are filled for these shipments determined based on a first-in, first-out basis.

The amounts accrued for wholesaler and retail pharmacy discounts and prompt pay discounts were $0.3 million at June 30, 2010 and none at both December 31, 2009 and 2008. We recognized $0.3 million in reductions to product revenues related to these discounts for the six months ended June 30, 2010. Contractually agreed upon discounts with our wholesale and retail customers are typically paid to our customers on a quarterly basis one to two months after the quarter in which product was shipped to the customer. Based on our experience, our customers generally comply with our payment terms to earn

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prompt pay discounts. These discounts are measureable at the time of shipment of product to our customers and generally do not vary materially from our estimates.

The amounts accrued for rebates, chargebacks and other incentive programs were $0.1 million at June 30, 2010 and none at both December 31, 2009 and 2008. We recognized $0.4 million in reductions to product revenues related to these sales allowances for the six months ended June 30, 2010. Our procedures for estimating amounts accrued for rebates, chargebacks and other incentive programs at the end of any period are based on available quantitative data and are supplemented by management’s judgment with respect to many factors, including but not limited to, current market dynamics, changes in contract terms, impact of new contractual arrangements and changes in sales trends. Quantitatively, we use historical sales, inventory movement through commercial channels, product utilization and rebate data and apply forecasting techniques in order to estimate our liability amounts. Qualitatively, management’s judgment is applied to these items to modify, if appropriate, the estimated liability amounts. There are inherent risks in this process. For example, patients may not achieve assumed utilization levels; third parties may misreport their utilization to us; and discounts determined under federal guidelines, which affect our rebate programs with U.S. federal government agencies, may differ from those estimated. On a quarterly basis, we analyze our estimates against actual rebate, chargeback and incentive program activity and adjust our estimates as necessary. Given our limited history with the commercialization of Sumavel DosePro, we may experience variability in our provisions for these sales allowances as we continue to initiate new sales initiatives and/or managed care programs in connection with the commercialization of our product. An adjustment to our estimated liabilities for rebates, chargebacks and other incentive programs of 5% of net product sales on a quarterly basis, based on operating results for the three months ended June 30, 2010, would have resulted in an increase or decrease to net sales for that quarter of approximately $0.2 million to $0.3 million. The sensitivity of our estimates can vary by program and type of customer. Additionally, there is a time lag between the date we determine the estimated liability and when we actually pay the liability. Due to this time lag, we may record adjustments to our estimated liabilities over several reporting periods, which can result in a net increase to net revenues or a net decrease to net revenues in those periods. Material differences may result in the amount of revenue we recognize from product sales if the actual amount of rebates, chargebacks and incentives differ materially from the amounts estimated by management. To date, there have been no material differences between the amount booked in a period and actual charges incurred.

Contract Revenue

We recognize revenues related to license fees and milestone payments received under our co-promotion agreement with Astellas. Revenue arrangements with multiple deliverables are divided into separate units of accounting if criteria are met, including whether the deliverable has stand-alone value to the customer and the customer has a general right of return relative to the delivered item and delivery or performance of the undelivered item is probable and substantially within the vendor’s control. Arrangement consideration is allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price.

In connection with the co-promotion agreement, Astellas made a non-refundable up-front payment of $2.0 million and agreed to make an additional $18.0 million of payments to us upon the achievement of a series of milestones. As of December 31, 2009, Astellas paid a total of $19.0 million to us. The remaining $1.0 million was paid to us in March 2010.

We identified the deliverables in the co-promotion agreement and divided them into separate units of accounting as follows: (1) co-exclusive right to promote Sumavel DosePro combined with the manufacturing and supply of commercial and sample product; and (2) sales support of Sumavel DosePro. We concluded both units of accounting require recognition ratably through the term of the co-promotion agreement, which began with the date of the launch of Sumavel DosePro (January 2010) and ends June 30, 2013, subject to a one-year extension at Astellas’ option upon Astellas’ payment of a pre-determined fee to us, and therefore, the allocation of the upfront and milestone financial consideration is not necessary. Consequently, we recorded the $19.0 million in upfront and milestone

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payments received from Astellas as deferred revenue in the balance sheet at December 31, 2009. The final $1.0 million milestone payment was recorded as deferred revenue when received in March 2010. Beginning with the launch of Sumavel DosePro in January 2010, we began amortizing the license fees and milestone payments as contract revenue in the statement of operations over the term of the co-promotion agreement. Amounts received from Astellas for shared marketing costs are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses.

Inventories and Related Reserves

Inventories are stated at the lower of cost (FIFO) or market and consist of finished goods, work in progress and raw materials used in the manufacture of Sumavel DosePro. We have significant lead times for the procurement and manufacture of our finished goods and we therefore order goods from our suppliers and manufacturers based on our forecasts of future demand. To the extent we procure component materials or produce finished goods in excess of actual future demand, we may be required to provide reserves for potentially excess or dated inventories. We provide such reserves based on an analysis of inventory on hand and on firm purchase commitments compared to forecasts of future sales.

Clinical Trial Expenses

Our expense accruals for clinical trials are based on estimates of the services received from clinical trial investigational sites and CROs. Payments under some of the contracts we have with such parties depend on factors such as the milestones accomplished, successful enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on information available to our product development or administrative staff. If we underestimate or overestimate the activity associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals.

Stock-Based Compensation

Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period, or vesting period, on a straight-line basis. Equity awards issued to non-employees are recorded at their fair value on the grant date and are periodically re-measured as the underlying awards vest unless the instruments are fully vested, immediately exercisable and nonforfeitable on the date of grant. Expense recognized for consultant stock options was immaterial for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2010.

We utilize the Black-Scholes option-pricing model for determining the estimated fair value of stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model are as follows:

	Year Ended December 31,			Six Months Ended June 30,
	2007	2008	2009	2009	2010
Risk-free interest rate	3.5% to 4.8%	2.7% to 3.2%	2.3% to 2.8%	—	2.0% to 2.3%
Expected term	1.0 to 6.1 years	5.0 to 6.1 years	5.0 to 6.1 years	—	5.0 to 5.9 years
Expected volatility	64.4% to 78.1%	80.6% to 86.0%	105.6% to 107.6%	—	94.6% to 95.7%
Expected dividend yield	0.0%	0.0%	0.0%	—	0.0%
Fair value of underlying stock	$0.05 to $1.60	$0.35 to $1.91	$0.32 to $0.36	—	$1.35

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The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on our expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to our limited historical experience. In addition, due to our limited historical data, the estimated volatility was calculated based upon the historical volatility of comparable companies whose share prices are publicly available. As a result of our use of estimates, if factors cause our assumptions to change, the amount of our stock-based compensation expense could be materially different in the future.

Common Stock Valuation

From inception through June 30, 2010, due to the absence of an active market for our common stock, the exercise prices for all options granted were at the estimated fair value as determined contemporaneously on the date of grant by our board of directors prepared in accordance with methodologies outlined in the AICPA Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our board of directors, which includes members who are experienced in valuing the securities of biotechnology/pharmaceutical companies, considered a number of subjective and objective factors including:

• the prices of our convertible preferred stock sold to outside investors in arms-length transactions, and the rights, preferences and privileges of our convertible preferred stock as compared to those of our common stock, including the liquidation preference of our convertible preferred stock;

• our results of operations and financial position, including the first commercial sale of Sumavel DosePro in the United States in January 2010 and the progression of ZX002 into Phase 3 clinical trials in March 2010;

• our stage of development and business strategy;

• the market value of a comparison group of publicly held biotechnology/pharmaceutical companies that are in a stage of development similar to ours;

• the lack of liquidity of our common stock as a private company;

• contemporaneous valuation data provided by management;

• the likelihood and timing of achieving a liquidity event for the shares of our common stock, such as an initial public offering, given prevailing market conditions; and

• the material risks related to our business.

Based on these factors, our board of directors granted options at exercise prices ranging from $0.05 per share in February 2007 to $0.40 per share in May 2010.

During 2009 and 2010, the valuation methodologies employed by us in the contemporaneous determination of fair value of our common stock were based on three primary factors: (i) market approach using comparable publicly traded companies, (ii) income approach using discounted cash flow analysis, and (iii) cost approach. The market approach using publicly traded companies is based on the market value of the invested capital (less cash) derived from already public companies that are in the biotechnology/pharmaceutical industry and have other characteristics similar to us, including size and business model. The income approach using a discounted cash flow analysis is based on the residual value and debt-free cash flow from our multi-year forecast discounted to present value based on our calculated weighted average cost of capital, or WACC. The cost approach using estimated cost of replicating or reproducing the development efforts involved in the development of Sumavel DosePro

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and ZX002, including applicable selling, general and administrative costs. Each of the above approaches was weighted in the determination of our equity value for each period based on the then current status of our business model and anticipated liquidity events. Once our equity value was estimated, the option pricing method estimated the value of the common stock by creating a series of call options with exercise prices based on the liquidation preference of our preferred stock. The estimated value of the common stock was inferred by analyzing these options. In general, after the equity value of the business enterprise was determined, the next step was analyzing any stock options and warrants outstanding and using the common stock value on a converted basis to see if the options and warrants were in-the-money. Next, the option pricing method was used to allocate the full equity value (inclusive of any cash infusion from the assumed exercise of in-the-money options and warrants) to our common stock.

In August 2010, we commenced the initial public offering process. In connection with the preparation of the financial statements necessary for inclusion in the registration statement related to this offering, we reassessed the estimated fair value of our common stock for financial reporting purposes for each quarter in 2009 and 2010. The reassessment included both the determination of the appropriate valuation models and related inputs. For the reassessed periods prior to 2010, we did not forecast or anticipate a liquidity event in the near term and, as such, utilized the option pricing method. These reassessments did not result in any significant difference in the estimated fair value of our common stock from those estimated by our contemporaneous valuations.

As a result of the greater clarity available to us to define likely outcomes and the proximity to a liquidity event (i.e., this offering), we concluded that the probability weighted expected return method, or PWERM, was more appropriate than our previously used option pricing model and provided a more refined estimate of the likely value of our common stock as of June 30, 2010. The type and timing of each potential liquidity event for the June 30, 2010 valuation was heavily influenced by the commencement of the initial public offering process while each prior reassessed valuation was based on our best estimate of type and timing of liquidity event at that time.

In our application of the PWERM, our timing and aggregate enterprise value was estimated for various potential liquidity scenarios:

• three initial public offering scenarios;

• merger and acquisition, or M&A; and

• private company.

The enterprise values estimated for these scenarios were based on income and market approaches. Due to our newly launched product and lack of the comparability of revenue multiples within our potential guideline public companies, we utilized a discounted cash flow analysis to determine our enterprise value in our three initial public offering scenarios. The M&A scenario is based on the value of recently completed M&A activity in our industry. In the stay private scenario we utilized a less optimistic revenue forecast assuming capital constraints in a private company setting and limiting our ability to launch secondary products. Depending on the value, expected timing and likelihood of a given liquidity scenario, the models could result in a significant differential between the value of the common stock and preferred stock. In general, there is a greater differential in the value of common stock and preferred stock when a company’s enterprise value is not significantly higher than the aggregate liquidation preferences of its preferred stock.

Once our equity value was estimated for each scenario, we then allocated a portion of the enterprise value to our common stock based on a “best economic outcome” model. For the initial public offering scenarios, the value assigned to the common stock was estimated using a fully diluted outstanding share analysis based on the conversion of all preferred equity instruments into common stock. For M&A and private company scenarios, the model uses a break point analysis to estimate the various enterprise values at which holders of each series of preferred stock would elect to convert to common stock and the points at which the holders of options and warrants would exercise as a result of

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the value of the common stock exceeding the exercise price. Each scenario was assigned a weighting factor based on the probability of occurrence.

The resulting proceeds to the common stockholders were then discounted to present value using our WACC. In each scenario, we estimated a likely discount for lack of liquidity as a private company and removed this amount from the value available to common stockholders. An at-the-money put option model was used to determine the discount for lack of liquidity at each valuation date based on the average liquidity date of the various liquidity scenarios. We relied on the Black-Scholes option pricing model framework to estimate the theoretical value of an at-the-money put option on our common stock which could be exercised in a liquidity event occurring at a future estimated date. The per share value derived from this analysis was then divided by the common share price derived from the PWERM to estimate the percentage discount that could be inferred using this model.

The following tables summarize the significant assumptions utilized in the PWERM and option pricing models used to determine the reassessed fair value of our common stock as of the dates indicated. In both the PWERM and option pricing models, where discounted cash flow analyses was used, our revenue forecasts were based on statistical algorithms and historical trends rather than the use of year-over-year growth rates. Our revenue forecasts also consider competitive product launch curves, penetration levels by type of competitive product (i.e. nasal, melt, tablets and injectables) and market research data. From September 2009 to December 2009, our revenue forecasts showed significant improvement due to closer proximity to the commercial launch of Sumavel DosePro and refinement of underlying assumptions, such as consideration of the new co-promotion agreement with Astellas entered into in the third quarter of 2009. From December 2009 to June 2010, we experienced improvement in our enterprise value within our initial public offering scenarios, which were weighted at a 70% probability, due to the significant impact on revenues and related discounted cash flows associated with the initiation of our Phase 3 clinical program for ZX002 in the first quarter of 2010 and the assumed commercial launch in subsequent years. In addition, our re-assessed valuations in 2009 take into consideration the implied value of our common stock based on the sales price of our Series B convertible preferred stock sold with over 25% participation from new investors. However, these forecasts and projections are subject to numerous estimates, assumptions and uncertainties and were prepared solely for purposes of determining the fair value of our common stock for accounting purposes and our actual operating results and enterprise value and ability to commercialize our product candidates may differ materially from those expressed or implied by this data.

	September 30, 2009
Key Assumptions	Market Approach		Income Approach		Implied Value Based on Series B Financing
Weighting	30	%	30	%	40	%
Liquidity date	12/1/2010		N/A		N/A
Present value factor	69	%	Various		100	%
Weighted average cost of capital	N/A		36	%	N/A
Discount for lack of marketability	36	%	36	%	36	%

	December 31, 2009
Key Assumptions	Market Approach		Income Approach		Implied Value Based on Series B Financing
Weighting	30	%	30	%	40	%
Liquidity date	12/1/2010		N/A		N/A
Present value factor	84	%	Various		100	%
Weighted average cost of capital	N/A		37	%	N/A
Discount for lack of marketability	27	%	27	%	27	%

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	June 30, 2010
Key Assumptions	Initial Public Offering (November 2010)		Initial Public Offering (December 2010)		Initial Public Offering (March 2010)		Stay Private		Merger or Acquisition
Weighting	20	%	35	%	15	%	15	%	15	%
Liquidity date	11/1/2010		12/15/2010		3/31/2011		7/1/2010		10/15/2011
Present value factor	Various		Various		Various		Various		Various
Weighted average cost of capital	30	%	30	%	30	%	36	%	N/A
Discount for lack of marketability	14	%	16	%	20	%	14	%	13	%

Determining the fair market value of our common stock involves complex and subjective judgments including estimates of revenue, assumed market growth rates and estimated costs, as well as appropriate discount rates. At the time of each valuation, the significant estimates used in the discounted cash flow approach included estimates of our revenue and revenue growth rates for several years into the future. Although each time we prepared such forecasts for use in the preparation of a valuation report, we did so based on assumptions that we believed to be reasonable and appropriate, there can be no assurance that any such estimates for earlier periods or for future periods will prove to be accurate.

The following is a summary of our stock option activity during the year ended December 31, 2009 and the six months ended June 30, 2010:

Grant Date	Number of Options Granted	Exercise Price		Fair Market Value per Share		Intrinsic Value per Share
September 1, 2009	2,220,000	$	0.25	$	0.32	$	0.07
September 17, 2009	645,000	$	0.25	$	0.32	$	0.07
December 9, 2009	595,000	$	0.25	$	0.36	$	0.11
May 25, 2010	6,700,500	$	0.40	$	1.35	$	0.95
May 30, 2010	122,500	$	0.40	$	1.35	$	0.95

We recognized stock-based compensation expense in the statements of operations as follows (in thousands):

	Year Ended December 31,						Six Months Ended June 30,
	2007		2008		2009		2009		2010
Cost of sales	$	—	$	—	$	—	$	—	$	41
Research and development		45		227		310		156		141
Selling, general and administrative		86		692		716		315		657
Total	$	131	$	919	$	1,026	$	471	$	839

The total stock-based compensation expense related to unvested stock option grants not yet recognized as of June 30, 2010 was $9.9 million and the weighted average period over which these grants are expected to vest is 3.06 years.

Based on the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus), the intrinsic value of stock options outstanding at June 30, 2010 would have been $              million, of which $              million and $              million would have been related to stock options that were vested and unvested, respectively, at that date.

Our 2006 Equity Incentive Plan, 2010 Equity Incentive Award Plan and 2010 Employee Stock Purchase Plan, are considered compensatory plans and compensation expense will depend on the level of enrollment in these plans and assumptions used in the determination of the fair market value of the awards at date of grant.

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Preferred Stock Warrant Liability

We have estimated the fair value of all outstanding convertible preferred stock warrants. The warrant obligation is adjusted to fair value at the end of each reporting period. Such fair values were estimated using the Black-Scholes option-pricing model and an estimated term equal to each warrant’s contractual life, which range from seven to 10 years. We will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of this offering, at which time the liability will be reclassified to stockholders’ equity (deficit).

For our warrants that are conditionally exercisable, the valuations are conducted through a multi-step procedure. We first estimate our equity value using an income approach, under which certain criteria triggering exercisability are met, and allocate such value using an option pricing method to estimate the fair value of Series B convertible preferred stock. This per share value is input into the Black-Scholes option pricing model to determine an estimated value of the related warrant and is adjusted at each reporting period based on the probability that the warrants will be exercisable.

Results of Operations

Comparison of six months ended June 30, 2010 and 2009

Revenue.    Revenue for the six months ended June 30, 2010 was $7.6 million and zero for the six months ended June 30, 2009. Revenues for the six months ended June 30, 2010 consist of $6.1 million of product revenue and $1.5 million of contract revenue. Product revenue in the current period consists of Sumavel DosePro dispensed to patients, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. We began selling Sumavel DosePro in January 2010 and therefore had no product revenue prior to that time. Contract revenue represents amortization of license fee payments and milestone payments we received in connection with the co-promotion agreement we entered into with Astellas in July 2009 and which we began recognizing upon the commencement of sales of Sumavel DosePro.

Cost of Sales.    Cost of sales for the six months ended June 30, 2010 was $5.8 million and zero for the six months ended June 30, 2009. Cost of sales for the six months ended June 30, 2010 represents the cost of Sumavel DosePro units dispensed to patients and the impact of excess capacity caused by production underruns and other manufacturing variances. We began selling Sumavel DosePro in January 2010 and therefore had no cost of sales prior to that time. Prior to regulatory approval of Sumavel DosePro, costs of prototypes, testing and process refinement were charged to research and development. Beginning in the second half of 2009, we began capitalizing manufacturing cost of inventories.

Royalty Expense.    Royalty expense was $0.4 million for the six months ended June 30, 2010 and zero for the six months ended June 30, 2009. Royalty expense for the six months ended June 30, 2010 represents the amortization of a $4.0 million milestone payment we made in connection with the asset purchase agreement with Aradigm payable on the first commercial sale of Sumavel DosePro, which occurred in January 2010, as well as royalties payable to Aradigm from net sales of Sumavel DosePro during the period.

Research and Development Expenses.    Research and development expenses decreased to $11.4 million for the six months ended June 30, 2010 compared to $14.7 million for the six months ended June 30, 2009. This decrease of $3.3 million primarily was due to:

• a decrease of $11.6 million due to the capitalization of third-party direct labor, materials and internal overhead costs related to the manufacturing of Sumavel DosePro commercial product, inclusive of related salaries and personnel costs, subsequent to the FDA approval of Sumavel

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DosePro in July 2009. Prior to FDA approval, these costs were recognized as research and development expenses; offset by

• an increase of $8.3 million in research and development costs primarily as a result of the initiation of our Phase 3 clinical trials for ZX002 and a Phase 4 clinical trial for Sumavel DosePro which was initiated in late 2009.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $24.9 million for the six months ended June 30, 2010 compared to $3.8 million for the six months ended June 30, 2009. This increase of $21.1 million primarily was due to:

• an increase of $18.9 million in sales and marketing expense as a result of the expansion of our commercial infrastructure, which included the hiring of approximately 80 sales representatives, and the commercial launch of Sumavel DosePro; and

• an increase of $2.2 million of general and administrative expenses due to an increase in salaries and related benefits.

Interest Income.    Interest income decreased to $3,000 for the six months ended June 30, 2010 compared to $6,000 for the six months ended June 30, 2009. This decrease of $3,000 was due primarily to the decrease in average cash and investment balances.

Interest Expense.    Interest expense decreased to $1.5 million for the six months ended June 30, 2010 compared to $2.3 million for the six months ended June 30, 2009. This decrease of $0.8 million was primarily due to the amortization of debt discount and debt issuance costs in connection with the $14.8 million borrowed under the 2009 Notes and interest on the $22.5 million borrowed under the GE Capital and Oxford/CIT loan and security agreements. As noted above, in July 2010, we entered into the amended Oxford loan agreement and issued the 2010 notes, which will result in an increase in interest expense beginning in the third quarter of 2010.

Change in Fair Value of Warrant Liability.    Change in the fair value of warrant liability decreased by $12.6 million to $13.0 million in expense for the six months ended June 30, 2010 compared to $0.4 million in income for the six months ended June 30, 2009 due to the increase in fair value of the Series A-1, Series A-2 and Series B convertible preferred stock. This increase in the fair value of the warrants from our reassessment is primarily the result of an increase in the probability that the conditionally exercisable warrants to purchase Series B convertible preferred stock will become exercisable. Until the closing of this offering, we anticipate additional fair value adjustments related to these warrants.

Other Income (Expense).    Other income (expense) increased to $0.1 million of income for the six months ended June 30, 2010 compared to $0.3 million of expense for the six months ended June 30, 2009. This increase was due to foreign currency transaction gains which primarily related to the settlement of our liabilities payable in Euro and U.K. pounds sterling.

Comparison of year ended December 31, 2009 and 2008

Research and Development Expenses.    Research and development expenses decreased to $21.4 million for the year ended December 31, 2009 compared to $33.9 million for the year ended December 31, 2008. This decrease of $12.5 million primarily was due to:

• a decrease of approximately $13.2 million due to the capitalization of third-party direct labor, materials and internal overhead costs related to the manufacturing of Sumavel DosePro commercial product, inclusive of related salaries and personnel costs;

• a decrease of approximately $2.0 million in expenses associated with consulting services, $0.4 million in travel-related expenses, and $0.4 million of salaries and personnel related costs;

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• a decrease of $1.6 million for ZX002 clinical trial expenses, as the Phase 3 clinical trials for this program were temporarily delayed, and a $0.2 million reduction in clinical trial expenses for Sumavel DosePro; and

• an increase of $5.3 million in manufacturing costs related to services and supplies in the testing and manufacturing development of Sumavel DosePro prior to the production of commercial inventories.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $14.1 million for the year ended December 31, 2009 compared to $11.8 million for the year ended December 31, 2008. This increase of $2.3 million primarily was due to:

• an increase of $2.7 million in salaries and personnel costs as we expanded our commercial and administrative infrastructure, including the hiring of approximately 20 sales representatives, in preparation for the January 2010 commercial launch of Sumavel DosePro, $0.2 million in travel related expenses and $0.2 million in facilities costs; offset by

• a decrease of $0.8 million of expenses associated with consulting and professional services.

Interest Income.    Interest income decreased to $10,000 for the year ended December 31, 2009 compared to $696,000 for the year ended December 31, 2008. This decrease of $686,000 was due primarily to the decrease in average cash and investment balances as a result of investing the proceeds received from our Series B preferred stock financing and Astellas in lower yielding instruments.

Interest Expense.    Interest expense increased to $9.2 million for the year ended December 31, 2009 compared to $1.7 million for the year ended December 31, 2008. This increase of $7.5 million was primarily due to:

• an increase of $1.0 million in the amortization of debt issuance, debt discount costs and interest expense in connection with the loan and security agreement with GE Capital entered into in March 2007 and the $18.0 million loan and security agreement with Oxford and CIT entered into in June 2008;

• an increase of $3.5 million in interest and the amortization of debt discount costs in connection with the $14.8 million borrowed under the 2009 Notes;

• recognition of $3.0 million in fair value of the right to convert the outstanding principal and interest under the 2009 Notes to convertible preferred stock; and

Change in Fair Value of Warrant Liability.    Change in the fair value of warrant liability decreased by $1.9 million to $0.8 million in expense for the year ended December 31, 2009 compared to $1.1 million in income for the year ending December 31, 2008 due to the increase in fair value of the Series A-1, Series A-2 and Series B convertible preferred stock.

Other Income (Expense).    Other expense was $0.4 million for the year ended December 31, 2009 compared to other income of $0.1 million for the year ended December 31, 2008. This $0.5 million increase in expense was due to foreign currency transaction losses which primarily related to the settlement of our liabilities payable in Euro and U.K. pounds sterling.

Comparison of year ended December 31, 2008 and 2007

Research and Development Expenses.    Research and development expenses increased to $33.9 million for the year ended December 31, 2008 compared to $24.3 million for the year ended December 31, 2007. This increase of $9.6 million primarily was due to:

• an increase of approximately $8.7 million resulting from manufacturing costs related to services and supplies in the testing and manufacturing development of Sumavel DosePro, inclusive of related salaries, personnel costs and travel; and

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• an increase of approximately $0.9 million in expenses associated with consulting services, clinical supplies and costs incurred in preparation for the Phase 3 clinical trials of ZX002, including related salaries and personnel costs.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $11.8 million for the year ended December 31, 2008 compared to $4.7 million for the year ended December 31, 2007. This increase of $7.1 million primarily was due to:

• an increase of $4.0 million in market research, branding and sales and marketing personnel costs; and

• an increase of $1.7 million of expenses associated with professional fees for legal, consulting and accounting services from the initiation in 2008 of our registration process with the SEC for a proposed initial public offering and an increase of $1.4 million of facilities cost and expenses associated with administrative salaries and related personnel costs.

Interest Income.    Interest income decreased to $0.7 million for the year ended December 31, 2008 compared to $0.9 million for the year ended December 31, 2007. This decrease of $0.2 million was due primarily to the decrease in average cash and investment balances as a result of the use of cash for operating purposes.

Interest Expense.    Interest expense increased to $1.7 million for the year ended December 31, 2008 compared to $0.4 million for the year ended December 31, 2007. This increase of $1.3 million was primarily due to an increase of $1.3 million in interest and amortization of debt issuance and debt discount costs in connection with the loan and security agreements with GE Capital and Oxford /CIT and interest on additional borrowings.

Change in Fair Value of Warrant Liability.    Change in the fair value of warrant liability increased by $1.2 million to $1.1 million in income for the year ended December 31, 2008 compared to $0.1 million in expense for the year ending December 31, 2007 due to the decrease in fair value of the Series A-1 and Series A-2 convertible preferred stock.

Other Financing Income.    Other financing income decreased to zero for the year ended December 31, 2008 compared to $0.9 million for the year ended December 31, 2007. The amount recognized in 2007 relates to the change in the estimated fair value of our investors’ right to purchase additional shares of Series A-1 convertible preferred stock.

Other Income.    Other income increased to $63,000 for the year ended December 31, 2008 compared to $25,000 for the year ended December 31, 2007. This net increase of $38,000 was due to foreign currency transaction gains which primarily related to the settlement of our liabilities payable in Euro and U.K. pounds sterling.

Liquidity and Capital Resources

We have experienced net losses and negative cash flow from operations since inception, and as of June 30, 2010, had an accumulated deficit of $173.8 million, and expect to continue to incur net losses and negative cash flow from operations for at least the next several years primarily as a result of, among other things, the development expenses in connection with our clinical trials and pre-clinical studies for ZX002 and the cost of the sales and marketing expenses associated with Sumavel DosePro.

In its report accompanying our audited financial statements for the year ended December 31, 2009, included elsewhere in this prospectus, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and lack of sufficient working capital raise substantial doubt as to our ability to continue as a going concern. A “going concern” opinion means, in general, that our independent registered public accounting firm has substantial doubt about our ability to continue our operations without continuing infusions of capital from external sources and could impair our ability to finance our operations through the sale of debt or equity securities or

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commercial bank loans. Our ability to continue as a going concern will depend, in large part, on our ability to generate positive cash flow from operations and obtain additional financing, if necessary, neither of which is certain, as well as the continued availability of borrowings under our amended Oxford loan agreement. If we are unable to achieve these goals, our business would be jeopardized and we may not be able to continue operations and may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or a part of their investment.

Since inception, our operations have been financed primarily through equity and debt financings, the issuance of convertible notes and payments received from Astellas under our co-promotion agreement. Through December 31, 2009, we received aggregate net cash proceeds of approximately $148.3 million from the sale of shares of our preferred and common stock as follows:

• from August 25, 2006 (inception) to December 31, 2009, we issued and sold a total of 14,444,688 shares of common stock for aggregate net cash proceeds of $0.2 million;

• in August 2006, we issued and sold a total of 30,775,000 shares of Series A-1 convertible preferred stock for aggregate net cash proceeds of $30.5 million;

• in September 2007 and December 2007, we issued and sold an additional 38,025,000 shares of Series A-1 convertible preferred stock for aggregate net cash proceeds of $38.0 million; in December 2007, we issued and sold a total of 9,090,909 shares of Series A-2 convertible preferred stock for aggregate net cash proceeds of $9.9 million;

• in September 2009, we issued and sold 32,689,062 shares of Series B convertible preferred stock for aggregate net cash proceeds of $34.8 million (inclusive of $14.8 million of outstanding principal of convertible notes held by certain investors that we issued earlier in 2009 and that were converted into Series B convertible preferred stock in connection with the financing) and warrants to purchase up to 3,363,619 shares of Series B convertible preferred stock ; and

• in December 2009, we issued and sold an additional 31,818,171 shares of Series B convertible preferred stock and warrants to purchase up to 9,545,447 shares of Series B convertible preferred stock for aggregate net cash proceeds of $34.9 million.

In March 2007, we entered into a loan and security agreement with GE Capital for the purpose of financing our capital equipment costs. Under the agreement, we were allowed to borrow up to $10.0 million based on purchases of property and equipment at a fixed interest rate determined at the time of borrowing. Pursuant to the loan and security agreement, we borrowed approximately $4.5 million under two promissory notes during the year ended December 31, 2007. Monthly payments of principal and interest are required to be made over a 48 month period beginning on the date of the advance. The outstanding balance is collateralized by specific manufacturing equipment owned by us. There are no financial covenants in connection with the loan and security agreement. The loan and security agreement permits the lender to demand the immediate repayment of all borrowings and other amounts thereunder if, among other customary events of default, the lender determines, in its sole discretion, that a material adverse change with respect to us has occurred. As of June 30, 2010, there are no further amounts available under this credit facility as our ability to borrow additional amounts expired on December 21, 2007. As of June 30, 2010, $1.3 million in aggregate principal amount of borrowings were outstanding under the GE Capital agreement, which we are required to repay, together with accrued interest, in monthly installments ending on January 1, 2012. We have the option to repay outstanding borrowings under the GE Capital agreement, subject to prepayment fees.

In June 2008, we entered into an $18.0 million loan and security agreement with Oxford and CIT for the purpose of financing our operating expenses, which agreement was amended and restated in July and October 2010 as described below. The borrowings under the Oxford and CIT agreement bore an interest rate of 9.76%. Payments consisted of interest-only payments for the first 10 months followed by principal and interest payments for the subsequent 36 months. The agreement required a final payment

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of $1.0 million, in addition to principal repayments, at final maturity, which was May 1, 2012. As described below, we amended and restated this loan and security agreement in July and October 2010.

In July 2009, we entered into the co-promotion agreement with Astellas. In connection with this co-promotion agreement, Astellas made a non-refundable up-front payment to us of $2.0 million and agreed to make an additional $18.0 million of payments to us upon the achievement of a series of milestones. As of December 31, 2009, we received a total of $19.0 million from Astellas. The remaining $1.0 million was paid to us in March 2010.

In July and October 2010, we amended and restated the loan and security agreement with Oxford and CIT, and Oxford and SVB are now party to the amended Oxford loan agreement. The amended Oxford loan agreement consists of a $25.0 million term loan and a $10.0 million revolving credit facility. The obligations under the amended Oxford loan agreement are collateralized by our personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash) but excluding, among other things, copyrights, patents, patent applications, trademarks, service marks, trade secret rights and equipment pledged to secure the GE loan facility described above.

The amended Oxford loan agreement includes financial covenants requiring that (1) we achieve, as of the last day of each month measured on a trailing three-month basis, actual revenue of at least a specified percentage of our projected revenue as provided to Oxford and SVB in the event we fail to maintain a liquidity ratio (defined, in general, as the ratio of (a) cash and cash equivalents deposited with Silicon Valley Bank plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00 and (2) we complete an equity or subordinated debt financing of at least $10.0 million prior to November 30, 2010. The agreement also includes a covenant that the audit report accompanying our year-end financial statements for fiscal year 2010 and thereafter not include a “going concern” qualification. As discussed under “Risk Factors—Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern,” the audit report accompanying our 2009 financial statements includes a going concern qualification and, as a result, our results of operations and financial condition will have to improve to a point where our auditors can deliver their audit report without this qualification in order to avoid a breach of this covenant. In addition, the amended Oxford loan agreement prohibits us from (1) incurring any debt other than, among other things, debt under the amended Oxford loan agreement or under the GE Capital agreement, subordinated debt and purchase money debt and refinancings of that permitted debt, (2) entering into sale and leaseback transactions and (3) entering into mergers with, or acquisitions of all or substantially all the assets of, another entity with a value in excess of $100,000, and also prohibits the occurrence of a change in control of our company. Under the amended Oxford loan agreement, a “change in control” will be deemed to occur if, among other things, our stockholders prior to this offering cease to hold (a) at least 60% of our capital stock or (b) capital stock having a majority of the ordinary voting power in the election of our directors. The amended Oxford loan agreement also prohibits a change in our management such that our Chief Executive Officer, Chief Financial Officer or President resigns, is terminated or is no longer actively involved in our management in his or her current position and is not replaced with a person acceptable to our board of directors within 120 days.

The $25.0 million term loan bears an interest rate of 12.06% per annum. Payments consist of monthly interest only payments for the first 12 months followed by principal and interest payments for the subsequent 30 months. The term loan requires a final payment of $1.2 million, in addition to the repayment of unpaid principal, at the loan maturity date, which is January 1, 2014. We have the option to prepay the outstanding balance of the term loan in full subject to a prepayment fee of either 2% or 3% of the principal amount being prepaid depending upon when the prepayment occurs as well as the $1.2 million final payment. Under the terms of the revolving credit facility, we may borrow up to $10.0 million, but not more than a specified percentage of our eligible accounts receivable and inventory balances (as defined in the agreement). Amounts outstanding under the revolving credit facility accrue interest payable monthly at a floating rate per annum equal to the greater of 3.29% above SVB’s prime rate or 7.29%. In addition, we pay a monthly fee equal to 0.5% per annum of the average unused portion

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of the revolving credit facility. If the revolving credit facility is terminated, a final payment is required in the amount of $0.1 million, $0.2 million or $0.3 million depending upon when the termination occurs. The amended Oxford loan agreement matures on the earliest of January 1, 2014, the occurrence of an event of default resulting in our obligations becoming due and payable in accordance with the amended Oxford loan agreement or the date of any prepayment of all outstanding obligations under the amended Oxford loan agreement, at which time a final payment of $0.1 million, plus all unpaid principal, must be paid in full. In connection with the execution of the amended Oxford loan agreement, we repaid the outstanding balance of the Oxford and CIT loan and security agreement totaling $12.8 million at June 30, 2010, which amount was repaid with borrowings under the amended loan and security agreement. Consequently, the net proceeds we received upon the execution of the amended Oxford loan agreement totaled $12.2 million. As of August 31, 2010, we had borrowed $2.2 million under the revolving credit facility.

We depend in part upon borrowings available under the revolving credit facility provided under the amended Oxford loan agreement to finance our ongoing operations. Accordingly, any termination of that revolving credit facility, or any requirement that we repay any of our outstanding term loans, whether as the result of our default under the applicable agreement or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

Concurrently with and as required by the amended Oxford loan agreement, we entered into a note purchase agreement with certain existing investors pursuant to which we borrowed an aggregate of $15.0 million. We issued convertible promissory notes, or the 2010 Notes, for the amount borrowed which accrue interest at a rate of 8.00% per annum and become due and payable in July 2011. The principal amount of the 2010 Notes and accrued interest thereon will automatically convert into shares of our common stock upon completion of this offering at a conversion price equal to the initial public offering price per share of our common stock. If a deemed liquidation event (as defined in our certificate of incorporation) occurs prior to the completion of this offering, the holders of the 2010 Notes may elect to (1) receive the repayment of the notes or (2) convert the notes into shares of Series B convertible preferred stock at a conversion rate of $1.10 per share.

Cash and Cash Equivalents.     Cash and cash equivalents totaled $4.5 million and $44.9 million at June 30, 2010 and December 31, 2009, respectively. As of July 31, 2010, we had $22.1 million in cash and cash equivalents which includes proceeds received in connection with the term loan portion of the amended Oxford loan agreement and sale of the 2010 Notes.

The following table summarizes our cash flows from (used in) operating, investing and financing activities for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010:

	Year Ended December 31,									Six Months Ended June 30,
	2007			2008			2009			2009			2010
	(In Thousands)
Statement of Cash Flows Data:
Total cash provided by (used in):
Operating activities	$	(26,800	)	$	(41,288	)	$	(32,361	)	$	(19,506	)	$	(35,821	)
Investing activities		1,005			(2,793	)		(2,057	)		(630	)		(1,162	)
Financing activities		51,972			16,798			65,104			10,299			(3,435	)
Increase (decrease) in cash and cash equivalents	$	26,177		$	(27,283	)	$	30,686		$	(9,837	)	$	(40,418	)

Operating Activities.    Net cash used in operating activities was $35.8 million and $19.5 million for the six months ended June 30, 2010 and 2009, respectively. Net cash used in the first six months of 2010 primarily reflects the use of $34.5 million for operations, payment of a $4.0 million milestone obligation

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to Aradigm as a result of the first commercial sale of Sumavel DosePro, and investments of $1.7 million in commercial inventory of Sumavel DosePro, partially offset by $4.4 million provided by other working capital sources, such as receipts from sales of Sumavel DosePro. Net cash used in the first six months of 2009 primarily reflects expenditures related to testing and manufacturing development of Sumavel DosePro, personnel-related costs, third-party supplier expenses and professional fees.

Net cash used in operating activities was $32.4 million and $41.3 million for the years ended December 31, 2009 and 2008, respectively. Net cash used in 2009 primarily reflects the use of $33.3 million for operations, an investment of $15.7 million in commercial inventory of Sumavel DosePro and $2.4 million in other working capital requirements, offset by $19.0 million of proceeds provided by our co-promotion partner, Astellas, for Sumavel DosePro. Net cash used in 2008 primarily reflects expenditures related to external research and product development, clinical trial costs, personnel-related costs, third-party supplier expenses and professional fees. Net cash of $26.8 million used in operating activities in 2007 primarily reflects expenditures related to external research and product development, clinical trial costs, personnel-related costs, third-party supplier expenses and professional fees.

Investing Activities.    Net cash used in investing activities was $1.2 million and $0.6 million for the six months ended June 30, 2010 and 2009, respectively. These amounts are the result of the purchase of property and equipment primarily for use in manufacturing Sumavel DosePro.

Net cash used in investing activities was $2.1 million and $2.8 million for the years ended December 31, 2009 and 2008, respectively. These amounts are the result of the purchase of property and equipment and in 2008 inclusive of the net purchases, sales and maturities of investment securities. Net cash provided by investing activities of $1.0 million in 2007 primarily relates to proceeds from sales and maturities of investment securities, net of purchases of investment securities and property and equipment.

We incurred capital expenditures of $1.2 million during the first six months of 2010 and expect to incur approximately $1.8 million to $2.2 million during the last six months of 2010. These capital expenditures primarily relate to further investments in our manufacturing operations toward increasing production capacity.

Financing Activities.    Net cash used in financing activities was $3.4 million for the six months ended June 30, 2010 compared to net cash provided by financing activities of $10.3 million for the six months ended June 30, 2009. Net cash used in the first six months of 2010 relates to principal repayments on our outstanding debt facilities. Net cash provided by financing activities in the first six months of 2009 relates to $11.7 million in proceeds received from convertible promissory notes issued to certain investors offset by principal repayments on our outstanding debt facilities.

Net cash provided by financing activities was $65.1 million and $16.8 million for the years ended December 31, 2009 and 2008, respectively. In 2009 we received net proceeds of $69.7 million from our Series B convertible preferred stock financing, inclusive of $14.8 million of proceeds from the issuance of convertible promissory notes between February and July 2009 that converted into Series B convertible preferred stock, and made principal repayments on our outstanding debt facilities totaling $4.7 million. In 2008, we received net proceeds of $17.8 million from the Oxford and CIT loan and security agreement and made principal repayments on our outstanding debt facilities totaling $1.0 million. Net cash provided by financing activities was $52.0 million for 2007. In 2007, we received net proceeds of $47.9 million from the issuance of Series A convertible preferred shares and $4.4 million from the GE Capital debt facility net of $0.5 million of proceeds used for principal repayments on our outstanding debt facilities.

Future Financing Activities.    We cannot be certain if or when we will generate sufficient cash flows from sales of Sumavel DosePro to finance our operating expenses, nor can we predict the amount of cash that may be necessary for clinical trials and pre-clinical studies of ZX002 or any of our other

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product candidates. Likewise, we expect to make additional investments in equipment and other production capacity to manufacture sufficient quantities of Sumavel DosePro. In addition, if we or Astellas are not successful in the promotion of Sumavel DosePro we may require additional financing resources to finance our operations and meet our promotion and inventory commitments under our co-promotion arrangement.

As described above, under our amended Oxford loan agreement, we are subject to financial covenants that require us to achieve certain revenue targets in the event we fail to maintain a liquidity ratio (defined, in general, as the ratio of (a) cash and cash equivalents deposited with Silicon Valley Bank plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00 and generate $10.0 million of proceeds through additional equity or subordinated debt financing by November 30, 2010, and we are also subject to other covenants and obligations under that agreement. Likewise, both the amended Oxford loan agreement and our GE Capital loan agreement permit the lenders to demand immediate repayment of all borrowings upon the occurrence of specified events of default. If we fail to pay amounts owing under either of these loan agreements when due, if we breach our other covenants or obligations under either of these agreements, or if other events of default under either of these credit agreements occur, the applicable lenders would be entitled to demand immediate repayment of all borrowings and other obligations thereunder and to seize and sell the collateral pledged as security under that agreement to satisfy those obligations. If we were to breach our covenants and obligations and we were unable to obtain a waiver or amendment from the lender, we would be required to seek additional equity or debt financing to refinance our obligations under the agreement. Additional debt or equity financing may not be available to us in amounts or on terms we consider acceptable, or at all. In that regard, we have from time to time been required to obtain waivers and amendments under our debt instruments in order to avoid breaches or other defaults. For example, in both 2009 and 2010 we were required to obtain amendments or waivers under our credit facilities.

We cannot be certain if, when and to what extent we will generate positive cash flow from operations from the commercialization of our product and, if approved, product candidates. We expect our development and commercialization expenses to be substantial and to increase over the next few years as we continue to grow the Sumavel DosePro brand and continue to advance our ZX002 product through Phase 3 clinical trials.

To the extent that funds generated by this offering, together with existing cash and cash equivalents, net revenue, and borrowings available under our $10.0 million revolving credit facility, are insufficient to fund our future activities, capital expenditures and other cash needs, we will need to raise additional funds through public or private equity or debt financings. Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. There can be no assurance that we will be able to raise additional funds from any of these sources on terms we deem acceptable, or at all. In addition, future issuance of equity, convertible or other equity-linked securities could materially dilute the ownership interests of holders of our common stock and additional debt financing could result in a material increase in the amount of cash necessary to fund debt service payments and also could require that we comply with financial and other covenants that limit our flexibility and operations. In addition, the fact that we have pledged substantially all of our assets to secure our existing loan facilities will likely increase the cost, perhaps substantially, of any additional debt financing we may obtain or prevent us from obtaining additional debt financing altogether. Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, future product revenues and borrowings available under our $10.0 million revolving credit facility, will be sufficient to fund our operations for at least the next 12 months.

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Contractual Obligations and Commitments

The following table describes our long-term contractual obligations and commitments as of December 31, 2009:

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(In Thousands)
Debt obligations(1)	$	16,366	$	7,041	$	9,325	$	—	$	—
Debt interest(2)		2,918		1,291		1,627		—		—
Operating lease obligations(3)		5,675		1,463		2,620		1,178		414
Co-Promotion marketing & promotional expenses(4)		5,502		5,502		—		—		—
Purchase obligations(5)		26,664		9,933		11,577		5,154		—
Total	$	57,125	$	25,230	$	25,149	$	6,332	$	414

(1) Represents principal payments due in each period on our loan and security agreement with GE Capital and our loan and security agreement with Oxford Finance Corporation and CIT Healthcare LLC.

(2) Includes the interest on regular scheduled debt payments to GE Capital at an annual rate of 10.08% on the initial borrowing of $3.5 million made in March 2007 and at an annual rate of 9.91% on the second borrowing of $1.0 million made in December 2007. Also includes the interest on regular scheduled debt payments to Oxford Finance Corporation and CIT Healthcare LLC at an annual rate of 9.76%.

(3) Includes the minimum rental payments for our San Diego, California office pursuant to a lease entered into in October 2009 and expiring, as extended, in July 2011, which office houses our general and administrative, sales and marketing operations. Also includes the minimum rental payments for our Emeryville, California office pursuant to a lease entered into in July 2007 and expiring, as extended, in September 2015, which office houses our supply chain and inventory management and research and development operations. The rent for our Emeryville facility includes a 3.0% annual increase for the duration of the lease. Also includes the rental payments for a fleet of up to 95 vehicles pursuant to a lease entered into in August 2009. Each vehicle has a lease term of 36 months.

(4) Represents our portion of the shared marketing and promotional costs as agreed between us and Astellas for 2010 joint promotional efforts for Sumavel DosePro. These obligations are determined on an annual basis through the term of the agreement.

(5) Primarily represents non-cancellable purchase orders for the production of key components of Sumavel DosePro and a minimum manufacturing fee payable to Patheon UK Limited, our contract manufacturing organization.

Under our co-promotion agreement with Astellas, we are required to pay Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to the Astellas Segment. Under our asset purchase agreement with Aradigm, we are required to pay a 3% royalty on global net sales of Sumavel DosePro by us or one of our licensees and, in the event that we or one of our future licensees, if any, commercializes a non-sumatriptan product in the DosePro delivery system, we are required to pay Aradigm, at our election, either a 3% royalty on net sales of each non-sumatriptan product commercialized or a fixed low-twenties percentage of royalty revenue received by us from the licensee. In addition, under our license agreement with Elan we may be required to pay up to $4.5 million in total future milestone payments with respect to ZX002 depending

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upon the achievement of various development and regulatory events and, if ZX002 is approved, to pay a mid single-digit percentage royalty on its net sales for a specified period of time and continue to pay royalties on net sales of the product thereafter at a reduced low single-digit percentage rate in accordance with the terms of the license agreement. We also maintain agreements with third parties to manufacture our product, conduct our clinical trials and perform data collection and analysis. Our payment obligations under these agreements will likely depend upon the progress of our development programs and commercialization efforts. Therefore, we are unable at this time to estimate with certainty the future costs we will incur under these agreements.

Recent Accounting Pronouncements

Effective July 1, 2009, the Financial Accounting Standards Board, or the FASB, Accounting Standards Codification, or ASC or Codification, became the authoritative source of GAAP. All existing FASB accounting standards and guidance were superseded by the ASC. Instead of issuing new accounting standards in the form of statements, staff positions and Emerging Issues Task Force abstracts, the FASB now issues Accounting Standards Updates that update the Codification. Rules and interpretive releases of the SEC under authority of federal securities laws continue to be additional sources of authoritative GAAP for SEC registrants.

In August 2009, the FASB ratified a new accounting standard for the fair value measurement of liabilities when a quoted price in an active market is not available. The new guidance is effective for reporting periods beginning after August 28, 2009, which means that it became effective for the fourth quarter beginning October 1, 2009. We adopted this guidance in relation to our existing warrants for convertible preferred stock as more fully described in Note 2 to our financial statements (Fair Value) appearing elsewhere in this prospectus.

In January 2010, the FASB issued a new accounting standard which amends guidance on fair value measurements and disclosures. The new guidance requires disclosure of transfers into and out of Level 1 and Level 2 fair value measurements, and also requires more detailed disclosure about the activity within Level 3 fair value measurements. This standard is effective for annual and interim reporting periods beginning after December 15, 2009, except for the requirements related to Level 3 disclosures, which are effective for annual and interim reporting periods beginning after December 15, 2010. We adopted the relevant provisions of this guidance, and the adoption did not have a material impact on our financial statements.

In February 2010, the FASB issued a new accounting standard which amends guidance on subsequent events. The new guidance requires evaluation of subsequent events through the date the financial statements are issued for SEC filers, amends the definition of SEC filer, and changes required disclosures. This standard is effective on February 24, 2010 and did not have a material impact on our financial statements upon adoption.

In March 2010, the FASB Emerging Issues Task Force, or EITF, ratified a new accounting standard which amends guidance on the milestone method of revenue recognition. The EITF concluded that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. This standard allows an entity to make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This standard is effective for fiscal years beginning on or after June 15, 2010 with early adoption permitted. The guidance may be applied prospectively for milestones achieved after the adoption date or retrospectively for all periods presented. We do not expect this guidance to have a material impact on our financial position, results of operations or cash flows.

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Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our cash and cash equivalents as of June 30, 2010 consisted primarily of cash and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Instruments that meet this objective include commercial paper, money market funds and government and non-government debt securities. Some of the investment securities available-for-sale that we invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the value of the investment securities available-for-sale to fluctuate. To minimize this risk, we intend to continue to maintain our portfolio of cash and money market funds. Due to the short-term nature of our investments and our ability to hold them to maturity, we believe that there is no material exposure to interest rate risk.

Our $10.0 million revolving credit facility with Oxford and SVB bears interest at the greater of 3.29% above SVB’s prime rate or 7.29%. As of June 30, 2010, we had no outstanding amounts, and therefore had no exposure to interest rate risk, under this revolving credit facility.

Foreign Exchange Risk

All of the revenues we have generated to date have been paid in U.S. dollars and we expect that our revenues will continue to be generated primarily in U.S. dollars for at least the next several years. Payments to our material suppliers and contract manufactures are denominated in the Euro and U.K. pounds sterling, thereby increasing our exposure to exchange rate gains and losses on non-U.S. currency transactions. Foreign currency gains and losses associated with these expenditures have not been significant to date. However, fluctuations in the rate of exchange between the U.S. dollar and these or other foreign currencies could adversely affect our financial results in the future, particularly to the extent we increase production to support Sumavel DosePro sales demands. For the six months ended June 30, 2010, approximately $15.4 million of our materials and contract manufacturing costs were denominated in foreign currencies. We do not currently hedge our foreign currency exchange rate risk. We intend to evaluate various options to mitigate the risk of financial exposure from transacting in foreign currencies in the future.

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BUSINESS

Overview

We are a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. Our first commercial product, Sumavel™ DosePro™ (sumatriptan injection) Needle-free Delivery System, was launched in January 2010. Sumavel DosePro offers fast-acting, easy-to-use, needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. Sumavel DosePro is the first drug product approved by the U.S. Food and Drug Administration, or FDA, that allows for the needle-free, subcutaneous delivery of medication. Sumavel DosePro may offer a faster-acting and more efficacious treatment alternative to oral and nasal triptans and simple, convenient administration when compared to traditional, needle-based sumatriptan injection. As a result, we believe that Sumavel DosePro has the potential to be prescribed by a broad physician audience, especially for difficult to treat migraine episodes.

Migraine is a syndrome that affects approximately 30 million people in the United States, according to a 2004 National Headache Foundation, or NHF, report. Triptans are the class of drugs most often prescribed for treating migraines. In the United States in the 12 months ended June 2010, triptans generated sales of approximately $3.45 billion and sumatriptan, including branded and generic forms, represented the biggest market share of the seven approved triptans, with sales of approximately $1.97 billion, according to Wolters Kluwer Pharma Solutions (Source^® Pharmaceutical Audit Suite (PHAST)).

We launched the commercial sale of Sumavel DosePro in the United States in January 2010 with our co-promotion partner, Astellas Pharma US, Inc., or Astellas. Our sales and marketing organization is comprised of approximately 100 professionals. Our field sales force of approximately 80 representatives is promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. Our promotional efforts are complemented by our collaboration with Astellas and approximately 400 of its sales representatives, who are promoting Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists in the United States. We also have entered into a partnership for Sumavel DosePro with Desitin Arzneimittel GmbH, or Desitin, to accelerate development and regulatory approvals in Europe and further enhance the global commercial potential of Sumavel DosePro.

Sumavel DosePro has demonstrated consistent monthly growth in both total and new prescriptions since its launch in January 2010. The product continues to add new and repeat prescribers in both the neurology and primary care settings, including a significant number of prescribers who had not prescribed needle-based sumatriptan injection in the prior 12 months. The product is gaining use from a range of patient segments, including new triptan users, patients being converted to the product from other migraine drugs and patients who have been prescribed Sumavel DosePro and also have other triptan prescriptions. Since its launch, 75% of all patient conversions to Sumavel DosePro have come from patients with prescriptions for oral triptans, including tablets and fast melt formulations. (Source^® Lx APLD January 2010 – June 2010). Through our ongoing efforts with the largest commercial health plans, Sumavel DosePro is achieving broad coverage in the United States, with a reimbursement claims approval rate of approximately 78% since launch (Source^® Dynamic Claims January 2010 – June 2010). Total gross sales of Sumavel DosePro through June 30, 2010 were $10.8 million. We recognized $6.1 million in net product revenue from these sales, represented by more than 11,500 aggregate dispensed prescriptions written by more than 3,600 prescribers. (Source^® Pharmaceutical Audit Suite (PHAST) and Source^® Prescriber January 2010 – June 2010)

Our lead product candidate, ZX002, is a novel, oral, single-entity controlled-release formulation of hydrocodone currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. ZX002 utilizes Elan Pharma International Limited’s, or Elan’s, proprietary Spheroidal Oral Drug Absorption System, or SODAS^® Technology, which serves to

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enhance the release profile of hydrocodone to provide consistent 12-hour pain relief relative to existing immediate-release combination formulations. Most marketed hydrocodone products contain the analgesic combination ingredient acetaminophen, which if taken in high quantities over time can cause liver toxicity. ZX002, if approved, may represent the first available controlled-release version of hydrocodone and also the first hydrocodone product that is not combined with another analgesic. As a result, we believe ZX002 could generate sales from both patients who are using immediate-release opioid products on a chronic basis and patients already using extended-release opioids. We initiated the Phase 3 clinical development program for ZX002 in March 2010 and, if successful, expect to submit a New Drug Application, or NDA, with the FDA by early 2012. We in-licensed exclusive U.S. rights to ZX002 from Elan in 2007.

The American Pain Society estimated in 1999 that 9% of the U.S. adult population suffers from moderate to severe non-cancer related chronic pain. Chronic pain is treated with both immediate-release and extended-release opioids. We define our target market for ZX002 as prescription, non-injectable codeine-based and extended-release morphine-based pain products. This market generated U.S. sales of approximately $13.0 billion for the 12 months ended June 2010, based on average wholesale price, on approximately 202 million prescriptions. During the same period, existing hydrocodone products, the most commonly prescribed pharmaceutical products in the United States, generated $3.1 billion in sales on approximately 126 million prescriptions. (Source^® Pharmaceutical Audit Suite (PHAST)). We believe ZX002 has the potential to be an important therapeutic alternative to existing hydrocodone products, including the branded product Vicodin and its generic equivalents.

Our DosePro technology is a novel, patent-protected, needle-free drug delivery system designed for self-administration of a pre-filled, single dose of liquid drug. We believe the FDA’s approval of Sumavel DosePro represents an important validation of the technology. Results from our pre-clinical and clinical studies demonstrate that DosePro can be used successfully with small molecules and biological products, including protein therapeutics and monoclonal antibodies. We are building our internal product pipeline by investigating proven drugs that can be paired with DosePro to enhance their benefits and commercial attractiveness. Specifically, we have initiated pre-clinical development on a proprietary long-acting formulation of an injectable central nervous system, or CNS, drug product and are also evaluating the market potential, formulation requirements and clinical development pathway of an additional CNS compound that could be paired with DosePro to enhance its commercial attractiveness. If these efforts are successful, we may be able to submit an Investigational New Drug Application, or IND, for one or both product candidates in 2011. We are also seeking to capitalize on our DosePro technology by out-licensing it to potential partners enabling them to enhance, differentiate or extend the life cycle of their proprietary injectable products.

Investment Highlights

We believe we are differentiated by the unique characteristics of our marketed product and late stage product candidate, each of which addresses large market opportunities, as well as our established commercial infrastructure, our innovative technology and the depth of experience of our management team. The following represents the key attributes that help differentiate our company:

• Fully-integrated pharmaceutical company with established commercial infrastructure.     We have a sophisticated and robust commercial infrastructure relative to many companies of similar size and stage of development in the pharmaceuticals industry. Our sales and marketing organization is comprised of approximately 100 professionals, including a field sales force of approximately 80 representatives who are focused exclusively on the promotion of Sumavel DosePro. Our field sales representatives have an average of 12 years of prior experience promoting pharmaceutical products and most have prior experience in the neurology and/or migraine space. In addition, our sales managers have on average 19 years of pharmaceutical industry experience, including an average of eight years of sales management experience.

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• Sumavel DosePro, a differentiated new entrant in the migraine market that has demonstrated consistent monthly prescription growth since its launch.     Our first commercial product, Sumavel DosePro, was launched in January 2010. We believe it represents a valuable new migraine treatment option that will address the significant unmet medical needs of patients and physicians. Through our own sales force and our collaboration with Astellas, we have a combined network of more than 475 sales representatives detailing both primary care physicians and specialists who are key prescribers of migraine therapeutics. To date, we have seen consistent growth in adoption of Sumavel DosePro by physicians and patients alike, with more than 3,600 prescribing physicians as of June 30, 2010, of whom a growing proportion on a monthly basis are now repeat-prescribers. Monthly prescriptions of Sumavel DosePro have grown from less than 250 in January 2010 to more than 3,000 in June 2010. (Source^® Pharmaceutical Audit Suite (PHAST) and Source^® Prescriber January 2010 – June 2010). Sumavel DosePro’s initial acceptance by third-party payors has also been encouraging, with approximately 78% of reimbursement claims submitted for Sumavel DosePro being approved since its launch (Source^® Dynamic Claims January 2010 – June 2010).

• ZX002, a novel, controlled-release chronic pain therapy in Phase 3 clinical development.    ZX002 has the potential to be the first approved single-entity, controlled-release formulation of hydrocodone, the most widely prescribed pharmaceutical product in the United States. ZX002 utilizes Elan’s proprietary SODAS delivery system, which serves to enhance the release profile of hydrocodone to provide consistent 12-hour pain relief relative to existing immediate-release formulations. In March 2010, we initiated our Phase 3 development program for ZX002 and expect to begin to receive top-line data from our Phase 3 clinical trials in the second half of 2011.

• Validated, proprietary DosePro technology with broad range of potential applications.    Sumavel DosePro, which utilizes our DosePro technology, is the first drug product approved by the FDA which allows for the needle-free, subcutaneous delivery of medication. We believe that DosePro has the potential to become a preferred delivery option for patients and physicians for many medications beyond sumatriptan, including small molecules and biologics, and are evaluating further internal development candidates and technology out-licensing opportunities. We and the predecessor owners of the DosePro technology have invested significant resources over a 10 year period in evaluating potential applications of DosePro and optimizing the design, manufacturing and versatility of this technology. Our DosePro technology is covered by 61 issued U.S. and foreign patents, which are expected to expire on various dates from 2014 through 2023, and 31 pending patent applications.

• Experienced management team with unique commercial and development expertise, including CNS sales and marketing experience.    Our management team has a proven clinical, regulatory, business development and commercialization track record at Zogenix and prior organizations, as well as significant expertise in CNS disorders and pain. Our executive officers and key employees have an average of 20 years of experience in the pharmaceutical, financial and commercial sectors. Prior to Zogenix, members of our management team had success in developing, achieving regulatory approval for and commercializing multiple product candidates at their former employers. In particular, our CEO and our Vice President of Sales and Managed Markets participated in the successful launch and market defense of GlaxoSmithKline’s, or GSK’s, Imitrex, the first triptan to be commercialized in the United States. At Zogenix, our team has successfully acquired, developed, obtained regulatory approval for and launched the commercial sale of Sumavel DosePro and completed a significant primary care co-promotion agreement in the United States for the product. It also completed an in-licensing transaction and initiated Phase 3 development for our ZX002 product candidate.

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Our Strategy

Our core strategy is to commercialize and develop differentiated CNS and pain therapeutics that can address significant unmet medical needs and overcome limitations of existing products. Key elements of our strategy include:

• Increasing sales and continuing to drive patient and physician adoption of Sumavel DosePro in the United States.    Sumavel DosePro has demonstrated consistent monthly growth since its launch in January 2010. We are leveraging our established commercial infrastructure, our collaboration with Astellas and our investment in sales and marketing programs to increase awareness and adoption of, and access to, Sumavel DosePro with prescribers, patients, third-party payors, pharmacists and employers.

• Developing and commercializing ZX002 for the treatment of moderate to severe chronic pain.    Our ongoing Phase 3 clinical program for ZX002 is focused on establishing safety and efficacy of controlled-release single-entity hydrocodone to treat moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. If our clinical program is successful and we receive FDA approval, we intend to expand our sales and marketing infrastructure, including expanding our field sales force to 250 or more representatives, to allow us to reach a broad range of opioid prescribers in our target market.

• Expanding our product pipeline in CNS disorders and/or pain.    We are utilizing our proprietary DosePro technology to add to our internal product pipeline. We have initiated pre-clinical development work on a proprietary long-acting formulation of an injectable CNS drug product and are also evaluating the market potential, formulation requirements and clinical development pathway of an additional CNS compound that could be paired with DosePro to enhance its commercial attractiveness. If these efforts are successful, we may be able to submit an IND for one or both product candidates in 2011.

• Obtaining regulatory approvals for Sumavel DosePro outside of the United States.    We have a partnership for Sumavel DosePro with Desitin in order to accelerate development and regulatory approvals in Europe and enhance the global commercial potential of Sumavel DosePro. We also continue to evaluate potential partnerships to commercialize Sumavel DosePro in additional markets outside of Europe and the United States.

• Out-licensing our proprietary DosePro technology.    We are evaluating opportunities to out-license the DosePro needle-free drug delivery technology to partners seeking to enhance, differentiate or extend the life-cycle of their injectable products. These opportunities include biologics and small molecules that are both currently marketed products and development stage product candidates.

• Securing rights to complementary products and product candidates that address CNS disorders and/or pain.    To strategically leverage our commercial resources and generate additional revenue, we are seeking third-party co-promotion opportunities. In the future, we will also consider in-licensing or acquisition opportunities with a focus on product candidates that utilize novel technologies to improve the profile of existing compounds for CNS disorders and/or pain.

Our Product and Product Candidates

Sumavel DosePro for the Acute Treatment of Migraine and Cluster Headache

We launched the commercial sale of Sumavel DosePro in the United States in January 2010 with our co-promotion partner, Astellas. Our Sumavel DosePro (sumatriptan injection) Needle-free Delivery System offers fast-acting, easy-to-use subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache. Sumavel DosePro utilizes our proprietary DosePro system which enables patients to self-administer subcutaneous sumatriptan in three easy steps. Sumavel DosePro may

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offer a faster-acting and more efficacious treatment alternative to oral and nasal triptans and simple, convenient administration when compared to traditional, needle-based sumatriptan injection. As a result, we believe that Sumavel DosePro has the potential to be prescribed by a broad physician audience, especially for difficult to treat migraine episodes.

Migraine Market

Migraine is a chronic neurovascular disorder characterized by episodic attacks. According to a 2004 report from the NHF, approximately 30 million people in the United States suffer from migraines, with women three times more likely to suffer migraines than men. Migraine attacks typically manifest themselves as moderate to severe headache pain, with symptoms that often include nausea and/or vomiting and abnormal sensitivity to light and sound. Migraines can severely limit the normal daily functioning of patients, who may seek dark, quiet surroundings until the episode has passed. According to the International Headache Society, the duration of untreated or unsuccessfully treated migraine episodes ranges from four to 72 hours. According to data published in the March 2002 issue of Neurology, 63% of patients suffer one or more attacks per month, 25% of patients have one or more attacks per week and the median duration of an untreated migraine is approximately 24 hours. Overall, the cost burden of migraine in the United States was estimated by Thomson Medstat in June 2006 to approach $25 billion annually, including $12.7 billion in direct medical costs and nearly $12 billion in indirect costs related to employee absenteeism, short-term disability and workers’ compensation costs to employers.

Cluster headaches are characterized by groups or clusters of debilitating headaches lasting weeks or months, then disappearing for months or years. This type of headache affects an estimated one million sufferers in the United States, and approximately 90% of these sufferers are male, according to the NHF website. Due to the severe nature of cluster headache, patients are commonly treated with prescription medication.

Acute therapies dominate the prescription migraine and cluster headache market and are used during intermittent attacks. The goals of acute therapy are to stop the attack quickly and consistently, restore the patient’s ability to function, use the least amount of medication and limit adverse side effects.

A major advancement in the acute treatment of migraine began in 1993 with the launch of the first triptan, sumatriptan injection (Imitrex), in the United States. All triptans are selective agonists for the 5-HT_1B and 5-HT_1D receptors. Triptans presumably exert their antimigrainous effect through binding to vascular 5-HT₁ receptors, which have been shown to be present on both the human basilar artery, one of the major arteries that supplies blood to the brain, and the outer most membrane covering the brain. Triptans activate these receptors to cause vasoconstriction, an action in humans correlated with the relief of migraine and cluster headache. Sumatriptan was subsequently joined by other drugs in the triptan class. By the year 2003, there were seven approved triptans in the United States with a focus on oral delivery forms to offer convenience of dosing for migraine patients. Sumatriptan is the only triptan available in oral, nasal and subcutaneous forms, each of which has different pharmacokinetic properties.

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Triptans remain the drugs of choice and the most often prescribed therapy for the acute treatment of migraine and cluster headache. The following table provides a breakdown of the U.S. triptan market, including sales and doses prescribed for oral (tablets and fast melts), nasal and injectable forms of triptan for the 12 months ended June 2010.

U.S. Triptan Market

(12 months ended June 2010)

Triptan Form	Sales (millions)		$ Share		Doses (millions)	Dose Share
Oral Tablet	$	2,680	77.6	%	111.1	84.7	%
Oral Fast Melt		352	10.2		13.9	10.6
Nasal		116	3.3		3.1	2.3
Injectable		305	8.8		3.2	2.4
Total	$	3,453	100	%	131.2	100	%

Source^® Pharmaceutical Audit Suite (PHAST).

As indicated in the prior table, the triptan market is dominated by oral dosage forms (tablets and fast melts), with approximately 95% of U.S. triptan doses taken as oral formulations and the remaining 5% split between injectable and nasal formulations. Branded and generic sumatriptan, in all dosage forms, remains the most prescribed triptan molecule with sales of approximately $1.97 billion (57% dollar share of the triptan market). Of that amount, the injectable forms of sumatriptan accounted for $305 million. By comparison, ergotamine agents, another class of drugs used for the acute treatment of migraine, including injectable DHE and Migranal, accounted for $54.7 million in sales in the United States during the same 12-month period. (Source^® Pharmaceutical Audit Suite (PHAST)). Sumatriptan is the only triptan available to patients in the injectable form and, with the exception of Sumavel DosePro, all other forms of injectable sumatriptan make use of needle-based injections for their administration.

In five major European countries (France, Germany, Italy, Spain and the United Kingdom), triptans generated total sales of approximately $550 million for the 12 months ended June 2007, according to average wholesale price data published by IMS Health MIDAS. Of that $550 million, the European equivalent of Imitrex, Imigran, represented sales of approximately $148 million, of which the injectable form accounted for approximately $35 million.

Migraine Market Dynamics

The type of migraine treatment utilized by patients often depends on the frequency and severity of the headache, its speed of onset and previous response to medication. In published studies, migraine sufferers most often cite faster onset of pain relief as the key therapeutic attribute they would like from their migraine medication. Patients with more frequent or severe migraines or those who do not respond to simple analgesics may seek medical attention with a primary care physician initially and then with a headache clinic or neurology specialist if needed. Once a physician makes a diagnosis of migraine, oral triptans are generally prescribed as first-line therapy.

If a patient does not respond to one triptan product, the physician may switch to another triptan or dosage form or add another triptan or dosage form to a patient’s treatment armamentarium. Market research conducted on our behalf by Boston Healthcare Associates, Inc. indicates that it is common for a migraine patient to be offered several different oral triptan options before being offered a nasal or injectable product. In addition, the same market research indicates that approximately 25% of migraine patients had two or more active prescriptions for different brands and/or forms of triptan therapy. We believe these patients maintain multiple prescriptions because they have found that certain medications or dosage forms work better for certain types of migraines and choose which medication to use based on the type of migraine episode they are experiencing.

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Clinical research has substantiated that the nature of migraine episodes varies widely. In some episodes, patients can sense a migraine coming and take their medication accordingly. In other episodes, patients may wake up with a migraine already in progress or the migraine may come on suddenly. An estimated 48% of migraines occur between the hours of 4:00 a.m. and 9:00 a.m., according to an article published in the June 1998 issue of Headache. Migraines may also be associated with nausea and/or vomiting. Twenty-nine percent of patients reported vomiting as a symptom of migraine attacks, according to the American Migraine Study II, and epidemiological studies in migraine reveal that the vast majority of patients (more than 90%) have experienced nausea during a migraine attack and more than 50% have nausea with the majority of attacks, according to an article published in Drugs in 2003 (Volume 63, Issue 21). Depending on the type of migraine episode, a treatment may be more or less effective. For example, oral treatments may be of little value in a patient who is vomiting or who is experiencing migraine-associated gastric stasis. There is also clinical evidence that oral agents may be less effective when taken at a later stage of a migraine attack, rather than at an earlier stage. Consequently, rapid onset migraine and waking with a migraine attack may reduce the benefits to patients of oral triptans, because both represent fully-developed attacks.

The following table compares the time to maximum drug concentration in blood, or Tmax, and pain relief of oral forms, including fast melt and tablets, and nasal forms of marketed triptans to sumatriptan injection. The data are derived from Prescribing Information for the different formulations of these marketed triptans:

Triptan Prescribing Information Data

Form/Product (API)	Tmax	Relief at 1 hour(1)(2)		Relief at 2 hours(2)
Subcutaneous
Sumavel DosePro (sumatriptan injection)	12 minutes	70	%	81-82	%
Nasal
Imitrex (sumatriptan)	Not provided	38-46	%	43-64	%
Zomig (zolmitriptan)	3.0 hrs	60	%	69-70	%
Oral – Fast melt
Zomig-ZMT (zolmitriptan)	3.0 hrs	33-43	%	63	%
Maxalt-MLT (rizatriptan)	1.6-2.5 hrs	38-43	%	59-74	%
Oral – Tablets
Imitrex (sumatriptan)	2.0-2.5 hrs	28-36	%	50-62	%
Treximet (sumatriptan/naproxen sodium)	1.0 hrs	28	%	57-65	%
Zomig (zolmitriptan)	1.5 hrs	35-45	%	59-67	%
Maxalt (rizatriptan)	1.0-1.5 hrs	38-43	%	60-77	%
Amerge (naratriptan)	2.0-3.0 hrs	19-21	%	50-66	%(3)
Axert (almotriptan)	1.0-3.0 hrs	32-36	%	55-65	%
Frova (frovatriptan)	2.0-4.0 hrs	12	%	37-46	%
Relpax (eletriptan)	1.5 hrs	20-30	%	47-77	%

(1) Other than Sumavel DosePro (sumatriptan injection), we have estimated one-hour pain relief data for all forms/products based on Kaplan-Meier plots included in each product’s Prescribing Information of the probability over time of obtaining headache response following treatment.

(2) Range reflects headache relief data obtained in placebo controlled clinical studies, which include different doses of the same triptan.

(3) Represents pain relief at four hours.

Tmax closely correlates to speed of onset of pain relief, and has also been shown to be correlated with completeness of pain relief and pain freedom over time. Relief at two hours is the standard endpoint used in migraine studies and represents the percentage of patients reporting a reduction of

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migraine symptoms from a classification of severe or moderate to mild or none within two hours after taking the medication. As indicated in the prior table, sumatriptan injection has the earliest Tmax, reaching maximum blood concentration in 12 minutes, as compared with one or more hours for the other marketed triptan products, and exhibits the highest percentage of patients reporting pain relief at two hours (81%-82%) as compared to all other marketed oral and nasal triptan products (37-77%). Sumatriptan injection is the only migraine product that explicitly reports pain relief at one hour in its Prescribing Information. The efficacy profile of sumatriptan injection has been suggested to be related to its faster rate (not extent) of drug absorption compared to oral and nasal forms of triptans. Nasal forms, while claimed by some to be fast-acting, have drug absorption profiles similar to oral forms because a large portion of the administered dose is usually swallowed prior to absorption.

Unmet Needs in Acute Migraine Therapy

Triptans have been widely used in clinical practice for more than 15 years and are generally considered to be safe and effective for many patients during their migraine episodes. However, more than half of all patients are unsatisfied with their current migraine therapy, as reported from a national survey of 500 migraine sufferers published by the NHF in June 2010 and supported by a grant from us and Astellas. Specifically, the NHF survey results indicate that three in four migraine sufferers said that their current medication did not work fast enough to get them back to their life when a migraine strikes suddenly or upon waking, and a majority of migraine sufferers said their prescription oral migraine medication was not useful for every migraine attack. Limitations of oral and nasal triptan formulations include:

• Slower onset of pain relief.    As shown in the prior table, compared to Sumavel DosePro, each oral and nasal triptan has a longer Tmax, which is correlated with a slower onset of pain relief.

• Lower degree of pain relief.    As shown in the prior table, oral and nasal triptans may have a lower percentage of patients reporting pain relief at one and two hours following treatment as compared to Sumavel DosePro.

• Significant numbers of non-responders.    According to our market research with physicians and patients, approximately 30% of migraine patients fail to respond to an oral or nasal triptan.

• Nasal route unpleasant.    The nasal route is an alternative to oral delivery; however, nasal spray can be unpleasant in taste and sensation.

Some of these limitations are more pronounced depending on the type of migraine episode the patient is suffering. For example, when waking with a migraine already in progress, speed to onset of pain relief is important. In migraines with nausea and/or vomiting, a patient may not be able to ingest an oral treatment.

Despite its speed of onset and completeness of pain relief advantages over oral and nasal triptans, needle-based sumatriptan injection has been limited to less than 10% of the U.S. triptan market on a dollar basis and less than 3% on a total dose basis (Source^® Pharmaceutical Audit Suite (PHAST) July 2009 – June 2010). We believe this is largely due to limitations related to its delivery system which include:

• Needle-based.    Approximately 50% of patients refuse to use a needle-based injectable product for migraine, specifically citing needle anxiety or fear, or a lack of confidence in their ability to administer an injection correctly, according to market research conducted by Palace Healthcare Group, Inc. on our behalf.

• Cumbersome to use.    The Imitrex STATdose System, or Imitrex STATdose, GSK’s autoinjector for delivering sumatriptan with a needle, and its generic equivalents require more than 15 steps per their published instructions to prepare, administer and reload for its next use. This multi-step process, which patients have to complete during a migraine episode, is prone to error.

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Further, market research finds that physicians report that the training required for Imitrex STATdose is a barrier to prescribing.

• Needlestick risk.    Needle-based systems may require special handling and needle disposal, or sharps, containers to avoid needlestick injuries.

Due to theses limitations, there has historically been a limited prescriber base for injectable delivery forms of sumatriptan. Of an aggregate of over 347,000 prescribers of triptans in the United States, only an approximate 66,000 had written a prescription for sumatriptan injection (including Sumavel DosePro) in the 12 months ended June 2010 (Source^® Prescriber July 2009 – June 2010). As a result, a limited number of patients are offered injectable delivery forms. Only 54% of migraine patients had ever been offered sumatriptan injection according to patient market research conducted by Boston Healthcare Associates, Inc. on our behalf.

Our Solution: Sumavel DosePro

Sumavel DosePro is a pre-filled, single-use disposable, needle-free drug delivery system that subcutaneously delivers 6 mg of sumatriptan in 0.5 mL of sterile liquid. Sumavel DosePro was designed to be portable, intuitive and easy-to-use. To use, the patient simply snaps off a plastic tip, flips back a lever and presses the end of the delivery system to the skin of the abdomen or thigh. Under the force of a small amount of compressed nitrogen gas, the liquid form of sumatriptan is expelled out of the device as a thin jet of medication, which pierces the skin and selectively deposits into the subcutaneous tissue. This process occurs in less than 1/10th of a second.

Due to its unique attributes, Sumavel DosePro has the potential to expand the dosage share for injectable sumatriptan beyond the traditional needle-based forms because it reduces the barriers inherent in needle-based delivery systems to being prescribed by physicians and accepted by patients. Sumavel DosePro may provide patients with the following benefits when compared to alternative triptan formulations:

• Rapid, more complete, migraine pain relief.    Sumavel DosePro can provide onset of migraine pain relief in as little as ten minutes for some patients, according to its Prescribing Information, which is faster than onset of pain relief for oral and nasal triptans. The Prescribing Information for the product indicates that an average of 81% (vs. an average of 34% for placebo) of patients show pain relief at two hours following administration of Sumavel DosePro and that 49% of patients were pain free within 1 hour (vs. 9% for placebo) and 64% were pain free within two hours (vs. 15% for placebo) following administration.

• Help for sufferers of morning migraines, fast onset migraine and migraines with vomiting.    According to a study published in the October 2006 issue of Clinical Therapeutics, 57% of patients with waking migraines were pain free at two hours (vs. 19% for placebo) following administration of sumatriptan injection. Subcutaneous sumatriptan is also as efficacious when administered early during a migraine attack as when the attack is full-blown. In addition, the pharmacokinetics of subcutaneously delivered sumatriptan is not affected by gastric stasis, nausea and/or vomiting.

• Help for triptan tablet non-responders.    Clinical research published in the January 2007 issue of Journal of Headache and Pain suggests injectable sumatriptan provides relief in up to 90% of migraine patients who have not previously responded to oral tablet triptans. In this study, 43 patients who had failed to respond to oral triptans in at least two of their last three migraines were given sumatriptan injection for their next migraine. Of these patients, 91% reported pain relief at two hours, 56% reported being pain free at two hours and 32% reported sustained pain freedom through 24 hours following treatment of their first headache.

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• Simplicity, through a new, convenient and easy-to-use option.    Sumavel DosePro is based on our unique delivery system which was designed to be portable, intuitive and easy-to-use, and can be disposed following use without the need of a sharps container. We believe healthcare providers appreciate the simplicity of DosePro because it is easy to train patients to use properly. Our usability study for Sumavel DosePro showed 98% of patients were able to self-administer Sumavel DosePro in the home during an acute migraine attack, without clinical supervision and with minimal prior training.

• Needle-free, eliminating needle-based issues.    Because it is needle-free, we believe Sumavel DosePro may eliminate the basis for patient needle phobia and fear. Additionally, it removes the risks of needlestick injury, the cost and inconvenience of needle disposal, issues resulting from poor injection technique and costs associated with professionally administered needle-based injections. Studies show when a choice between needle-based and needle-free injection is available, the majority of patients prefer needle-free injection. More specifically, in a head-to-head study conducted by GSK of Sumavel DosePro versus the European branded version of Imitrex STATdose, a needle-based delivery system, 61% of migraine patients preferred using Sumavel DosePro while only 18% preferred using the European branded version of Imitrex STATdose, with the remaining patients expressing no preference.

In addition, we believe that the unique attributes of Sumavel DosePro have the potential to reduce productivity loss in the workplace for patients suffering from migraine. According to a study published in the May 1998 issue of Archives of Internal Medicine, results from a placebo-controlled clinical study of 135 patients having migraine indicated that use of sumatriptan injection may reduce migraine-associated productivity loss. This decrease is a function of both a reduction in time lost due to reduced effectiveness while working and a reduction in time lost due to missing work altogether. Moreover, 52% of patients using sumatriptan injection (vs. 9% for placebo) returned to normal work performance within two hours after dosing.

Sumavel DosePro Launch

Working in collaboration with our co-promotion partner, Astellas, as well as third-party advertising and market research organizations, we developed and are executing a sophisticated and comprehensive commercialization strategy for Sumavel DosePro supported by a range of marketing programs. This strategy and tactical plan was built taking into consideration the unmet needs in the migraine market in conjunction with the unique product attributes of Sumavel DosePro. Key objectives of our launch strategy are to:

• validate the unmet needs of patients during challenging migraine episodes and position Sumavel DosePro as an effective treatment solution with key prescribers;

• build awareness of Sumavel DosePro with migraine sufferers in order to drive patient requests;

• enhance speed of physician adoption by focusing promotional efforts on key prescribers of migraine medications across specialties;

• ensure a positive first-dose experience for patients; and

• achieve broad patient access to Sumavel DosePro by ensuring nationwide retail distribution and adequate third-party payor reimbursement status.

In support of these strategic objectives, we and Astellas are executing a variety of marketing programs to educate customers, which include direct-to-physician promotional materials, speaker programs, direct-to-patient programs, digital media, participation in selected medical conventions and reimbursement support programs. In addition, we and Astellas provide product samples to physicians so that their patients may try Sumavel DosePro during an acute migraine attack before filling their first prescription.

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Sumavel DosePro Market Experience to Date

Sumavel DosePro has demonstrated consistent monthly growth in both total and new prescriptions since its launch in January 2010. We continue to add new and repeat prescribers in both the neurology and primary care settings, including a significant number of prescribers who had not prescribed sumatriptan injection in the prior 12 months. The product is gaining use from a range of patient segments including new triptan users, patients being converted to the product from other migraine drugs and patients with prescriptions for other triptans. Since its launch, 75% of all patient conversions to Sumavel DosePro have come from oral triptans, including tablets and fast melt formulations (Source^® Lx APLD January 2010 – June 2010). Total gross sales of Sumavel DosePro through June 30, 2010 in the United States were $10.8 million, and we recognized $6.1 million in net product revenue from these sales. The wholesale acquisition cost for a six-pack of Sumavel DosePro was $498 as of June 30, 2010.

Selected market highlights since we launched Sumavel DosePro in January 2010 include:

• Prescription Trends.    Monthly prescription data shows that more than 11,500 aggregate prescriptions of Sumavel DosePro have been dispensed and that monthly total prescriptions have increased in each month since launch, as illustrated in the following table. In June 2010, more than 3,000 total prescriptions were dispensed and nearly 24% of total prescriptions were classified as refill prescriptions. (Source^® Pharmaceutical Audit Suite (PHAST) January 2010 – June 2010)

(1) TRx is total prescriptions dispensed, including new prescriptions (NRx) and refill prescriptions.

• Prescriber Base.    Weekly prescribing data shows that more than 4,300 physicians have prescribed Sumavel DosePro, and that 50% of prescribers are primary care physicians (including internal medicine, family practice and general practice), 33% are neurologists, pain management specialists and psychiatrists, and the remaining 16% are from a wide range of other specialties. In each month since launch, the number of repeat prescribers for Sumavel DosePro has increased. In addition, 32% of Sumavel DosePro prescribers had not written a prescription for needle-based sumatriptan injection in the previous 12 months and an additional 35% of prescribers had written, on average, less than one prescription per month for needle-based sumatriptan injection. (Source^® Prescriber January 2010 – June 2010 and Source^® Launchtrac week ended January 15, 2010 – week ended July 30, 2010)

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• Patient Dynamics.    Analysis of patient data indicates that approximately 37% of patients filling a Sumavel DosePro prescription were new to the triptan market (i.e., had not filled a triptan prescription in the prior 18 months), 34% had active prescriptions for Sumavel DosePro and at least one additional triptan and 17% of patients had converted to Sumavel DosePro from another triptan. The remaining 12% of patients were continuing users of Sumavel DosePro. Importantly, of the patients who converted from another triptan, 75% converted from oral triptans, including tablets and fast melt formulations. (Source^® Lx APLD January 2010 – June 2010)

• Patients’ Experience.    Patients’ experience with Sumavel DosePro has been positive based on their feedback provided via the Connects Program from Infomedics. This internet-based program invites patients that received a Sumavel DosePro prescription to register online at the time of their prescription and then provide feedback after they have used the product to treat a migraine episode. Through August 7, 2010, 877 patient respondents who had used Sumavel DosePro have rated their satisfaction with Sumavel DosePro at an average score of 7.1 versus 5.5 for their prior migraine medication (9-point satisfaction scale, with 9 being “very satisfied”).

• Third-party Payor Coverage.    Through our ongoing efforts with the largest commercial health plans, Sumavel DosePro is achieving broad coverage in the United States. In many of these plans, Sumavel DosePro is categorized as a Tier 3 drug. For certain of these plans, Sumavel DosePro is on Tier 3/ restricted reimbursement status, which means that some additional prior authorization or step-edit is required prior to a claims approval. Approximately 78% of reimbursement claims submitted for Sumavel DosePro have been approved since its launch (Source^® Dynamic Claims January 2010 – June 2010). We are currently in discussions to further expand coverage and improve patient access for Sumavel DosePro with additional third-party payors.

Sumavel DosePro Regulatory Approval

We sought and received FDA marketing approval of Sumavel DosePro under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or the FFDCA, utilizing Imitrex sumatriptan injection as the reference listed product. Section 505(b)(2) of the FFDCA provides an alternate path to FDA approval for modifications to formulations or new dosing of products previously approved by the FDA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. This expedited the development program for Sumavel DosePro by decreasing the overall scope of clinical and pre-clinical work required to be completed by us.

The clinical efficacy of subcutaneous injectable sumatriptan for migraine and cluster headache has been established by the reference listed product, Imitrex sumatriptan injection, which was approved in 1992. Based on our clinical bioequivalence studies, the FDA concluded that Sumavel DosePro is bioequivalent to injectable sumatriptan administered to the thigh or abdomen using Imitrex STATdose and is well tolerated when compared to this reference listed product. Our Sumavel DosePro NDA was approved by the FDA on July 15, 2009, and the Sumavel DosePro Prescribing Information includes the historical efficacy data of sumatriptan injection.

Sumavel DosePro Pivotal Clinical Program

Based on discussions with the FDA, and due to the existing body of data on injectable sumatriptan, our pivotal clinical program evaluated Sumavel DosePro in studies for pharmacokinetics, bioequivalence, safety, local injection site signs and reactions, and usability by patients with migraine. We conducted a single pivotal pharmacokinetics and bioequivalence clinical trial for the purpose of providing evidence of bioequivalence and safety of Sumavel DosePro as compared to Imitrex STATdose. This study, completed in April 2007, was a randomized, open-label, cross-over trial comparing safety, tolerability and pharmacokinetics in 54 subjects. The primary endpoint of bioequivalence was demonstrated in the commonly used abdomen and thigh injection sites. A separate 52-patient usability study was conducted in the second half of 2007 to evaluate the usability of Sumavel

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DosePro in patients during acute migraine attacks in an outpatient setting. In this study, 98% were able to use Sumavel DosePro correctly during a migraine attack on their first attempt, thus confirming the product candidate’s ease of use. Further use of Sumavel DosePro by the same patients in their treatment of subsequent migraine attacks provided consistent evidence of usability in the outpatient setting. In addition, we concluded a successful safety trial with Sumavel DosePro in December 2007 to study the effect of repeat dosing and multiple injections. Adverse events seen in our clinical studies were consistent with previously reported adverse events for sumatriptan injection. The most common treatment-emergent adverse reactions (reported by at least 5% of patients) for sumatriptan injection as described in the Sumavel DosePro Prescribing Information summarizing two large placebo-controlled clinical trials were injection site reaction (59%), atypical sensations (42%), dizziness (12%), flushing (7%), chest discomfort (5%), weakness (5%), and neck pain/stiffness (5%).

Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose.

Sumavel DosePro Post-Approval Clinical Program

In addition to the clinical program completed in support of product approval, we recently completed a Phase 4 open-label, multicenter study in the United States to evaluate treatment satisfaction, treatment confidence, and subject preference for Sumavel DosePro in adult subjects diagnosed with migraine and currently treated with triptans. More than 240 subjects, who were predominantly taking oral triptan therapy, used Sumavel DosePro to treat up to four migraines over a 60-day period. The study met its primary endpoint of demonstrating a significant and clinically relevant improvement in patient satisfaction after treatment with Sumavel DosePro as measured by the Patient Perception of Migraine Questionnaire-Revised (PPMQ-R). PPMQ-R is a commonly employed method to evaluate patient satisfaction with migraine treatment through analysis of efficacy, functionality, ease of use and tolerability/side effects. We intend to disclose the full results of this study at relevant clinical symposia and via peer-review publications in 2011.

DosePro and Sumavel DosePro Clinical Experience

The DosePro drug delivery system has been in development for more than ten years. During this time, more than 9,000 injections have been administered in multiple clinical studies to assure the proper functioning of the system and to establish the safety and tolerability of needle-free administration by DosePro. While our experience indicates that some patients will experience pain upon injection with the DosePro technology, this pain sensation is consistent with the pain sensation associated with injection with a fine gauge needle and can be generally characterized as transient mild discomfort.

ZX002 for the Treatment of Moderate to Severe Chronic Pain

Our lead product candidate, ZX002, is a novel, oral, single-entity controlled-release formulation of hydrocodone currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. We believe ZX002 has the potential to be an important therapeutic alternative to existing hydrocodone products, including the branded products Vicodin, Lortab and their generic equivalents, which contain the analgesic combination ingredient acetaminophen and, if taken in high quantities over time, can lead to serious side effects such as liver toxicity. ZX002 utilizes the SODAS Technology, Elan’s proprietary multiparticulate drug delivery system that allows the development of customized controlled-release profiles and serves to enhance the release profile of hydrocodone in ZX002 to provide constant 12-hour pain relief. We believe these release properties have the potential to provide longer lasting and more consistent pain relief with fewer daily

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doses than the commercially available formulations of hydrocodone. As a result of its unique single-entity controlled-release profile, we believe ZX002 will generate sales from both patients who use immediate-release products on a chronic basis and patients already using extended-release products in the prescription opioid market.

The Chronic Pain Market

Pain is a worldwide problem with serious health and economic consequences. The American Pain Society estimated in 1999 that 9% of the U.S. adult population suffers from moderate to severe non-cancer related chronic pain. Chronic pain may be defined as pain that lasts beyond the healing of an injury or that persists beyond three months. Common types of chronic pain include lower back pain, arthritis, headache and face and jaw pain. While mild pain does not typically stop an individual from participating in his or her daily activities, moderate pain may prevent an individual from participating in his or her daily activities and severe pain typically stops an individual from participating in his or her daily activities and induces a patient to exhibit pain avoidance behaviors.

Chronic pain treatment depends on the individual patients, their diagnosis and their pain severity. Chronic pain patients typically first attempt to self-medicate with over-the-counter drugs such as acetaminophen, aspirin or another non-steroidal anti-inflammatory drug, or NSAID. Patients with more constant and/or moderate to severe pain typically seek medical attention and prescription pain medication from a primary care physician and, if necessary, are referred to a neurologist or a physical medicine or pain specialist. Physicians generally assess the patient and, if appropriate, start treatment with a trial of opioid therapy to determine the optimal opioid regimen. At this point, physicians commonly prescribe opioids, including products from the codeine and morphine classes. The general objective of the physician is to safely achieve adequate control of pain.

Physicians generally prefer to start patients on less potent opioids where possible. A trial of opioid therapy usually begins with short-acting doses taken on an as-needed basis. This allows the clinician and patient to assess the total opioid requirement. Patients taking substantial doses of short-acting opioids multiple times per day may find substitution of an extended-release agent, taken one to two times per day, extremely helpful to provide more constant pain relief. In theory, the more constant opioid blood levels of extended-release products may provide better pain relief and better sleep quality. Dosing intervals less frequent than every four to six hours may also provide improved patient adherence to the prescribed regimen and improved patient convenience. Finally, individual patients may do poorly on one opioid, but better after switching to another. This practice is called opioid rotation and is regularly employed in chronic pain management. Opioids, while generally effective for pain treatment, are associated with numerous potential adverse effects, including opioid induced bowel dysfunction, sedation, nausea, vomiting, decreased respiratory function, addiction and, in some instances, death.

Hydrocodone is often used as a “starter” opioid to initiate opioid therapy because it is viewed by many physicians as a less potent opioid. Historically, hydrocodone preparations in the United States have been utilized primarily for treatment of acute pain following surgery or injury. For this purpose, they were combined with analgesics, including acetaminophen or an NSAID, which treat the acute inflammatory component of the pain. These analgesics are generally safe when used at lower doses or for short periods of time. However, at higher doses or over extended periods of time, they may significantly increase patient risk for gastrointestinal, liver and kidney damage.

As the practice of pain management has broadened to include chronic therapy for moderate to severe pain, physicians continue to broadly use hydrocodone combinations. In the United States, market research conducted by bioStrategies Group on our behalf indicates that approximately 50% of the use of immediate-release combination products that include hydrocodone, codeine or oxycodone is for the treatment of chronic pain. However, physicians sometimes find the non-opioid analgesic component in combination hydrocodone products creates a ceiling effect when they wish to escalate doses. For

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example, the most commonly prescribed dose of Vicodin (5mg hydrocodone/500 mg acetaminophen) given at a maximum dose of eight tablets per day delivers 4 g of acetaminophen, which approaches or exceeds recommended acetaminophen dosing, while only delivering 40 mg of hydrocodone, based on the Vicodin Prescribing Information. If a further increase in opioid dose is warranted, a physician is compelled to transition to an opioid not in combination, such as oxycodone, or more potent opioids such as fentanyl or oxymorphone.

In the 12 months ended June 2010, our target market, which we define as prescription non-injectable codeine-based and extended-release morphine-based pain products, generated sales of approximately $13.0 billion in the United States on approximately 202 million prescriptions. Of the $13.0 billion, hydrocodone products, the most commonly prescribed opioid and the most commonly prescribed pharmaceutical products in the United States, generated $3.1 billion in sales on approximately 126 million prescriptions. (Source^® Pharmaceutical Audit Suite (PHAST)).

In June 2009, the FDA organized a joint meeting of the Drug Safety and Risk Management Advisory Committee, Nonprescription Drugs Advisory Committee, and the Anesthetic and Life Support Advisory Committee to discuss how to address the public health problem of liver injury related to the use of acetaminophen in both over-the-counter and prescription products. The expert panel specifically considered the elimination of combination prescription products containing acetaminophen (including Vicodin and its generics) from the U.S. market. Twenty of the 37 working group members (10 saying this was a high priority) voted in favor of removing such products from the market. The working group ultimately did not recommend withdrawal of these products stating that the benefits of access to Schedule III acetaminophen/ hydrocodone combination products over Schedule II opioids outweighed the risk of removing the combinations from the market. The working group also noted that the logical choice to substitute for the combination products would be a single-entity formulation of hydrocodone. There are currently no approved products formulated with hydrocodone alone, and we believe ZX002 has the potential to fill this treatment gap.

Limitations of Current Opioid Pain Therapies

While hydrocodone in combination products remains the most commonly prescribed opioid, currently available hydrocodone formulations have several major limitations, including:

• Hydrocodone only available in short-acting/immediate-release form.    There are currently no extended-release hydrocodone formulations on the market.

• Adherence dependent.    Because hydrocodone is available only in immediate-release formulations that are dosed every four to six hours, its around-the-clock efficacy is dependent on diligent adherence by the patient. Published studies across therapeutic categories, including the treatment of diabetes, hypertension and infectious disease, demonstrate that patient adherence to drug regimens declines as the number of daily drug doses increases.

• Inconsistent pain relief.    Because of the dosing issues noted above, many patients experience suboptimal pain relief due to variable opioid blood levels, particularly towards the end of dosing intervals.

• Opioid dose is limited by combination analgesics.    The overwhelming majority of currently approved hydrocodone products include acetaminophen in their formulation. Because of the potential side effects of chronic increasing acetaminophen doses, the acetaminophen component of these combination products can become a dose limiting factor. When this occurs, patients must limit their total hydrocodone dose to avoid potential liver and other side effects of acetaminophen and thus may receive a sub-optimal daily dose of hydrocodone, or they must switch to other single-entity opioids, such as oxycodone. Hydrocodone combinations with NSAIDs have similar dose limitations due to the gastrointestinal side effects associated with NSAIDs.

While extended-release, single-entity opioids exist, published study reports indicate that patients are regularly taking more daily doses of extended-release opioids than the recommended labeled

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dose, suggesting that not all of them provide true 12- or 24-hour dosing. For example, results from a study of 437 patients published in the May/June 2003 issue of the Journal of Managed Care Pharmacy indicated that despite the “every 12-hours” dosing regimen recommended in its Prescribing Information, patients taking extended-release oxycodone on average took 4.6 tablets per day, at an average dosing interval of only 7.8 hours. In the same study, among extended-release oxycodone patients, only 1.9% reported the duration of pain relief as 12 or more hours. A separate study published in the September/October 2004 issue of The Clinical Journal of Pain indicated that the prescribed frequency of dosing extended-release oxycodone determined through clinical practice was twice daily for 33% of patients, with 67% of patients requiring greater than twice daily dosing.

Our Solution: ZX002

We believe that ZX002, if approved, may provide patients and physicians with the following benefits when compared to existing opioid pain medications:

• Single-entity hydrocodone.    ZX002, if successfully developed and approved by the FDA, is expected to be the first non-combination, controlled-release hydrocodone product to be commercialized in the United States, giving physicians and patients a hydrocodone option unencumbered with acetaminophen or NSAIDs and their potential adverse effects.

• Twice daily dosing provides true around-the-clock relief.    ZX002, via its unique controlled-release profile, is designed to provide consistent relief of moderate to severe chronic pain over a 12-hour period per dose. Clinical studies have shown a pharmacokinetic profile that supports the expected extended relief profile of ZX002.

• Easier adherence/greater patient convenience.    Because of its twice daily dosing regimen, ZX002 requires fewer daily doses than currently available hydrocodone formulations, thereby increasing the likelihood of patient adherence and convenience.

• Another opioid option for chronic medication rotation.    The unique profile of ZX002 provides another option for physicians investigating new alternatives to offer patients who require medication rotation due to tolerance, side effects or poor pain control.

ZX002 Phase 3 Clinical Development Program

We initiated a single pivotal Phase 3 efficacy trial (Study 801) in March 2010. This trial is a randomized, 12-week, double-blind, placebo-controlled trial to evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic lower back pain in opioid-experienced adult subjects. Our trial utilizes a protocol design that has been used successfully to demonstrate the efficacy of other controlled-release opioid therapies for chronic pain. The primary efficacy endpoint in this trial is the mean change in average daily pain intensity scores between ZX002 and placebo. We confirmed the FDA’s agreement on the trial design for Study 801 and the overall safety database requirements for an NDA submission at our End of Phase 2 meeting with the FDA conducted in June 2008. We did not seek a Special Protocol Assessment, or SPA, from the FDA for Study 801.

To further assess the safety and tolerability of ZX002 as a chronic pain therapy, we have also initiated an open-label Phase 3 trial in opioid-experienced adult subjects with any indication appropriate for continuous, around-the-clock opioid therapy for an extended period of time (Study 802). The goal of this trial is to evaluate the safety and tolerability of ZX002 for up to 12 months of treatment. We expect to begin to receive top-line data from both our Phase 3 trials in the second half of 2011.

Based upon feedback from the FDA at our End of Phase 2 meeting, and assuming positive outcomes from the studies described above, we do not believe that additional Phase 3 safety and efficacy trials will be required to support our proposed label. Concurrent with our Phase 3 program, we will be conducting a small number of additional single-dose pharmacokinetic and clinical pharmacology trials and pre-clinical studies required for submission of the NDA and approval of this product candidate. If

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the Phase 3 clinical development program for ZX002 is successful, we expect to submit an NDA with the FDA by early 2012.

Prior Clinical Development of ZX002

Our licensor for ZX002, Elan, conducted pre-clinical and clinical studies of ZX002 under an IND initiated in 2002.

Phase 1 and Phase 2 Clinical Development.    In single and multiple dose pharmacokinetic evaluations, ZX002 demonstrated detectable plasma concentrations of hydrocodone within 15 minutes of administration. ZX002 also demonstrated a sustained release effect significantly longer than currently available hydrocodone combination products such as Vicodin, as well as dose proportional pharmacokinetics. Consistent, steady-state plasma levels, which are believed to be desirable for chronic pain patients who require around-the-clock opioid therapy, were achieved within one week of the initiation of dosing. In addition, ZX002 has been tested under both fed and fasted conditions and the amount of drug exposure was not affected by food, which we believe provides the basis for a flexible administration regimen for chronic pain. We believe that these prior pharmacokinetic studies demonstrate that ZX002 displays a consistent, controlled-release profile, dose-proportional pharmacokinetics and an acceptable safety profile.

ZX002 has also been evaluated in two separate Phase 2 pain studies. The first study was a randomized, single-dose, parallel group, placebo-controlled, active-comparator study to evaluate the safety, efficacy and pharmacokinetics of increasing doses of ZX002 in opioid-naive adults immediately following bunion removal surgery. This study was designed to evaluate pain prevention rather than pain treatment. In this 241-patient study, patients were treated with either one of four doses of ZX002 (10, 20, 30 or 40 mg controlled-release hydrocodone bitartrate), an active immediate-release comparator consisting of 10 mg hydrocodone bitartrate plus 325 mg acetaminophen, or placebo. The primary efficacy measurement was the visual analog scale of pain intensity from 0 to 12 hours after dosing. The 40 mg dose of ZX002 was significantly more effective (p<0.05) versus placebo in controlling postoperative pain. In addition, efficacy of the 40 mg dose did not significantly differ from the hydrocodone bitartrate/acetaminophen active comparator in any of the efficacy outcome measures. None of the three lower doses of ZX002 were superior to placebo in the primary efficacy measurements. All four doses were found to be safe and well-tolerated. We believe this efficacy and safety information is useful in establishing proof-of-concept for ZX002.

The second Phase 2 study was a four week, multiple-dose, safety, tolerability and pharmacokinetic dose-escalation study of ZX002 in opioid-experienced adults with chronic, moderate to severe osteoarthritis pain. The primary objective was to assess the safety, tolerability and pharmacokinetics of ZX002 at steady state over a range of escalating daily doses. Thirty-seven patients in two dosing cohorts received escalating doses of ZX002 over three weeks. This study demonstrated a clinically acceptable safety profile and a reduction in pain intensity for chronic moderate to severe osteoarthritis pain patients across multiple dosage strengths. We believe that the study also demonstrated a steady-state pharmacokinetic profile that is appropriate for the management of chronic pain. In both Phase 2 studies, patients experienced mild to moderate adverse events, such as nausea, vomiting, headache, dizziness, sweating, constipation and drowsiness, which are similar to the reported effects of opioids currently prescribed for chronic pain.

The data from these Phase 1 and Phase 2 studies were submitted to the FDA under our IND and were summarized in our End of Phase 2 meeting briefing package in support of progressing ZX002 into pivotal Phase 3 clinical studies.

Our DosePro Technology and Pre-clinical Pipeline

Our proprietary DosePro technology is a first-in-class, easy-to-use drug delivery system designed for self-administration of a pre-filled, single dose of liquid drug, subcutaneously, without a needle. The DosePro technology (formerly known as Intraject) has undergone more than ten years of design,

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process engineering, clinical evaluation and development work, including significant capital investment by the predecessor owners of the technology, Weston Medical Group, plc and Aradigm Corporation, or Aradigm. We believe the approval and launch of Sumavel DosePro in the United Sates validates the technology’s commercial viability and readiness for other potential drug applications.

We believe that DosePro offers several benefits to patients compared to other subcutaneous delivery methods, and that it has the potential to become a preferred delivery option for patients and physicians for many injected medicines beyond sumatriptan, particularly those that are self-administered. These benefits include less anxiety or fear due to the lack of a needle, easier disposal without the need for a sharps container, no risk of needlestick injury or contamination, an easy-to-use three step process, no need to fill or manipulate the device, reliable performance, discreet use and portability. In several clinical trials and market research studies, DosePro has been shown to be preferred by patients over conventional needle-based systems. For example, in a head-to-head study conducted by GSK of Sumavel DosePro versus the European branded version of Imitrex STATdose, a needle-based delivery system, 61% of migraine patients preferred using Sumavel DosePro while only 18% preferred using the European branded version of Imitrex STATdose, with the remaining patients expressing no preference. In addition, in a market study conducted on our behalf by Boston Healthcare Associates, Inc., 76% of patients preferred Sumavel DosePro as a delivery method over Imitrex STATdose. In addition, DosePro requires less time from physicians and other caregivers to train patients to use the device. Physician preference for DosePro as a needle-free alternative to conventional needle-based injections has also been demonstrated in market research studies. For example, in a study conducted by Palace Healthcare Group, Inc. on our behalf, 94% of primary care physicians and 98% of neurologists indicated they would be more willing to prescribe an injectable migraine product if it were needle-free.

Clinical studies suggest that DosePro will have significant versatility in its ability to deliver various types of therapeutic compounds, including both small molecules and biologic products where the dose volume is 0.5 mL or less. In addition to positive results using DosePro in clinical studies performed with saline and sumatriptan, there have been three positive single-dose human pilot studies conducted with a combination of a protein pharmaceutical and DosePro. These studies include pharmacokinetic bioequivalence studies comparing DosePro to a conventional needle injection for human growth hormone and erythropoietin, or EPO, and pharmacodynamic equivalence study using granulocyte colony-stimulating factor, or GCSF. Pre-clinical work with monoclonal antibodies evaluating bioavailability, pharmacokinetics and a lack of immunogenicity has also been conducted. In vitro studies with DosePro technology have demonstrated the potential to allow the subcutaneous delivery of highly viscous formulations, which can be a limiting factor for use of traditional needle-based delivery systems. As a result of the versatility of DosePro to deliver various types of drug products, this technology may have significant market potential across a broad range of therapeutic areas, including those typically treated with small volume injectable products, such as hepatitis, infertility, multiple sclerosis and rheumatoid arthritis.

Since some drug formulations cannot be accommodated in a 0.5 mL dose volume, we have initiated early stage design and development of a larger volume, second generation version of our DosePro technology, which if successfully developed, would allow for a broader range of potential applications for our technology. However, the full development of such technology will require substantial investment and we may consider entering into a third-party collaboration in order to fully-develop such technology. There is no guarantee that we or any potential future third-party collaborator will be able to successfully develop such a device technology, whether for financial or technical reasons or otherwise.

Given its multiple benefits and therapeutic versatility, we believe the DosePro technology provides us with an opportunity to develop our own product candidates by pairing DosePro with proven drugs to enhance their commercial attractiveness. We have initiated pre-clinical development work on a proprietary long-acting formulation of an injectable CNS drug product and are also evaluating the market potential, formulation requirements and clinical development pathway of an additional CNS

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compound that could be paired with DosePro to enhance its commercial attractiveness. If these efforts are successful, we may be able to submit an IND for one or both product candidates in 2011. We also believe DosePro provides an attractive licensing option for other pharmaceutical and biotech companies seeking to enhance, differentiate or extend the life-cycle of their own injectable products, and we are continuing to explore such arrangements with several established pharmaceutical companies. These opportunities include both currently marketed products as well as development stage product candidates.

Sales and Marketing

We have built a highly experienced sales and marketing organization in the United States focused on marketing and selling Sumavel DosePro to physicians, nurses and other healthcare professionals. Our sales and marketing organization is comprised of approximately 100 professionals. Our field sales force of approximately 80 representatives is promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. We believe the key factors in the continued successful adoption of Sumavel DosePro will include expanding its use as an alternative to oral and nasal triptan therapy, converting current sumatriptan injectable users to Sumavel DosePro and building patient awareness and trial. We are specifically positioning Sumavel DosePro as a therapeutic alternative for oral triptan non-responders and dissatisfied patients, including those with morning migraines, fast progressing migraines and migraines accompanied by nausea and/or vomiting.

We believe our sales force is differentiated by its level of experience and background in the industry and accountability for sales results. Our field sales representatives have an average of 12 years of prior experience promoting pharmaceutical products and most have prior experience in the neurology and/or migraine space. In addition, our sales management team has on average 19 years of pharmaceutical industry experience, including an average of eight years of sales management experience. Each of our sales representatives and regional business directors undergoes a formal training program focused on disease background, our product, competitive products and territory management, as well as compliance with applicable laws. Our training program also includes significant ongoing and field-based learning to provide a comprehensive understanding and perspective as to our markets and disease states and the needs of both physicians and patients.

In addition to our field sales team, we also have an experienced team of field-based managed markets and trade directors. This team works closely with our regional business directors to engage with third-party payors to ensure and expand reimbursement coverage and patient access for our product and implement pharmacy based educational programs. To date, we have entered into a limited number of contracts with private health insurers, managed care organizations, government entities and other third-party payors that provide coverage for our products.

We are supporting this field based organization with an internal team which includes product management, communications, commercial analytics and sales operations staff. This team is focused on the implementation of a variety of marketing programs to educate customers, which include direct-to-physician promotional materials, speaker programs, direct-to-patient programs, digital media, participation in selected medical conventions and reimbursement support programs.

In addition, in July 2009, we entered into an exclusive agreement with Astellas under which Sumavel DosePro is currently being marketed by Astellas in the United States and promoted primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists by approximately 400 Astellas sales representatives. This allows us to effectively market and sell to a broader physician audience than could be reached by our sales force alone.

In March 2008, we entered into a licensing and distribution agreement with Desitin, a private German pharmaceutical company focused on the development, manufacturing and distribution of products for the treatment of CNS disorders. Under the terms of the agreement, we licensed to Desitin

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the exclusive development and commercialization rights to Sumavel DosePro for the European Union, Norway, Switzerland and Turkey. Desitin will oversee, and be responsible for the expenses related to, all clinical development, regulatory approval and commercialization efforts required to market Sumavel DosePro in Germany and any other territories in which Desitin elects to develop and market Sumavel DosePro. We have agreed to manufacture and supply the product to Desitin for commercial sale. Desitin has agreed to pay us a specified transfer price for commercial product and a low single-digit percentage royalty on net sales of the product. We retain full commercial rights to Sumavel DosePro in all other countries not licensed under the Desitin agreement, including the United States, Canada and the countries in Asia. We continue to evaluate potential partnerships to expand the future sale of Sumavel DosePro to additional markets outside of Europe and the United States.

For the launch of ZX002, if approved, we intend to expand our sales and marketing infrastructure, including expanding our field sales force to 250 or more representatives to allow us to reach a broad range of opioid prescribers in our target market and continue to support Sumavel DosePro. We expect our primary target audiences may expand to include anesthesiologists, pain specialists, physical medicine specialists and additional primary care physicians. In addition, we expect that we will also consider opportunities to partner ZX002 to reach a broader physician audience. We will also evaluate third-party co-promotion opportunities that would allow us to strategically leverage our commercial resources and generate additional revenue in the United States.

Competition

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources which may target the same indications as our product or product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater financial resources, sales and marketing capabilities, manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than us. We face competition not only in the commercialization of Sumavel DosePro or any product candidates for which we obtain marketing approval from the FDA or other regulatory authorities, but also for the in-licensing or acquisition of additional product candidates, and the out-licensing of our DosePro drug delivery technology.

Sumavel DosePro

Sumavel DosePro competes against other marketed migraine therapeutics. The largest class of marketed prescription products for treatment of migraine is the triptan class. The largest selling triptan is sumatriptan, with the branded products Imitrex and Treximet marketed by GSK and Sumavel DosePro marketed by us. There are six other branded triptan therapies being sold by pharmaceutical companies including AstraZeneca PLC, Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, Merck, and Pfizer in the United States.

We also face competition from generic sumatriptan injectable, now marketed in the United States as an authorized generic of the autoinjector system by Par Pharmaceutical Companies and Sandoz Inc. (a Novartis AG company). In addition, the FDA recently approved Alsuma (sumatriptan injection), a needle-based autoinjector which was developed and is manufactured by Meridian Medical Technologies, a subsidiary of King Pharmaceuticals, Inc., or King, and will be distributed by US WorldMeds, LLC. Finally, generic injectable sumatriptan in the form of vials and prefilled syringes is available from nine companies including from APP Pharma (Fresenius Kabi), Bedford Laboratories, Cura Pharmaceutical Co., Inc., JHP Pharmaceuticals, LLC, Par Pharmaceutical, Sagent Pharmaceuticals, Inc./ Strides Arcolab, Ltd., Sandoz Inc., Teva Pharmaceutical Industries Limited, and Wockhardt Limited. Although these products and alternative autoinjector forms of sumatriptan injection may not be directly substituted for Sumavel DosePro, generic versions of injectable sumatriptan may reduce the future

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adoption of our Sumavel DosePro by health insurers and consumers, as financial pressure to use generic products may encourage the use of a generic product over Sumavel DosePro. Presently, however, we are seeing little impact from substitution on the uptake of Sumavel DosePro.

In addition to these migraine therapeutics, there are other marketed non-triptan migraine therapeutics, such as Cambia sold by Nautilus Neurosciences, Inc. and Migranal sold by Valeant Pharmaceuticals International. Moreover, there are several product candidates under development that could potentially be used to treat migraines and compete with Sumavel DosePro, including products under development by large pharmaceutical companies such as GSK and Merck and smaller companies such as NuPathe, Inc. and MAP Pharmaceuticals, Inc. In addition, Allergan, Inc. is developing BOTOX botulinum toxin for the potential treatment of chronic migraine.

ZX002

If approved for the treatment of moderate to severe chronic pain, ZX002 will compete against other marketed branded and generic pain therapeutics and may compete with additional product candidates currently under development or developed in the future. Current competitors in the opioid pain therapeutics space include, but are not limited to, Abbott Laboratories, Cephalon, Inc., Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, King, Mallinckrodt Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc. There are at least 15 opioid product candidates, including abuse and diversion resistant formulations of currently available opioids, novel opioids and alternative delivery forms of various opioids under development at other pharmaceutical companies, including single-entity extended-release hydrocodone product candidates being developed by Cephalon, Inc., Egalet A/S and King. ZX002 may also face competition from non-opioid products, as well as alternative delivery forms of NSAIDs. In addition to the previously named companies, a number of pharmaceutical companies are developing new product candidates for pain including, but not limited to, Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Collegium Pharmaceutical, Inc., Eli Lilly and Company, Elite Pharmaceuticals, Inc., Hospira, Inc., Inspirion Delivery Technologies, LLC, Intellipharmaceutics International Inc., Pfizer and QRxPharma Ltd.

DosePro Technology

Traditional needle and syringe remain the primary method for administering intramuscular and subcutaneous injections. The injectable drug market is increasingly adopting new injection systems including pre-filled syringes, pen injectors and autoinjector devices. The majority of these devices, however, still employ a needle. We will compete with companies operating in the needle-based drug delivery market. These companies include, but are not limited to, Becton, Dickinson and Company, Owen Mumford Ltd. and Ypsomed. Additional competition may come from companies focused on out-licensing needle-free technology including Antares Pharma Inc. and Bioject Inc., which have both commercialized spring-driven, multiple-use, patient-filled, needle-free injectors, primarily for injecting insulin for diabetes. We believe that market acceptance of these devices has been limited due to a combination of the cost of the devices, their large size and their complexity of use. Other companies may also be developing single-use, pre-filled, needle-free delivery systems. We also may experience future competition from alternative delivery systems which bypass the need for an injection, including inhaled, nasal, sublingual or transdermal technologies.

Distribution

We primarily sell Sumavel DosePro to wholesale pharmaceutical distributors, who, in turn, sell the products to pharmacies, hospitals and other customers. Three wholesale pharmaceutical distributors, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation, individually comprised 46.4%, 38.8% and 9.9%, respectively, of our total gross sales of Sumavel DosePro for the six months ended June 30, 2010.

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We use a third-party logistics provider, Cardinal Health 105, Inc. (a/k/a Specialty Pharmaceutical Services), for key services related to logistics, warehousing and inventory management, distribution, contract administration and chargeback processing, accounts receivable management and call center management. In addition, we utilize third parties to perform various other services for us relating to sample accountability and regulatory monitoring, including adverse event reporting, safety database management and other product maintenance services.

The following are distribution agreements that we believe are material to the ongoing operation of our business.

Cardinal Health Inc.

In December 2009 and January 2010, we entered into a wholesale purchase agreement and distribution services agreement, respectively, with Cardinal Health, Inc. and its affiliates, or collectively Cardinal Health, pursuant to which it provides us with distribution and inventory management services for Sumavel DosePro. The wholesale purchase agreement covers general terms related to the distribution and inventory management services provided by Cardinal Health, including with respect to the purchase of Sumavel DosePro from us and chargebacks and returns related to such purchases. The distribution services agreement covers the fees payable by us to Cardinal Health for the performance of such services. Under the distribution services agreement, we pay Cardinal Health a quarterly fee based on the volume of Sumavel DosePro purchased by Cardinal Health from us during that quarter.

The distribution services agreement has an initial three-year term, which expires in January 2013, and the wholesale purchase agreement has an initial one-year term, which expires in December 2010. Following the initial term, each agreement automatically renews for successive one-year periods unless either party provides the other party with written notice of non-renewal within a specified period prior to the expiration of the then-current term. Either party may terminate either agreement (1) upon mutual written agreement of the parties, (2) upon written notice if the other party has failed to cure a breach of any of the terms of the agreement within a specified period following receipt of written notice of such breach, or (3) upon institution (whether voluntary or involuntary) of bankruptcy, insolvency, liquidation or similar proceedings by or against the other party or the assignment of the other party’s assets for the benefit of creditors. In addition, either party may terminate the distribution services agreement 60 days following termination of the agreement pursuant to which an affiliate of Cardinal Health, Cardinal Health 105, Inc. (a/k/a Specialty Pharmaceutical Services) provides third-party logistics services for us. Cardinal Health may also terminate the distribution services agreement following a change of control of our company if Cardinal Health determines that the transaction gives rise to credit or financial risks. Either party may also terminate the wholesale purchase agreement for any reason by giving the other party specified written notice.

McKesson Corporation

In December 2009, we entered into a strategic redistribution center and core distribution agreement with McKesson Corporation, or McKesson, pursuant to which McKesson provides us with distribution and inventory management services for Sumavel DosePro. We pay McKesson a quarterly fee based on the volume of Sumavel DosePro purchased by McKesson from us during that quarter. The agreement remains in effect unless terminated by either party upon specified written notice to the other party.

Manufacturing

Sumavel DosePro and our DosePro technology are manufactured by contract manufacturers, component fabricators and secondary service providers. Suppliers of components, subassemblies and other materials are located in the United Kingdom, Germany, Ireland and the United States. All contract manufacturers and component suppliers have been selected for their specific competencies in the manufacturing processes and materials that make up the DosePro system. FDA regulations require that

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materials be produced under current Good Manufacturing Practices, or cGMPs, or Quality System Regulations, or QSR, as required for the respective unit operation within the manufacturing process. Manufacturing equipment specific to the production of critical DosePro components and assemblies was developed and purchased by us and the prior owners of the DosePro technology and is currently owned by us.

We manage the supply chain for Sumavel DosePro, consisting of the DosePro system and the active pharmaceutical ingredient, or API, internally with experienced operations professionals, including employees residing in the United Kingdom who oversee European contract manufacturing operations. We have entered into long-term supply agreements relating to Sumavel DosePro with our critical contract manufacturers, most component fabricators and secondary service providers to secure long-term commercial supply for Sumavel DosePro and expect manufacturing capacity to adequately support our projected Sumavel DosePro demand through 2011. Each of these manufacturers and each other company that supplies, fabricates or manufactures any component used in our DosePro device is currently the sole qualified source of their respective components. In order to support projected demand after 2011, or if demand exceeds our expectation before then, we will be required to expand the capacity of some of our existing contract manufacturers and suppliers or qualify new manufacturers or suppliers.

DosePro systems intended for clinical trials of DosePro-based products other than Sumavel DosePro are provided by using the existing manufacturing infrastructure, supplemented with clinical scale aseptic fill/finish as appropriate for the stage and scale of the product under clinical development.

Clinical materials for our ZX002 clinical program are manufactured by Elan Drug Delivery, Inc. under the terms of our license agreement with Elan described under “Collaborations, Commercial and License Agreements” below.

The following are manufacturing and supply arrangements and agreements that we believe are material to the ongoing operation of our business.

Patheon UK Limited

In November 2008, we entered into a manufacturing services agreement with Patheon UK Limited, or Patheon, located in Swindon, United Kingdom, a specialist in the aseptic fill/finish of injectables and other sterile pharmaceutical products. Under the terms of the agreement, Patheon serves as our exclusive manufacturer for the aseptic capsule assembly, filling and inspection, final device assembly and packaging of Sumavel DosePro, as well as other manufacturing and support services. Although we are not required to have any minimum quantity of Sumavel DosePro manufactured under the agreement, we have agreed to provide Patheon with forecasts of the required volumes of Sumavel DosePro we need, and we are required to pay Patheon a monthly manufacturing fee of £283,000, or approximately $427,000 (based on the exchange rate as of June 30, 2010), over the remaining term of the agreement, aggregating to £11,333,000, or approximately $17,076,000. Under the agreement, we are also required to pay support and service fees, with the level of service fees increasing if annual production exceeds a specified volume. The agreement has an initial five-year term, which expires October 31, 2013. The parties may mutually agree in writing to renew the term for additional terms prior to the expiration of the then-current term. Either party may terminate the agreement (1) upon specified written notice to the other party, (2) upon written notice if the other party has failed to remedy a material breach of any of its representations, warranties or other obligations under the agreement within a specified period following receipt of written notice of such breach, and (3) immediately upon written notice to the other party in the event that the other party is declared insolvent or bankrupt by a court of competent jurisdiction, a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by such other party or the agreement is assigned by such other party for the benefit of creditors. Patheon may also terminate the agreement upon specified written notice if we assign the agreement to certain specified parties.

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Nypro Limited

Nypro Limited, located in Bray, Ireland, manufactures the actuator assemblies and injection molded components for our DosePro device pursuant to purchase orders. We do not currently have a long-term commercial supply agreement with Nypro.

MGlas AG

In May 2009, we entered into a commercial manufacturing and supply agreement with MGlas AG, located in Schweinfurt, Germany. Under the terms of the agreement, MGlas is our exclusive supplier of the glass capsule that houses the sumatriptan API in Sumavel DosePro (and will be the exclusive supplier of glass capsules for any future 0.5 mL DosePro product candidates or products). The agreement has an initial three-year term, which expires in May 2012. Either party may terminate the agreement by providing the other party with specified written notice. In addition, either party may terminate the agreement immediately by written notice if the other party commits a material breach of its obligations which is either incapable of remedy or is not remedied within a specified period following receipt of written notice of such breach, or in the event the other party becomes insolvent or is subject to insolvency-related proceedings.

Dr. Reddy’s Laboratories, Inc.

We are party to a supply agreement with Dr. Reddy’s Laboratories, Inc., or Dr. Reddy’s, which was originally entered into between Aradigm and Dr. Reddy’s in September 2004. Under the terms of the agreement, Dr. Reddy’s, a global pharmaceutical company and supplier of bulk API located in India, agreed to supply us with the sumatriptan API for Sumavel DosePro at a specified price. Dr. Reddy’s has agreed to sell to us, and we agreed to purchase on a non-exclusive basis from Dr. Reddy’s, not less than 50% of our quarterly requirements for sumatriptan in the United States, Canada and the European Union. The initial term of the agreement expires in 2020. The term of the agreement may be extended by us for successive one-year periods by written notice to Dr. Reddy’s, unless Dr. Reddy’s gives written notice to us that it does not wish to extend the term. We may terminate the agreement upon written notice if Dr. Reddy’s is unable to deliver sufficient amounts of sumatriptan over a specified period of time. We may also terminate the agreement if we are negotiating an agreement with a third party to commercialize such third party’s formulation of sumatriptan and such agreement would preclude us from sourcing sumatriptan from any party other than such third party. Either party may terminate the agreement upon written notice if the other party commits a material breach of its obligations and fails to remedy the breach within a specified time period, if the other party becomes insolvent or subject to bankruptcy proceedings, or where a force majeure event continues for a specified period of time.

Collaborations, Commercial and License Agreements

Astellas Co-Promotion Agreement

In July 2009, we entered into a co-promotion agreement with Astellas. Under the terms of the agreement, we granted Astellas the co-exclusive right (with us) to market and sell Sumavel DosePro in the United States (excluding Puerto Rico and the other territories and possessions of the United States) until June 30, 2013. Astellas has the option to extend the term of the agreement by an additional year in its sole discretion (and contingent upon Astellas’ payment to us of a predetermined option fee). In addition, Astellas has a right to opt-in to the commercialization of potential line extensions of Sumavel DosePro. Under the agreement, both Astellas and we are obligated to collaborate and fund the marketing of Sumavel DosePro and to provide annual minimum levels of sales effort directed at Sumavel DosePro during the term. In 2011 and throughout the remainder of the term, these minimum sales efforts are set forth as a minimum number of annual primary detail equivalents. We are responsible for the manufacture, supply, and distribution of commercial product for sale in the United States. In addition, we will supply product samples to Astellas, and Astellas will pay us for such samples, at an agreed upon transfer price.

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The target audience for Astellas’ sales efforts is primarily comprised of prescribers classified as primary care physicians (including internal medicine, family practice and general practice), OB/GYNs, emergency medicine physicians and urologists, or collectively the Astellas Segment. The target audience for our sales effort is primarily comprised of neurologists and other prescribers of migraine medicines who fall outside the Astellas Segment. In addition, our representatives have the right to call upon a specified number of key prescribers within the Astellas Segment; conversely Astellas’ representatives have the right to call upon a specified number of neurologists.

Under the agreement, Astellas has paid us upfront and milestone payments in an aggregate amount of $20.0 million through September 30, 2010. Astellas is not obligated to pay us any additional milestone payments. In consideration for Astellas’ performance of its commercial efforts, we are required to pay Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to the Astellas Segment. Astellas is not compensated for Sumavel DosePro sales to neurologists, any other prescribers not included in the Astellas Segment or for non-retail sales. In addition, upon completion of the co-promotion term, Astellas will be eligible to receive two additional annual tail payments calculated as decreasing fixed percentages (ranging from a mid-twenties down to a mid-teen percentage) of net sales in the Astellas Segment in the last 12 months of its active promotion.

Astellas may terminate the agreement for any reason or no reason upon 180-days written notice to us after September 30, 2010 or at any time in the event we undergo a change of control (as defined in the agreement). In addition, Astellas may terminate the agreement if a governmental authority takes action that prevents or makes it unlawful for Astellas to perform its obligations under the agreement, in the event of our inability to supply commercial product, under certain circumstances where a third party asserts that the making or selling of Sumavel DosePro infringes the intellectual property rights of a third party, or if we materially breach our minimum sales effort obligations and do not cure such breach within a specified period. In the event a termination pursuant to the reasons set forth in the previous sentence takes place prior to July 31, 2011, we would be required to pay Astellas a specified royalty on net sales of Sumavel DosePro up to an aggregate specified dollar amount. Any such payments would be in lieu of the annual tail payments described above. We may terminate the agreement in the event that Astellas materially breaches its minimum sales effort obligations and does not cure such breach within a specified period. Either party may terminate the agreement upon the occurrence of a large scale recall or market withdrawal of Sumavel DosePro, a failure of the Sumavel DosePro brand to achieve certain minimum sales levels in 2010 or 2011, a material uncured breach by the other party, insolvency or bankruptcy of the other party, or other event which affects the other party’s ability to perform its obligations under the agreement.

Desitin License and Distribution Agreement

In March 2008, we entered into a licensing and distribution agreement with Desitin. Under the terms of the agreement, we granted Desitin the exclusive right under our intellectual property rights related to Sumavel DosePro to develop, use, distribute, sell, offer for sale, and import Sumavel DosePro and any potential modified versions of Sumavel DosePro in the European Union, Norway, Switzerland and Turkey. Under the agreement, Desitin has the right, but with the exception of Germany not the obligation, at its own expense, to develop, obtain marketing approval and commercialize Sumavel DosePro in these territories. In addition, Desitin has a right of first refusal on the commercialization of any potential line extensions of Sumavel DosePro. We will manufacture and supply the product to Desitin for commercial sale in the licensed territories. Desitin will pay us a specified transfer price for commercial product and a low single-digit percentage royalty on net sales of the product for an initial term, on a country to country basis until the greater of ten years after the first commercial sale in that country or the expiration, in such country, of the last patent right to expire under the licensed technology. After the initial term, in countries where the product has had commercial sales, the agreement will be automatically renewed on a country-by-country basis by additional successive specified periods unless it is terminated by either party giving a specified prior written notice.

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Either party may terminate the agreement upon a material uncured breach, insolvency or bankruptcy, adverse event which affects the other party’s ability to perform its obligations under the agreement or upon the enactment of any law, decree or regulation which would impair or restrict either our right, title or interest in the intellectual property, or Desitin’s right to market or distribute the product in accordance with the agreement, either party’s right to terminate or elect not to renew the agreement as provided therein, or our right to collect the purchase price or royalties under the agreement. Either party may also terminate the agreement by giving 90 days prior written notice if continued marketing in the relevant territories is no longer possible due to advice from a relevant regulatory authority or clinical review board in such countries or due to serious adverse events caused by Sumavel DosePro anywhere in the world. Desitin may terminate the agreement upon a competent regulatory authority in the territories either imposing therapeutic indications not acceptable to Desitin or requiring the product to be marketed as a generic drug. Desitin also may terminate the agreement if more than one study regarding bioequivalence is required to obtain marketing authorization. We may terminate the agreement upon a specified prior written notice if in each of a specified number of consecutive calendar years Desitin fails to meet a specified percentage of sales forecasts to be mutually agreed upon under the agreement, if Desitin takes any act impairing our intellectual property rights or if Desitin ceases to carry on business in the marketing of pharmaceutical products in the territories. Desitin may also terminate the agreement, upon written notice, if the price at which we supply our product to Desitin exceeds a specified threshold.

Elan Pharma International Limited License Agreement

In November 2007, we entered into a license agreement with Elan, which was amended in September 2009. Under the terms of this license agreement, Elan granted to us an exclusive license in the United States and its possessions and territories, with defined sub-license rights to third parties other than certain technological competitors of Elan, to certain Elan intellectual property rights related to our ZX002 product candidate. The agreement grants us the exclusive right under certain Elan patents and patent applications to import, use, offer for sale and sell oral controlled-release capsule or tablet formulations of hydrocodone, where hydrocodone is the sole active ingredient, for oral prescriptions in the treatment or relief of pain, pain syndromes or pain associated with medical conditions or procedures in the United States. This right enables us to exclusively develop and sell ZX002 in the United States. Elan has retained the exclusive right to take action in the event of infringement or threatened infringement by a third party of Elan’s intellectual property rights under the agreement. We have the right to pursue an infringement claim against the alleged infringer should Elan decline to take or continue an action.

Under the terms of the agreement, the parties agreed that, subject to the future negotiation of a commercial manufacture and supply agreement, Elan, or an affiliate of Elan, will have the sole and exclusive right to manufacture and supply finished commercial product of ZX002 to us under agreed upon financial terms.

Elan also granted to us, in the event that Elan is unwilling or unable to manufacture or supply commercial product to us, a non-exclusive license to make product under Elan’s intellectual property rights. This non-exclusive license also includes the right to sublicense product manufacturing to a third party, other than certain technological competitors of Elan.

Under the license agreement, we paid an upfront fee to Elan of $500,000. We may be obligated to pay Elan up to $4.5 million in total future milestone payments with respect to ZX002 depending upon the achievement of various development and regulatory events. We are also required to pay a mid single-digit percentage royalty on net sales of the product for an initial royalty term equal to the longer of the expiration of Elan’s patents covering the product in the United States, or 15 years after commercial launch, if Elan does not have patents covering the product in the United States. After the initial royalty term, the license agreement will continue automatically for three-year rolling periods during which we will continue to pay royalties on net sales of the product at a reduced low single-digit percentage rate in accordance with the terms of the license agreement.

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Either party may terminate the agreement upon a material, uncured default or certain insolvency events of the other party or upon 12 months’ written notice prior to the end of the initial royalty term or any additional three-year rolling period. Elan may terminate the agreement in the event that we fail to meet specified development and commercialization milestones within specified time periods. We may terminate this agreement if the sale of ZX002 is prohibited by regulatory authorities, or if, despite commercially reasonable efforts, we are unable to obtain regulatory approval for ZX002. We may also terminate the agreement, with or without cause, at any time upon six months’ written notice prior to NDA approval for ZX002 and at any time upon 12 months’ prior written notice after NDA approval for ZX002.

Aradigm Corporation Asset Purchase Agreement

In August 2006, we entered into an asset purchase agreement with Aradigm. Under the terms of the agreement, Aradigm assigned and transferred to us all of its right, title and interest to tangible assets and intellectual property related to the DosePro (formerly known as Intraject) needle-free drug delivery system. Aradigm also granted to us a non-exclusive, fully paid, worldwide, perpetual, irrevocable, transferable, sublicensable license under all other intellectual property of Aradigm that was owned, controlled or employed by Aradigm prior to the closing of the asset purchase and that is necessary or useful to the development, manufacture or commercialization of the DosePro delivery system. Aradigm also retained a worldwide, royalty-free, non-exclusive license, with a right to sublicense, under all transferred intellectual property rights solely for purposes of the pulmonary field, and we granted Aradigm a license under other intellectual property rights solely for use in the pulmonary field.

At the time of the closing of the asset purchase, we paid to Aradigm a sum of $4.0 million as consideration. Under the agreement, we also paid a subsequent milestone payment to Aradigm of $4.0 million upon the U.S. commercialization of Sumavel DosePro in February 2010. We are also required to pay a 3% royalty on global net sales of Sumavel DosePro, by us or one of our licensees, if any, until the later of January 2020 or the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product.

In addition, in the event we or one of our future licensees, if any, commercializes a non-sumatriptan product in the DosePro delivery system, we will be required to pay Aradigm, at our election, either a 3% royalty on net sales of each non-sumatriptan product commercialized, or a fixed low-twenties percentage of the royalty revenues received by us from the licensee, if any, until the later of the ten year anniversary of first commercial sale of the product in the United States or the expiration of the last valid claim of the transferred patents covering the manufacture, use or sale of the product. Royalty revenues under this agreement include, if applicable, running royalties on the net sales of non-sumatriptan products, license or milestone fees not allocable to development or other related costs incurred by us, payments in consideration of goods or products in excess of their cost, or payments in consideration for equity in excess of the then fair market value of the equity.

Intellectual Property

Our success will depend to a significant extent on our ability to obtain, expand and protect our intellectual property estate, enforce patents, maintain trade secret and trademark protection and operate without infringing the proprietary rights of other parties.

Needle-free Drug Delivery Technologies

Sumavel DosePro is a new drug-device combination that subcutaneously delivers sumatriptan utilizing our proprietary needle-free drug delivery system to treat migraine and cluster headache. Our patent portfolio is directed to various types and components of needle-free and other drug delivery systems. As of September 30, 2010, we have 15 issued U.S. patents, nine pending U.S. patent applications, 46 issued foreign patents and 22 pending foreign patent applications. Of the above, we have seven issued U.S. patents, three pending U.S. patent applications, 28 issued foreign patents and six pending foreign patent applications relating to various aspects of Sumavel DosePro and our DosePro technology.

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Our issued U.S. Patent No. 5,891,086 covers a particular activator mechanism forming a part of the needleless injector device, and is expected to expire in 2014. We have a corresponding patent in Canada, and two each in Germany, Spain, France, United Kingdom, Italy and Japan, which are all expected to expire in 2013. Our issued U.S. Patent No. 6,135,979 covers a needleless injector with particular safety mechanisms, and is expected to expire in 2017. We have corresponding patents in Germany, France, United Kingdom and Japan, which are all expected to expire in 2016. Our issued U.S. Patent No. 5,957,886 claims a needleless injector system using a viscous damping medium, and is expected to expire in 2016. We have corresponding patents (one each in Canada, Germany, France, United Kingdom and Japan), which are all expected to expire in 2015. U.S. Patents 5,891,086; 6,135,979; and 5,957,886 are listed in the FDA Orange Book for Sumavel DosePro.

We have two U.S. patents and two pending foreign patent applications in Canada and Europe corresponding to methods of proof testing glass drug containers, such as those used in the manufacture of Sumavel DosePro. These patents, and applications if they issue, are expected to expire in 2023. We also have one U.S. patent and one each in Canada, Germany, France and the United Kingdom corresponding to methods of filling needle-free injector capsules, such as those used in the manufacture of Sumavel DosePro. These patents, and applications if they issue, are expected to expire in 2022.

We also have two pending U.S. patent applications, four foreign patents (one each in Germany, France, Japan and the United Kingdom), and one pending foreign patent application in Canada corresponding to needle-free injector drug capsules and methods for filling capsules with liquid drug, such as those used in the manufacture of Sumavel DosePro. These patents, and applications if they issue, are expected to expire in 2022.

Our remaining issued U.S. patents, pending U.S. patent applications, issued foreign patents, and pending foreign patent applications are not currently used in Sumavel DosePro, but may be used with alternate versions of, or future product candidates utilizing, our DosePro technology.

We do not have patent protection for Sumavel DosePro in a significant number of countries, including large territories such as India, Russia and China, and we will be unable to prevent infringement in those countries. Additionally, the three U.S. patents listed in the FDA Orange Book for Sumavel DosePro expire in 2014, 2016 and 2017. Upon expiration, we will lose certain advantages that come with Orange Book listing of patents and will no longer be able to prevent others in the U.S. from practicing the inventions claimed by the three patents.

ZX002

ZX002 is an oral version of an opioid pain reliever, which is designed to offer a controlled-release profile that utilizes Elan’s proprietary SODAS delivery system. Our in-licensed patents from Elan relating to ZX002 include one issued U.S. Patent No. 6,902,742 and a pending U.S. Patent Application No. 11/372,857. The license agreement is described above in further detail. The issued patent is expected to expire in November 2019. Absent any award of patent term extensions, the patent application, if it issues, is not expected to expire later than this date.

Government Regulation

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FFDCA and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending applications, a clinical hold, warning letters, recall or seizure of products, partial or total

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suspension of production, withdrawal of the product from the market, injunctions, fines, civil penalties or criminal prosecution.

FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves:

• completion of pre-clinical laboratory and animal testing and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;

• submission to the FDA of an IND for human clinical testing which must become effective before human clinical trials may begin in the United States;

• approval by an independent institutional review board, or IRB, at each clinical trial site before each trial may be initiated;

• performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each intended use;

• satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is manufactured to assess compliance with the FDA’s cGMP regulations, and for devices and device components, the QSR, and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

• submission to the FDA of a new drug application, or NDA;

• satisfactory completion of an FDA advisory committee review, if applicable; and

• FDA review and approval of the NDA.

The pre-clinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Pre-clinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The results of pre-clinical tests, together with manufacturing information, analytical data and a proposed clinical trial protocol and other information, are submitted as part of an IND to the FDA. Some pre-clinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to one or more proposed clinical trials and places the clinical trial on a clinical hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.

Further, an independent IRB, covering each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and informed consent information for subjects before the trial commences at that site and it must monitor the study until completed. The FDA, the IRB, or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk or for failure to comply with the IRB’s requirements, or may impose other conditions.

As a separate amendment to an IND, a sponsor may submit a request for an SPA from the FDA. Under the SPA procedure, a sponsor may seek the FDA’s agreement on the proposed design and size of a clinical trial intended to form the primary basis for determining a product’s efficacy. Upon specific request by a sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis within

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45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial adequately address objectives in support of a regulatory submission. Agreements and disagreements between the FDA and the sponsor regarding an SPA are documented by the FDA in an SPA letter to the sponsor or in the minutes of a meeting between the sponsor and the FDA. Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under an SPA, the FDA may revoke or alter its agreement under certain circumstances, including:

• public health concerns emerge that were unrecognized at the time of the protocol assessment;

• a sponsor fails to follow a protocol that was agreed upon with the FDA;

• the relevant data, assumptions, or information provided by the sponsor in a request for an SPA change are found to be false or to omit relevant facts; or

• the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study.

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Sponsors of clinical trials generally must register and report, at the NIH-maintained website ClinicalTrials.gov, key parameters of certain clinical trials. For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following three sequential phases, which may overlap or be combined:

• Phase 1:    The drug is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness.

• Phase 2:    The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensive Phase 3 clinical trials.

• Phase 3:    These are commonly referred to as pivotal studies. When Phase 2 evaluations demonstrate that a dose range of the product appears to be effective and has an acceptable safety profile, Phase 3 trials are undertaken in large patient populations to further evaluate dosage, to obtain additional evidence of clinical efficacy and safety in an expanded patient population at multiple, geographically-dispersed clinical trial sites, to establish the overall risk-benefit relationship of the drug and to provide adequate information for the labeling of the drug.

• Phase 4:    In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA approval. Such post-approval trials are typically referred to as Phase 4 studies.

The results of product development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA. NDAs must also contain extensive information relating to the product’s pharmacology, chemistry, manufacture, controls and proposed labeling, among other things.

For some drugs, especially controlled substances, the FDA may require a risk evaluation and mitigation strategies, or REMS, which could include measures imposed by the FDA such as prescribing restrictions, requirements for post-marketing studies or certain restrictions on distribution and use. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and/or sponsor under an approved NDA are also subject to annual product and establishment user fees. The FDA has 60 days from its receipt of an NDA to determine whether the

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application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information and is subject to payment of additional user fees. The resubmitted application is also subject to review before the FDA accepts it for filing.

Once the submission has been accepted for filing, the FDA begins an in-depth substantive review. Under the Prescription Drug User Fee Act, or PDUFA, the FDA agrees to specific performance goals for NDA review time through a two-tiered classification system, Standard Review and Priority Review. Standard Review NDAs have a goal of being completed within a ten-month timeframe. A Priority Review designation is given to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. The goal for completing a Priority Review is six months. It is likely that our product candidates will be granted a Standard Review. The review process may be extended by the FDA for three additional months to consider certain information or obtain clarification regarding information already provided in the submission. The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations carefully when making decisions. In addition, for combination products like Sumavel DosePro or future product candidates utilizing the DosePro technology, the FDA’s review may include the participation of both the FDA’s Center for Drug Evaluation and Research and the FDA’s Center for Devices and Radiological Health, which may complicate or prolong the review.

Before approving an NDA, the FDA may inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP, and if applicable, QSR, requirements and are adequate to assure consistent production of the product within required specifications. Additionally, the FDA will typically inspect one or more clinical sites to assure compliance with GCP before approving an NDA.

After the FDA evaluates the NDA and, in some cases, the related manufacturing facilities, it may issue an approval letter or a Complete Response Letter, or CRL, to indicate that the review cycle for an application is complete and that the application is not ready for approval. CRLs generally outline the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when the deficiencies have been addressed to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety problems are identified after the product reaches the market. In addition, the FDA may require post-approval testing, including Phase 4 studies, and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label, and, even if the FDA approves a product, it may limit the approved indications for use for the product or impose other conditions, including labeling or distribution restrictions or other risk-management mechanisms. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new or supplemental NDA, which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials.

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Post-Approval Requirements

Once an NDA is approved, a product will be subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to drug/device listing, recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. There also are extensive U.S. Drug Enforcement Agency, or DEA, regulations applicable to marketed controlled substances.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and generally require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

• fines, warning letters or holds on post-approval clinical trials;

• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

• product seizure or detention, or refusal to permit the import or export of products; or

• injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. While physicians may prescribe for off label uses, manufacturers may only promote for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution, including a drug pedigree which tracks the distribution of prescription drugs.

The FDA may require post-approval studies and clinical trials if the FDA finds that scientific data, including information regarding related drugs, deem it appropriate. The purpose of such studies would be to assess a known serious risk or signals of serious risk related to the drug or to identify an unexpected serious risk when available data indicate the potential for a serious risk. The FDA may also require a labeling change if it becomes aware of new safety information that it believes should be included in the labeling of a drug.

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The FDA also has the authority to require a drug-specific risk evaluation and mitigation strategy, or REMS, to ensure the safe use of the drug. In determining whether a REMS is necessary, FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug. In addition, the REMS must include a timetable to assess the strategy at 18 months, three years, and seven years after the strategy’s approval. The FDA may also impose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that a REMS is necessary to ensure that the drug’s benefits outweigh its risks.

In February 2009, the FDA informed drug manufacturers that it will require a REMS for sustained release opioid drug products. Subsequently, the FDA initiated efforts to develop a new standardized REMS for these opioid medications to ensure their safe use. A controlled-release formulation of hydrocodone would also be required to have a REMS. The FDA’s authority to take this action is based on risk management and post market safety provisions within the FDAAA. We intend to submit a REMS at the time of the NDA submission for ZX002.

With respect to post-market product advertising and promotion, the FDA imposes a number of complex regulations on entities that advertise and promote pharmaceuticals, which include, among others, standards for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet. The FDA has very broad enforcement authority under the FFDCA, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing entities to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.

Section 505(b)(2) New Drug Applications

As an alternate path to FDA approval for modifications to formulations or uses of products previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FFDCA. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon published literature and the FDA’s findings of safety and effectiveness based on certain pre-clinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that a Section 505(b)(2) NDA relies on studies conducted for a previously approved drug product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book. Specifically, the applicant must certify for each listed patent that (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patent or that such patent is invalid is known as a Paragraph IV certification. If the applicant does not challenge the listed patents through a Paragraph IV certification, the Section 505(b)(2) NDA application will not be

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approved until all the listed patents claiming the referenced product have expired. The Section 505(b)(2) NDA application also will not be accepted or approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a New Chemical Entity, listed in the Orange Book for the referenced product, has expired.

If the 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the referenced NDA and patent holders once the 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a legal challenge to the Paragraph IV certification. Under the FFDCA, the filing of a patent infringement lawsuit within 45 days of their receipt of a Paragraph IV certification in most cases automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months, or until a court decision or settlement finding that the patent is invalid, unenforceable or not infringed, whichever is earlier. The court also has the ability to shorten or lengthen the 30 month stay if either party is found not to be reasonably cooperating in expediting the litigation. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its product only to be subject to significant delay and patent litigation before its product may be commercialized.

The 505(b)(2) NDA applicant also may be eligible for its own regulatory exclusivity period, such as three-year exclusivity. The first approved 505(b)(2) applicant for a particular condition of approval, or change to a marketed product, such as a new extended release formulation for a previously approved product, may be granted three-year Hatch-Waxman exclusivity if one or more clinical studies, other than bioavailability or bioequivalence studies, was essential to the approval of the application and was conducted/sponsored by the applicant. Should this occur, the FDA would be precluded from making effective any other application for the same condition of use or for a change to the drug product that was granted exclusivity until after that three-year exclusivity period has run. Additional exclusivities may also apply.

Additionally, the 505(b)(2) NDA applicant may have relevant patents in the Orange Book, and if it does can initiate patent infringement litigation against those applicants that challenge such patents, which could result in a thirty-month stay delaying those applicants.

DEA Regulation

One of our product candidates, ZX002, will be regulated as a “controlled substance” as defined in the Controlled Substances Act of 1970, or CSA, which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the DEA. The DEA is concerned with the control of handlers of controlled substances, and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce.

The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. ZX002, our proprietary oral, controlled-release version of hydrocodone, is expected to be listed by the DEA as a Schedule II controlled substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use will be subject to a high degree of regulation. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized.

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The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA, for example distribution reports for Schedule I and II controlled substances, Schedule III substances that are narcotics, and other designated substances. Reports must also be made for thefts or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports.

In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copies provided to the DEA. Because ZX002, an oral, controlled-release version of hydrocodone, is expected to be regulated as a Schedule II controlled substance, it will be subject to the DEA’s production and procurement quota scheme. The DEA establishes annually an aggregate quota for how much hydrocodone may be produced in total in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of hydrocodone that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We and our contract manufacturers must receive an annual quota from the DEA in order to produce or procure any Schedule I or Schedule II substance, including hydrocodone for use in manufacturing ZX002. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Our, or our contract manufacturers’, quota of an active ingredient may not be sufficient to meet commercial demand or complete clinical trials. Any delay or refusal by the DEA in establishing our, or our contract manufacturers’, quota for controlled substances could delay or stop our clinical trials or product launches, which could have a material adverse effect on our business, financial position and results of operations.

To meet its responsibilities, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could eventuate in criminal proceedings.

Individual states also regulate controlled substances, and we and our contract manufacturers will be subject to state regulation on distribution of these products.

International Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations regarding safety and efficacy and governing, among other things, clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional product testing and additional review periods, and the time may be longer or shorter than that required to obtain FDA approval and, if applicable, DEA classification. The requirements governing, among other things, the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

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Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

In addition to regulations in Europe and the United States, we will be subject to a variety of other foreign regulations governing, among other things, the conduct of clinical trials, pricing and reimbursement and commercial distribution of our products. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009.

Healthcare Fraud and Abuse Laws

We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry. For example, in the United States, there are federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services or reward past purchases or recommendations. Violations of these laws can lead to civil and criminal penalties, including fines, imprisonment and exclusion from participation in federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by the FDA, such as us, and hospitals, physicians and other potential purchasers of such products.

In particular, the federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The term “remuneration” is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value. In addition, the recently enacted Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, the PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and the applicable criminal healthcare fraud statutes contained within 42 U.S.C. § 1320a-7b effective March 23, 2010. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of 42 U.S.C. § 1320a-7b constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes fines against any person who is determined to have presented or caused to be presented claims to a federal health care program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Moreover, the lack of uniform court interpretation of the Anti-Kickback Statute makes compliance with the law difficult.

Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, the U.S. Department of Health and Human Services’ Office of Inspector General, or OIG, issued regulations in July of 1991, and periodically since that time, which the OIG refers to as “safe harbors.” These safe harbor regulations set forth certain

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provisions which, if met in form and substance, will assure pharmaceutical companies, healthcare providers and other parties that they will not be prosecuted under the federal Anti-Kickback Statute. Additional safe harbor provisions providing similar protections have been published intermittently since 1991. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG or federal prosecutors. Additionally, there are certain statutory exceptions to the federal Anti-Kickback Statute, one or more of which could be used to protect a business arrangement, although we understand that OIG is of the view that an arrangement that does not meet the requirements of a safe harbor cannot satisfy the corresponding statutory exception, if any, under the federal Anti-Kickback Statute.

Additionally, many states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for healthcare items or services reimbursed by any third-party payor, not only the Medicare and Medicaid programs in at least some cases, and do not contain safe harbors. Government officials have focused their enforcement efforts on marketing of healthcare services and products, among other activities, and have brought cases against numerous pharmaceutical and medical device companies, and certain sales and marketing personnel for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business or reward past purchases or recommendations.

Another development affecting the healthcare industry is the increased use of the federal civil False Claims Act and, in particular, actions brought pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. The civil False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically. In addition, various states have enacted false claim laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of $5,500 to $11,000 for each separate false claim. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks and other improper referrals, improperly reported government pricing metrics such as Best Price or Average Manufacturer Price, improper use of Medicare numbers when detailing the provider of services, improper promotion of off-label uses (i.e., uses not expressly approved by FDA in a drug’s label), and allegations as to misrepresentations with respect to the services rendered. Our activities relating to the reporting of discount and rebate information and other information affecting federal, state and third party reimbursement of our products, and the sale and marketing of our products and our service arrangements or data purchases, among other activities, may be subject to scrutiny under these laws. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the cost of defending such claims, as well as any sanctions imposed, could adversely affect our financial performance.

Also, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, created several new federal crimes, including health care fraud, and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private third-party payors. The false statements statute prohibits

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knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services.

In addition, under California law, pharmaceutical companies must adopt a comprehensive compliance program that is in accordance with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers, or OIG Guidance, and the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals, or the PhRMA Code. The PhRMA Code seeks to promote transparency in relationships between health care professionals and the pharmaceutical industry and to ensure that pharmaceutical marketing activities comport with the highest ethical standards. The PhRMA Code contains strict limitations on certain interactions between health care professionals and the pharmaceutical industry relating to gifts, meals, entertainment and speaker programs, among others. Also, certain states, such as Massachusetts and Minnesota, have imposed restrictions on the types of interactions that pharmaceutical and medical device companies or their agents (e.g., sales representatives) may have with health care professionals, including bans or strict limitations on the provision of meals, entertainment, hospitality, travel and lodging expenses, and other financial support, including funding for continuing medical education activities.

Healthcare Privacy and Security Laws

We may be subject to, or our marketing activities may be limited by, HIPAA, and its implementing regulations, which established uniform standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information. The American Recovery and Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included sweeping expansion of HIPAA’s privacy and security standards called the Health Information Technology for Economic and Clinical Health Act, or HITECH, which became effective on February 17, 2010. Among other things, the new law makes HIPAA’s privacy and security standards directly applicable to “business associates”—independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions.

Third-Party Payor Coverage and Reimbursement

The commercial success of Sumavel DosePro and our product candidates, if and when commercialized, will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Third-party payors include governmental programs such as Medicare or Medicaid, private insurance plans and managed care plans. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Also, third-party payors have attempted to control costs by limiting coverage through the use of formularies and other cost-containment mechanisms and the amount of reimbursement for particular procedures or drug treatments.

Changes in third-party payor coverage and reimbursement rules can impact our business. For example, the PPACA changes include increased rebates a manufacturer must pay to the Medicaid program and establishes a new Medicare Part D coverage gap discount program, in which manufacturers must provide 50% point-of-sale discounts on products covered under Part D beginning in 2011. Further, also beginning in 2011, the new law imposes a significant annual, nondeductible fee on companies that manufacture or import branded prescription drug products. Substantial new provisions

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affecting compliance have also been enacted, which may require us to modify our business practices with health care practitioners. We will not know the full effects of PPACA until applicable federal and state agencies issue regulations or guidance under the new law and these provisions are implemented. Although it is too early to determine the full effect of PPACA, the new law appears likely to continue the pressure on pharmaceutical pricing, and may also increase our regulatory burdens and operating costs. Moreover, in the coming years, additional changes could be made to governmental healthcare programs that could significantly impact the success of our products.

In addition, the cost of pharmaceuticals and devices continues to generate substantial governmental and third party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed health care, the increasing influence of managed care organizations and additional legislative proposals. Our results of operations and business could be adversely affected by current and future third-party payor policies as well as health care legislative reforms.

Some third-party payors also require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse health care providers who use such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for Sumavel DosePro and our product candidates and to operate profitably.

In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably.

Manufacturing Requirements

We and our third-party manufacturers must comply with applicable FDA regulations relating to FDA’s cGMP regulations and, if applicable, QSR requirements. The cGMP regulations include requirements relating to, among other things, organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturing facilities for our products must meet cGMP requirements to the satisfaction of the FDA pursuant to a pre-approval inspection before we can use them to manufacture our products. We and our third-party manufacturers are also subject to periodic unannounced inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including, among other things, warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties.

Other Regulatory Requirements

We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on us.

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Legal Proceedings

We are not currently a party to any legal proceeding.

Employees

As of August 31, 2010, we employed 144 full-time employees. Of the full-time employees, 99 were engaged in sales and marketing, 11 were engaged in manufacturing operations, 18 were engaged in product development, quality assurance and clinical and regulatory activities and 16 were engaged in general and administrative activities (including business and corporate development). We do not anticipate significant growth in the number of our full-time employees unless and until we need to prepare for the launch of ZX002. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Facilities

Our facilities are located in San Diego and Emeryville, California. Our general and administrative and sales and marketing personnel are located at our San Diego facility. Our manufacturing operations, product development, quality assurance and clinical and regulatory personnel are located in our Emeryville facility.

We occupy 12,128 square feet of office and laboratory space in Emeryville under a lease which expires in 2015. We believe that the space in Emeryville is adequate to meet our needs there, and that, if necessary, additional space can be leased to accommodate any future growth.

We occupy 12,929 square feet of office space in San Diego under a lease which expires in 2011. We can extend the lease on the San Diego office for two additional periods of 36 months no later than six months prior to the end of the term. We believe additional space can be leased to accommodate our potential growth.

The manufacturing equipment used to produce our DosePro technology is currently located at our contract manufacturers’ and component suppliers’ facilities in Europe where we occupy an aggregate of more than 20,000 square feet of space that is used to manufacture Sumavel DosePro.

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MANAGEMENT

Executive Officers, Key Employees and Directors

The following table sets forth certain information about our executive officers, key employees and directors as of September 30, 2010:

Name	Age	Position
Executive Officers
Roger L. Hawley	57	Chief Executive Officer and Director
Stephen J. Farr, Ph.D.	51	President, Chief Operating Officer and Director
Ann D. Rhoads	45	Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Cynthia Y. Robinson, Ph.D.	52	Chief Development Officer
Key Employees
Stephen H. Jenner	42	Senior Director, Marketing
Bret E. Megargel	41	Vice President, Corporate Development
Jonathan M. Rigby	42	Vice President, Business Development
Edward F. Smith III, Ph.D., RAC	57	Vice President, Regulatory Affairs and Safety
Mark R. Thompson	58	Vice President, Sales & Managed Markets
John J. Turanin	53	Vice President & General Manager, Zogenix Technologies
Directors
Cam L. Garner(1)(2)	62	Chairman of the Board of Directors
James C. Blair, Ph.D.(1)	71	Director
Louis C. Bock(3)	45	Director
Ken Haas(2)	59	Director
Erle T. Mast(2)(3)	48	Director
Arda M. Minocherhomjee, Ph.D.(1)	57	Director
Kurt C. Wheeler(1)	57	Director
Alex Zisson(3)	41	Director

(1) Member of the Compensation Committee.

(2) Member of the Nominating/Corporate Governance Committee.

(3) Member of the Audit Committee.

Executive Officers

Roger L. Hawley is one of our co-founders and has served as our Chief Executive Officer and as a member of our board of directors since August 2006. From January 2006 to August 2006, Mr. Hawley served as a consultant to CG Pharma, Inc. From August 2003 to January 2006 he served as Executive Vice President, Commercial and Technical Operations for InterMune, Inc., a biopharmaceutical company focused on therapies in hepatology and pulmonology. From October 2002 to July 2003, Mr. Hawley was the Chief Commercial Officer at Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostics company. From 2001 to 2002, Mr. Hawley served as General Manager & Vice President of Sales and Marketing at Elan Pharmaceuticals, Inc. From 1987 to 2001, Mr. Hawley held a broad range of management positions in commercial operations, alliance/partnership management, and regional sales and corporate finance at GlaxoSmithKline, or GSK. His last position at GSK was Vice President of Sales-CNS/GI Division. From 1976 to 1987, he held various financial management positions with Marathon Oil Company, including serving four years in London, England. While at Marathon, he was a certified treasury manager and a certified public accountant. Mr. Hawley is a member of the board of directors of Cypress Bioscience, Inc., a publicly-traded pharmaceutical company. Mr. Hawley holds a B.Sc. in Accounting from Eastern Illinois University. As one of our co-founders and having served

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as our Chief Executive Officer since August 2006, Mr. Hawley’s extensive knowledge of our business, history and culture, as well as over 20 years of experience in the pharmaceutical industry, including providing strong executive leadership to numerous biopharmaceutical companies, contributed to our board of directors’ conclusion that he should serve as a director of our company.

Stephen J. Farr, Ph.D. is one of our co-founders and has served as our President and as a member of our board of directors since our inception in May 2006. From May 2006 to August 2006, Dr. Farr also served as our Chief Executive Officer and since August 2006, Dr. Farr has served as our Chief Operating Officer. From 1995 to August 2006, Dr. Farr held positions of increasing responsibility within pharmaceutical sciences and research and development at Aradigm Corporation, and he served most recently as Senior Vice President and Chief Scientific Officer. In 2003, he played a key role in identifying and acquiring the DosePro technology and became technical director and executive sponsor for the development of sumatriptan DosePro at Aradigm Corporation. From 1986 to 1994, Dr. Farr was a tenured professor at the Welsh School of Pharmacy, Cardiff University, United Kingdom, concentrating in the areas of physical pharmacy and biopharmaceutics. He is a fellow of the American Association of Pharmaceutical Scientists and visiting Associate Professor in the Department of Pharmaceutics, School of Pharmacy, Virginia Commonwealth University. Dr. Farr is a registered pharmacist in the United Kingdom and obtained his Ph.D. degree in Pharmaceutics from the University of Wales. As one of our co-founders and having served as our President since May 2006, Dr. Farr’s extensive knowledge of our business, history and culture, including his in-depth involvement with the DosePro technology and the development of Sumavel DosePro, as well as his significant experience in research and development and thorough knowledge of the pharmaceutical product development process, contributed to our board of directors’ conclusion that he should serve as a director of our company.

Ann D. Rhoads has served as our Executive Vice President, Chief Financial Officer, Treasurer and Secretary since March 2010. From 2000 to December 2009, Ms. Rhoads was the Chief Financial Officer and Senior Vice President for Premier, Inc., a healthcare service company, where she had responsibility for all areas of financial management, strategic planning, business development, information technology, and ethics and compliance. From August 1998 to 2000, Ms. Rhoads served as Vice President for strategic initiatives at Premier, where she was responsible for overseeing strategic investments, including a $30 million venture capital fund, as well as assisting Premier operating divisions with long range strategic planning. Prior to joining Premier, Ms. Rhoads held various positions at Sprout Group, a venture capital affiliate of Donaldson, Lufkin & Jenrette (now part of Credit Suisse First Boston), Bain & Company and Merrill Lynch Capital Partners (now known as Stonington Partners). Ms. Rhoads is a member of the board of directors of Novellus Systems, Inc. Ms. Rhoads received an M.B.A. from the Harvard Business School and a B.S. from the University of Arkansas.

Cynthia Y. Robinson, Ph.D. has served as our Chief Development Officer since April 2008, after consulting for us from April 2007 to April 2008. From November 2004 to July 2007, Dr. Robinson served as Senior Vice President, Development Operations at InterMune, Inc. From April 1989 to August 2004, Dr. Robinson held positions of increasing responsibility at Elan Pharmaceuticals, Inc., serving most recently as Vice President, Project Management, where she oversaw a portfolio of 14 global development programs from pre-clinical through commercialization, including multiple products in the therapeutic areas of CNS and pain. These efforts resulted in nine U.S. New Drug Applications, four European Marketing Authorization Applications and four U.S. product launches. Dr. Robinson holds a B.S. in Chemistry and a Ph.D. in Organic Chemistry from the University of Alabama.

Key Employees

Stephen H. Jenner has served as our Senior Director of Marketing since July 2008. From November 2007 to July 2008, Mr. Jenner served as the Senior Vice President of Client Services at MedAccess Communications, an advertising agency specializing in the pharmaceutical industry. From June 2005 to November 2007, Mr. Jenner served as the Senior Director of Marketing for Valeant Pharmaceuticals International, a publicly-held pharmaceutical company, where he led the Neurology Marketing

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Department. From July 2003 to June 2005, Mr. Jenner was the Senior Product Manager for Allergan Pharmaceuticals, a publicly-held pharmaceutical company, where he was the lead marketer for all Direct to Consumer activities related to BOTOX Cosmetic. From October 1998 to July 2003, Mr. Jenner held positions of increasing responsibility at Elan Pharmaceuticals, a publicly-held pharmaceutical company, most recently as Product Manager for the CNS/Movement Disorder Franchise. Mr. Jenner holds an M.B.A. from the University of Florida, and a B.S. in Business Administration from California Lutheran University.

Bret E. Megargel is one of our co-founders and has served as our Vice President of Corporate Development since August 2006. From December 2005 to August 2006, Mr. Megargel served as a consultant to CG Pharma, Inc. From January 2005 to August 2007, Mr. Megargel served as Vice President of Planet Technologies, Inc., an allergy products company, where he was responsible for the general management of the company’s Allergy Free business. From 2002 to December 2004, Mr. Megargel served as Vice President of Business Development for Avera Pharmaceuticals, Inc., a private, central nervous system-focused development company. From 1999 to 2002, Mr. Megargel served as a Venture Partner for Windamere Venture Partners, LLC. During his tenure at Windamere, Mr. Megargel served as Vice President of Business Development for MD Edge, Inc., and Director of Business Development for Converge Medical, Inc. and was a member of the founding team of Dexcom, Inc. From 1991 to 1996, Mr. Megargel served as a consultant for The Healthcare Group of Marketing Corporation of America (now a Division of The InterPublic Group), where he was a case manager for projects that included major product development, licensing and acquisition, and marketing strategy assignments for pharmaceutical clients. Mr. Megargel received an M.B.A. at the Stanford University Graduate School of Business and is a graduate of Dartmouth College, where he obtained a B.A. in Economics.

Jonathan M. Rigby is one of our co-founders and has served as our Vice President of Business Development since August 2006. From 2002 to August 2006, Mr. Rigby served as Vice President Business Development at Aradigm Corporation, where he was responsible for the strategic acquisition of the DosePro technology and related assets in 2003. In 2006, Mr. Rigby co-led the management buy out of the DosePro assets from Aradigm Corporation and the associated venture financing of the company. From 1995 to 2002, Mr. Rigby served as Head of Business Development, Head of Competitive Intelligence and Head of UK Sales for Profile Therapeutics UK. Earlier in his career, Mr. Rigby served in various sales and marketing capacities for Merck & Co., Inc. and Bristol Myers Squibb. Mr. Rigby is a frequent speaker at industry conferences in the drug delivery sector and serves as Chairman of the Board of the Association of Needle Free Injection Manufacturers. Mr. Rigby earned his undergraduate degree in Biological Sciences with Honors from Sheffield University, UK. He also holds a British Technology Higher National Diploma in Applied Biology from Sheffield University, UK and an M.B.A. from Portsmouth University, UK.

Edward F. Smith III, Ph.D., RAC has served as our Vice President, Regulatory Affairs and Drug Safety since October 2008. From April 2007 to October 2008, he was our Senior Director, Regulatory Affairs. From July 2006 to April 2007, he was the Senior Director, Regulatory Affairs at Connetics, a specialty pharmaceutical company focused on the development and commercialization of innovative therapeutics for the dermatology market. From October 2004 to July 2006, he was the Director, Regulatory Affairs at Nektar Therapeutics, a biopharmaceutical company. Dr. Smith has authored over 90 peer-reviewed scientific articles and has submitted numerous U.S. Food and Drug Administration and European Medicines Agency submissions. He was a Postdoctoral Fellow at the Medical University of South Carolina and the Institute of Pharmacology at the University of Koln in West Germany. Dr. Smith received an M.B.A. at Washington University and a Ph.D. in Physiology at Thomas Jefferson University. He is a graduate of Montana State University where he obtained his B.S. in Biology.

Mark R. Thompson has served as our Vice President, Sales and Managed Markets since April 2008. From January 2006 to July 2007, Mr. Thompson served as Vice President, Sales of Valeant Pharmaceuticals International, a multinational specialty pharmaceutical company, where he led both the hepatology and neuroscience sales teams, as well as management of sales operations, analytics, and

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training. From March 2004 to December 2005, Mr. Thompson was the Vice President, Sales at InterMune, Inc., a biopharmaceutical company. From October 2002 to March 2004, Mr. Thompson was the Vice President, Sales at SkinMedica, Inc., a company focused on developing, acquiring and commercializing products that treat dermatologic conditions and improve the appearance of skin, and from August 2001 to October 2002 he served as Senior Director, National Sales for Elan Biopharmaceuticals, Inc., Primary Care Division leading a sales team of approximately 500 people. From July 1980 to August 2001, Mr. Thompson held positions of increasing responsibility at GSK serving most recently as Regional Vice President, where his responsibilities included sales of Imitrex^® and other CNS products. Mr. Thompson holds a M.Ed. in Administration and Supervision from the University of North Carolina, Chapel Hill.

John J. Turanin is one of our co-founders and has served as our Vice President and General Manager, Zogenix Technologies since August 2010 and prior to that as our Vice President, Operations since our inception in May 2006. From 1997 to April 2006, Mr. Turanin served as Vice President, Corporate Planning and Program Management and held positions as Senior Director of Program Management, Director of New Product Planning, and Director of Respiratory Products Business Unit at Aradigm Corporation, a specialty pharmaceutical company, where he was responsible for leading numerous product development programs and strategic alliances. Mr. Turanin was also responsible for directing Aradigm’s integration of the DosePro technology acquisition and serving as program director for the sumatriptan DosePro development program. From 1987 to 1996, Mr. Turanin was General Manager of operations, quality, product development, and marketing for the respiratory therapeutics division at Invacare Corporation, a global manufacturer of home medical products. Mr. Turanin holds an M.B.A. from the University of Pittsburgh and a B.A. in Business from Indiana University of Pennsylvania.

Board of Directors

Cam L. Garner is one of our co-founders and has served as chairman of our board of directors since August 2006. Mr. Garner co-founded specialty pharmaceutical companies Cadence Pharmaceuticals, Inc., Somaxon Pharmaceuticals, Inc., Evoke Pharma, Inc., Elevation Pharmaceuticals, Inc., DJ Pharma, Xcel Pharmaceuticals, Inc. and Meritage Pharma, Inc. He has served as Chairman of Cadence, Evoke, Elevation and Meritage since May 2004, January 2007, December 2007 and February 2008, respectively. Xcel was acquired in March 2005 by Valeant Pharmaceuticals International and DJ Pharma was sold to Biovail in 2000. He was Chief Executive Officer of Dura Pharmaceuticals, Inc. from 1989 to 1995 and its Chairman and Chief Executive Officer from 1995 to 2000 until it was sold to Elan in November 2000. Mr. Garner also serves on the board of directors of Aegis Therapeutics, Inc. Mr. Garner earned an M.B.A. from Baldwin-Wallace College and his B.A. in Biology from Virginia Wesleyan College. As one of our co-founders and having served as our chairman since August 2006, Mr. Garner’s extensive knowledge of our business, history and culture, his extensive experience as a board member of multiple publicly-traded and privately-held companies, and expertise in developing, financing and providing strong executive leadership to numerous biopharmaceutical companies, contributed to our board of directors’ conclusion that he should serve as a director of our company.

James C. Blair, Ph.D. has served as a member of our board of directors since August 2006. Dr. Blair is a Managing Member of Domain Associates, LLC, and he has been a Partner of Domain since its founding in 1985. Dr. Blair’s present board memberships include Astute Medical Inc., Cadence Pharmaceuticals, Cell Biosciences, Clovis Oncology, Inc., CoDa Therapeutics, Five Prime Therapeutics, GenVault, IntegenX, Inc., Meritage Pharma and NeuroPace. Dr. Blair has over 40 years experience with venture and emerging growth companies. In the course of this experience, he has been involved in the creation and successful development at the Board level of over 40 life sciences ventures, including Amgen, Aurora Biosciences, Amylin Pharmaceuticals, Applied Biosystems, Dura Pharmaceuticals, GeneOhm Sciences, Molecular Dynamics, Nuvasive, Pharmion and Volcano. A former managing director of Rothschild Inc., Dr. Blair was directly involved at a senior level with Rothschild/New Court venture capital activities from 1978 to 1985. From 1969 to 1978, he was associated with F.S. Smithers and

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Co. and White, Weld and Co., two investment banking firms actively involved with new ventures and emerging growth companies. From 1961 to 1969, Dr. Blair was an engineering manager with RCA Corporation, during which time he received a David Sarnoff Fellowship. Dr. Blair currently serves on the Board of Directors of the Prostate Cancer Foundation, and he is on the Advisory Boards of the Department of Molecular Biology at Princeton University, the Department of Biomedical Engineering at the University of Pennsylvania, the USC Stevens Institute for Innovation, and the Division of Chemistry and Chemical Engineering at the California Institute of Technology. Dr. Blair received a B.S.E. from Princeton University and an M.S.E and Ph.D. from the University of Pennsylvania. With more than forty years’ experience at the board level with venture and emerging growth companies, Dr. Blair’s extensive expertise in the evaluation of financing alternatives, strategic planning for life sciences companies, and substantial executive leadership skills, contributed to our board of directors’ conclusion that he should serve as a director of our company.

Louis C. Bock has served as a member of our board of directors since August 2006. Mr. Bock is a Managing Director of Scale Venture Partners, a venture capital firm. Mr. Bock joined Scale Venture Partners in September 1997 from Gilead Sciences, Inc., a biopharmaceutical company, where he held positions in research, project management, business development and sales from September 1989 to September 1997. Prior to Gilead, he was a research associate at Genentech, Inc. from November 1987 to September 1989. He currently serves as a director of Ascenta Therapeutics, Inc., VaxGen, Inc., Horizon Therapeutics, Inc., Orexigen Therapeutics, Inc. and Sonexa Therapeutics, Inc. and is responsible for Scale Venture Partners’ prior investments in Seattle Genetics, Prestwick Pharmaceuticals, Inc. and Somaxon Pharmaceuticals, Inc. Mr. Bock received his B.S. in Biology from California State University, Chico and an M.B.A. from California State University, San Francisco. Mr. Bock’s extensive clinical and leadership experience in the biotechnology and biopharmaceuticals industries, including experience in research, project management, business development and sales from his time at Gilead, and his membership on other companies’ boards of directors, including positions on other audit and nominating/corporate governance committees, contributed to our board of directors’ conclusion that he should serve as a director of our company.

Ken Haas has served as a member of our board of directors since April 2009. Mr. Haas has been a Venture Partner at Abingworth Management Inc. since July 2006 and previously served as a consultant to the firm beginning in January 2005. He has spent 25 years in the management of both private and public high technology and private biotechnology companies. He was part of the founding management team at IntelliGenetics, one of the world’s first bioinformatics companies and, from 1992 to 2001, was CEO of IntelliCorp, a publicly-traded enterprise software company. At the beginning of his career he practiced as an attorney in the business and technology group of Heller, Ehrman, White & McAuliffe. Mr. Haas’ directorships include Broncus Technologies, Inc., Gynesonics, Inc., Intellikine Inc. and Pathwork Diagnostics, Inc. He received a B.A. from Harvard College, an M.A. from the University of Sussex, a J.D. from Harvard Law School and attended the Advanced Management Program at Harvard Business School. Mr. Haas’ background as a chief executive officer of a publicly-traded company, his management experience across various sectors, and his experience as a venture capitalist focused in the biopharmaceutical industry, bring to our board critical skills related to financial oversight of complex organizations, financing and strategic planning, and contributed to our conclusion that he should serve as a director of our company.

Erle T. Mast has served as a member of our board of directors since May 2008. Mr. Mast has served as Executive Vice President, Chief Financial Officer with Clovis Oncology since May 2009. From July 2002 to May 2008, Mr. Mast served as Executive Vice President and Chief Financial Officer of Pharmion Corporation, until its acquisition by Celgene Corporation. From 2000 to 2002, after Elan Pharma International Ltd. acquired Dura Pharmaceuticals, Inc., Mr. Mast served as Chief Financial Officer for the Global Biopharmaceuticals business unit of Elan. From 1997 to 2000, Mr. Mast served as Vice President of Finance for Dura Pharmaceuticals. From 1984 to 1997, Mr. Mast held positions of increasing responsibility at Deloitte & Touche, LLP, serving most recently as Partner, where he provided

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accounting, auditing and business consulting services to companies in various industries, including the healthcare, pharmaceutical, biotech and manufacturing industries. Mr. Mast also serves on the board of directors of Somaxon Pharmaceuticals, Inc. Mr. Mast received a B.Sc. in Business Administration from California State University Bakersfield. Mr. Mast’s experience as a former chief financial officer of various companies in the healthcare industry and in providing accounting, auditing and consulting services while at Deloitte & Touche, LLP, as well as his expertise in management, accounting, treasury, and finance functions, contributed to our board of directors’ conclusion that he should serve as a director of our company.

Arda M. Minocherhomjee, Ph.D. has served as a member of our Board of Directors since December 2009. Dr. Minocherhomjee has been a Partner of Chicago Growth Partners since he co-founded the firm in 2004. Prior to founding Chicago Growth Partners, Dr. Minocherhomjee was a Managing Director at William Blair Capital Partners and, currently, is a Managing Director and member of the Board of Managers of WBCP VI and VII. Prior to that, Dr. Minocherhomjee was a Senior Healthcare Analyst at William Blair & Company. As head of the firm’s Healthcare Research Group, Dr. Minocherhomjee covered several sectors, including drugs/drug delivery, medical devices and selected healthcare services. He was a Wall Street Journal “All-Star Analyst” in both medical device and pharmaceutical sectors. Dr. Minocherhomjee’s current and past directorships include: DJ Pharma, EndoGastric Solutions, Genoptix, Lanx, Morton Grove Pharmaceuticals, NovaVision, NuVasive, PharmaResearch Corporation, Proteome, TargeGen, and Xoft. Dr. Minocherhomjee received a MS (Pharmacology) from the University of Toronto, a Ph.D. and a M.B.A. from the University of British Columbia, and was a post-doctoral fellow in Pharmacology at the University of Washington Medical School. Dr. Minocherhomjee’s experience as a founder of a private equity firm, significant participation on the boards of directors of various pharmaceutical companies and substantial knowledge of the pharmaceutical industry, contributed to our board of directors’ conclusion that he should serve as a director of our company.

Kurt C. Wheeler has served as a member of our board of directors since August 2006. Mr. Wheeler is a Managing Director of Clarus Ventures, a venture capital firm, a position he has held since February 2005, and is a General Partner of MPM Capital BioVentures II and III funds, a position he has held since March 2000. From March 1992 to September 1998, Mr. Wheeler was Chairman and Chief Executive Officer of InControl, Inc., a publicly traded medical device company that designed, developed, and marketed implantable medical devices to treat irregular heart rhythms, which was sold to Guidant Corporation. Mr. Wheeler serves on the board of directors of several private medial device and biopharmaceutical companies. Mr. Wheeler holds a B.A. degree from Brigham Young University and a M.B.A. degree from Northwestern University, where he serves on the Kellogg Alumni Advisory Board. Mr. Wheeler’s background as a chief executive officer of a large, publicly-traded company, his extensive experience at the board level in various biopharmaceutical companies and his experience as a venture capitalist focused in the biopharmaceutical industry, bring to our board critical skills related to financial oversight of complex organizations, financing and strategic planning, and contributed to our board of directors’ conclusion that he should serve as a director of our company.

Alex Zisson has served as a member of our board of directors since August 2006. Mr. Zisson is a Partner at Thomas, McNerney & Partners, a firm he joined in 2002. He is currently a board member of four other private companies: Celator Pharmaceuticals, Inc., Clarus Therapeutics, Inc., Quinnova Pharmaceuticals, Inc. and Tranzyme Pharma, Inc. From 1991 to 2002, he was in the research department at Hambrecht & Quist (and its successor firms Chase H&Q and JPMorgan H&Q). In 1997, Mr. Zisson was named a Managing Director and began assuming management responsibilities for the health care research group and the firm’s annual January conference. After the merger of Chase H&Q and JPMorgan, he became the firm’s Health Care Strategist. Mr. Zisson graduated magna cum laude from Brown University, where he was elected to Phi Beta Kappa. Mr. Zisson’s significant experience as a venture-capitalist and his substantial knowledge of the pharmaceutical industry, contributed to our board of directors’ conclusion that he should serve as a director of our company.

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Board Composition and Election of Directors

Our board of directors is currently authorized to have ten members and is currently composed of eight non-employee members, our current Chief Executive Officer, Roger L. Hawley, and our current President and Chief Operating Officer, Stephen J. Farr, Ph.D. Each of our non-employee directors, Cam L. Garner, James C. Blair, Ph.D., Louis C. Bock, Ken Haas, Erle T. Mast, Arda M. Minocherhomjee, Ph.D., Kurt C. Wheeler and Alex Zisson, is independent within the meaning of the independent director standards of the Securities and Exchange Commission, or SEC, and the Nasdaq Stock Market, or Nasdaq. Upon completion of this offering, our amended and restated certificate of incorporation will provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, a portion of our board of directors will be elected each year. Our Class I directors, whose terms will expire at our first annual meeting of stockholders following this offering, will be             ,             ,             and             . Our Class II directors, whose terms will expire at our second annual meeting of stockholders following this offering, will be            ,              and            . Our Class III directors, whose terms will expire at our third annual meeting of stockholders following this offering, will be             ,              and             . This classification of our board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may be removed only for cause by the affirmative vote of the holders of at least 66 ²/3% of our outstanding voting stock then entitled to vote in the election of directors.

Risk Oversight

Our board of directors has responsibility for the oversight of the company’s risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees and members of senior management to enable our board to understand the company’s risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.

The audit committee reviews information regarding liquidity and operations, and oversees our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating/corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices, and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board as a whole.

Board Diversity

Our nominating/corporate governance committee is responsible for reviewing with the board of directors the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating/corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, takes into account many factors, including: personal and professional integrity, ethics and values; experience in corporate management, such as serving as an officer or former officer of a publicly held company; commercialization experience in large pharmaceutical companies; strong finance experience; experience relevant to our industry; experience as a board

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member of another publicly held company; diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; diversity of background and perspective; and practical and mature business judgment. The board of directors evaluates each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best maximize the success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.

Board Committees

Our board of directors has established three committees: the audit committee, the compensation committee and the nominating/corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business.

Audit Committee

Our audit committee consists of Messrs. Mast (chairman and audit committee financial expert), Bock and Zisson, each of whom our board of directors has determined is independent within the meaning of the independent director standards of the SEC and Nasdaq.

This committee’s main function is to oversee our accounting and financial reporting processes, internal systems of control, independent registered public accounting firm relationships and the audits of our financial statements. This committee’s responsibilities include, among other things:

• selecting and engaging our independent registered public accounting firm;

• evaluating the qualifications, independence and performance of our independent registered public accounting firm;

• approving the audit and non-audit services to be performed by our independent registered public accounting firm;

• reviewing the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies;

• discussing with management and the independent registered public accounting firm the results of our annual audit and the review of our quarterly unaudited financial statements;

• reviewing, overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

• reviewing with management and our auditors any earnings announcements and other public announcements regarding our results of operations;

• preparing the report that the SEC requires in our annual proxy statement;

• reviewing and approving any related party transactions and reviewing and monitoring compliance with our code of conduct and ethics; and

• reviewing and evaluating, at least annually, the performance of the audit committee and its members including compliance of the audit committee with its charter.

Compensation Committee

Our compensation committee consists of Drs. Blair and Minocherhomjee and Messrs. Garner (chairman) and Wheeler. Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the IRC, and satisfies the Nasdaq independence requirements. This committee’s purpose is

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to assist our board of directors in determining the development plans and compensation for our senior management and directors and recommend these plans to our board. This committee’s responsibilities include, among other things:

• reviewing our compensation philosophy, including our policies and strategy relative to executive compensation;

• reviewing and recommending to the full board for approval the compensation of our chief executive officer;

• reviewing and approving the compensation of our other executive officers, including executive employment and severance agreements;

• reviewing and recommending to the full board for approval the compensation policies for members of our board of directors and board committees;

• reviewing, approving and administering our benefit plans and the issuance of stock options and other awards under our equity incentive plans (other than any such awards that must be approved by the full board);

• reviewing and discussing with management our compensation discussion and analysis to be included in our annual proxy report or annual report on Form 10-K and producing the report that the SEC requires in our annual proxy statement; and

• reviewing and evaluating, at least annually, the performance of the compensation committee and its members including compliance of the compensation committee with its charter.

Nominating/Corporate Governance Committee

Our nominating/corporate governance committee consists of Messrs. Garner (chairman), Haas and Mast, each of whom our board of directors has determined is independent within the meaning of the independent director standards of Nasdaq. This committee’s purpose is to assist our board of directors by identifying individuals qualified to become members of our board of directors, consistent with criteria set by our board, and to develop our corporate governance principles. This committee’s responsibilities include among other things:

• evaluating the composition, size and governance of our board of directors and its committees and making recommendations regarding future planning and the appointment of directors to our committees;

• administering a policy for considering stockholder nominees for election to our board of directors;

• evaluating and recommending candidates for election to our board of directors;

• developing guidelines for board compensation;

• overseeing our board of directors’ performance and self-evaluation process;

• reviewing our corporate governance principles and providing recommendations to the board regarding possible changes; and

• reviewing and evaluating, at least annually, the performance of the nominating/corporate governance committee and its members including compliance of the nominating/corporate governance committee with its charter.

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Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee has ever been one of our officers or employees. None of our executive officers currently serves, or has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee.

Code of Business Conduct and Ethics

Prior to the completion of this offering, we expect to adopt a code of business conduct and ethics that applies to our officers, directors and employees. We expect that our code of business conduct and ethics will be available on our website at www.zogenix.com upon the completion of this offering. We intend to disclose any amendments to the code, or waivers to its requirements, on our website.

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COMPENSATION DISCUSSION AND ANALYSIS

Overview

This compensation discussion and analysis provides information about the material components of our executive compensation program for our “named executive officers,” consisting of the following persons:

• Roger L. Hawley, our chief executive officer;

• Stephen J. Farr, Ph.D., our president and chief operating officer;

• David W. Nassif, J.D., our former executive vice president, chief financial officer, treasurer and secretary;

• Cynthia Y. Robinson, Ph.D., our chief development officer; and

• J.D. Haldeman, our former chief commercial officer.

Mr. Nassif resigned from his position as executive vice president and chief financial officer in February 2010. In March 2010, we appointed Ann Rhoads as our new executive vice president, chief financial officer, treasurer and secretary. Ms. Rhoads is not currently a named executive officer but will be a named executive officer for our 2010 fiscal year.

Ms. Haldeman resigned from her position as chief commercial officer in July 2010.

Specifically, this compensation discussion and analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each compensation component that we provide. In addition, we explain how and why the compensation committee and our board of directors arrived at specific compensation policies and decisions involving our executive officers during the year ended December 31, 2009.

Objectives of Our Compensation Program

We recognize that the ability to excel depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees. To this end, we strive to create an environment of mutual respect, encouragement and teamwork—an environment that rewards commitment and performance and that is responsive to the needs of our employees. The objectives of our compensation and benefits programs for our employees generally, and for our named executive officers specifically, are to:

• attract, engage and retain the workforce that helps ensure our future success;

• motivate and inspire employee behavior that fosters a high-performance culture;

• support a cost-effective and flexible business model;

• reinforce key business objectives; and

• align employee interests with stockholder interests.

Most of our compensation elements simultaneously fulfill one or more of these objectives. These elements consist of (1) base salary, (2) performance bonus, (3) long-term equity incentives, (4) retirement savings opportunity, (5) perquisites, health and welfare benefits and other compensation and (6) post-termination benefits. We believe that each component aligns the interests of our named executive officers with the interests of our stockholders in different ways, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality toward one’s job, linking individual performance to our performance or by ensuring healthy employees. This mix of compensation is intended to ensure that total compensation reflects our overall success or failure and to motivate executive officers to meet appropriate performance measures. In determining each element of compensation for any given year, our board of directors and our compensation committee consider and

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determine each element individually and then review the resulting total compensation and determine whether it is reasonable and competitive. We have no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Each of these compensation elements is described in more detail below.

The compensation programs in which our named executive officers participate are additionally designed to tie annual and long-term cash and equity incentives to the achievement of specified performance objectives and to align executives’ incentives with the interests of our stockholders.

Compensation Determination Process

The compensation committee of our board of directors develops, reviews and approves each of the elements of the executive compensation program of our company as a whole and for our named executive officers individually, although the full board of directors still makes certain compensation decisions with respect to our named executive officers when the compensation committee deems it to be appropriate. With respect to the compensation of our chief executive officer, our compensation committee has historically reviewed and recommended to the full board of directors corporate goals and objectives relating to the compensation of the chief executive officer, evaluated the performance of the chief executive officer in light of those goals and objectives and reviewed and recommended to the full board of directors the compensation of our chief executive officer based on such evaluation. Following the completion of this offering, we expect that our compensation committee will assume responsibility for the compensation of our chief executive officer. The compensation committee also regularly assesses the effectiveness and competitiveness of our compensation programs.

In the first quarter of each year, the compensation committee reviews the performance of each of our named executive officers during the previous year. At this time the compensation committee also reviews our performance relative to the corporate performance objectives set by the board of directors for that year and makes the final bonus payment determinations based on our performance and the compensation committee’s evaluation of each named executive officer’s performance for the prior year. In connection with this review, the compensation committee also reviews and adjusts, as appropriate, annual base salaries for our named executive officers and grants, as appropriate, additional stock option awards to our named executive officers and certain other eligible employees for the coming fiscal year. With respect to the compensation for our chief executive officer, the compensation committee historically has presented its recommendations to the full board of directors for approval.

During the first quarter of each year our compensation committee also reviews the corporate performance objectives for purposes of our performance bonus programs for that year, but such objectives historically have been recommended to the full board of directors for approval. Our chief executive officer, with the assistance and support of the human resources department and the other executive officers, aids the compensation committee by providing annual recommendations regarding the compensation of all of our named executive officers, other than himself. The compensation committee also, on occasion, meets with our chief executive officer to obtain recommendations with respect to our compensation programs and practices generally. The compensation committee considers, but is not bound to accept, the chief executive officer’s recommendations with respect to named executive officer compensation. In the beginning of each year, our named executive officers work with our chief executive officer to establish their individual performance goals for the year, based on their respective roles within the company.

Our chief executive officer generally attends all of the compensation committee meetings, but the compensation committee also holds executive sessions that are not attended by any members of management or non-independent directors, as needed from time to time. Any decisions regarding our chief executive officer’s compensation are made without him present.

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Role of Compensation Consultant and Comparable Company Information

Our compensation committee has not historically established compensation levels based on benchmarking. Our compensation committee has instead relied upon the judgment of its members in making compensation decisions, after reviewing our performance and carefully evaluating a named executive officer’s performance during the year against established goals, leadership qualities, operational performance, business responsibilities, career with our company, current compensation arrangements and long-term potential to enhance stockholder value. While competitive market compensation paid by other companies has been reviewed by the compensation committee and the board of directors in the past in connection with setting named executive officer compensation, such information was not reviewed by the compensation committee during 2009.

In May 2010, our compensation committee engaged Compensia, Inc., or Compensia, to provide compensation consulting services and to assist the compensation committee in the determination of the key elements of our executive compensation programs. Specifically, for 2010, the compensation committee requested Compensia to advise it on a variety of compensation-related issues, including:

• compiling, analyzing and presenting third-party survey data regarding the compensation of executives at comparable companies;

• evaluating our current executive compensation program relative to this survey data, including base salary, bonus and equity ownership levels; and

• providing general information concerning executive compensation trends and developments.

Compensia has not provided any other services to us in 2010 beyond its engagement as an advisor to the compensation committee on executive compensation matters.

The comparable company information presented to the compensation committee by Compensia in May 2010 consisted of industry survey data for two groups of companies: private companies and public companies. The compensation committee reviewed data from The Radford Global Life Sciences Compensation Survey, which consists of public companies throughout the United States primarily from the life sciences industry with between 50 and 150 employees. The compensation committee also reviewed data from the Advanced HR – Option Impact Pre-IPO Compensation Database, which consists of private companies throughout the United States. The data from this survey reviewed by our compensation committee was for companies from the life sciences industry, with between 50 and 150 employees and that had raised more than $100 million in capital. This survey data was presented separately to the compensation committee, so that it could see the relative compensation levels for both private and public companies. With respect to the survey data presented to the compensation committee, the identities of the individual companies included in the survey were not provided to the compensation committee, and the compensation committee did not refer to individual compensation information for such companies. We believe that by utilizing both sets of survey data, our compensation committee is able to review an appropriate set of competitive data for use in making compensation decisions.

While our compensation committee reviewed the foregoing third party survey data in connection with its determinations of the 2010 base salaries, target bonuses and equity awards for our named executive officers, our committee did not attempt to set those compensation levels or awards at a certain target percentile with respect to the third party survey data or otherwise rely entirely on that data to determine named executive officer compensation. Instead, as described above and consistent with past practice, the compensation committee members relied on their judgment and experience in setting those compensation levels and making those awards.

We expect that the compensation committee will continue to review comparable company survey data in connection with setting the compensation we offer our named executive officers to help ensure that our compensation programs are competitive and fair.

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The compensation committee is authorized to retain the services of third-party compensation consultants and other outside advisors from time to time, as the committee sees fit, in connection with compensation matters. Compensation consultants and other advisors retained by the compensation committee will report directly to the compensation committee which has the authority to select, retain and terminate any such consultants or advisors.

We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. Any apportionment goal is not applied rigidly and does not control our compensation decisions, and our compensation committee does not have any policies for allocating compensation between long-term and short-term compensation or cash and non-cash compensation. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a combination of cash and equity incentive awards. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our named executive officers to deliver superior performance and retain them to continue their careers with us on a cost-effective basis.

The compensation levels of the named executive officers reflect to a significant degree the varying roles and responsibilities of such executives. As a result of the compensation committee’s and the board of director’s assessment of our chief executive officer’s and president and chief operating officer’s roles and responsibilities within our company, there are significant compensation differentials between these named executive officers and our other named executive officers.

We do not yet have a formal policy to adjust or recover awards or payments if the relevant performance measures upon which they are based are restated or are otherwise adjusted in a manner that would otherwise reduce the size of the initial payment or award.

Executive Compensation Components

The following describes each component of our executive compensation program, the rationale for each, and how compensation amounts are determined.

Base Salaries

In general, base salaries for our named executive officers are initially established through arm’s length negotiation at the time the executive is hired, taking into account such executive’s qualifications, experience and prior salary. Base salaries of our named executive officers are approved and reviewed annually by our compensation committee and adjustments to base salaries are based on the scope of an executive’s responsibilities, individual contribution, prior experience and sustained performance. Decisions regarding salary increases may take into account an executive officer’s current salary, equity ownership, and the amounts paid to an executive officer’s peers inside our company by conducting an internal analysis, which compares the pay of an executive officer to other members of the management team. Base salaries are also reviewed in the case of promotions or other significant changes in responsibility. Base salaries are not automatically increased if the compensation committee believes that other elements of the named executive officer’s compensation are more appropriate in light of our stated objectives. This strategy is consistent with our intent of offering compensation that is both cost-effective, competitive and contingent on the achievement of performance objectives.

Our chief executive officer’s base salary is based upon the same policies and criteria used for other named executive officers as described above. Each year the compensation committee reviews the chief executive officer’s compensation arrangements and his individual performance for the previous fiscal year, as well as our performance as a whole, and makes recommendations to the full board of directors of adjustments to such compensation, if appropriate.

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In early 2009, our board of directors determined to leave 2008 salaries unchanged companywide in order to conserve cash. The base salaries for our named executive officers as of January 1, 2009 were as follows:

Named Executive Officer	Base Salary as of January 1, 2009
Roger L. Hawley	$	400,000
Stephen J. Farr, Ph.D.	$	325,000
David W. Nassif, J.D.	$	260,000
Cynthia Robinson, Ph.D.	$	260,000
J.D. Haldeman	$	255,000

Also, as part of a companywide program to conserve cash, in early 2009, our named executive executives agreed to reduce their base salaries by 10%. This reduction was reversed in August 2009. The actual base salaries paid to all of our named executive officers for 2009 are set forth in the “Summary Compensation Table” below.

In March 2010, Ann Rhoads commenced employment as our executive vice president, chief financial officer, treasurer and secretary, and the compensation committee set her initial base salary at $325,000 per year based on its review and consideration of the factors described in the first paragraph above.

In May 2010, the compensation committee reviewed the base salaries of our named executive officers. The compensation committee, in consultation with our chief executive officer (with respect to the salaries of our other named executive officers) and Compensia, determined to increase base salaries of our named executive officers for 2010, effective April 1, 2010, subject to improvement of our financial condition. In August 2010, in light of our improved financial condition based on our debt restructuring, our compensation committee approved the implementation of the base salary increases of our named executive officers (and the full board of directors approved the increase for Mr. Hawley). The base salaries for our named executive officers as of April 1, 2010 were as follows:

Named Executive Officer	Base Salary as of April 1, 2010
Roger L. Hawley	$	420,000
Stephen J. Farr, Ph.D.	$	341,250
Cynthia Robinson, Ph.D.	$	272,000
J.D. Haldeman	$	262,700

Performance Bonuses

2009 Performance Bonuses.    Historically, each named executive officer has also been eligible for a performance bonus based upon the achievement of certain corporate performance goals and objectives approved by our board of directors and, with respect to our named executive officers other than Mr. Hawley, individual performance.

Bonuses are set based on the executive’s base salary as of the end of the bonus year, and are expected to be paid out in the first quarter of the following year. The target levels for executive bonuses currently are as follows: 50% of base salary for the chief executive officer (100% of which is based on corporate objectives), 45% of base salary for our president and chief operating officer and executive vice president and chief financial officer (80% of which is based on corporate objectives and 20% of which is based on individual performance), and 35% of base salary for all other named executive officers (60% of which is based on corporate objectives and 40% of which is based on individual performance).

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At the beginning of each year, the board of directors (considering the recommendations of the compensation committee and management) sets corporate goals and milestones for the year. These goals and milestones and the proportional emphasis placed on each are set by the board of directors after considering management input and our overall strategic objectives. These goals generally relate to factors such as financial targets, achievement of product development objectives and establishment of new collaborative arrangements. The board of directors, upon recommendation of the compensation committee, determines the level of achievement of the corporate goals for each year. The individual component of each named executive’s bonus award is not necessarily based on the achievement of any predetermined criteria or guidelines but rather on the compensation committee’s subjective assessment of the officer’s overall performance of his or her duties. In coming to this determination, our compensation committee does not follow any guidelines, nor are there such standing guidelines regarding the exercise of such discretion.

All final bonus payments to our named executive officers are determined by our compensation committee, other than the bonus payments to our chief executive officer, whose compensation is approved by the full board of directors. The actual bonuses awarded in any year, if any, may be more or less than the target, depending on individual performance and the achievement of corporate objectives and may also vary based on other factors at the discretion of the compensation committee (or the full board of directors, with respect to our chief executive officer).

2009 Bonuses.    For 2009, in light of our cash position at the beginning of that year, our board of directors determined not to establish a bonus program in line with our historical practice. In lieu of our historical performance bonus program, which is described above, for 2009 our board of directors instituted a companywide bonus program, which paid one to three months of base salary to each full-time employee (depending on title) upon the achievement of two performance objectives: the FDA’s approval of Sumavel DosePro and the closing of our Series B preferred stock financing. This bonus program was tailored to incentivize our employees to remain with us through these two critical corporate milestones and to reward them for their efforts towards achieving those goals. This was the only bonus program established by us for 2009.

We achieved these performance objectives during 2009 and the following bonuses were paid to our named executive officers in September 2009 pursuant to this program:

Named Executive Officer	Retention Bonus ($)
Roger L. Hawley	100,000
Stephen J. Farr, Ph.D.	81,250
David W. Nassif, J.D.	65,000
Cynthia Robinson, Ph.D.	65,000
J.D. Haldeman	63,750

Long-Term Equity Incentives

The goals of our long-term, equity-based incentive awards are to align the interests of our named executive officers and other employees, non-employee directors and consultants with the interests of our stockholders. Because vesting is based on continued employment, our equity-based incentives also encourage the retention of our named executive officers through the vesting period of the awards. In determining the size of the long-term equity incentives to be awarded to our named executive officers, we take into account a number of internal factors, such as the relative job scope, the value of existing long-term incentive awards, individual performance history, prior contributions to us and the size of prior grants. Our compensation committee does not refer to competitive market data in determining long-term equity incentive awards. Based upon these factors, the compensation committee determines the size of the long-term equity incentives at levels it considers appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. We have not granted any equity awards other than stock options to date.

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To reward and retain our named executive officers in a manner that best aligns employees’ interests with stockholders’ interests, we use stock options as the primary incentive vehicles for long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because employees are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time.

We use stock options to compensate our named executive officers both in the form of initial grants in connection with the commencement of employment and annual refresher grants. Annual grants of options are typically approved by the compensation committee during the first quarter of each year. While we intend that the majority of stock option awards to our employees be made pursuant to initial grants or our annual grant program, the compensation committee retains discretion to make stock option awards to employees at other times, including in connection with the promotion of an employee, to reward an employee, for retention purposes or for other circumstances recommended by management or the compensation committee.

The exercise price of each stock option grant is the fair market value of our common stock on the grant date, as determined by our board of directors from time to time. Stock option awards to our named executive officers typically vest over a four-year period as follows: 25% of the shares underlying the option vest on the first anniversary of the date of the vesting commencement date and the remainder of the shares underlying the option vest in equal monthly installments over the remaining 36 months thereafter. From time to time, our compensation committee may, however, determine that a different vesting schedule is appropriate. For a description of certain accelerated vesting provisions applicable to such options, see “— Employee Equity Incentive Plans — 2010 Equity Incentive Award Plan” and “— Employee Equity Incentive Plans — 2006 Equity Incentive Plan” below. We do not have any stock ownership requirements for our named executive officers.

In September 2009, the board of directors awarded the following options to our named executive officers: Mr. Hawley, options to purchase 600,000 shares; Dr. Farr, options to purchase 425,000 shares; Dr. Robinson, options to purchase 100,000 shares and Ms. Haldeman, options to purchase 200,000 shares. Each of these option awards vest in monthly installments over two years and has an exercise price of $0.25 per share, which the board of directors determined was the fair value per share of our common stock on the date of grant. These awards were recommended by the compensation committee. The compensation committee’s recommendation regarding each named executive officer’s award amount was not based on any quantifiable factors, but instead was based on the compensation committee’s subjective analysis of the award levels the committee deemed appropriate for each executive in light of various factors, including: the relative dollar value of the executives’ base salary reductions during 2009 into account; the fact that the annual bonuses paid to our named executive officers under our revised 2009 bonus program were lower than historical levels, as described above; our clinical and operational successes during 2009 despite our limited cash resources; and the need to continue to incentivize our executives in light of the effect of our cash constraints on our executive compensation program. Each of these factors was taken into consideration by the compensation committee for each executive, as was management’s recommendations regarding the appropriate award levels. The final award levels, however, were entirely based on the compensation committee’s subjective analysis of these general factors and internal pay equity considerations. The compensation committee also recommended the shorter two year vesting schedule for these awards, which was determined to be appropriate given that the awards were intended, in part, to compensate the executives for their lower than normal compensation during 2008 and 2009.

In March 2010, the compensation committee granted Ms. Rhoads stock options to purchase 1,500,000 shares of our common stock in connection with her commencement of employment as our executive vice president, chief financial officer, treasurer and secretary. The compensation committee

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established this award based on its review and consideration of the factors described in the first paragraph above.

In May 2010, the compensation committee, and the board of directors with respect to our chief executive officer, awarded the following options to our named executive officers: Mr. Hawley, options to purchase 1,500,000 shares; Dr. Farr, options to purchase 1,000,000 shares; Dr. Robinson, options to purchase 320,000 shares; and Ms. Haldeman, options to purchase 100,000 shares. Each of these option awards vests over a four-year period as follows: 25% of the shares underlying the option vest on the first anniversary of the date of the vesting commencement date and the remainder of the shares underlying the option vest in equal monthly installments over the remaining 36 months thereafter. Each of these options has an exercise price of $0.40 per share. The compensation committee determined that such awards were appropriate in order to incentivize our named executive officers for their strong operational performance.

As a privately-owned company, there has been no active market for our common stock. Accordingly, we have had no program, plan or practice pertaining to the timing of stock option grants to named executive officers coinciding with the release of material non-public information.

Retirement Savings

All of our full-time employees in the U.S., including our named executive officers, are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $16,500 in 2010 (additional salary deferrals not to exceed $5,500 are available to those employees 50 years of age or older) and to have the amount of this reduction contributed to our 401(k) plan. While we may elect to make matching contributions, no such contributions have been made.

Health and Welfare Benefits, Perquisites and Other Compensation

The establishment of competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel.

Health and Welfare Benefits.    Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits.

Perquisites.    We do not provide significant perquisites or personal benefits to our named executive officers. We do, however, pay the premiums for term life insurance for our named executive officers.

Post Termination Benefits

We have entered into employment agreements which provide for certain severance benefits in the event a named executive officer’s employment is involuntarily or constructively terminated. Such severance benefits are intended and designed to alleviate the financial impact of an involuntary termination and maintain a stable work environment through salary continuation and equity award vesting acceleration. We provide severance benefits because they are essential to help us fulfill our objective of attracting and retaining key managerial talent. While these arrangements form an integral part of the total compensation provided to these individuals and are considered by the compensation committee when determining executive officer compensation, the decision to offer these benefits did not influence the compensation committee’s determinations concerning other direct compensation or benefit levels. The compensation committee has determined that such arrangements offer protection that is competitive within our industry and for our company size and are designed to attract highly qualified individuals and maintain their employment with us. In determining the severance benefits

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payable pursuant to the executive employment agreements, the compensation committee considered the input of our executives as to what they expected and what level of severance benefits would be sufficient to retain our current executive team and to recruit talented executives in the future. For a description of these employment agreements, see “— Employment and Release Agreements —Employment Agreements” below.

Tax Deductibility of Executive Compensation

The compensation committee and our board of directors have considered the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for our chief executive officer and each of the other named executive officers (other than our chief financial officer), unless compensation is performance based. As we are not currently publicly-traded, our board of directors has not previously taken the deductibility limit imposed by Section 162(m) into consideration in setting compensation. Our compensation committee, however, has adopted a policy that, where reasonably practicable, we will seek to qualify the variable compensation paid to our executive officers for an exemption from the deductibility limitations of Section 162(m).

In approving the amount and form of compensation for our executive officers, the compensation committee will continue to consider all elements of the cost to our company of providing such compensation, including the potential impact of Section 162(m).

Accounting for Stock-Based Compensation

We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718 (formerly known as SFAS No. 123(R)), or ASC Topic 718, for our stock-based compensation awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. This calculation is performed for accounting purposes and reported in the compensation tables below, even though recipients may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award.

Risk Assessment of Compensation Program

In September 2010, management assessed our compensation program for the purpose of reviewing and considering any risks presented by our compensation policies and practices that are reasonably likely to have a material adverse effect on us. As part of that assessment, management reviewed the primary elements of our compensation program, including base salary, short-term incentive compensation and long-term incentive compensation. Management’s risk assessment included a review of the overall design of each primary element of our compensation program, and an analysis of the various design features, controls and approval rights in place with respect to compensation paid to management and other employees that mitigate potential risks to us that could arise from our compensation program. Following the assessment, management determined that our compensation policies and practices did not create risks that were reasonably likely to have a material adverse effect on us and reported the results of the assessment to our compensation committee.

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Summary Compensation Table

The following table shows information regarding the compensation earned by our named executive officers during the fiscal years ended December 31, 2007, 2008 and 2009.

	Year	Annual Compensation			Long Term Compensation		Non-Equity Incentive Plan Compensation ($)(4)	All Other Compensation ($)(5)	Total ($)
Name and Principal Position		Salary ($)(1)	Bonus ($)(2)		Stock Awards ($)	Option Awards ($)(3)
Roger L. Hawley	2009	381,667	100,000		—	156,223	—	79	637,969
Chief Executive Officer	2008	400,000	—		—	880,290	—	93	1,280,383
	2007	279,167	—		—	31,680	125,000	132	435,979
Stephen J. Farr, Ph.D.	2009	310,104	81,250		—	110,658	—	79	502,091
President and Chief Operating Officer	2008	325,000	—		—	73,358	—	93	398,451
	2007	257,500	75,559	(6)	—	—	93,543	132	426,734
David W. Nassif, J.D.(7)	2009	248,083	65,000		—	—	—	79	313,162
Former Executive Vice President and Chief Financial Officer	2008	260,000	—		—	—	—	93	260,093
	2007	150,000	—		—	44,000	47,504	109,400	350,904
J.D. Haldeman	2009	243,313	63,750		—	52,074	—	79	359,216
Former Chief Commercial Officer(8)	2008	251,073	—		—	—	—	93	251,166
	2007	210,000	—		—	28,160	52,085	132	290,377
Cynthia Robinson, Ph.D.(9)	2009	248,083	65,000		—	26,037	—	79	339,199
Chief Development Officer	2008	208,333	—		—	471,552	—	89,035	768,920
	2007	—	—		—	—	—	—	—

(1) The salaries paid for 2009 are lower than those for 2008, reflecting the 10% voluntary salary reduction taken by the named executive officers for a portion of 2009.

(2) For 2009, represents amounts paid under the retention bonus program.

(3) Represents the grant date fair value of the awards granted in the relevant fiscal year as computed in accordance with ASC Topic 718.

(4) These amounts represent 2007 performance bonuses under our executive bonus program, which is described above under “— Compensation Discussion and Analysis — Performance Bonuses.” No bonuses were earned for 2009 or 2008 performance under the executive bonus program due to the need to conserve cash.

(5) Reflects premiums paid by the company for term life insurance for our named executive officers. The amounts shown for Mr. Nassif for 2007 also include consulting fees of $109,400 paid to him by us during the period January 2007 through May 2007, when he commenced employment as our executive vice president and chief financial officer. The amounts shown for Ms. Robinson for 2008 also include consulting fees of $88,975 paid to her by us during the period January 2008 through March 2008, when she commenced employment as our chief development officer.

(6) This amount represents a bonus paid to Dr. Farr pursuant to his employment agreement in consideration of foregone severance otherwise payable by Aradigm, his former employer, following his termination of employment with Aradigm in connection with our acquisition of DosePro needle-free drug delivery system.

(7) For 2007, reflects a pro-rated salary and bonus for Mr. Nassif due to the fact the Mr. Nassif was appointed executive vice president and chief financial officer in May 2007. Effective February 26, 2010, Mr. Nassif resigned his positions with the company. Beginning March 1, 2010, he began providing executive consulting services to the company.

(8) Effective July 26, 2010, Ms. Haldeman resigned her position with us.

(9) For 2008, reflects a pro-rated salary for Ms. Robinson due to the fact the Ms. Robinson was appointed chief development officer in April 2008.

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2009 Grants of Plan-Based Awards

All stock options granted to our named executive officers were granted under our 2006 Equity Incentive Plan. The exercise price per share of each stock option is equal to the per share fair market value of our common stock as determined by our board of directors on the date of grant. The following table sets forth summary information regarding grants of plan-based awards made to our named executive officers during the year ended December 31, 2009.

Name	Grant Date(1)	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($)(2)	All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)(3)	Grant Date Fair Value of Stock and Option Awards(4)
Roger L. Hawley	9/1/2009	—	—	600,000	0.25	156,223
Stephen J. Farr, Ph.D.	9/1/2009	—	—	425,000	0.25	110,658
David W. Nassif, J.D.	—	—	—	—	—	—
J.D. Haldeman	9/1/2009	—	—	200,000	0.25	52,074
Cynthia Robinson, Ph.D.	9/1/2009	—	—	100,000	0.25	26,037

(1) All of the stock option awards have a ten year term and vest monthly over two years based on the named executive officer’s continued employment by or service to the company on each such vesting date.

(2) Due to the need to conserve cash for most of 2009, the executive bonus program was suspended. There are no minimum thresholds or maximums under the 2009 executive bonus program.

(3) Reflects the fair market value per share of our common stock on the grant date as determined by our board of directors.

(4) Represents the grant date fair value of the awards as computed in accordance with ASC Topic 718. For a discussion of the valuation assumptions, see Note 9 to our consolidated financial statements for the year ended December 31, 2009 included elsewhere in this prospectus.

Discussion of Summary Compensation and Grants of Plan-Based Awards Tables

Our executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table and the 2009 Grants of Plan-Based Awards table was paid or awarded, are described above under “Compensation Discussion and Analysis.” A summary of certain material terms of our employment agreements and compensation plans and arrangements is set forth below.

Employment and Release Agreements

Employment Agreements

In May 2008, our board of directors approved our entering into employment agreements with each of our named executive officers. In March 2010, we entered into an employment agreement with Ms. Rhoads in connection with her commencement of employment as our executive vice president, chief financial officer, treasurer and secretary.

Pursuant to each of the employment agreements, if we terminate such officer’s employment without cause (as defined below) or such officer resigns for good reason (as defined below) or such officer’s employment is terminated as a result of his or her death or following his or her permanent disability, the executive officer or his or her estate, as applicable, is entitled to the following payments and benefits: (1) his or her fully earned but unpaid base salary through the date of termination at the rate then in effect, plus all other benefits, if any, under any group retirement plan, nonqualified deferred compensation plan, equity award or agreement, health benefits plan or other group benefit plan to which he or she may be entitled to under the terms of such plans or agreements; (2) a lump sum cash

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payment in an amount equal to 12 months of his or her base salary as in effect immediately prior to the date of termination; (3) continuation of health benefits for a period of 12 months following the date of termination; and (4) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards as to the number of stock awards that would have vested over the 12-month period following termination had such officer remained continuously employed by us during such period.

If a named executive officer is terminated without cause or resigns for good reason during the period commencing 60 days prior to a change in control (as defined below) or 12 months following a change in control, such officer shall be entitled to receive, in addition to the severance benefits described above, the following payments and benefits: (1) a lump sum cash payment in an amount equal to his or her bonus (as defined below) for the year in which the termination of employment occurs; and (2) in the case of Mr. Hawley, an additional lump sum cash payment in an amount equal to six months of his base salary as in effect immediately prior to the date of termination. In addition, in the event of a change in control, the vesting and exercisability of 50% of the executive officer’s outstanding unvested stock awards shall be automatically accelerated and, in the event an executive officer is terminated without cause or resigns for good reason within three months prior to or 12 months following a change in control, the vesting and exercisability of 100% of the executive officer’s outstanding unvested stock awards shall be automatically accelerated. For a further description of the potential compensation payable to our named executive officers under their employment agreements, please see “— Potential Payments Upon Termination or Change in Control” below.

For purposes of the employment agreements, “cause” generally means an executive officer’s (1) commission of an act of fraud, embezzlement or dishonesty or some other illegal act that has a material adverse impact on us or any successor or affiliate of ours, (2) conviction of, or entry into a plea of “guilty” or “no contest” to, a felony, (3) unauthorized use or disclosure of our confidential information or trade secrets or any successor or affiliate of ours that has, or may reasonably be expected to have, a material adverse impact on any such entity, (4) gross negligence, insubordination or material violation of any duty of loyalty to us or any successor or affiliate of ours, or any other material misconduct on the part of the executive officer, (5) ongoing and repeated failure or refusal to perform or neglect of his or her duties as required by his or her employment agreement, which failure, refusal or neglect continues for 15 days following his or receipt of written notice from our board of directors, chief executive officer or supervising officer, as applicable, stating with specificity the nature of such failure, refusal or neglect, or (6) breach of any policy of ours or any material provision of his or her employment agreement.

For purposes of the employment agreements, “good reason” generally means (1) a material diminution in the executive officer’s authority, duties or responsibilities, (2) a material diminution in the executive officer’s base compensation, unless such a reduction is imposed across-the-board to senior management of the company, (3) a material change in the geographic location at which the executive officer must perform his or her duties, or (4) any other action or inaction that constitutes a material breach by us or any successor or affiliate of ours of its obligations to the executive officer under his or her employment agreement.

For purposes of the employment agreements, “bonus” generally means an amount equal to the average of the bonuses awarded to the named executive officer for each of the three fiscal years prior to the date of his or her termination of employment, or such lesser number of years as may be applicable if the executive officer has not been employed for three full years on the date of termination of employment. However, to the extent the executive officer has not received any bonus prior to the date of his or her termination of employment due to the fact that his or her employment commenced during the fiscal year in which the termination occurs, “bonus” means an amount equal to his or her target bonus for the fiscal year in which such termination occurs (calculated by reference to the target bonus level in effect on the date of termination) multiplied by the corporate performance achievement percentage approved by the board of directors or its designee with respect to the payment of executive bonuses for the preceding fiscal year.

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For purposes of the employment agreements, “change in control” has the same meaning as such term is given under the terms of our 2010 Equity Incentive Award Plan, as described below.

Release Agreements

In February 2010, we entered into a general release of claims with Mr. Nassif, which release superseded his employment agreement. Pursuant to the release, (1) we paid him a cash payment equal to $260,000, representing his annual base salary as in effect immediately prior to his termination of employment, (2) we agreed to continue his health benefits for a period of 12 months following the date of his termination of employment, and (3) the vesting and exercisability of his outstanding unvested stock awards was accelerated as to the number of stock awards that would have vested over the 12-month period following his termination of employment. Following his termination of employment, Mr. Nassif commenced consulting for us in March 2010.

In August 2010, we entered into a general release of claims with Ms. Haldeman, which release superseded her employment agreement. Pursuant to the release (1) we paid her a cash payment equal to $255,000, representing her annual base salary as in effect immediately prior to her termination of employment, (2) we agreed to continue her health benefits for a period of 12 months following the date of her termination of employment, (3) the vesting and exercisability of her outstanding unvested stock awards was accelerated as to the number of stock awards that would have vested over the 12-month period following her termination of employment, and (4) the expiration date of Ms. Haldeman’s vested options was extended until July 26, 2011. In addition, in the event of a change in control on or before September 26, 2010, we will pay Ms. Haldeman an additional cash amount of $52,085, representing her bonus as of the date of her termination of employment (as such term was defined in her employment agreement). In the event of a change in control on or before October 26, 2010, the vesting and exercisability of 100% of Ms. Haldeman’s outstanding unvested stock awards as of her date of termination shall be automatically accelerated.

Employee Equity Incentive Plans

2010 Equity Incentive Award Plan

Prior to the completion of this offering, we plan to adopt our 2010 Equity Incentive Award Plan, or the 2010 Plan. The 2010 Plan will become effective immediately prior to the completion of this offering. We plan to initially reserve              shares of our common stock for issuance under the 2010 Plan. In addition, the number of shares initially reserved under the 2010 Plan will be increased by (1) the number of shares of common stock available for issuance and not subject to options granted under our 2006 Equity Incentive Award Plan, or the 2006 Plan, as of the effective date of the 2010 Plan, and (2) the number of shares of common stock related to options granted under our 2006 Plan that are repurchased, forfeited, expired or are cancelled on or after the effective date of the 2010 Plan. The total number of shares described in clauses (1) and (2) of the preceding sentence shall not exceed              shares of our common stock.

The 2010 Plan contains an “evergreen provision” that allows for an annual increase in the number of shares available for issuance under the 2010 Plan commencing on the first January 1 after the completion of this offering and on each January 1 thereafter during the ten-year term of the 2010 Plan. The annual increase in the number of shares shall be equal to the least of:

•     % of our outstanding common stock on the applicable January 1;

•              shares; and

• a lesser number of shares as determined by our board of directors.

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The 2010 Plan will also provide for an aggregate limit of              shares of common stock that may be issued under the 2010 Plan over the course of its ten-year term. The material terms of the 2010 Plan are summarized below.

Administration.    The compensation committee of our board of directors will administer the 2010 Plan (except with respect to any award granted to “independent directors” (as defined in the 2010 Plan), which must be administered by our full board of directors). Following the completion of this offering, to administer the 2010 Plan, our compensation committee must consist solely of at least two members of our board of directors, each of whom is a “non-employee director” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and, with respect to awards that are intended to constitute performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, an “outside director” for purposes of Section 162(m). Subject to the terms and conditions of the 2010 Plan, our compensation committee has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, the number of awards to grant, the number of shares to be subject to such awards, and the terms and conditions of such awards, and to make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2010 Plan. Our compensation committee is also authorized to establish, adopt, amend or revise rules relating to administration of the 2010 Plan. Our board of directors may at any time revest in itself the authority to administer the 2010 Plan.

Eligibility.    Options, stock appreciation rights, or SARs, restricted stock and other awards under the 2010 Plan may be granted to individuals who are then our officers or employees or are the officers or employees of any of our subsidiaries. Such awards may also be granted to our non-employee directors and consultants but only employees may be granted incentive stock options, or ISOs. As of August     , 2010, there were eight non-employee directors and              employees who would have been eligible for awards under the 2010 Plan had it been in effect on such date. At such time after the completion of this offering when we are subject to the requirements of Section 162(m) of the Internal Revenue Code, the maximum number of shares that may be subject to awards granted under the 2010 Plan to any individual in any calendar year cannot exceed              and the maximum amount that may be paid to a participant in cash during any calendar year with respect to one or more cash based awards under the 2010 Plan is $             .

Awards.    The 2010 Plan provides that our compensation committee (or the board of directors, in the case of awards to non-employee directors) may grant or issue stock options, SARs, restricted stock, restricted stock units, dividend equivalents, performance share awards, performance stock units, stock payments, deferred stock, performance bonus awards, performance-based awards, and other stock-based awards, or any combination thereof. Our compensation committee (or the board of directors, in the case of awards to non-employee directors) will consider each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.

• Nonqualified stock options, or NQSOs, will provide for the right to purchase shares of our common stock at a specified price which may not be less than the fair market value of a share of common stock on the date of grant, and usually will become exercisable (at the discretion of our compensation committee or our board of directors, in the case of awards to non-employee directors) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/or subject to the satisfaction of performance targets established by our compensation committee (or our board of directors, in the case of awards to non-employee directors). NQSOs may be granted for any term specified by our compensation committee (or our board of directors, in the case of awards to non-employee directors).

• Incentive stock options, or ISOs, will be designed to comply with the provisions of the Internal Revenue Code and will be subject to specified restrictions contained in the Internal Revenue

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Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, must expire within a specified period of time following the optionee’s termination of employment, and must be exercised within the ten years after the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock, the 2010 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must expire upon the fifth anniversary of the date of its grant.

• Restricted stock may be granted to participants and made subject to such restrictions as may be determined by our compensation committee (or our board of directors, in the case of awards to non-employee directors). Typically, restricted stock may be forfeited for no consideration if the conditions or restrictions are not met, and it may not be sold or otherwise transferred to third parties until restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to the time when the restrictions lapse.

• Restricted stock units may be awarded to participants, typically without payment of consideration or for a nominal purchase price, but subject to vesting conditions including continued employment or on performance criteria established by our compensation committee (or our board of directors, in the case of awards to non-employee directors). Like restricted stock, restricted stock units may not be sold or otherwise transferred or hypothecated until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied.

• SARs granted under the 2010 Plan typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the SAR. Except as required by Section 162(m) of the Internal Revenue Code with respect to SARs intended to qualify as performance-based compensation as described in Section 162(m) of the Internal Revenue Code, there are no restrictions specified in the 2010 Plan on the exercise of SARs or the amount of gain realizable therefrom. Our compensation committee (or the board of directors, in the case of awards to non-employee directors) may elect to pay SARs in cash or in common stock or in a combination of both.

• Dividend equivalents represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant.

• Performance bonus awards may be granted by our compensation committee on an individual or group basis. Generally, these awards will be based upon the attainment of specific performance goals that are established by our compensation committee and relate to one or more performance criteria on a specified date or dates determined by our compensation committee. Any such cash bonus paid to a “covered employee” within the meaning of Section 162(m) of the Internal Revenue Code may be, but need not be, qualified performance-based compensation as described below and will be paid in cash.

• Stock payments may be authorized by our compensation committee (or our board of directors, in the case of awards to non-employee directors) in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation arrangement, made in lieu of all or any part of compensation, including bonuses, that would otherwise be payable to employees, consultants or members of our board of directors.

Qualified Performance-Based Compensation.    The compensation committee may designate employees as “covered employees” whose compensation for a given fiscal year may be subject to the

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limit on deductible compensation imposed by Section 162(m) of the Code. The compensation committee may grant to such covered employees restricted stock, dividend equivalents, stock payments, restricted stock units, cash bonuses and other stock-based awards that are paid, vest or become exercisable upon the attainment of company performance criteria which are related to one or more of the following performance criteria as applicable to our performance or the performance of a division, business unit or an individual, measured either in absolute terms, on a same-property basis, as compared to any incremental increase or as compared to results of a peer group: operating or other costs and expenses, improvements in expense levels, cash flow (including, but not limited to, operating cash flow and free cash flow), return on net assets, return on shareholders’ equity, return on sales, gross or net profit margin, working capital, net earnings (either before or after interest, taxes, depreciation and amortization), sales or revenue, net income (either before or after taxes), operating earnings, earnings per share of stock, price per share of stock, capital raised in financing transactions or other financing milestones, market recognition (including but not limited to awards and analyst ratings) and implementation, completion or attainment of objectively-determinable objectives relating to research, development, regulatory, commercial or strategic milestones or development cash flow (including, but not limited to, operating cash flow and free cash flow). These performance criteria may be measured in absolute terms or as compared to performance in an earlier period or as compared to any incremental increase or as compared to results of a peer group.

The compensation committee may provide that one or more objectively determinable adjustments will be made to one or more of the performance goals established for any performance period. Such adjustments may include one or more of the following: items related to a change in accounting principle, items relating to financing activities, expenses for restructuring or productivity initiatives, other non-operating items, items related to acquisitions, items attributable to the business operations of any entity acquired by us during the performance period, items related to the disposal of a business of segment of a business, items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards, items attributable to any stock dividend, stock split, combination or exchange of shares occurring during the performance period, any other items of significant income or expense which are determined to be appropriate adjustments, items relating to unusual or extraordinary corporate transactions, events or developments, items related to amortization of acquired intangible assets, items that are outside the scope of our core, on-going business activities, items relating to changes in tax laws, items relating to gains and losses for litigation, arbitration or contractual settlements, or items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.

Adjustments.    If there is any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of our assets to stockholders, or any other change affecting the shares of our common stock or the share price of our common stock other than an equity restructuring (as defined in the 2010 Plan), the plan administrator will make such equitable adjustments, if any, as the plan administrator in its discretion may deem appropriate to reflect such change with respect to (1) the aggregate number and type of shares that may be issued under the 2010 Plan (including, but not limited to, adjustments of the number of shares available under the plan and the maximum number of shares which may be subject to one or more awards to a participant pursuant to the plan during any calendar year), (2) the terms and conditions of any outstanding awards (including, without limitation, any applicable performance targets or criteria with respect thereto), and (3) the grant or exercise price per share for any outstanding awards under the plan. If there is any equity restructuring, (1) the number and type of securities subject to each outstanding award and the grant or exercise price per share for each outstanding award, if applicable, will be proportionately adjusted, and (2) the plan administrator will make proportionate adjustments to reflect such equity restructuring with respect to the aggregate number and type of shares that may be issued under the 2010 Plan (including, but not limited to, adjustments of the number of shares available under the plan and the maximum number of shares which may be subject to one or more awards to a participant pursuant to the plan during any calendar year). Adjustments in the event of an equity

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restructuring will not be discretionary. Any adjustment affecting an award intended as “qualified performance-based compensation” will be made consistent with the requirements of Section 162(m) of the Internal Revenue Code. The plan administrator also has the authority under the 2010 Plan to take certain other actions with respect to outstanding awards in the event of a corporate transaction, including provision for the cash-out, termination, assumption or substitution of such awards.

Corporate Transactions.    In the event of a change in control where the acquirer does not assume awards granted under the 2010 Plan, awards issued under the 2010 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable. Under the 2010 Plan, a change in control is generally defined as:

• a transaction or series of related transactions (other than an offering of our stock to the general public through a registration statement filed with the U.S. Securities and Exchange Commission, or SEC) whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 50% of the total combined voting power of our securities outstanding immediately after such acquisition;

• during any two-year period, individuals who, at the beginning of such period, constitute our board of directors together with any new director(s) whose election by our board of directors or nomination for election by our stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of our board of directors; or

• our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) the sale, exchange or transfer of all or substantially all of our assets in any single transaction or series of transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

• which results in our voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into our voting securities or the voting securities of the person that, as a result of the transaction, controls us, directly or indirectly, or owns, directly or indirectly, all or substantially all of our assets or otherwise succeeds to our business (we or such person being referred to as a successor entity)) directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction, and

• after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group is treated as beneficially owning 50% or more of combined voting power of the successor entity solely as a result of the voting power held in us prior to the consummation of the transaction.

Amendment and Termination of the 2010 Plan.    Our board of directors or our compensation committee may terminate, amend or modify the 2010 Plan. However, stockholder approval of any amendment to the 2010 Plan will be obtained to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, or for any amendment to the 2010 Plan that increases the number of shares available under the 2010 Plan. If not terminated earlier by our compensation committee or our board of directors, the 2010 Plan will terminate on the tenth anniversary of the date of its initial approval by our board of directors.

Repricing Permitted.    Our compensation committee (or the board of directors, in the case of awards to non-employee directors) shall have the authority, without the approval of our stockholders, to

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authorize the amendment of any outstanding award to reduce its price per share and to provide that an award will be canceled and replaced with the grant of an award having a lesser price per share. Our compensation committee (or the board of directors, in the case of awards to non-employee directors) will also have the authority, without the approval of our stockholders, to amend any outstanding award to increase the price per share or to cancel and replace an award with the grant of an award having a price per share that is greater than or equal to the price per share of the original award.

Securities Laws and Federal Income Taxes.    The 2010 Plan is designed to comply with various securities and federal tax laws as follows:

Securities Laws.    The 2010 Plan is intended to conform to all provisions of the Securities Act of 1933, as amended, or the Securities Act, and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2010 Plan will be administered, and awards will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.

Federal Income Tax Consequences.    The federal income tax consequences of the 2010 Plan under current federal income tax law are summarized in the following discussion which deals with the general tax principles applicable to the 2010 Plan and is intended for general information only. The following discussion of federal income tax consequences does not purport to be a complete analysis of all of the potential tax effects of the 2010 Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed, and may vary depending on individual circumstances and from locality to locality.

• Stock Options and Stock Appreciation Rights.    A 2010 Plan participant generally will not recognize taxable income and we generally will not be entitled to a tax deduction upon the grant of a stock option or stock appreciation right. The tax consequences of exercising a stock option and the subsequent disposition of the shares received upon exercise will depend upon whether the option qualifies as an “incentive stock option” as defined in Section 422 of the Internal Revenue Code. The 2010 Plan permits the grant of options that are intended to qualify as incentive stock options as well as options that are not intended to so qualify; however, incentive stock options generally may be granted only to our employees and employees of our parent or subsidiary corporations, if any. Upon exercising an option that does not qualify as an incentive stock option when the fair market value of our stock is higher than the exercise price of the option, a 2010 Plan participant generally will recognize taxable income at ordinary income tax rates equal to the excess of the fair market value of the stock on the date of exercise over the purchase price, and we (or our subsidiaries, if any) generally will be entitled to a corresponding tax deduction for compensation expense, in the amount equal to the amount by which the fair market value of the shares purchased exceeds the purchase price for the shares. Upon a subsequent sale or other disposition of the option shares, the participant will recognize a short term or long term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.

Upon exercising an incentive stock option, a 2010 Plan participant generally will not recognize taxable income, and we will not be entitled to a tax deduction for compensation expense. However, upon exercise, the amount by which the fair market value of the shares purchased exceeds the purchase price will be an item of adjustment for alternative minimum tax purposes. The participant will recognize taxable income upon a sale or other taxable disposition of the option shares. For federal income tax purposes, dispositions are divided into two categories: qualifying and disqualifying. A qualifying disposition generally occurs if the sale or other disposition is made more than two years after the date the option was granted and more than one year after the date the shares are transferred upon exercise. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition generally will result.

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Upon a qualifying disposition of incentive stock option shares, the participant will recognize long term capital gain in an amount equal to the excess of the amount realized upon the sale or other disposition of the shares over their purchase price. If there is a disqualifying disposition of the shares, then the excess of the fair market value of the shares on the exercise date (or, if less, the price at which the shares are sold) over their purchase price will be taxable as ordinary income to the participant. If there is a disqualifying disposition in the same year of exercise, it eliminates the item of adjustment for alternative minimum tax purposes. Any additional gain or loss recognized upon the disposition will be recognized as a capital gain or loss by the participant.

We will not be entitled to any tax deduction if the participant makes a qualifying disposition of incentive stock option shares. If the participant makes a disqualifying disposition of the shares, we should be entitled to a tax deduction for compensation expense in the amount of the ordinary income recognized by the participant.

Upon exercising or settling a stock appreciation right, a 2010 Plan participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in the amount paid or value of the shares issued upon exercise or settlement. Payments in shares will be valued at the fair market value of the shares at the time of the payment, and upon the subsequent disposition of the shares the participant will recognize a short term or long term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.

• Restricted Stock and Restricted Stock Units.    A 2010 Plan participant generally will not recognize taxable income at ordinary income tax rates and we generally will not be entitled to a tax deduction upon the grant of restricted stock or restricted stock units. Upon the termination of restrictions on restricted stock or the payment of restricted stock units, the participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in the amount paid to the participant or the amount by which the then fair market value of the shares received by the participant exceeds the amount, if any, paid for them. Upon the subsequent disposition of any shares, the participant will recognize a short term or long term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares. However, a 2010 Plan participant granted restricted stock that is subject to forfeiture or repurchase through a vesting schedule such that it is subject to a “risk of forfeiture” (as defined in Section 83 of the Internal Revenue Code) may make an election under Section 83(b) of the Internal Revenue Code to recognize taxable income at ordinary income tax rates, at the time of the grant, in an amount equal to the fair market value of the shares of common stock on the date of grant, less the amount paid, if any, for such shares. We will be entitled to a corresponding tax deduction for compensation, in the amount recognized as taxable income by the participant. If a timely Section 83(b) election is made, the participant will not recognize any additional ordinary income on the termination of restrictions on restricted stock, and we will not be entitled to any additional tax deduction.

• Dividend Equivalents, Stock Payment Awards and Cash-Based Awards.    A 2010 Plan participant will not recognize taxable income and we will not be entitled to a tax deduction upon the grant of dividend equivalents, stock payment awards or cash-based awards until cash or shares are paid or distributed to the participant. At that time, any cash payments or the fair market value of shares that the participant receives will be taxable to the participant at ordinary income tax rates and we should be entitled to a corresponding tax deduction for compensation expense. Payments in shares will be valued at the fair market value of the shares at the time of the payment, and upon the subsequent disposition of the shares, the participant will recognize a short term or long term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.

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• Section 409A of the Internal Revenue Code.    Certain types of awards under the 2010 Plan may constitute, or provide for, a deferral of compensation under Section 409A. Unless certain requirements set forth in Section 409A are complied with, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% federal income tax (and, potentially, certain interest penalties). To the extent applicable, the 2010 Plan and awards granted under the 2010 Plan will be structured and interpreted to comply with Section 409A and the Department of Treasury regulations and other interpretive guidance that may be issued pursuant to Section 409A.

• Section 162(m) Limitation.    In general, under Section 162(m) of the Internal Revenue Code, income tax deductions of publicly-held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises and non-qualified benefits paid) for certain executive officers exceeds $1 million (less the amount of any “excess parachute payments” as defined in Section 280G of the Internal Revenue Code) in any one year. However, under Section 162(m), the deduction limit does not apply to certain “performance-based compensation” if an independent compensation committee determines performance goals and if the material terms of the performance-based compensation are disclosed to and approved by our stockholders. In particular, stock options and SARs will satisfy the “performance-based compensation” exception if the awards are made by a qualifying compensation committee, the plan sets the maximum number of shares that can be granted to any person within a specified period and the compensation is based solely on an increase in the stock price after the grant date. Specifically, the option exercise price must be equal to or greater than the fair market value of the stock subject to the award on the grant date. Under a Section 162(m) transition rule for compensation plans of corporations which are privately-held and which become publicly-held in an initial public offering, the 2010 Plan will not be subject to Section 162(m) until a specified transition date, which is the earlier of (1) the material modification of the 2010 Plan, (2) the issuance of all employer stock and other compensation that has been allocated under the 2010 Plan, or (3) the first annual meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs. After the transition date, rights or awards granted under the 2010 Plan, other than options and SARs, will not qualify as “performance-based compensation” for purposes of Section 162(m) unless such rights or awards are granted or vest upon pre-established objective performance goals, the material terms of which are disclosed to and approved by our stockholders.

We have attempted to structure the 2010 Plan in such a manner that, after the transition date, the compensation attributable to stock options and SARs which meet the other requirements of Section 162(m) will not be subject to the $1 million limitation. We have not, however, requested a ruling from the Internal Revenue Service, or IRS, or an opinion of counsel regarding this issue.

2006 Equity Incentive Plan

On October 4, 2006, our board of directors approved the Zogenix, Inc. 2006 Equity Incentive Plan, or the 2006 Plan. The 2006 Plan was approved by our stockholders in February 2007.

A total of 20,340,000 shares of our common stock were initially reserved for issuance under the 2006 Plan. As of June 30, 2010, 14,783,521 shares of our common stock were subject to outstanding option awards and 2,439,479 shares of our common stock remained available for future issuance. After the effective date of the 2010 Plan, no additional awards will be granted under the 2006 Plan.

Administration.    The compensation committee of our board of directors administers the 2006 Plan, except with respect to any award granted to non-employee directors (as defined in the 2006 Plan), which must be administered by our full board of directors. Subject to the terms and conditions of the 2006 Plan, the administrator has the authority to select the persons to whom awards are to be made, to

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determine the type or types of awards to be granted to each person, determine the number of awards to grant, determine the number of shares to be subject to such awards, and the terms and conditions of such awards, and make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2006 Plan. The plan administrator is also authorized to establish, adopt, amend or revise rules relating to administration of the 2006 Plan, subject to certain restrictions.

Eligibility.    Options, stock appreciation rights, or SARs, restricted stock and other awards under the 2006 Plan may be granted to individuals who are then our employees, consultants and members of our board of directors and our subsidiaries. Only employees may be granted incentive stock options, or ISOs.

Awards.    The 2006 Plan provides that our administrator may grant or issue stock options, restricted stock, restricted stock units, SARs, dividend equivalents, stock payments, or any combination thereof. The administrator considers each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award is set forth in a separate agreement with the person receiving the award and indicates the type, terms and conditions of the award.

• NQSOs provide for the right to purchase shares of our common stock at a specified price which may not be less than the fair market value of a share of stock on the date of grant, and usually will become exercisable (at the discretion of our compensation committee or the board of directors, in the case of awards to non-employee directors) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/or subject to the satisfaction of performance targets established by our compensation committee (or the board of directors, in the case of awards to non-employee directors). NQSOs may be granted for any term specified by our compensation committee (or the board of directors, in the case of awards to non-employee directors), but the term may not exceed ten years.

• ISOs are designed to comply with the provisions of the Internal Revenue Code and are subject to specified restrictions contained in the Internal Revenue Code applicable to ISOs. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, must expire within a specified period of time following the optionee’s termination of employment, and must be exercised within the ten years after the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock on the date of grant, the 2006 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must expire on the fifth anniversary of the date of its grant.

• Restricted stock may be granted to participants and made subject to such restrictions as may be determined by the administrator. Typically, restricted stock may be repurchased by us at the original purchase price or, if no cash consideration was paid for such stock, forfeited for no consideration if the conditions or restrictions are not met, and the restricted stock may not be sold or otherwise transferred to third parties until restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to when the restrictions lapse.

• Restricted stock units may be awarded to participants, typically without payment of consideration or for a nominal purchase price, but subject to vesting conditions including continued employment or on performance criteria established by the administrator. Like restricted stock, restricted stock units may not be sold or otherwise transferred or hypothecated until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until some time after the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied and the shares have been issued.

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• SARs typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the SAR. There are no restrictions specified in the 2006 Plan on the exercise of SARs or the amount of gain realizable therefrom. The administrator may elect to pay SARs in cash or in common stock or in a combination of both.

• Dividend equivalents may be awarded to participants and represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant.

• Stock payments may be authorized by the administrator in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation arrangement, made in lieu of all or any part of compensation, including bonuses, that would otherwise be payable to employees, consultants or members of our board of directors.

Corporate Transactions.    In the event of a change of control where the acquiror does not assume awards granted under the 2006 Plan, awards issued under the 2006 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable, immediately prior to the change in control. Under the 2006 Plan, a change of control is generally defined as:

• a transaction or series of related transactions whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 50% of the total combined voting power of our securities outstanding immediately after such acquisition;

• during any two-year period, individuals who, at the beginning of such period, constitute our board of directors together with any new director(s) whose election by our board of directors or nomination for election by our stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of our board of directors;

• our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (1) a merger, consolidation, reorganization, or business combination, (2) the sale or other disposition of all or substantially all of our assets or (3) the acquisition of assets or stock of another entity, in each case other than a transaction that results in our voting securities outstanding immediately before the transaction continuing to represent, directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction, and after which no person or entity beneficially owns voting securities representing 50% or more of the combined voting power of the acquiring company that is not attributable to voting power held in the company prior to such transaction; or

• the approval by our stockholders of a liquidation or dissolution of our company.

Amendment and Termination of the 2006 Plan.    Our board of directors may terminate, amend or modify the 2006 Plan. However, stockholder approval of any amendment to the 2006 Plan must be obtained to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, or for any amendment to the 2006 Plan that increases the number of shares available under the 2006 Plan. The administrator may, with the consent of the affected option holders, cancel any or all outstanding awards under the 2006 Plan and grant new awards in substitution. If not terminated earlier by the compensation committee or the board of directors, the 2006 Plan will terminate in October 2016.

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Securities Laws and Federal Income Taxes.    The 2006 Plan is designed to comply with applicable securities laws in the same manner as described above in the description of the 2010 Plan under the heading “— 2010 Equity Incentive Award Plan — Securities Laws and Federal Income Taxes — Securities Laws.” The general federal tax consequences of awards under the 2006 Plan are the same as those described above in the description of the 2010 Plan under the heading “— 2010 Equity Incentive Award Plan — Securities Laws and Federal Income Taxes — Federal Income Tax Consequences.”

2010 Employee Stock Purchase Plan

Prior to the completion of this offering, we intend to adopt our 2010 Employee Stock Purchase Plan, or the Purchase Plan. The compensation committee of the board of directors will administer the Purchase Plan. The Purchase Plan will be designed to allow our eligible employees and the eligible employees of our participating subsidiaries to purchase shares of common stock with accumulated payroll deductions. The Purchase Plan will become effective immediately prior to the completion of this offering. We intend to initially reserve a total of              shares of our common stock for issuance under the Purchase Plan.

The Purchase Plan will contain an “evergreen provision” that allows for an annual increase in the number of shares available for issuance under the Purchase Plan commencing on the first January 1 after the completion of this offering and on each January 1 thereafter during the ten-year term of the Purchase Plan. The annual increase in the number of shares shall be equal to the least of:

•     % of our outstanding common stock on the applicable January 1;

•              shares; and

• a lesser number of shares as determined by our board of directors.

The Purchase Plan will also provide for an aggregate limit of              shares of common stock that may be issued under the Purchase Plan over the course of its ten-year term. The material terms of the Purchase Plan are summarized below. The Purchase Plan is filed as an exhibit to the registration statement of which this prospectus is a part.

The Purchase Plan will have consecutive             -month offering periods. Under the Purchase Plan, purchases will be made on the last day of each offering period. We expect the first offering period under the Purchase Plan will commence              and that a new             -month offering period will commence on each              and              thereafter during the term of the Purchase Plan. Our compensation committee or board of directors may change the frequency and duration of offering periods under the Purchase Plan and may postpone the commencement of the initial offering period to a later date.

Individuals scheduled to work more than 20 hours per week for more than 5 calendar months per year, who have been employed with us for at least              months, may join an offering period on the first day of the offering period to the extent such individual does not, immediately after any rights under the Purchase Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of our common or other stock. As of August     , 2010,                  of our employees would have been eligible to participate in the Purchase Plan if it were in effect.

Participants may contribute up to     % of their cash earnings through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each purchase date. The purchase price per share will be equal to     % of the fair market value per share on the first day of the offering period or, if lower,     % of the fair market value per share on the purchase date. In each calendar year, no employee is permitted to purchase shares under the Purchase Plan at a rate in excess of $25,000 worth of shares, based on the fair market value per share determined as of the first day of the offering period, for each year such a purchase right is outstanding. In addition, no employee is permitted to purchase more than              shares during any offering period.

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In the event there is a specified type of change in our capital structure, such as a stock dividend or stock split, the committee may make appropriate adjustments to (1) the number and type of shares that may be issued under the Purchase Plan, including the maximum number of shares by which the share reserve may increase automatically each year, (2) the class(es) and number of shares and price per share of stock subject to outstanding rights and (3) the purchase price with respect to any outstanding rights.

In the event of certain significant corporate transactions or a change in control (as defined in the Purchase Plan), the committee may provide for (1) either the replacement or termination of outstanding rights in exchange for cash, (2) the assumption or substitution of outstanding rights by the successor or survivor corporation or parent or subsidiary thereof, if any, (3) the adjustment in the number and type of shares of stock subject to outstanding rights, (4) the use of participants’ accumulated payroll deductions to purchase stock on a new purchase date prior to the next purchase date and termination of any rights under ongoing offering periods or (5) the termination of all outstanding rights. Under the Purchase Plan, a change in control has the same definition as given to such term in the 2010 Plan.

The compensation committee may amend, suspend or terminate the Purchase Plan. However, stockholder approval of any amendment to the Purchase Plan will be obtained for any amendment which changes the aggregate number of shares that may be sold pursuant to rights under the Purchase Plan, changes the corporations or classes of corporations whose employees are eligible to participate in the Purchase Plan or changes the Purchase Plan in any manner that would cause the Purchase Plan to no longer be an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code. The Purchase Plan will terminate no later than the tenth anniversary of the Purchase Plan’s initial adoption by our board of directors.

Securities Laws.    The Purchase Plan has been designed to comply with various securities laws in the same manner as described above in the description of the Purchase Plan under the heading “— 2010 Equity Incentive Award Plan — Securities Laws and Federal Income Taxes — Securities Laws.”

Federal Income Taxes.    The federal income tax consequences of the Purchase Plan under current federal income tax law are summarized in the following discussion which deals with the general tax principles applicable to the Purchase Plan and is intended for general information only. The following discussion of federal income tax consequences does not purport to be a complete analysis of all of the potential tax effects of the Purchase Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed, and may vary depending on individual circumstances and from locality to locality.

The Purchase Plan, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Section 423 of the Internal Revenue Code. Under the applicable Internal Revenue Code provisions, no income will be taxable to a participant until the sale or other disposition of the shares purchased under the Purchase Plan. This means that an eligible employee will not recognize taxable income on the date the employee is granted an option under the Purchase Plan (i.e., the first day of the offering period). In addition, the employee will not recognize taxable income upon the purchase of shares. Upon such sale or disposition, the participant will generally be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the first day of the offering period during which the shares were purchased and one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of (1) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price or (2) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for the difference between the sale price and the purchase price.

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If the shares are sold or otherwise disposed of before the expiration of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price and we will be entitled to a tax deduction for compensation expense in the amount of ordinary income recognized by the employee. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares were held following the date they were purchased by the participant prior to disposing of them. If the shares are sold or otherwise disposed of before the expiration of the holding periods described above but are sold for a price that is less than the purchase price, the participant will recognize ordinary income equal to the excess of the fair market value of the shares on the date of purchase over the purchase price (and we will be entitled to a corresponding deduction), but the participant generally will be able to report a capital loss equal to the difference between the sales price of the shares and the fair market value of the shares on the date of purchase.

401(k) Plan

We provide a basic savings plan, or 401(k) plan, which is intended to qualify under Section 401(k) of the Internal Revenue Code so that contributions to our 401(k) plan by employees or by us, and the investment earnings thereon, are not taxable to employees until withdrawn from our 401(k) plan. If our 401(k) plan qualifies under Section 401(k) of the Internal Revenue Code, contributions by us, if any, will be deductible by us when made.

All of our full-time employees in the U.S. are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $16,500 in 2010 and to have the amount of this reduction contributed to our 401(k) plan. Participants that are 50 years or older can also make “catch-up” contributions, which in calendar year 2010 may be up to an additional $5,500 above the statutory limit. Under the 401(k) plan, each participant is fully vested in his or her deferred salary contributions when contributed. Participant contributions are held and invested, pursuant to the participant’s instructions, by the plan’s trustee. Our 401(k) plan permits, but does not require, additional matching contributions to our 401(k) plan by us on behalf of all participants in our 401(k) plan. While we may elect to make matching contributions, no contributions have been made. The 401(k) Plan currently does not offer the ability to invest in our securities.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth specified information concerning unexercised stock options and unvested stock awards for each of the named executive officers outstanding as of December 31, 2009.

	Option Awards(1)					Stock Awards
Name	Number of Securities Underlying Unexercised Options Exercisable (#)	Number of Securities Underlying Unexercised Options Unexercisable (#)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date(2)	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value  of Shares or Units of Stock That Have Not Vested ($)
Roger L. Hawley	600,000	—	—	0.25	8/30/2019	—		—
	900,000	—	—	0.35	10/20/2018	—		—
	—	—	—	—	—	262,520	$	94,507
Stephen J. Farr, Ph.D.	425,000	—	—	0.25	8/30/2019	—		—
	75,000	—	—	0.35	10/20/2018	—		—
David W. Nassif, J.D.	—	—	—	—		—		—
J.D. Haldeman	200,000	—	—	0.25	8/30/2019	—		—
	150,000	—	—	0.05	5/29/2017	—		—
	325,000	—	—	0.05	2/12/2017	—		—
Cynthia Robinson, Ph.D.	100,000	—	—	0.25	8/30/2019	—		—
	480,000	—	—	0.35	10/20/2018	—		—

(1) Unless otherwise indicated, 25% of the shares underlying options vest on the first anniversary of the vesting commencement date and the remaining options vest on a monthly basis over the subsequent three-year period of continuous service and all options have a 10-year term from the date of grant. All options are immediately exercisable. Unvested options are subject to a right of repurchase within 60 days of termination of employment.

(2) The options granted with an expiration date of 8/30/2019 vest on a monthly basis over a two-year period of continuous service and have a 10-term from the date of grant.

Option Exercises and Stock Vested

The following table summarizes information regarding each exercise of stock options during 2009 for each of the named executive officers. None of the named executive officers vested in any stock awards during 2009.

	Option Awards			Stock Awards
Name	Number of Shares Acquired On Exercise (#)	Value Realized on Exercise ($)(1)		Number of Shares Acquired On Vesting (#)	Value Realized On Vesting ($)
Roger L. Hawley	—		—	—	—
Stephen J. Farr, Ph.D.	—		—	—	—
David W. Nassif, J.D.	750,000	$	270,000	—	—
J.D. Haldeman	—		—	—	—
Cynthia Robinson, Ph.D.	—		—	—	—

(1) The value realized upon exercise of an option is calculated based on the number of shares issued upon exercise of such option multiplied by the difference between the fair market value per share on the date of exercise less the exercise price per share of such option.

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Potential Payments Upon Termination or Change in Control

The following table summarizes the potential payments to our named executive officers in four scenarios: (1) upon termination by us without cause or the executive’s resignation for good reason apart from a change in control; (2) upon termination by us following the executive’s permanent disability or as a result of the executive’s death; (3) upon termination by us without cause or the executive’s resignation for good reason within 60 days prior to or 12 months following a change in control; or (4) in the event of a change in control without a termination of employment. The table assumes that the termination of employment or change in control, as applicable, occurred on December 31, 2009. The definitions of “cause”, “good reason” and “bonus” are contained in the applicable employment agreement for each of our named executive officers, which are described above under the heading “— Employment and Release Agreements — Employment Agreements.”

Name and Position	Benefit Type	Payment in the Event of a Termination by the Company Without Cause or by Executive for Good Reason Apart from a Change in Control(1)(2)		Payment in the  Event of a Termination by the Company following Executive’s Permanent Disability or as a Result of Executive’s Death(1)(2)		Payment in the Event of a Termination by the Company Without Cause or by Executive for Good Reason Within 60 Days Prior to or 12 Months Following a Change in Control(3)(4)		Payment in the Event of a Change in Control Without Termination(5)
Roger L. Hawley	Severance	$	400,000	$	400,000	$	725,000
Chief Executive Officer	Benefits(6)		9,197		9,197		9,197
	Equity Awards		199,245		199,245		257,182	$	128,591
Stephen J. Farr, Ph.D.	Severance		325,000		325,000		418,543
President and Chief Operating Officer	Benefits(6) Equity Awards		13,315 23,563		13,315 23,563		13,315 41,438		20,719
David W. Nassif, J.D.	Severance		260,000		260,000		307,504
Former Executive Vice Pres. and	Benefits(6)		12,390		12,390		12,390
Chief Financial Officer	Equity Awards		96,875		96,875		137,239		68,619
Cynthia Y. Robinson, Ph.D.	Severance		260,000		260,000		260,000
Chief Development Officer	Benefits(6)		4,842		4,842		4,842
	Equity Awards		6,700		6,700		13,025		6,513
J. D. Haldeman.	Severance		255,000		255,000		307,085
Former Chief Commercial Officer	Benefits(6)		9,212		9,212		9,212
	Equity Awards		73,000		73,000		77,697		38,849

(1) Cash severance represents 12 months of base salary for each named executive officer, payable in cash in a lump sum.

(2) Value of equity award acceleration represents the value of those options and restricted stock that would immediately vest and/or be released from the company’s repurchase option, respectively, as a result of the named executive officer’s termination or as a result of the named executive officer’s death or disability. The value attributable to stock options not previously exercised that would vest in such event is the difference between the fair market value per share of our common stock on December 31, 2009 ($0.36) less the exercise price per share of such stock option multiplied by the number of shares that would vest. The value attributable to shares of restricted stock issued upon the early exercise of stock options that would be released from our repurchase option in such event equals the fair market value per share of our common stock on December 31, 2009 ($0.36) multiplied by the number of shares that would be released.

(3) Cash severance represents the sum of the following, payable in a lump sum cash payment: (1) 12 months of base salary for each executive officer (18 months in the case of Mr. Hawley) payable in a lump sum cash payment, plus (2) the average of the bonuses awarded to the executive officer for the fiscal years 2007, 2008 and 2009 (in this case, this amount is equal to the 2007 bonus paid to the named executive officer, as there were no bonuses paid for 2008 and 2009 under the company’s executive bonus program). Please see the definition of “bonus” under the heading “— Employment and Release Agreements — Employment Agreements” above.

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(4) Value of equity award acceleration in the event named executive officer’s employment is terminated without cause or he or she resigns for good reason within three months prior to or 12 months following a change in control. Value of equity award acceleration represents the value of those options and restricted stock that would immediately vest and/or be released from the company’s repurchase option, respectively, as a result of the named executive officer’s termination. The value attributable to stock options not previously exercised that would vest in such event is the difference between the fair market value per share of our common stock on December 31, 2009 ($0.36) less the exercise price per share of such stock option multiplied by the number of shares that would vest. The value attributable to shares of restricted stock issued upon the early exercise of stock options that would be released from our repurchase option in such event equals the fair market value per share of our common stock on December 31, 2009 ($0.36) multiplied by the number of shares that would be released.

(5) Value of equity award acceleration represents the value of those options and restricted stock that would immediately vest and/or be released from the company’s repurchase option, respectively, upon a change in control without a termination of employment. The value attributable to stock options not previously exercised that would vest in such event is the difference between the fair market value per share of our common stock on December 31, 2009 ($0.36) less the exercise price per share of such stock option multiplied by the number of shares that would vest. The value attributable to shares of restricted stock issued to the named executive officer pursuant to a founder’s stock agreement or upon the early exercise of stock options that would be released from our repurchase option in such event equals the fair market value per share of our common stock on December 31, 2009 ($0.36) multiplied by the number of shares that would be released.

(6) Represents the value of the continuation of health benefits for a period of 12 months following the date of the named executive officer’s termination.

Director Compensation

We compensate non-employee members of the board of directors. Directors who are also employees do not receive cash or equity compensation for service on the board of directors in addition to compensation payable for their service as our employees.

The non-employee members of our board of directors are reimbursed for travel, lodging and other reasonable expenses incurred in attending board of directors or committee meetings. We provide an annual cash retainer of $50,000 to Cam L. Garner, the chairman of our board of directors, payable monthly. We do not currently provide any cash compensation to our other non-employee directors.

In addition, under a board of director-approved compensation program, our non-employee directors are eligible for automatic awards of stock options to purchase shares of our common stock in the form of initial option grants and annual option grants. Prior to the completion of this offering, any non-employee director who is first elected to the board of directors will be granted an option to purchase 75,000 shares of our common stock on the date of his or her initial election to the board of directors. Such options will have an exercise price per share equal to the fair market value of our common stock on the date of grant and will be fully vested on the date of grant. In addition, prior to the completion of this offering, each year on May 30 (and December 9 with respect to Arda M. Minocherhomjee, Ph.D.), each non-employee director will be eligible to receive an option to purchase 17,500 shares of common stock. The annual option grants will have an exercise price per share equal to the fair market value of our common stock on the date of grant and will vest monthly over 12 months following the date of grant. The term of each option granted to a non-employee director is ten years. These options have historically been granted under our 2006 Plan. The terms of these options are described in more detail under “— Equity Compensation Plans and Other Benefit Plans — Employee Equity Incentive Plans — 2006 Equity Incentive Plan.”

Following the completion of this offering, we will provide cash compensation in the form of an annual retainer of $              for each non-employee director. We will also pay an additional annual retainer of $             to the chairman of our audit committee, $             to the chairs of our compensation committee and our nominating/corporate governance committee and $             to other non-employee directors for their service on each such committee. We will pay an additional annual retainer to the chairman of our board of directors of $             per year. Following the completion of this offering, directors will also receive $             per board of directors meeting attended in person and $             per board of directors meeting attended by telephone. In addition, following the completion of this offering,

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directors will also receive $             per committee meeting attended in person and $             per committee meeting attended by telephone. We have reimbursed and will continue to reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.

Following the completion of this offering, any non-employee director who is first elected to the board of directors will be granted an option to purchase              shares of our common stock on the date of his or her initial election to the board of directors. In addition, on the date of each annual meeting of our stockholders following this offering, each non-employee director will be eligible to receive an option to purchase              shares of common stock. Such options will have an exercise price per share equal to the fair market value of our common stock on the date of grant.

The initial options granted to non-employee directors described above will vest             , subject to the director’s continuing service on our board of directors on those dates. The annual options granted to non-employee directors described above will vest             , subject to the director’s continuing service on our board of directors (and, with respect to grants to a chairman of the board of directors or board committee, service as chairman of the board of directors or a committee) on those dates. The term of each option granted to a non-employee director will be ten years. The terms of these options are described in more detail under “— Equity Compensation Plans and Other Benefit Plans — Employee Equity Incentive Plans — 2010 Equity Incentive Award Plan.”

The following table summarizes cash and stock compensation received by our non-employee directors during the year ended December 31, 2009.

Name	Fees Earned or Paid in Cash			Stock Awards		Option Awards (1)		All Other Compensation		Total
Alex Zisson	$	—		$	—	$	4,598	$	—	$	4,598
Arda M. Minocherhomjee, Ph.D.		—			—		23,049		—		23,049
Cam L. Garner		58,326	(2)		—		4,598		—		62,294
Erle T. Mast		—			—		4,598		—		4,598
James C. Blair, Ph.D.		—			—		4,598		—		4,598
Ken Haas		—			—		19,431		—		19,431
Kurt C. Wheeler		—			—		4,598		—		4,598
Louis C. Bock		—			—		4,598		—		4,598

(1) Represents the grant date fair value of the awards granted in 2009 as computed in accordance with ASC Topic 718. For a discussion of the valuation assumptions, see Note 9 to our consolidated financial statements for the year ended December 31, 2009 included elsewhere in this prospectus.

(2) Mr. Garner receives $49,993 per year in equal monthly installments for services as the chairman of the board of directors. In 2009, he was also paid $8,333, which represented the part of his 2008 retainer which we were not able to pay on time due to our need to conserve cash.

The aggregate number of shares subject to stock options outstanding at the end of fiscal 2009 for each non-employee director is as follows:

Name	Number of Shares Underlying Options Outstanding At December 31, 2009
Alex Zisson	110,000
Arda M. Minocherhomjee, Ph.D.	75,000
Cam L. Garner	17,500
Erle T. Mast	117,500
James C. Blair, Ph.D.	—
Ken Haas	75,000
Kurt C. Wheeler	110,000
Louis C. Bock	110,000

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Limitations of Liability and Indemnification Matters

Our amended and restated certificate of incorporation and our amended and restated bylaws, each of which will become effective upon the completion of this offering, will provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, which prohibits our amended and restated certificate of incorporation from limiting the liability of our directors for the following:

• any breach of the director’s duty of loyalty to us or our stockholders;

• acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• unlawful payment of dividends or unlawful stock repurchases or redemptions; or

• any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation and our amended and restated bylaws will also provide that if Delaware law is amended to authorize corporate action further eliminating or limiting the personal liability of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law, as so amended. This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our amended and restated certificate of incorporation and our amended and restated bylaws also will provide that we shall have the power to indemnify our employees and agents to the fullest extent permitted by law. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity, regardless of whether our amended and restated bylaws would permit indemnification. We have obtained directors’ and officers’ liability insurance.

We have entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our amended and restated certificate of incorporation and amended and restated bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses, judgments, fines and settlement amounts incurred by this person in any action or proceeding arising out of this person’s services as a director or executive officer or at our request. We believe that these provisions in our amended and restated certificate of incorporation and amended and restated bylaws and indemnification agreements are necessary to attract and retain qualified persons as directors and executive officers.

The above description of the indemnification provisions of our amended and restated certificate of incorporation, our amended and restated bylaws and our indemnification agreements is not complete and is qualified in its entirety by reference to these documents, each of which is attached as an exhibit to this registration statement.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information about the beneficial ownership of our common stock at August 31, 2010, and as adjusted to reflect the sale of the shares of common stock in this offering, for:

• each person known to us, or group of affiliated persons, to be the beneficial owner of more than 5% of our common stock;

• each of our named executive officers;

• each of our directors; and

• all of our executive officers and directors as a group.

Unless otherwise noted below, the address of each beneficial owner listed on the table is c/o Zogenix, Inc., 12671 High Bluff Drive, Suite 200, San Diego, CA 92130. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of June 30, 2010. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

We have based our calculation of beneficial ownership prior to the offering on 156,930,330 shares of common stock outstanding on August 31, 2010 which also assumes the conversion of all outstanding shares of our convertible preferred stock into 142,398,142 shares of common stock and the conversion of all outstanding warrants to purchase shares of our convertible stock into warrants to purchase shares of our common stock. We have based our calculation of beneficial ownership after the offering on              shares of our common stock outstanding immediately after the completion of this offering, which gives effect to the issuance of              shares of our common stock upon completion of this offering as a result of the automatic conversion of the $15.0 million in aggregate principal amount of convertible promissory notes issued in July 2010, or the 2010 Notes (including accrued interest thereon), assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. The actual respective numbers of shares issued on conversion of the 2010 Notes will likely differ from the numbers appearing in this discussion and the following table and footnotes. Ownership information assumes no exercise of the underwriters’ overallotment option.

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	Number of Shares Beneficially Owned		Percentage of Common Stock Beneficially Owned
Beneficial Owner	Prior to Offering	After Offering	Prior to Offering		After Offering
5% or Greater Stockholders:
Funds affiliated with Domain Associates, L.L.C.(1)	35,481,964		22.4	%
One Palmer Square
Princeton, NJ 08542
Clarus Lifesciences I, L.P.(2)	35,314,411		22.2	%
One Memorial Drive, Suite 1230
Cambridge, MA 92142
Scale Venture Partners II, LP(3)	23,584,815		14.9	%
950 Tower Lane, Suite 700
Foster City, CA 94404
Chicago Growth Partners II, L.P.(4)	23,711,363		14.6	%
3030 W. Madison Avenue, Suite 250
Chicago, IL 60606
Funds affiliated with Thomas, McNerney & Partners, L.P.(5)	21,273,903		13.4	%
60 South 6th Street, Suite 3620
Minneapolis, MN 55402
Funds affiliated with Abingworth Bioventures(6)	15,463,707		9.8	%
38 Jermyn Street
London
SW1Y 6DN, United Kingdom
Executive Officers and Directors:
Roger L. Hawley(7)	6,100,000		3.8	%
Stephen J. Farr, Ph.D.(8)	4,500,000		2.8	%
David Nassif(9)	1,250,000		*
J.D. Haldeman(10)	1,042,187		*
Cynthia Y. Robinson, Ph.D.(11)	900,000		*
James C. Blair, Ph.D.(1)	35,481,964		22.4	%
Kurt C. Wheeler(2)	35,314,411		22.2	%
Louis C. Bock(3)	23,584,815		14.9	%
Arda M. Minocherhomjee(4)	23,711,363		14.6	%
Alex Zisson(5)	21,273,903		13.4	%
Ken Haas(6)	15,463,707		9.8	%
Cam L. Garner(12)	2,002,500		1.3	%
Erle T. Mast(13)	135,000		*
Executive officers and directors as a group (14 persons)(14)	172,459,850		95.8	%

  * Represents beneficial ownership of less than one percent of our outstanding common stock.

(1) Includes (a) 110,000 shares of common stock held by Domain Associates, L.L.C., (b) 98,940 shares of common stock held by Domain Partners VI, L.P., (c) 1,060 shares of common stock held by DP VI Associates, L.P., (d) 32,976,445 shares of common stock and 1,686,797 shares of common stock issuable upon the exercise of warrants held by Domain Partners VII, L.P. and (e) 562,454 shares of common stock and 28,768 shares of common stock issuable upon the exercise of warrants held by DP VII Associates, L.P. Also includes 17,500 shares of common stock Mr. Blair has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right of repurchase within 60 days of August 31, 2010. In addition, the number of shares beneficially owned after the offering includes              and              shares of

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common stock issuable upon the conversion of 2010 Notes held by Domain Partners VII, L.P. and DP VII Associates, L.P., respectively, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. The voting and disposition of the shares held by Domain Partners VI, L.P. and DP VI Associates, L.P. is determined by the managing members of One Palmer Square Associates VI, L.L.C., the general partner of Domain Partners VI, L.P. and DP VI Associates, L.P. The voting and disposition of the shares held by Domain Partners VII, L.P. and DP VII Associates, L.P. is determined by the managing members of One Palmer Square Associates VII, L.L.C., the general partner of Domain Partners VII, L.P. and DP VII Associates, L.P. Dr. Blair is a managing member of Domain Associates, L.L.C., One Palmer Square Associates VI, L.L.C. and One Palmer Square Associates VII, L.L.C. and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

(2) Includes 33,479,474 shares of common stock and 1,707,437 shares of common stock issuable upon the exercise of warrants. In addition, the number of shares beneficially owned after the offering includes              shares of common stock issuable upon the conversion of a 2010 Note, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. Mr. Wheeler is a managing director of Clarus Ventures I, LLC, the General Partner to Clarus Ventures I Management, L.P., the General Partner to Clarus Lifesciences I, L.P. and has shared voting and disposition power related to all shares. All shares are held for the benefit of Clarus Lifesciences I, L.P. Mr. Wheeler disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes 127,500 shares of common stock Mr. Wheeler has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(3) Includes 22,319,024 shares of common stock and 1,138,291 shares of common stock issuable upon the exercise of warrants. In addition, the number of shares beneficially owned after the offering includes              shares of common stock issuable upon the conversion of a 2010 Note, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. The voting and disposition of the shares held by Scale Venture Partners II, LP is determined by a majority in interest of the five managers of Scale Venture Management II, LLC, the ultimate general partner of Scale Venture Partners II, LP. Mr. Bock is one of the managers of Scale Venture Management II, LLC and as such has a proportionate pecuniary interest in such shares, but does not have sole voting or investment power with respect to such shares. Mr. Bock disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes 127,500 shares of common stock Mr. Bock has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right to repurchase within 60 days of August 31, 2010.

(4) Includes 18,181,818 shares of common stock and 5,454,545 shares of common stock issuable upon the exercise of warrants. The number of shares beneficially owned after the offering includes              shares of common stock issuable upon the conversion of a 2010 Note, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. Chicago Growth Management II, LLC is the general partner of Chicago Growth Management II, LP, the general partner of Chicago Growth Partners II, L.P. Chicago Growth Management II, LLC and Chicago Growth Management II, LP have shared voting and dispositive power over the shares. Dr. Minocherhomjee is a Managing Director of Chicago Growth Management II, LLC and Chicago Growth Management II, LP and as such has a proportionate pecuniary interest in such shares, but does not have sole voting or investment power with respect to such shares. Dr. Minocherhomjee disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes 75,000 shares of common stock Mr. Minocherhomjee has the right to acquire pursuant to outstanding options which are immediately exercisable.

(5) Includes (a) 13,599,393 shares of common stock and 502,327 shares of common stock issuable upon the exercise of warrants held by Thomas McNerney & Partners, L.P., (b) 505,375 shares of common stock and 18,667 shares of common stock issuable upon the exercise of warrants held by TMP Nominee LLC, (c) 51,669 shares of common stock and 1,906 shares of common stock issuable upon the exercise of warrants held by TMP Associates L.P., (d) 4,905,024 shares of common stock and 1,471,505 shares of common stock issuable upon the exercise of warrants held by Thomas McNerney & Partners II, L.P., (e) 51,239 shares of common stock and 15,371 shares of common stock issuable upon the exercise of warrants held by TMP Nominee II, LLC and (f) 18,406 shares of common stock and 5,521 shares of common stock issuable upon the exercise of warrants held by TMP Associates II, L.P. In addition, the number of shares beneficially owned after the offering includes             ,             ,                 ,                 ,                  and                  shares of common stock

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issuable upon the conversion of 2010 Notes held by Thomas McNerney & Partners, L.P., TMP Nominee LLC, TMP Associates L.P., Thomas McNerney & Partners II, L.P., TMP Nominee II, LLC and TMP Associates II, L.P., respectively, assuming an initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. Mr. Zisson holds shared voting and/or dispositive power over the shares held by Thomas, McNerney & Partners, L.P., TMP Nominee, LLC, TMP Associates, L.P., Thomas, McNerney & Partners II, L.P., TMP Nominee II, LLC and TMP Associates II, L.P. Mr. Zisson disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes 127,500 shares of common stock Mr. Zisson has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(6) Includes (a) 14,370,068 shares of common stock and 870,469 shares of common stock issuable upon the exercise of warrants held by Abingworth Bioventures IV LP and (b) 123,208 shares of common stock and 7,462 shares of common stock issuable upon the exercise of warrants held by Abingworth Bioventures IV Executives LP. In addition, the number of shares beneficially owned after the offering includes              and              shares of common stock issuable upon the conversion of 2010 Notes held by Abingworth Bioventures IV LP and Abingworth Bioventures IV Executives LP, respectively, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010. Abingworth Management Ltd. serves as investment manager of Abingworth Bioventures IV L.P. and Abingworth Bioventures IV Executives L.P. Dr. Joe Anderson, Mr. Michael Bigham, Dr. Stephen Bunting and Dr. Jonathan MacQuitty comprise the investment committee of Abingworth Management Ltd. and may be deemed to have voting and investment control over the shares held by these stockholders. Abingworth Management Ltd. and the individuals noted above disclaim beneficial ownership of the securities except to the extent of their pecuniary interest therein. Mr. Haas disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes 92,500 shares of common stock Mr. Haas has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(7) Includes 900,000 shares Mr. Hawley acquired upon the early exercise of options, 168,750 of which are subject to our right of repurchase within 60 days of August 31, 2010. Includes 3,000,000 shares Mr. Hawley has the right to acquire pursuant to outstanding options which are immediately exercisable, 2,225,000 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(8) Includes 1,500,000 shares Dr. Farr has the right to acquire pursuant to outstanding options which are immediately exercisable, 1,232,292 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(9) Effective February 26, 2010, Mr. Nassif resigned as our executive vice president, chief financial officer, treasurer and secretary.

(10) Includes 629,687 shares Ms. Haldeman has the right to acquire pursuant to outstanding options which are immediately exercisable. Effective July 26, 2010, Ms. Haldeman resigned as our chief commercial officer.

(11) Includes 900,000 shares Dr. Robinson has the right to acquire pursuant to outstanding options which are immediately exercisable, 605,833 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(12) Includes 35,000 shares Mr. Garner has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(13) Includes 135,000 shares Mr. Mast has the right to acquire pursuant to outstanding options which are immediately exercisable, 10,208 of which would be subject to our right of repurchase within 60 days of August 31, 2010.

(14) Includes (a) 8,467,187 shares of common stock subject to outstanding options which are immediately exercisable, 5,615,831 of which would be subject to our right of repurchase within 60 days of August 31, 2010, (b) 1,274,584 shares acquired upon the early exercise of options, 168,750 of which are subject to our right of repurchase within 60 days of August 31, 2010, and (c) 12,909,066 shares of common stock issuable upon the exercise of warrants. In addition, the number of shares beneficially owned after the offering includes              shares of common stock issuable upon the conversion of 2010 Notes, assuming an initial public offering price of $              per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                     , 2010.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a summary of transactions and series of similar transactions, since our inception, to which we were a party or will be a party, in which:

• the amount involved exceeded or will exceed $120,000; and

• a director, executive officer, holder of more than 5% of our capital stock or any member of their immediate family had or will have a direct or indirect material interest.

We also describe below certain other transactions with our directors, executive officers and stockholders. Although we have had no formal written policy in the past, as of the date of completion of this offering, our written policy will require that any transaction with a related party required to be reported under applicable Securities and Exchange Commission rules, other than compensation-related matters, be reviewed and approved by our audit committee. We will not adopt written procedures for review of, or standards for approval of, these transactions, but instead we intend to review such transactions on a case by case basis. In addition, our compensation committee will approve all compensation-related policies.

The following directors are affiliated with our principal stockholders as indicated in the following table and further described in “Principal Stockholders” above:

Director	Principal Stockholder
James C. Blair, Ph.D.	Funds affiliated with Domain Associates, L.L.C.
Louis C. Bock	Scale Venture Partners II, LP
Ken Haas	Funds affiliated with Abingworth Bioventures
Arda M. Minocherhomjee, Ph.D.	Chicago Growth Partners II, L.P.
Kurt C. Wheeler	Clarus Lifesciences I, L.P.
Alex Zisson	Funds affiliated with Thomas, McNerney & Partners, L.P.

Preferred Stock Issuances and 2009 Convertible Notes Financing

In August 2006, September 2007 and December 2007, we issued in private placements an aggregate of 68,800,000 shares of Series A-1 convertible preferred stock at a per share price of $1.00, for aggregate consideration of $68.8 million. In December 2007, we issued in a private placement an aggregate of 9,090,909 shares of Series A-2 convertible preferred stock at a per share price of $1.10, for aggregate consideration of approximately $10.0 million.

In February 2009, we entered into a note and warrant purchase agreement with certain existing investors pursuant to which we sold, in a private placement in four tranches between February 2009 and July 2009, an aggregate of $14.8 million of convertible promissory notes, or the 2009 notes, and issued warrants, or the bridge warrants. The 2009 notes accrued interest at a rate of 8% per annum and were due one year from the date of issuance, subject to their earlier conversion in the event we completed a qualified equity financing or upon the occurrence of a deemed liquidation event (as defined in our current amended and restated certificate of incorporation). The bridge warrants were exercisable for the same class of shares of capital stock issued in the next qualified equity financing, or if no such financing occurred, shares of Series A-2 convertible preferred stock. In connection with the Series B financing, the principal amount of the 2009 notes and accrued interest thereon were automatically converted into an aggregate of 13,870,881 shares of Series B convertible preferred stock in September 2009 and the bridge warrants became exercisable for an aggregate of 3,363,619 shares of Series B convertible preferred stock at an exercise price of $1.10 per share. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of              shares of common stock assuming an initial public offering price of $                 per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.

In September 2009 and December 2009, we issued in private placements an aggregate of 64,507,233 shares of Series B convertible preferred stock in the Series B financing at a per share price of

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$1.10, for aggregate consideration of approximately $71.0 million, including the conversion of approximately $15.3 million of the 2009 notes. In the December 2009 second closing of the Series B financing, we issued warrants, or the Series B warrants, to investors to purchase an aggregate of 9,545,447 shares of our Series B convertible preferred stock at an exercise price of $1.10 per share, which warrants were amended in October 2010 to allow for their current exercisability. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of              shares of common stock assuming an initial public offering price of $                 per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.

Upon completion of this offering, all of the outstanding warrants to purchase shares of our convertible preferred stock will automatically become warrants to purchase a like number of shares of our common stock at the same exercise price per share, unless exercised or terminated as described above.

The following table sets forth the aggregate number of these securities acquired by the listed directors, executive officers or holders of more than 5% of our capital stock, or their affiliates. Each share of, or warrants exercisable for shares of, convertible preferred stock identified in the following table will convert into one share of, or warrants exercisable for, common stock upon completion of this offering.

Investor(1)	Series A-1 Preferred Stock	Series A-2 Preferred Stock	Series B Preferred Stock	Series B Warrants
Funds affiliated with Domain Associates, L.L.C.(2)	21,100,000	—	12,538,899	1,715,565
Clarus Lifesciences I, L.P. (3)	21,000,000	—	12,479,474	1,707,437
Scale Venture Partners II, LP(4)	14,000,000	—	8,319,024	1,138,291
Funds affiliated with Thomas, McNerney & Partners, L.P.(5)	12,000,000	—	7,131,106	2,015,297
Chicago Growth Partners II, L.P.(6)	—	—	18,181,818	5,454,545
Funds affiliated with Abingworth Bioventures(7)	—	9,090,909	5,402,367	877,931
Roger L. Hawley	100,000	—	—	—
Cam L. Garner	100,000	—	—	—

(1) Additional details regarding these stockholders and their equity holdings is provided in “Principal Stockholders” above.

(2) Includes (a) 98,940 shares of Series A-1 convertible preferred stock held by Domain Partners VI, L.P., (b) 1,060 shares of Series A-1 convertible preferred stock held by DP VI Associates, L.P., (c) 20,647,825 shares of Series A-1 convertible preferred stock, 12,328,620 shares of Series B convertible preferred stock, 904,023 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants and 782,774 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by Domain Partners VII, L.P. and (d) 352,175 shares of Series A-1 convertible preferred stock, 210,279 shares of Series B convertible preferred stock, 15,417 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants and 13,351 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by DP VII Associates, L.P

(3) Includes 21,000,000 shares of Series A-1 convertible preferred stock, 12,479,474 shares of Series B convertible preferred stock, 915,084 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants and 792,353 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants.

(4) Includes 14,000,000 shares of Series A-1 convertible preferred stock, 8,319,024 shares of Series B convertible preferred stock, 610,056 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants and 528,235 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants.

(5) Includes (a) 11,527,800 shares of Series A-1 convertible preferred stock, 2,071,593 shares of Series B convertible preferred stock and 502,327 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants held by Thomas McNerney & Partners, L.P., (b) 428,400 shares of Series A-1 convertible preferred stock, 76,975 shares of Series B convertible preferred stock and 18,667 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants held by TMP Nominee LLC, (c) 43,800 shares of Series A-1 convertible preferred stock, 7,869 shares of Series B convertible preferred stock

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and 1,906 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants held by TMP Associates L.P., (d) 4,905,024 shares of Series B convertible preferred stock and 1,471,505 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by Thomas McNerney & Partners II, L.P., (e) 51,239 shares of Series B convertible preferred stock and 15,371 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by TMP Nominee II, LLC and (f) 18,406 shares of Series B convertible preferred stock and 5,521 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by TMP Associates II, L.P.

(6) Includes 18,181,818 shares of Series B convertible preferred stock and 5,454,545 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants.

(7) Includes (a) 9,013,631 shares of Series A-2 convertible preferred stock, 5,356,437 shares of Series B convertible preferred stock, 392,773 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants and 477,696 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by Abingworth Bioventures IV LP and (b) 77,278 shares of Series A-2 convertible preferred stock, 45,930 shares of Series B convertible preferred stock, 3,366 shares of Series B convertible preferred stock issuable upon the exercise of bridge warrants and 4,096 shares of Series B convertible preferred stock issuable upon the exercise of Series B warrants held by Abingworth Bioventures IV Executives LP.

Common Stock Issuances

In May and August 2006, we issued an aggregate an aggregate of 7,100,000 shares of common stock for aggregate consideration of $5,000 to certain directors and executive officers. The following table sets forth these issuances:

Executive Officer/Director	Shares of Common Stock
Roger L. Hawley	2,100,000
Stephen J. Farr, Ph.D.(1)	3,000,000
Cam L. Garner(2)	2,000,000

(1) Includes 2,160,000 shares that were issued to Dr. Farr on August 16, 2006 as the result of a 1 for 3.571429 forward stock split.

(2) Of these 2,000,000 shares, 1,850,000 shares are held by a limited liability company for which Mr. Garner is the sole member and 150,000 shares are held by siblings of Mr. Garner.

2010 Convertible Note Financing

In July 2010, we entered into a note purchase agreement with certain existing investors pursuant to which we sold in a private placement an aggregate of $15.0 million of convertible promissory notes, or the 2010 Notes. The 2010 Notes accrue interest at a rate of 8% per annum and become due and payable one year from the date of issuance. The principal amount of the 2010 Notes and accrued interest thereon will automatically convert into shares of our common stock upon completion of this offering at a conversion price equal to our initial public offering price. If a deemed liquidation event (as defined in our current amended and restated certificate of incorporation) occurs prior to the completion of this offering, the holders of the 2010 Notes may elect to (1) receive the repayment of the notes or (2) convert the notes into shares of Series B convertible preferred stock at a conversion price of $1.10 per share.

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The participants in the 2010 convertible note financing included the following holders of more than 5% of our capital stock, or entities affiliated with them. The following table sets forth the principal amount of 2010 Notes issued to each such party:

Investor(1)	Principal Amount
Funds affiliated with Domain Associates L.L.C.(2)	$	3,440,206
Clarus Lifesciences I, L.P.	$	3,423,902
Chicago Growth Partners II, L.P.	$	2,299,963
Scale Venture Partners II, LP	$	2,282,541
Funds affiliated with Thomas, McNerney & Partners, L.P.(3)	$	2,057,675
Funds affiliated with Abingworth Bioventures(4)	$	1,495,713

(1) Additional details regarding these stockholders and their equity holdings is provided in “Principal Stockholders” above.

(2) Includes $3,382,513 issued to Domain Partners VII, L.P. and $57,693 issued to DP VII Associates, L.P.

(3) Includes $503,318 issued to Thomas, McNerney & Partners, L.P., $9,224 issued to TMP Nominee, LLC, 1,878 issued to TMP Associates, L.P., $1,521,650 issued to Thomas McNerney & Partners II, L.P., $15,896 issued to TMP Nominee II, LLC and $5,710 issued to TMP Associates II, L.P.

(4) Includes $1,482,999 issued to Abingworth Bioventures IV Executives LP and $12,714 issued to Abingworth Bioventures IV LP.

Investors’ Rights Agreement

We have entered into an amended and restated investors’ rights agreement, or the investors’ rights agreement, with holders of our convertible preferred stock, holders of our warrants exercisable for shares of our convertible preferred stock and holders of the 2010 Notes. This agreement provides for certain rights relating to the registration of their shares of common stock issuable upon conversion of their convertible preferred stock and 2010 Notes (which will occur upon the closing of this offering) and exercise of the warrants (which will become exercisable for shares of common stock upon completion of this offering), a right of first refusal to purchase future securities sold by us and certain additional covenants made by us. Except for the registration rights (including the related provisions pursuant to which we have agreed to indemnify the parties to the investors’ rights agreement), all rights under this agreement will terminate upon completion of this offering. The registration rights will continue following this offering and will terminate five years following the completion of this offering, or for any particular holder with registration rights, at such time following this offering when all securities held by that stockholder subject to registration rights may be sold pursuant to Rule 144 under the Securities Act. All holders of our convertible preferred stock are parties to this agreement. See “Description of Capital Stock — Registration Rights” for additional information.

Voting Agreement

Pursuant to a voting agreement originally entered into in August 2006 and most recently amended in December 2009 by and among us and certain of our stockholders, the following directors were each elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: Drs. Blair, Farr and Minocherhomjee and Messrs. Bock, Garner, Haas, Hawley, Mast, Wheeler and Zisson. Pursuant to the voting agreement, Mr. Hawley, as our chief executive officer, was initially selected to serve on our board of directors as a representative of our common stock, as designated by a majority of our common stockholders. Drs. Blair and Minocherhomjee and Messrs. Bock, Haas, Wheeler

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and Zisson were initially selected to serve on our board of directors as representatives of our convertible preferred stock, as designated by Domain Partners VII, L.P., Chicago Growth Partners, Scale Venture Partners II, LP, Abingworth Management Limited, Clarus Lifesciences I, L.P. and Thomas, McNerney & Partners, L.P., respectively. Dr. Farr was initially selected to serve on our board of directors as chosen unanimously by the remaining directors.

The voting agreement will terminate upon completion of this offering, and members previously elected to our board of directors pursuant to this agreement will continue to serve as directors until they resign, are removed or their successors are duly elected by holders of our common stock. The composition of our board of directors after this offering is described in more detail under “Management — Board Composition and Election of Directors.”

Employment and Release Agreements

We have entered into employment agreements with the following executive officers: Roger L. Hawley, our Chief Executive Officer; Stephen J. Farr, Ph.D., our President and Chief Operating Officer; Ann Rhoads, our Executive Vice President, Chief Financial Officer, Treasurer and Secretary; Cynthia Y. Robinson, Ph.D., our Chief Development Officer. For further information, see “Compensation Discussion and Analysis — Employment and Release Agreements — Employment Agreements.”

We have also entered into release agreements with David W. Nassif, J.D., our former executive vice president and chief financial officer; and J.D. Haldeman, our former chief commercial officer. See “Compensation Discussion and Analysis — Employment and Release Agreements — Release Agreements.”

Indemnification of Officers and Directors

Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the completion of this offering, will provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and officers, and we have purchased a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. For further information, see “Compensation Discussion and Analysis — Limitations of Liability and Indemnification Matters.”

Consulting Agreement

In March 2010, we entered into a consulting agreement with David W. Nassif, J.D. pursuant to which Mr. Nassif provides executive consulting services to us. As of August 31, 2010, we had paid him a total of $59,775 as compensation for such services.

Stock Option Grants to Executive Officers and Directors

We have granted stock options to our executive officers and certain of our directors. For further information, see “Compensation Discussion and Analysis.”

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DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering and the filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of shares of common stock, $0.001 par value per share, and              shares of preferred stock, $0.001 par value per share. The following description summarizes some of the terms of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective prior to the completion of this offering, our outstanding warrants, the investors’ rights agreement and of the Delaware General Corporation Law. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our amended and restated certificate of incorporation, amended and restated bylaws, warrants and investors’ rights agreement, copies of which have been filed as exhibits to the registration statement of which the prospectus is a part, as well as the relevant provisions of the Delaware General Corporation Law.

Common Stock

On June 30, 2010, there were 14,444,688 shares of common stock outstanding, held of record by 28 stockholders. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose, other than any directors that holders of our preferred stock may be entitled to elect. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by the board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in the assets legally available for distribution to stockholders after the payment of or provision for all of our debts and other liabilities, subject to the prior rights of any preferred stock then outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds provisions applicable to the common stock. All outstanding shares of common stock are, and the common stock to be outstanding upon completion of this offering will be, duly authorized, validly issued, fully paid and nonassessable.

Preferred Stock

On June 30, 2010, there were 142,398,142 shares of convertible preferred stock outstanding, held of record by 30 stockholders. Our stockholders have agreed to convert their shares of convertible preferred stock to common stock immediately prior to the completion of this offering. Accordingly, upon the completion of this offering, all outstanding shares of convertible preferred stock as of June 30, 2010 will automatically convert into 142,398,142 shares of our common stock.

Following the completion of this offering, under the terms of our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by our stockholders, to issue up to              shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the dividend, voting and other rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

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Warrants

General Electric Capital Corporation.    In March 2007, in connection with the closing of a debt facility, we issued a warrant exercisable for an aggregate of 200,000 shares of our Series A-1 convertible preferred stock to General Electric Capital Corporation. This warrant is immediately exercisable at an exercise price of $1.00 per share and, excluding certain mergers or acquisitions and similar transactions, expires seven years from the date of grant, which is March 5, 2014. This warrant will become exercisable for an aggregate of 200,000 shares of our common stock, at an exercise price of $1.00 per share, upon completion of this offering.

Oxford Finance Corporation, CIT Healthcare LLC and Silicon Valley Bank.    In June 2008, in connection with the closing of a debt facility, or the original Oxford debt facility, we issued warrants exercisable for an aggregate of 777,273 shares of our Series A-2 convertible preferred stock to Oxford Finance Corporation, or Oxford, and CIT Healthcare LLC. These warrants are immediately exercisable at an exercise price of $1.10 per share and, excluding certain mergers, acquisitions and similar transactions, expire 10 years from the date of grant, which is June 29, 2018. These warrants will become exercisable for an aggregate of 777,273 shares of our common stock, at an exercise price of $1.10 per share, upon completion of this offering.

In July 2010, in connection with the closing of a debt facility, which replaced the original Oxford debt facility, we issued warrants exercisable for an aggregate of 1,590,910 shares of our Series B convertible preferred stock to Oxford and Silicon Valley Bank. These warrants are immediately exercisable at an exercise price of $1.10 per share and, excluding certain mergers, acquisitions and similar transactions, expire on the earlier to occur of 10 years from the date of grant or five years following the effective date of the registration statement of which this prospectus is a part. These warrants will become exercisable for an aggregate of 1,590,910 shares of our common stock, at an exercise price of $1.10 per share, upon completion of this offering.

2009 Bridge Warrants.    Between February and July 2009, in connection with the sale of convertible promissory notes to certain of our existing investors, we issued warrants which, upon the first closing of our Series B preferred stock financing in September 2009, became exercisable for an aggregate of 3,363,619 shares of our Series B convertible preferred stock. These warrants are immediately exercisable at an exercise price of $1.10 per share and expire seven years from the date of grant, which will occur between February and July 2016, subject to their earlier termination upon the completion of this offering and certain mergers, acquisitions and similar transactions. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of                  shares of common stock assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.

Series B Warrants.    In December 2009, in connection with the second closing of our Series B preferred stock financing, we issued warrants to investors exercisable for an aggregate of 9,545,447 shares of our Series B convertible preferred stock at an exercise price of $1.10 per share, which warrants were amended in October 2010 to allow for their current exercisability. These Series B warrants expire in December 2016, subject to their earlier termination upon the completion of this offering and certain mergers, acquisitions and similar transactions. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of             shares of common stock assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.

Each of the above warrants has a net exercise provision under which their holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive, after this offering, a net amount of shares of our common stock based on the fair market value of our common stock at the time of the net exercise of the warrant after deduction of the aggregate exercise price. These warrants also

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contain provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrants in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations.

Registration Rights

After this offering, the holders of approximately              shares of common stock (including              shares of our common stock issuable upon completion of this offering as a result of the automatic conversion of the $15.0 million in aggregate principal amount of convertible promissory notes issued in July 2010 (including accrued interest thereon), assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming the conversion occurs on                  , 2010); and the holders of warrants to purchase 15,477,249 shares of common stock will be entitled to rights with respect to the registration of these shares under the Securities Act. These shares are referred to as registrable securities. Under the terms of the agreement between us and the holders of the registrable securities, if we propose to register any of our securities under the Securities Act, these holders are entitled to notice of such registration and are entitled to include their shares of registrable securities in our registration. Certain of these holders are also entitled to demand registration, pursuant to which they may require us to use our best efforts to register their registrable securities under the Securities Act at our expense, up to a maximum of three such registrations. Holders of registrable securities may also require us to file an unlimited number of additional registration statements on Form S-3 at our expense so long as the holders propose to sell registrable securities of at least $5.0 million and we have not already filed two such registration statements on Form S-3 in the previous 12 months.

All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration and our right not to effect a requested registration 60 days prior to or 180 days after an offering of our securities, including this offering. These registration rights, which will remain in effect following this offering, will terminate five years following the completion of this offering, or for any particular holder with registration rights, at such time following this offering when all securities held by that stockholder entitled to registration rights may be immediately sold pursuant to Rule 144 under the Securities Act during any 90 day period. These registration rights have been waived with respect to this offering and for the period beginning 180 days after the date of this prospectus.

Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation,

Our Bylaws and Delaware Law

Some provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.

These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock

The ability of our board of directors, without action by the stockholders, to issue up to             shares of undesignated preferred stock with voting or other rights or preferences as designated by our board

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of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Stockholder Meetings

Our amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president, or by a resolution adopted by a majority of our board of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

Elimination of Stockholder Action by Written Consent

Our amended and restated certificate of incorporation and amended and restated bylaws eliminate the right of stockholders to act by written consent without a meeting.

Staggered Board

Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see “Management — Board Composition and Election of Directors.” This system of electing and removing directors may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

Removal of Directors

Our amended and restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 66 ²/3% of the total voting power of all of our outstanding voting stock then entitled to vote in the election of directors.

Stockholders Not Entitled to Cumulative Voting

Our amended and restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.

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Amendment of Charter Provisions

The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 66²/₃% of the total voting power of all of our outstanding voting stock.

The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is                     , located at                     .

Nasdaq Global Market Listing

We have applied to have our common stock approved for listing on the Nasdaq Global Market under the symbol “ZGNX.”

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Future sales of our common stock, including shares issued upon the exercise of outstanding options or warrants, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future. As described below, only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale described below. Future sales of our common stock in the public market either before (to the extent permitted) or after restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital at a time and price we deem appropriate.

Sales of Restricted Shares

Based on the number of shares of our common stock outstanding as of June 30, 2010, upon the closing of this offering and assuming (1) the conversion of our outstanding convertible preferred stock, (2) the conversion of the 2010 Notes and accrued interest thereon as described elsewhere in this prospectus, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming that the conversion occurs on                     , 2010, (3) no exercise of the underwriters’ option to purchase additional shares of common stock to cover over-allotments and (4) no exercise of outstanding options or warrants, we will have outstanding an aggregate of approximately              shares of common stock. However, because the number of shares issued on conversion of the 2010 Notes depends upon both the public offering price per share and closing date of this offering, the actual number of shares issued on conversion of the 2010 notes will likely be different from the amount we have assumed for purposes of this discussion. Of these shares, all of the              shares of common stock to be sold in this offering, including any shares sold upon exercise of the underwriters’ option to purchase additional shares to cover over-allotments, will be freely tradable in the public market without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 of the Securities Act. All remaining shares of common stock held by existing stockholders immediately prior to the completion of this offering will be “restricted securities” as such term is defined in Rule 144. These restricted securities were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, which rules are summarized below.

As a result of the lock-up agreements referred to below and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our common stock (excluding the shares sold in this offering) that will be available for sale in the public market are as follows:

Approximate Number of Shares	First Date Available for Sale into Public Market
shares	On the date of this prospectus
shares	90 days after the date of this prospectus
shares	180 days after the date of this prospectus, or longer if the lock-up period is extended, upon expiration of the lock-up agreements referred to below, subject in some cases to applicable volume limitations under Rule 144

Lock-up Agreements

As described under “Underwriting — Lock-Up Agreements” below, we, each of our directors and officers, the holders of substantially all of the other shares of our common stock outstanding prior to this offering and the holders of all of our warrants and substantially all of our options outstanding prior to this

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offering, have agreed, subject to specified exceptions, not to, and holders of options and warrants have each agreed not to, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, without the prior written consent of Wells Fargo Securities, LLC and Leerink Swann LLC, for a period of 180 days from the date of the final prospectus for the offering, or longer if the lock-up period is extended.

Wells Fargo Securities, LLC and Leerink Swann LLC, in their sole discretion, at any time or from time to time and without notice, may release for sale in the public market all or any portion of the shares restricted by the terms of the lock-up agreements.

Rule 144

In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for at least 90 days, a person (or persons whose shares are required to be aggregated) who is not deemed to have been one of our “affiliates” for purposes of Rule 144 at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner other than one of our “affiliates,” is entitled to sell those shares in the public market (subject to the lock-up agreement referred to above, if applicable) without complying with the manner of sale, volume limitations or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the sales proposed to be sold for at least one year, including the holding period of any prior owner other than “affiliates,” then such person is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144 (subject to the lock-up agreement referred to above, if applicable).

In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act for at least 90 days, our “affiliates,” as defined in Rule 144, who have beneficially owned the shares proposed to be sold for at least six months are entitled to sell in the public market, upon expiration of any applicable lock-up agreements and within any three-month period, a number of those shares of our common stock that does not exceed the greater of:

• 1% of the number of common shares then outstanding, which will equal approximately             shares of common stock immediately after this offering (calculated on the basis of the assumptions described above and assuming no exercise of the underwriter’s option to purchase additional shares and no exercise of outstanding options or warrants); or

• the average weekly trading volume of our common stock on the Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Such sales under Rule 144 by our “affiliates” or persons selling shares on behalf of our “affiliates” are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us. Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted securities have entered into lock-up agreements as referenced above and their restricted securities will become eligible for sale (subject to the above limitations under Rule 144) upon the expiration of the restrictions set forth in those agreements.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquired common stock from us in connection with a written compensatory stock or option plan or other written agreement in compliance with Rule 701 under the Securities Act before the effective date of the registration statement of which this prospectus is a part (to the extent such common stock is not subject to a lock-up agreement) is entitled to rely on Rule 701 to resell such shares beginning 90 days after we become subject to the public company reporting requirements of the

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Exchange Act in reliance on Rule 144, but without compliance with the holding period requirements contained in Rule 144. Accordingly, subject to any applicable lock-up agreements, beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, under Rule 701 persons who are not our “affiliates,” as defined in Rule 144, may resell those shares without complying with the minimum holding period or public information requirements of Rule 144, and persons who are our “affiliates” may resell those shares without compliance with Rule 144’s minimum holding period requirements (subject to the terms of the lock-up agreement referred to above, if applicable).

Stock Options and Stock Plans

As of June 30, 2010, options to purchase an aggregate of 14,783,521 shares of our common stock were outstanding, of which 3,778,679 were vested and exercisable. Substantially all of the shares issuable upon the exercise of options are subject to the terms of the lock-up agreements with the underwriters. Upon completion of this offering,             additional shares of common stock will be reserved for future issuance under our 2010 Plan, which will become effective immediately prior to the completion of this offering (including 2,439,479 shares of common stock reserved for future grant or issuance under our 2006 Plan, as of June 30, 2010, which shares will be added to the shares to be reserved under our 2010 Plan upon the effectiveness of the 2010 Plan), plus any annual increases in the number of shares of common stock reserved for future issuance under the 2010 Plan pursuant to an “evergreen provision” and any other shares that may become issuable under the 2010 Plan pursuant to it terms, as more fully described in “Compensation Discussion and Analysis — Employee Equity Incentive Plans — 2010 Equity Incentive Award Plan.”

We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock subject to outstanding options and reserved for issuance under our equity incentive and employee stock purchase plans. See “Compensation Discussion and Analysis — Employee Equity Incentive Plans” for additional information regarding these plans. The first such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing with the SEC. Accordingly, shares registered under such registration statement will be available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us, Rule 144 restrictions applicable to our affiliates or the lock-up restrictions described above.

Warrants

As of June 30, 2010, warrants to purchase an aggregate of 13,886,339 shares of our convertible preferred stock were outstanding. Upon completion of this offering, these warrants will become exercisable for an aggregate of 13,886,339 shares of our common stock at a weighted average exercise price of $1.10 per share. Any shares purchased pursuant to the cashless exercise feature of the shares acquired upon the net exercise of these warrants may be sold in the public market pursuant to Rule 144, subject to the lock-up restrictions described above. See “Description of Capital Stock — Warrants.” All of these shares are subject to the terms of the lock-up agreements with the underwriters. In addition, these shares are entitled to registration rights as described under “Description of Capital Stock — Registration Rights.”

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO

NON-U.S. HOLDERS OF OUR COMMON STOCK

The following discussion is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the acquisition, ownership and disposition of shares of our common stock issued pursuant to this offering. This discussion is not a complete analysis of all the potential U.S. federal income tax consequences relating thereto, nor does it address any tax consequences arising under any state, local or non-U.S. tax laws, the U.S. federal estate tax or gift tax rules or any other U.S. federal tax laws. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or the IRS, all as in effect as of the date of this offering. These authorities may change, possibly retroactively, resulting in U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of shares of our common stock, or that any such contrary position would not be sustained by a court.

This discussion is limited to non-U.S. holders who purchase shares of our common stock issued pursuant to this offering and who hold shares of our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax considerations that may be relevant to a particular holder in light of that holder’s particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the U.S. federal income tax laws, including, without limitation:

• banks, thrifts and other financial institutions;

• insurance companies;

• partnerships, S corporations and other pass-through entities;

• real estate investment trusts;

• regulated investment companies;

• “controlled foreign corporations”;

• “passive foreign investment companies”;

• corporations that accumulate earnings to avoid U.S. federal income tax;

• brokers, dealers or traders in securities, commodities or currencies;

• tax-exempt organizations;

• tax-qualified retirement plans;

• certain former citizens or permanent residents of the United States;

• U.S. expatriates;

• persons subject to the alternative minimum tax;

• persons that hold or receive shares of our common stock pursuant to the exercise of any employee stock option or otherwise as compensation;

• persons that own, or are deemed to own, more than 5% of our outstanding common stock (except to the extent specifically set forth below);

• persons holding shares of our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; or

• persons deemed to sell shares of our common stock under the constructive sale provisions of the Code.

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If a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold shares of our common stock and partners in such partnerships are urged to consult their tax advisors regarding the specific U.S. federal income tax consequences to them of acquiring, owning or disposing of shares of our common stock.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF SHARES OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS, THE U.S. FEDERAL ESTATE OR GIFT TAX RULES, ANY OTHER U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATY.

Definition of Non-U.S. Holder

For purposes of this discussion, a non-U.S. holder is any beneficial owner of shares of our common stock that is not a “U.S. person” or a partnership for U.S. federal income tax purposes. A U.S. person is any of the following:

• an individual citizen or resident of the United States;

• a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust (i) if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust or (ii) that has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

Distributions on Our Common Stock

As described above in the section titled “Dividend Policy,” we do not anticipate paying cash dividends on shares of our common stock. If, however, we do make distributions of cash or property on shares of our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder’s adjusted tax basis in its shares of our common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “— Gain on Sale or Disposition of Shares of Our Common Stock.”

Dividends paid to a non-U.S. holder of shares of our common stock that are not effectively connected with a U.S. trade or business conducted by such non-U.S. holder generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends, or such lower rate as is specified by an applicable tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such non-U.S. holder’s qualification for the reduced rate. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, who then will be required to provide certification to us or our paying agent, either directly or through other intermediaries. Non-U.S. holders that do not timely provide us or our paying agent with the

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required certification, but which qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding possible entitlement to benefits under a tax treaty.

If a non-U.S. holder holds shares of our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on the shares of our common stock are effectively connected with such non-U.S. holder’s U.S. trade or business (and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States), the non-U.S. holder will be exempt from U.S. federal withholding tax. To claim the exemption, the non-U.S. holder must furnish to us or our paying agent a valid IRS Form W-8ECI (or applicable successor form), certifying that the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States.

Any dividends paid on shares of our common stock that are effectively connected with a non-U.S. holder’s U.S. trade or business (and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally will be subject to U.S. federal income tax on a net income basis in the same manner as if such non-U.S. holder were a U.S. person and, for a non-U.S. holder that is a corporation, also may be subject to a branch profits tax at a rate of 30% (or such lower rate as is specified by an applicable tax treaty). Non-U.S. holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.

Gain on Sale or Disposition of Shares of Our Common Stock

Subject to the discussion below regarding backup withholding, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or disposition of shares of our common stock unless:

• the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States;

• the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the sale or disposition and certain other requirements are met; or

• shares of our common stock constitutes a U.S. real property interest by reason of our status as a U.S. real property holding corporation, or a USRPHC, for U.S. federal income tax purposes at any time within the shorter of (i) the five-year period ending on the date of the sale or disposition of shares of our common stock or (ii) the non-U.S. holder’s holding period for shares of our common stock.

Unless an applicable tax treaty provides otherwise, the gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis in the same manner as if such non-U.S. holder were a U.S. person. A non-U.S. holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate as is specified by an applicable tax treaty). Non-U.S. holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.

Gain described in the second bullet point above generally will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate as is specified by an applicable income tax treaty), but may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

With respect to the third bullet point above, we believe that we currently are not, and we do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other business assets, however, there can be no assurance that we will not become a USRPHC in the future. In

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the event we do become a USRPHC, as long as shares of our common stock are regularly traded on an established securities market, shares of our common stock will be treated as a U.S. real property interest only with respect to a non-U.S. holder that actually or constructively held more than 5% of shares of our common stock at any time during the shorter of (i) the five-year period ending on the date of the sale or disposition of shares of our common stock or (ii) the non-U.S. holder’s holding period for shares of our common stock.

Information Reporting and Backup Withholding

Generally, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such non-U.S. holder and the amount, if any, of tax withheld with respect to those dividends. This information also may be made available under a specific treaty or agreement with the tax authorities of the country in which the non-U.S. holder resides or is established. Under certain circumstances, the Code imposes backup withholding on certain reportable payments. Backup withholding generally will not, however, apply to payments of dividends to a non-U.S. holder of shares of our common stock, provided that the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or W-8ECI, or otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.

New Legislation Relating to Foreign Accounts

Newly enacted legislation may impose withholding taxes on certain types of payments made to “foreign financial institutions” (as specially defined under those rules) and certain other non-U.S. entities. Under this legislation, the failure to comply with additional certification, information reporting and other specified requirements could result in a withholding tax being imposed on payments of dividends and sales proceeds to foreign intermediaries and certain non-U.S. holders. The legislation imposes a 30% withholding tax on dividends on, or gross proceeds from the sale or other disposition of, shares of our common stock paid to a foreign financial institution or to a foreign non-financial entity, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. If the payee is a foreign financial institution, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. The legislation would apply to payments made after December 31, 2012. Prospective investors should consult their tax advisors regarding this legislation.

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UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement, we have agreed to sell to the underwriters named below, and the underwriters, for whom Wells Fargo Securities, LLC and Leerink Swann LLC are acting as joint-book running managers and representatives, have severally agreed to purchase, the respective numbers of shares of common stock appearing opposite their names below:

Underwriter	Number of Shares
Wells Fargo Securities, LLC
Leerink Swann LLC
Oppenheimer & Co. Inc.
Stifel, Nicolaus & Company, Incorporated
Total

All of the shares to be purchased by the underwriters will be purchased from us.

The underwriting agreement provides that the obligations of the several underwriters are subject to various conditions, including approval of legal matters by counsel. The shares of common stock are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them. The underwriters reserve the right to withdraw, cancel or modify the offer and to reject orders in whole or in part.

The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock offered by this prospectus if any are purchased, other than those shares covered by the over-allotment option described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

Over-Allotment Option

We have granted a 30-day option to the underwriters to purchase up to a total of              additional shares of our common stock from us at the initial public offering price per share less the underwriting discounts and commissions per share, as set forth on the cover page of this prospectus, and less any dividends or distributions declared, paid or payable on the shares that the underwriters have agreed to purchase from us but that are not payable on such additional shares, to cover over-allotment, if any. If the underwriters exercise this option in whole or in part, then the underwriters will be severally committed, subject to the conditions described in the underwriting agreement, to purchase the additional shares of our common stock in proportion to their respective commitments set forth in the prior table.

Discounts and Commissions

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus and to certain dealers at that price less a concession of not more than $              per share, of which up to $              per share may be reallowed to other dealers. After the initial offering, the public offering price, concession and reallowance to dealers may be changed.

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The following table summarizes the underwriting discounts and commissions and the proceeds, before expenses, payable to us, both on a per share basis and in total, assuming either no exercise or full exercise by the underwriters of their overallotment option:

		Total
	Per Share	Without Option	With Option
Public offering price	$	$	$
Underwriting discounts and commissions	$	$	$
Proceeds, before expenses, to us	$	$	$

We estimate that the expenses of this offering payable by us, not including underwriting discounts and commissions, will be approximately $            .

Indemnification of Underwriters

The underwriting agreement provides that we will indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in respect of those liabilities.

Lock-Up Agreements

We, all of our directors and officers, the holders of substantially all of the other shares of our common stock outstanding prior to this offering, and the holders of all of our warrants and substantially all of our options outstanding prior to this offering, have agreed, subject to certain exceptions, that, without the prior written consent of Wells Fargo Securities, LLC and Leerink Swann LLC, we and they will not, during the period beginning on and including the date of this prospectus through and including the date that is the 180th day after the date of this prospectus, directly or indirectly:

• issue (in the case of us), offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock or other capital stock;

• in the case of us, file or cause the filing of any registration statement under the Securities Act with respect to any shares of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock or other capital stock; or

• enter into any swap or other agreement, arrangement, hedge or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of our common stock or other capital stock or any securities convertible into or exercisable or exchangeable for our common stock or other capital stock,

whether any transaction described in any of the foregoing bullet points is to be settled by delivery of our common stock or other capital stock, other securities, in cash or otherwise, or publicly announce an intention to do any of the foregoing. Moreover, if:

• during the last 17 days of the lock-up period, we issue an earnings release or material news or a material event relating to us occurs; or

• prior to the expiration of the lock-up period, we announce that we will release earnings results or become aware that material news on a material event relating to us will occur during the 16-day period beginning on the last day of the lock-up period,

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the restrictions described in the immediately preceding sentence will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as the case may be, unless Wells Fargo Securities, LLC and Leerink Swann LLC waive, in writing, that extension.

Wells Fargo Securities, LLC and Leerink Swann LLC may, in their sole discretion and at any time or from time to time, without notice, release all or any portion of the shares or other securities subject to the lock-up agreements. Any determination to release any shares or other securities subject to the lock-up agreements would be based on a number of factors at the time of determination, which may include the market price of the common stock, the liquidity of the trading market for the common stock, general market conditions, the number of shares or other securities proposed to be sold or otherwise transferred and the timing, purpose and terms of the proposed sale or other transfer.

Nasdaq Global Market Listing

We have applied to have our common stock listed on the Nasdaq Global Market under the symbol “ZGNX.”

Stabilization

In order to facilitate this offering of our common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of our common stock. Specifically, the underwriters may sell more shares of common stock than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares of common stock available for purchase by the underwriters under the over-allotment option. The underwriters may close out a covered short sale by exercising the over-allotment option or purchasing common stock in the open market. In determining the source of common stock to close out a covered short sale, the underwriters may consider, among other things, the market price of common stock compared to the price payable under the over-allotment option. The underwriters may also sell shares of common stock in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after the date of pricing of this offering that could adversely affect investors who purchase in this offering.

As an additional means of facilitating this offering, the underwriters may bid for, and purchase, common stock in the open market to stabilize the price of our common stock, so long as stabilizing bids do not exceed a specified maximum. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing common stock in this offering if the underwriting syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock.

The foregoing transactions, if commenced, may raise or maintain the market price of our common stock above independent market levels or prevent or retard a decline in the market price of the common stock.

The foregoing transactions, if commenced, may be effected on the Nasdaq Global Market or otherwise. Neither we nor any of the underwriters makes any representation that the underwriters will engage in any of these transactions and these transactions, if commenced, may be discontinued at any time without notice. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of the effect that the transactions described above, if commenced, may have on the market price of our common stock.

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Discretionary Accounts

The underwriters have informed us that they do not intend to confirm sales to accounts over which they exercise discretionary authority in excess of 5% of the total number of shares of common stock offered by them.

Pricing of this Offering

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock was determined between us and the representative of the underwriters. The factors considered in determining the initial public offering price included:

• prevailing market conditions;

• our results of operations and financial condition;

• financial and operating information and market valuations with respect to other companies that we and the representative of the underwriters believe to be comparable or similar to us;

• the present state of our development; and

• our future prospects.

An active trading market for our common stock may not develop. It is possible that the market price of our common stock after this offering will be less than the initial public offering price. In addition, the estimated initial public offering price range appearing on the cover of this preliminary prospectus is subject to change as a result of market conditions or other factors.

Relationships

The underwriters and/or their respective affiliates may in the future provide various financial advisory, investment banking, commercial banking and other financial services to us, for which they may receive compensation.

Sales Outside the United States

No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the common stock, or the possession, circulation or distribution of this prospectus or any other material relating to us or the common stock in any jurisdiction where action for that purpose is required. Accordingly, the common stock may not be offered or sold, directly or indirectly, and neither of this prospectus nor any other offering material or advertisements in connection with the common stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.

Each of the underwriters may arrange to sell common stock offered by this prospectus in certain jurisdictions outside the United States, either directly or through affiliates, where they are permitted to do so. In that regard, Wells Fargo Securities, LLC may arrange to sell shares in certain jurisdictions through an affiliate, Wells Fargo Securities International Limited, or WFSIL. WFSIL is a wholly-owned indirect subsidiary of Wells Fargo & Company and an affiliate of Wells Fargo Securities, LLC. WFSIL is a U.K. incorporated investment firm regulated by the Financial Services Authority. Wells Fargo Securities is the trade name for certain corporate and investment banking services of Wells Fargo & Company and its affiliates, including Wells Fargo Securities, LLC and WFSIL.

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European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any shares of common stock which are the subject of the offering contemplated by this prospectus (the “Shares”) may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

(a)    to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b)    to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

(c)    to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives of the underwriters; or

(d)    in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Shares shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

United Kingdom

This prospectus and any other material in relation to the shares described herein is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospective Directive (“qualified investors”) that also (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, (ii) who fall within Article 49(2)(a) to (d) of the Order or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). The shares are only available to, and any invitation, offer or agreement to purchase or otherwise acquire such shares will be engaged in only with, relevant persons. This offering memorandum and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus or any of its contents.

The distribution of this prospectus in the United Kingdom to anyone not falling within the above categories is not permitted and may contravene the Financial Services and Markets Act of 2000. No person falling outside those categories should treat this prospectus as constituting a promotion to him, or act on it for any purposes whatever. Recipients of this prospectus are advised that we, the underwriters and any other person that communicates this prospectus are not, as a result solely of communicating this prospectus, acting for or advising them and are not responsible for providing recipients of this prospectus with the protections which would be given to those who are clients of any aforementioned entities that is subject to the Financial Services Authority Rules.

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France

The prospectus supplement and the accompanying prospectus (including any amendment, supplement or replacement thereto) have not been approved either by the Autorité des marchés financiers or by the competent authority of another State that is a contracting party to the Agreement on the European Economic Area and notified to the Autorité des marchés financiers; no security has been offered or sold and will be offered or sold, directly or indirectly, to the public in France within the meaning of Article L. 411-1 of the French Code Monétaire et Financier except to permitted investors, or Permitted Investors, consisting of persons licensed to provide the investment service of portfolio management for the account of third parties, qualified investors (investisseurs qualifiés) acting for their own account and/or a limited circle of investors (cercle restreint d’investisseurs) acting for their own account, with “qualified investors” and “limited circle of investors” having the meaning ascribed to them in Articles L. 411-2, D. 411-1, D. 411-2, D. 411-4, D. 744-1, D. 754-1 and D. 764-1 of the French Code Monétaire et Financier; none of this prospectus supplement and the accompanying Prospectus or any other materials related to the offer or information contained therein relating to our securities has been released, issued or distributed to the public in France except to Permitted Investors; and the direct or indirect resale to the public in France of any securities acquired by any Permitted Investors may be made only as provided by Articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 to L. 621-8-3 of the French Code Monétaire et Financier and applicable regulations thereunder.

Notice to the Residents of Germany

This document has not been prepared in accordance with the requirements for a securities or sales prospectus under the German Securities Prospectus Act (Wertpapierprospektgesetz), the German Sales Prospectus Act (Verkaufsprospektgesetz), or the German Investment Act (Investmentgesetz). Neither the German Federal Financial Services Supervisory Authority (Bundesanstalt fur Finanzdienstleistungsaufsicht — BaFin) nor any other German authority has been notified of the intention to distribute the securities in Germany. Consequently, the securities may not be distributed in Germany by way of public offering, public advertisement or in any similar manner AND THIS DOCUMENT AND ANY OTHER DOCUMENT RELATING TO THE OFFERING, AS WELL AS INFORMATION OR STATEMENTS CONTAINED THEREIN, MAY NOT BE SUPPLIED TO THE PUBLIC IN GERMANY OR USED IN CONNECTION WITH ANY OFFER FOR SUBSCRIPTION OF THE SECURITIES TO THE PUBLIC IN GERMANY OR ANY OTHER MEANS OF PUBLIC MARKETING. The securities are being offered and sold in Germany only to qualified investors which are referred to in Section 3, paragraph 2 no. 1, in connection with Section 2, no. 6, of the German Securities Prospectus Act. This document is strictly for use of the person who has received it. It may not be forwarded to other persons or published in Germany.

Switzerland

This document does not constitute a prospectus within the meaning of Art. 652a of the Swiss Code of Obligations. The shares of common stock may not be sold directly or indirectly in or into Switzerland except in a manner which will not result in a public offering within the meaning of the Swiss Code of Obligations. Neither this document nor any other offering materials relating to the shares of common stock may be distributed, published or otherwise made available in Switzerland except in a manner which will not constitute a public offer of the shares of common stock in Switzerland.

203

LEGAL MATTERS

The validity of our common stock offered by this prospectus will be passed upon for us by Latham & Watkins LLP, San Diego, California. Latham & Watkins LLP and certain attorneys and investment funds affiliated with the firm collectively own an aggregate of 25,000 shares of our convertible preferred stock, which will convert into an aggregate of 25,000 shares of our common stock upon the completion of this offering. Sidley Austin LLP, San Francisco, California, will act as counsel for the underwriters.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2008 and 2009, and for each of the three years in the period ended December 31, 2009, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 1 to our consolidated financial statements). We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance upon Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act of 1933, as amended, with respect to the shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or any other document are summaries of the material terms of this contract, agreement or other document and are not complete. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. Each of these statements is qualified in all respects by this reference. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC at 100 F Street NE, Washington, D.C. 20549. Copies of these materials may be obtained, upon payment of a duplicating fee, from the Public Reference Section of the SEC at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov.

Upon completion of this offering, we will become subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC. This registration statement and future filings will be available for inspection and copying at the SEC’s Public Reference Room and the website of the SEC referred to above.

204

Zogenix, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	F-5
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Zogenix, Inc.

We have audited the accompanying balance sheets of Zogenix, Inc. as of December 31, 2009 and 2008, and the related statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Zogenix, Inc. at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the Company’s recurring losses from operations and lack of sufficient working capital raise substantial doubt about its ability to continue as a going concern. Management’s plans as to these matters also are described in Note 1. The December 31, 2009 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/    ERNST & YOUNG LLP

San Diego, California

September 3, 2010

F-2

Zogenix, Inc.

Consolidated Balance Sheets

(In Thousands, except Par Value)

	December 31,						June 30, 2010			Pro Forma Stockholders’ Equity (Deficit) at June 30, 2010
	2008			2009
							(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	14,225		$	44,911		$	4,493
Trade accounts receivable		—			—			2,022
Inventory		—			13,160			15,404
Prepaid expenses and other current assets		1,019			2,788			2,647
Total current assets		15,244			60,859			24,566
Property and equipment, net		11,750			12,991			14,462
Other assets		631			718			5,083
Total assets	$	27,625		$	74,568		$	44,111
Liabilities, convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	6,051		$	4,670		$	6,911
Accrued expenses		1,438			2,491			3,223
Accrued compensation		515			915			2,413
Long-term debt, current portion		4,208			6,558			6,860
Deferred revenue, current portion		—			4,123			9,548
Total current liabilities		12,212			18,757			28,955
Long-term debt, less current portion		15,336			8,778			5,616
Deferred rent		189			103			395
Deferred revenue, less current portion		—			14,877			12,502
Convertible preferred stock warrant liability		467			5,041			18,061		$	—
Commitments and contingencies
Series A and B convertible preferred stock, $0.001 par value; 83,000 shares of Series A-1, A-2 and A-3 authorized; 77,891 shares of Series A-1 and A-2 issued and outstanding at December 31, 2008; 156,416 shares of Series A-1, A-2 and B authorized at December 31, 2009 and June 30, 2010 (unaudited); 142,398 shares of Series A-1, A-2 and B issued and outstanding at December 31, 2009 and June 30, 2010 (unaudited); aggregate liquidation preference of $78,800, $149,758 and $149,758 at December 31, 2008 and 2009 and June 30, 2010 (unaudited), respectively; no shares issued and outstanding, pro forma (unaudited)		76,955			149,312			149,312			—
Stockholders’ equity (deficit):
Common stock, $0.001 par value; 111,000, 183,983 and 193,000 shares authorized at December 31, 2008 and 2009 and June 30, 2010 (unaudited), respectively; 13,467, 14,444 and 14,444 shares issued and outstanding at December 31, 2008 and 2009 and June 30, 2010 (unaudited), respectively; 156,842 shares issued and outstanding, pro forma (unaudited)		13			14			14			157
Additional paid-in capital		1,102			2,224			3,099			170,329
Accumulated deficit		(78,649	)		(124,538	)		(173,843	)		(173,843	)
Total stockholders’ equity (deficit)		(77,534	)		(122,300	)		(170,730	)	$	(3,357	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	27,625		$	74,568		$	44,111

See accompanying notes.

F-3

Zogenix, Inc.

Consolidated Statements of Operations

(In Thousands, except Per Share Amounts)

	Year Ended December 31,									Six Months Ended June 30,
	2007			2008			2009			2009			2010
										(Unaudited)
Revenue:
Net product revenue	$	—		$	—		$	—		$	—		$	6,118
Contract revenue		—			—			—			—			1,461
Total revenue		—			—			—			—			7,579
Operating expenses:
Cost of sales		—			—			—			—			5,829
Royalty expense		—			—			—			—			382
Research and development		24,329			33,910			21,438			14,739			11,389
Selling, general and administrative		4,725			11,820			14,102			3,753			24,895
Total operating expenses		29,054			45,730			35,540			18,492			42,495
Loss from operations		(29,054	)		(45,730	)		(35,540	)		(18,492	)		(34,916	)
Other income (expense):
Interest income		927			696			10			6			3
Interest expense		(377	)		(1,718	)		(9,188	)		(2,326	)		(1,511	)
Change in fair value of warrant liability		(107	)		1,119			(755	)		(447	)		(13,020	)
Other financing income		906			—			—			—			—
Other income (expense)		25			63			(416	)		(265	)		139
Total other income (expense)		1,374			160			(10,349	)		(3,032	)		(14,389	)
Net loss		(27,680	)		(45,570	)		(45,889	)		(21,524	)		(49,305	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock		(18,360	)		—			—			—			—
Net loss attributable to common stockholders	$	(46,040	)	$	(45,570	)	$	(45,889	)	$	(21,524	)	$	(49,305	)
Net loss per share, basic and diluted	$	(8.08	)	$	(5.27	)	$	(4.10	)	$	(2.03	)	$	(3.74	)
Weighted average shares outstanding, basic and diluted		5,701			8,655			11,197			10,620			13,174
Pro forma net loss per share, basic and diluted (unaudited)							$	(0.45	)				$	(0.23	)
Weighted average pro forma shares outstanding, basic and diluted (unaudited)								100,572						155,572

See accompanying notes.

F-4

Zogenix, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In Thousands, except Per Share Amounts)

	Series  A Convertible Preferred Stock			Series  B Convertible Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount		Shares		Amount
Balance at December 31, 2006	30,775	$	27,110	—	$	—	11,385		$	11	$	—		$	3		$	(5,399	)	$	(5,385	)
Comprehensive loss:
Unrealized loss on investments	—		—	—		—	—			—		—			(1	)		—			(1	)
Net loss	—		—	—		—	—			—		—			—			(27,680	)		(27,680	)
Comprehensive loss																					(27,681	)
Issuance of Series A-1 convertible preferred stock for cash at $1.00 per share, net of issuance costs of $20	38,025		38,005	—		—	—			—		—			—			—			—
Issuance of Series A-2 convertible preferred stock for cash at $1.10 per share, net of issuance costs of $63	9,091		9,937	—		—	—			—		—			—			—			—
Adjustment to the estimated fair value of call right	—		1,903	—		—	—			—		—			—			—			—
Beneficial conversion feature-deemed dividend on the issuance of Series A-1 and Series A-2 convertible preferred stock	—		—	—		—	—			—		18,360			—			—			18,360
Reduction of additional paid-in capital for the deemed dividend since the Company has an accumulated deficit	—		—	—		—	—			—		(18,360	)		—			—			(18,360	)
Issuance of common stock in conjunction with the exercise of stock options	—		—	—		—	2,130			2		7			—			—			9
Repurchase of founder’s common stock	—		—	—		—	(58	)		—		—			—			—			—
Stock-based compensation	—		—	—		—	—			—		131			—			—			131
Balance at December 31, 2007	77,891	$	76,955	—	$	—	13,457		$	13	$	138		$	2		$	(33,079	)	$	(32,926	)

F-5

Zogenix, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) — (Continued)

(In Thousands, except Per Share Amounts)

	Series  A Convertible Preferred Stock			Series  B Convertible Preferred Stock				Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount			Shares	Amount
Balance at December 31, 2007	77,891	$	76,955	—		$—		13,457	$	13	$	138	$	2		$	(33,079	)	$	(32,926	)
Comprehensive loss:
Unrealized loss on investments	—		—	—		—		—		—		—		(2	)		—			(2	)
Net loss	—		—	—		—		—		—		—		—			(45,570	)		(45,570	)
Comprehensive loss																				(45,572	)
Issuance of common stock in conjunction with the exercise of stock options	—		—	—		—		10		—		2		—			—			2
Vesting of early exercised stock options	—		—	—		—		—		—		43		—			—			43
Stock-based compensation	—		—	—		—		—		—		919		—			—			919
Balance at December 31, 2008	77,891		76,955	—		—		13,467		13		1,102		—			(78,649	)		(77,534	)
Net loss and comprehensive loss	—		—	—		—		—		—		—		—			(45,889	)		(45,889	)
Issuance of Series B convertible preferred stock for cash at $1.10 per share, net of issuance costs of $774	—		—	50,636		54,930		—		—		—		—			—			—
Issuance of Series B convertible preferred stock from conversion of convertible notes, net of issuance costs of $30	—		—	13,871		15,228		—		—		—		—			—			—
Beneficial conversion feature from issuance of convertible notes	—		—	—		3,009		—		—		—		—			—			—
Issuance of warrants for Series B convertible preferred stock	—		—	—		(810	)	—		—		—		—			—			—
Issuance of common stock in conjunction with the exercise of stock options	—		—	—		—		977		1		96		—			—			97
Stock-based compensation	—		—	—		—		—		—		1,026		—			—			1,026
Balance at December 31, 2009	77,891		76,955	64,507		72,357		14,444		14		2,224		—			(124,538	)		(122,300	)
Net loss and comprehensive loss (unaudited)	—		—	—		—		—		—		—		—			(49,305	)		(49,305	)
Vesting of early exercised stock options (unaudited)	—		—	—		—		—		—		36		—			—			36
Stock-based compensation (unaudited)	—		—	—		—		—		—		839		—			—			839
Balance at June 30, 2010 (unaudited)	77,891	$	76,955	64,507	$	72,357		14,444	$	14	$	3,099	$	—		$	(173,843	)	$	(170,730	)

See accompanying notes.

F-6

Zogenix, Inc.

Consolidated Statements of Cash Flows

(In Thousands)

	Year Ended December 31,									Six Months Ended June 30,
	2007			2008			2009			2009			2010
										(Unaudited)
Operating activities:
Net loss	$	(27,680	)	$	(45,570	)	$	(45,889	)	$	(21,524	)	$	(49,305	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		131			919			1,026			471			839
Depreciation and amortization		407			755			1,017			435			676
Provision of inventory reserve		—			—			2,497			—			(534	)
Amortization of debt issuance cost and non-cash interest		98			349			4,297			1,124			805
Change in fair value of convertible preferred stock warrant liability		107			(1,119	)		755			447			13,020
Beneficial conversion feature from issuance of convertible notes		—			—			3,009			—			—
Loss on disposal and impairment of property and equipment		—			346			11			8			—
Accretion of discounts on investments, net of amortization premiums		—			(77	)		—			—			—
Other financing income		(906	)		—			—			—			—
Changes in operating assets and liabilities:
Trade accounts receivable		—			—			—			—			(2,022	)
Inventory		—			—			(15,657	)		—			(1,710	)
Prepaid expenses and other current assets		(1,045	)		391			(1,769	)		734			141
Other assets		(312	)		(285	)		(176	)		(14	)		(4,466	)
Accounts payable and accrued expenses		2,380			2,834			(396	)		(3,149	)		3,698
Deferred rent		20			169			(86	)		(38	)		(13	)
Deferred revenue		—			—			19,000			2,000			3,050
Net cash used in operating activities		(26,800	)		(41,288	)		(32,361	)		(19,506	)		(35,821	)
Investing activities:
Purchases of property and equipment		(4,018	)		(4,615	)		(2,059	)		(630	)		(1,162	)
Purchases of short-term investments		(9,798	)		(7,828	)		—			—			—
Sales and maturities of short-term investments		14,821			9,650			—			—			—
Proceeds from sale of long-lived assets		—			—			2			—			—
Net cash provided by (used in) investing activities		1,005			(2,793	)		(2,057	)		(630	)		(1,162	)
Financing activities:
Proceeds from the issuance of convertible preferred stock, net		47,942			—			54,930			—			—
Proceeds from bridge loan, net		—			—			14,770			11,700			—
Proceeds from borrowings of long-term debt		4,383			17,802			—			—			—
Payments on borrowings of long-term debt		(483	)		(1,006	)		(4,691	)		(1,420	)		(3,435	)
Proceeds from the issuance of common stock		130			2			95			19			—
Net cash provided by (used in) financing activities		51,972			16,798			65,104			10,299			(3,435	)
Net increase (decrease) in cash and cash equivalents		26,177			(27,283	)		30,686			(9,837	)		(40,418	)
Cash and cash equivalents at beginning of period		15,331			41,508			14,225			14,225			44,911
Cash and cash equivalents at end of period	$	41,508		$	14,225		$	44,911		$	4,388		$	4,493
Supplemental disclosure of cash flow information:
Cash paid for interest	$	251		$	1,091		$	1,894		$	1,017		$	732
Noncash investing and financing activities:
Purchase of property and equipment in accounts payable	$	—		$	305		$	213		$	13		$	680
Acquisition of leasehold paid by landlord	$	—		$	—		$	—		$	—		$	305
Conversion of bridge loan and related interest to convertible preferred stock	$	—		$	—		$	15,258		$	—		$	—
Vesting of early exercised stock options	$	—		$	43		$	54		$	27		$	36
Warrants issued in connection with debt and convertible preferred stock	$	151		$	1,327		$	3,819		$	2,361		$	—
Deemed dividend for the beneficial conversion feature on the issuance of Series A-1 and Series A-2 convertible preferred stock	$	(18,360	)	$	—		$	—		$	—		$	—

See accompanying notes.

F-7

Zogenix, Inc.

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

Zogenix, Inc. (the Company) is a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. The Company’s first commercial product, Sumavel™ DosePro™ (sumatriptan injection) Needle-free Delivery System, offers fast-acting, easy-to-use, needle-free subcutaneous delivery of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. Sumavel DosePro was approved by the U.S. Food and Drug Administration (FDA) on July 15, 2009 and was launched in the United States in January 2010. Prior to 2009, the Company was in the development stage.

The Company was incorporated in the state of Delaware on May 11, 2006 as SJ2 Therapeutics, Inc. and commenced operations on August 25, 2006. On August 28, 2006, the Company changed its name to Zogenix, Inc.

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings, debt financings and proceeds from business collaborations. As the Company continues to incur losses, successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. This may not occur and, unless and until it does, the Company will continue to need to raise additional cash. Based on the Company’s operating plan, existing working capital is not sufficient to meet the cash requirements to fund planned operating expenses through December 31, 2010 without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

Management expects operating losses and negative cash flows to continue for at least the next several years as the Company continues to incur costs related to the continued development of its product candidates and commercialization of its approved product. Management may pursue additional equity or debt financings if required to help support its planned operations through December 31, 2010. There can be no assurance that the Company will be able to obtain any source of financing on acceptable terms, or at all.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of Zogenix, Inc. and its wholly owned subsidiary Zogenix Europe Limited, which was incorporated under the laws of England and Wales in June 2010. All intercompany transactions and investments have been eliminated in consolidation.

Unaudited Interim Financial Results

The accompanying interim consolidated balance sheet as of June 30, 2010, the consolidated statements of operations and cash flows for the six months ended June 30, 2009 and 2010 and

F-8

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

consolidated statement of convertible preferred stock and stockholders’ equity (deficit) for the six months ended June 30, 2010, and the related information contained in the notes to the consolidated financial statements are unaudited. These unaudited interim consolidated financial statements and notes have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of June 30, 2010 and its consolidated results of operations and cash flows for the six months ended June 30, 2009 and 2010. The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010 or for any other interim period or for any other future year.

Unaudited Pro Forma Stockholders’ Equity (Deficit)

The unaudited pro forma stockholders’ equity (deficit) as of June 30, 2010 reflects the automatic conversion of all outstanding shares of convertible preferred stock as of June 30, 2010, into 142,398,142 shares of common stock upon the closing of the initial public offering (IPO) contemplated by the Company’s filing of its registration statement on Form S-1 with the Securities and Exchange Commission (SEC) in September 2010. The shares of common stock issued in the IPO and its estimated net proceeds are excluded in such pro forma information. In addition, the Company has outstanding warrants to purchase 200,000 shares of Series A-1 convertible preferred stock, 777,273 shares of Series A-2 convertible preferred stock, and 12,909,066 shares of Series B convertible preferred stock, which will become warrants to purchase an equivalent number of shares of common stock at $1.00, $1.10 and $1.10 per share, respectively, upon the closing of the IPO. The liability of $18,061,000 related to these warrants has been reclassified to additional paid-in capital as these warrants will no longer be exercisable for convertible preferred shares.

Cash and Cash Equivalents

The Company considers cash equivalents to be only those investments which are highly liquid, readily convertible to cash and which mature within three months from date of purchase.

Restricted Cash

During 2008 and 2009, the Company had a certificate of deposit for $209,000 as collateral for a letter of credit issued in connection with an operating lease. In December 2009, the requirement for the letter of credit was released in connection with the amendment of the operating lease. In December 2009, the Company issued a letter of credit for $200,000 in connection with another operating lease. The letter of credit is collateralized by a certificate of deposit in the same amount. Restricted cash of $209,000 and $200,000 at December 31, 2008 and 2009, respectively, is included in other assets on the balance sheet.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, accrued compensation and current portion of debt included in the Company’s financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

F-9

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Effective January 1, 2008, the Company adopted authoritative guidance for fair value measurements. This authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:	Observable inputs such as quoted prices in active markets;
Level 2:	Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 and 2009 and June 30, 2010 are as follows (in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
At December 31, 2008
Assets
Money market fund shares(1)	$	13,300	$	—	$	—	$	13,300
Liabilities
Convertible preferred stock warrant liability(2)	$	—	$	—	$	467	$	467
At December 31, 2009
Assets
Money market fund shares(1)	$	44,111	$	—	$	—	$	44,111
Liabilities
Convertible preferred stock warrant liability(2)	$	—	$	—	$	5,041	$	5,041
At June 30, 2010
Assets
Money market fund shares(1)	$	3,036	$	—	$	—	$	3,036
Liabilities
Convertible preferred stock warrant liability(2)	$	—	$	—	$	18,061	$	18,061

(1) Money market fund shares are included as a component of cash and cash equivalents on the balance sheet.

(2) Convertible preferred stock warrants are measured at fair value using the Black-Scholes model. For the Company’s warrants that are conditionally exercisable, the valuations are conducted through a multi-step procedure. The Company first estimates its equity value using an income approach, under which certain criteria-triggering exercisability are met, and allocates such value using an option pricing method to estimate the fair value of Series B convertible preferred stock. This per share value is input into the Black-Scholes option pricing model to determine an estimated value of the underlying warrant and is adjusted at each reporting period based on the probability that the warrants will be exercisable.

F-10

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2008 and 2009 and the six months ended June 30, 2010 (in thousands):

	Convertible Preferred Stock Warrant Liability
Balance at December 31, 2007	$	259
Issuance of convertible preferred stock warrants		1,327
Changes in fair value of warrants		(1,119	)
Balance at December 31, 2008		467
Issuance of convertible preferred stock warrants		3,819
Changes in fair value of warrants		755
Balance at December 31, 2009		5,041
Changes in fair value of warrants		13,020
Balance at June 30, 2010	$	18,061

Concentration of Credit Risk, Sources of Supply and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains accounts in federally insured financial institutions in excess of federally insured limits. The Company also maintains investments in money market funds and similar short-term investments that are not federally insured. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held and of the money market funds and other entities in which these investments are made. Additionally, the Company has established guidelines regarding the diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

The Company sells its products primarily to established wholesale distributors in the pharmaceutical industry. Credit is extended based on an evaluation of the customer’s financial condition, and collateral is not required. Approximately 95.6% of the accounts receivable balance as of June 30, 2010 represents amounts due from three wholesale distributors. The Company evaluates the collectability of its accounts receivable based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experience. Based upon the review of these factors, the Company did not record an allowance for doubtful accounts at June 30, 2010.

The Company relies on third-party manufacturers for the production of Sumavel DosePro and single source third-party suppliers to manufacture several key components of Sumavel DosePro. If the Company’s third-party manufacturers are unable to continue manufacturing Sumavel DosePro, or if the Company lost one or more of its single source suppliers used in the manufacturing process, the Company may not be able to meet market demand for its product.

Astellas Pharma US, Inc. (Astellas) provides a significant amount of funding for the advertising and promotional costs for Sumavel DosePro and co-promotes the product in the United States. See Note 3 for more detailed information regarding this collaboration.

F-11

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Inventory

Inventory is stated at the lower of cost or market. Cost, which includes amounts related to materials, labor and overhead, is determined in a manner which approximates the first-in, first-out (FIFO) method. The Company capitalizes inventory produced in preparation for product launches upon FDA approval when costs are expected to be recoverable through the commercialization of the product. The Company provides reserves for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand and on firm purchase commitments compared to forecasts of future sales.

Property and Equipment, Net

Property and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets, as follows:

Computer equipment and software	3 years
Furniture and fixtures	3-7 years
Manufacturing equipment and tooling	3-15 years
Leasehold improvements	Shorter of estimated useful life or lease term

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. There were immaterial charges as a result of impairment losses through December 31, 2009.

Warrants for Convertible Preferred Stock

In accordance with accounting guidance for warrants for shares in redeemable securities, the Company classifies warrants for convertible preferred stock as liabilities on the balance sheet. The Company adjusts the carrying value of these convertible preferred stock warrants to their estimated fair value at each reporting date with the increases or decreases in the fair value of such warrants recorded as change in fair value of warrant liability in the statement of operations.

Revenue Recognition

The Company recognizes revenue from the sale of Sumavel DosePro and from license fees and milestones earned on collaborative arrangements. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

Product Revenue

The Company sells Sumavel DosePro product to wholesale pharmaceutical distributors, and on a limited basis to retail pharmacies, or collectively the Company’s customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. Given the limited sales history of Sumavel DosePro, the Company currently cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on product shipments of Sumavel DosePro until the right of return no longer exists, which occurs at the earlier of the time Sumavel DosePro units are dispensed through patient prescriptions or expiration of the right of return. Units dispensed are generally not subject to return, except in the rare cases where the product malfunctions or the product is damaged in transit. The Company estimates

F-12

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

patient prescriptions dispensed using an analysis of third-party information, including third- party market research data, information obtained from certain wholesalers with respect to inventory levels at wholesalers and inventory movement and retail pharmacy re-stocking activity. Sumavel DosePro was launched in January 2010 and, accordingly, the Company does not have significant history estimating the number of patient prescriptions dispensed. If the Company underestimates or overestimates patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods.

As a result of this policy, the Company recognized $6,118,000 in Sumavel DosePro product revenue for the six months ended June 30, 2010, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. The Company has a deferred revenue balance of $3,511,000 at June 30, 2010 for Sumavel DosePro product shipments, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs.

The Company will continue to recognize revenue upon the earlier to occur of prescription units dispensed or expiration of the right of return until it can reliably estimate product returns, at which time the Company will record a one-time increase in net revenue related to the recognition of revenue previously deferred. In addition, the costs of manufacturing Sumavel DosePro associated with the deferred revenue are recorded as deferred costs, which are included in inventory, until such time the related deferred revenue is recognized.

Product Sales Allowances

The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company’s agreements with customers and third-party payors and the levels of inventory within the distribution channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company’s product sales allowances include:

Wholesaler and Retail Pharmacy Discounts. The Company offers discounts to certain wholesale distributors and retail pharmacies based on contractually determined rates. The Company accrues the discount on shipment to the respective wholesale distributors and retail pharmacies and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Prompt Pay Discounts. The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the full amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Chargebacks. The Company provides discounts to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs. These federal entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current retail price and the price the federal entity paid for the product. The Company estimates and accrues chargebacks based on estimated wholesaler inventory levels, current contract prices and historical chargeback activity.

F-13

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Rebates. The Company participates in certain rebate programs, which provide discounted prescriptions to qualified insured patients. Under these rebate programs, the Company pays a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. The Company estimates and accrues these rebates based on current contract prices, historical and estimated future percentages of product sold to qualified patients and estimated levels of inventory in the distribution channel.

Patient Discount Programs. The Company offers discount card programs to patients for Sumavel DosePro in which patients receive discounts on their prescriptions that are reimbursed by the Company. The Company estimates the total amount that will be redeemed based on levels of inventory in the distribution and retail channels.

Stocking Allowances. The Company may offer discounts and extended payment terms, generally in the month of the initial commercial launch of a new product, on the first order made by certain wholesale distributors and retail pharmacies based on contractually determined rates. The Company accrues the discount on shipment to the respective wholesale distributors and retail pharmacies and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Contract Revenue

The Company recognizes revenues related to license fees and milestone payments received under its Co-Promotion Agreement with Astellas entered into in July 2009 (Co-Promotion Agreement). Revenue arrangements with multiple deliverables are divided into separate units of accounting if criteria are met, including whether the deliverable has stand-alone value to the customer and the customer has a general right of return relative to the delivered item and delivery or performance of the undelivered item is probable and substantially within the vendor’s control. Arrangement consideration is allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price. The selling price for each deliverable is determined using (i) vendor-specific objective evidence of selling price (VSOE), if it exists, (ii) third-party evidence of selling price (TPE) if VSOE does not exist, and (iii) the Company’s best estimate of the selling price if neither VSOE nor TPE exists. Revenue is recognized for each deliverable based upon the applicable revenue recognition criteria discussed above and on a ratable basis over the term of the agreement.

Collaborative Arrangements

Effective January 1, 2009, the Company implemented new authoritative guidance related to accounting for collaborative arrangements. The new guidance requires that certain transactions between collaborators be recorded in the income statement on either a gross or net basis within revenues or operating expenses, depending on the characteristics of the collaboration relationship, and provides for enhanced disclosure of collaborative relationships. The Company evaluated its collaborative agreements for proper classification of shared expenses, license fees, milestone payments and any reimbursed costs within the statement of operations based on the nature of the underlying activity. If payments to and from collaborative partners are not within the scope of other authoritative accounting literature, the statement of operations classification for the payments is based on a reasonable, rational analogy to authoritative accounting literature that is applied in a consistent manner. For collaborations relating to commercialized products, if the Company acts as the principal in the sale of goods or services it records revenue and the corresponding operating costs in its respective line items within its statement of operations based on the nature of the shared expenses. Per authoritative accounting guidance, the principal is the party who is responsible for delivering the product to the customer, has latitude with establishing price and has the risks and rewards of providing product to the customer, including inventory and credit risk.

F-14

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Research and Development Expenses

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, outside service providers, facilities costs, fees paid to consultants, professional services, travel costs, dues and subscriptions, depreciation and materials used in clinical trials and research and development. The Company expenses costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until FDA approval. The Company received FDA approval for Sumavel DosePro in July 2009, after which it began capitalizing costs as inventory related to the production of Sumavel DosePro, including the cost of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs.

The Company reviews and accrues clinical trials expenses based on work performed, which relies on estimates of total costs incurred based on completion of patient studies and other events. The Company follows this method since reasonably dependable estimates of the costs applicable to various stages of a research agreement or clinical trial can be made. Accrued clinical development costs are subject to revisions as trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known.

Advertising Expense

The Company records the cost of its advertising efforts when services are performed or goods are delivered. The Company incurred approximately $0, $0, $1,072,000, $0 and $2,885,000 in advertising costs for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010, respectively. At December 31, 2008 and 2009 and June 30, 2010, the Company capitalized advertising costs of $0, $203,000 and $126,000 in prepaid and other current assets, respectively.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates which will be in effect when the differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax asset will be realized. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

Foreign Currency Transactions

Gains or losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the statements of operations. The Company recorded gains and losses from foreign currency transactions in other income (expense) of $25,000, $63,000, $(416,000), $(265,000) and $139,000 for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010, respectively.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period on a straight-line basis. As of December 31, 2009 and June 30, 2010, there were no outstanding equity awards with market or performance conditions. Equity awards issued to non-employees are recorded at their fair value on the measurement date and are periodically re-measured as the underlying awards vest unless the instruments are fully vested, immediately exercisable and nonforfeitable on the date of grant.

F-15

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Comprehensive Loss

Comprehensive loss represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s other comprehensive loss for 2007 and 2008 consisted of unrealized losses on available-for-sale securities and is reported in stockholders’ equity.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period reduced by weighted average shares subject to repurchase, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method and as-if converted method, as applicable. For purposes of this calculation, preferred stock, stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

Pro forma basic and diluted net loss per share has been computed to give effect to the assumed conversion of all outstanding convertible preferred stock into shares of common stock which will occur upon the closing of the Company’s initial public offering.

F-16

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

The following table presents the computation of basic and diluted net loss per common share (in thousands, except per share amounts):

	Year Ended December 31,									Six Months Ended June  30,
	2007			2008			2009			2009			2010
Historical net loss per share
Numerator
Net loss attributable to common stockholders	$	(46,040	)	$	(45,570	)	$	(45,889	)	$	(21,524	)	$	(49,305	)
Denominator
Weighted average common shares outstanding		12,284			13,465			13,593			13,533			14,444
Weighted average shares subject to repurchase		(6,583	)		(4,810	)		(2,396	)		(2,913	)		(1,270	)
Weighted average shares outstanding, basic and diluted		5,701			8,655			11,197			10,620			13,174
Basic and diluted net loss per share	$	(8.08	)	$	(5.27	)	$	(4.10	)	$	(2.03	)	$	(3.74	)
Pro forma net loss per common share (unaudited)
Numerator
Net loss attributable to common stockholders							$	(45,889	)				$	(49,305	)
Pro forma adjustment to eliminate changes in fair value of convertible preferred stock warrant liability								755						13,020
Net loss used to compute pro forma net loss per share							$	(45,134	)				$	(36,285	)
Denominator
Weighted average shares outstanding, basic and diluted								11,197						13,174
Pro forma adjustments to reflect assumed weighted average effect of conversion of convertible preferred stock								89,375						142,398
Weighted average pro forma shares outstanding, basic and diluted								100,572						155,572
Pro forma net loss per share, basic and diluted							$	(0.45	)				$	(0.23	)

F-17

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Potentially dilutive securities not included in the historical calculation of diluted net loss per common share because to do so would be anti-dilutive are as follows (in thousands of common equivalent shares):

	Year Ended December 31,			Six Months Ended June  30,
	2007	2008	2009	2009	2010
Convertible preferred stock	77,891	77,891	142,398	77,891	142,398
Convertible preferred stock warrants	200	977	13,886	3,636	13,886
Common stock subject to repurchase	6,266	3,601	1,895	2,584	518
Common stock options	2,940	5,817	8,075	5,512	14,784
	87,297	88,286	166,254	89,623	171,586

Segment Reporting

Management has determined that the Company operates in one business segment, which is the commercialization and development of pharmaceutical products.

Recent Accounting Pronouncements

Effective July 1, 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC or Codification) became the authoritative source of GAAP. All existing FASB accounting standards and guidance were superseded by the ASC. Instead of issuing new accounting standards in the form of statements, staff positions and Emerging Issues Task Force abstracts, the FASB now issues Accounting Standards Updates that update the Codification. Rules and interpretive releases of the SEC under authority of federal securities laws continue to be additional sources of authoritative GAAP for SEC registrants.

In January 2010, the FASB issued a new accounting standard which amends guidance on fair value measurements and disclosures. The new guidance requires disclosure of transfers into and out of Level 1 and Level 2 fair value measurements, and also requires more detailed disclosure about the activity within Level 3 fair value measurements. This standard is effective for annual and interim reporting periods beginning after December 15, 2009, except for the requirements related to Level 3 disclosures, which are effective for annual and interim reporting periods beginning after December 15, 2010. The Company adopted the relevant provisions of this guidance, and the adoption did not have a material impact on the Company’s financial statements.

In February 2010, the FASB issued a new accounting standard which amends guidance on subsequent events. The new guidance requires evaluation of subsequent events through the date the financial statements are issued for SEC filers, amends the definition of SEC filer, and changes required disclosures. This standard is effective on February 24, 2010 and did not have a material financial impact on the Company’s financial statements upon adoption.

In March 2010, the FASB Emerging Issues Task Force (EITF) ratified a new accounting standard which amends guidance on the milestone method of revenue recognition. The EITF concluded that the milestone method is a valid application of the proportional performance model when applied to

F-18

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

research or development arrangements. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. This standard allows an entity to make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This standard is effective for fiscal years beginning on or after June 15, 2010 with early adoption permitted. The guidance may be applied prospectively for milestones achieved after the adoption date or retrospectively for all periods presented. The Company does not expect this guidance to have a material impact on the Company’s financial position, results of operations or cash flows.

3. Collaboration, License and Purchase Agreements

Astellas Pharma US, Inc. Co-Promotion Agreement

In July 2009, the Company entered into the Co-Promotion Agreement with Astellas. Under the terms of the agreement, the Company granted Astellas the co-exclusive right (with the Company) to market and sell Sumavel DosePro in the United States (excluding Puerto Rico and the other territories and possessions of the United States) until June 30, 2013. Astellas has the option to extend the term of the agreement by an additional year in its sole discretion contingent upon Astellas’ payment to the Company of a predetermined option fee. In addition, Astellas has a right to opt-in to the commercialization of potential line extensions of Sumavel DosePro. Under the agreement, both Astellas and the Company are obligated to collaborate and fund the marketing of Sumavel DosePro and to provide annual minimum levels of sales effort directed at Sumavel DosePro during the term. In 2011 and throughout the remainder of the term, these minimum sales efforts are set forth as a minimum number of annual primary detail equivalents. The Company is responsible for the manufacture, supply, and distribution of commercial product for sale in the United States. In addition, the Company will supply product samples to Astellas, and Astellas will pay the Company for such samples, at an agreed upon transfer price.

Astellas may terminate the agreement for any reason or no reason upon 180-days written notice to the Company after September 30, 2010 or at any time in the event the Company undergoes a change of control (as defined in the agreement). In addition, Astellas may terminate the agreement if a governmental authority takes action that prevents or makes it unlawful for Astellas to perform its obligations under the agreement, in the event of the Company’s inability to supply commercial product, under certain circumstances where a third party asserts that the making or selling of Sumavel DosePro infringes the intellectual property rights of a third party, or if the Company materially breaches its minimum sales effort obligations and does not cure such breach within a specified period. In the event a termination pursuant to the reasons set forth in the previous sentence takes place prior to July 31, 2011, the Company would be required to pay Astellas a specified royalty on net sales of Sumavel DosePro up to an aggregate specified dollar amount. Any such payments would be in lieu of the annual tail payments described below. The Company may terminate the agreement in the event that Astellas materially breaches its minimum sales effort obligations and does not cure such breach within a specified period. Either party may terminate the agreement upon the occurrence of a large scale recall or market withdrawal of Sumavel DosePro, a failure of the Sumavel DosePro brand to achieve certain minimum sales levels in 2010 or 2011, a material uncured breach by the other party, insolvency or bankruptcy of the other party, or other event which affects the other party’s ability to perform its obligations under the agreement.

F-19

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

In connection with execution of the Co-Promotion Agreement, Astellas made a non-refundable up-front payment of $2,000,000 and agreed to make an additional $18,000,000 of payments to the Company upon the achievement of a series of milestones. As of December 31, 2009, Astellas paid a total of $19,000,000 to the Company. The remaining $1,000,000 was paid to the Company in March 2010. Under certain circumstances, the milestone payments made by Astellas to the Company are refundable; however, Astellas’ right to require this refund expired on July 31, 2010. In consideration for Astellas’ performance of its commercial efforts, the Company is required to pay Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to primary care physicians, OB/GYNs, emergency medicine physicians, and urologists in the United States (Astellas Segment). Astellas is not compensated for Sumavel DosePro sales to neurologists, any other prescribers not included in the Astellas Segment or for non-retail sales. In addition, upon completion of the co-promotion term, Astellas will be eligible to receive two additional annual tail payments calculated as decreasing fixed percentages (ranging from a mid-twenties down to a mid-teen percentage) of net sales in the Astellas Segment in the last 12 months of its active promotion.

In accordance with accounting guidance for revenue arrangements with multiple deliverables, the Company identified the deliverables in the Co-Promotion Agreement and divided them into separate units of accounting as follows: (i) co-exclusive right to promote Sumavel DosePro combined with the manufacturing and supply of commercial and sample product and (ii) sales support of Sumavel DosePro. The Company concluded both units of accounting require recognition ratably through the term of the Co-Promotion Agreement beginning with the date of the launch of Sumavel DosePro (January 2010) and which remains in effect through June 30, 2013, subject to a one-year extension at Astellas’ option upon Astellas’ payment of a pre-determined fee to the Company, and therefore, the allocation of the up-front and milestone financial consideration is not necessary. Consequently, the Company has recorded the $19,000,000 in upfront and milestone payments received from Astellas as deferred revenue in the balance sheet at December 31, 2009. The final $1,000,000 milestone payment was recorded as deferred revenue when received in March 2010. Beginning with the launch of Sumavel DosePro in January 2010, the Company began amortizing the upfront and milestone payments as contract revenue in the statement of operations over the term of the Co-Promotion Agreement. For the six months ended June 30, 2010, the Company recognized $1,461,000 of contract revenue. As of June 30, 2010, the remaining balance of these payments in deferred revenue was $18,539,000.

Amounts received from Astellas for shared marketing costs and sample product are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses.

For the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010, the Company recognized shared marketing expense of $0, $0, $2,213,000, $0 and $2,764,000, respectively, under the Co-Promotion Agreement. There were no service fee costs incurred during the years ended 2009, 2008 and 2007. For the six months ended June 30, 2009 and 2010, the Company recorded $0 and $1,149,000 of service fee costs.

Elan Pharma International Limited License Agreement

In November 2007, the Company entered into a License Agreement with Elan Pharma International Ltd. (Elan), which was amended in September 2009. Under the terms of this License Agreement, Elan granted the Company an exclusive license in the United States and its possessions and territories, with defined sub-license rights to third parties other than certain technological competitors of Elan, to certain Elan intellectual property rights related to the Company’s ZX002 product candidate. The License Agreement grants the Company the exclusive right under certain Elan patents and patent applications

F-20

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

to import, use, offer for sale and sell oral controlled-release capsule or tablet formulations of hydrocodone, where hydrocodone is the sole active ingredient, for oral prescriptions in the treatment or relief of pain, pain syndromes or pain associated with medical conditions or procedures in the United States. This right enables the Company to exclusively develop and sell ZX002 in the United States. Elan has retained the exclusive right to take action in the event of infringement or threatened infringement by a third party of Elan’s intellectual property rights under the License Agreement. The Company has the right to pursue an infringement claim against the alleged infringer should Elan decline to take or continue an action.

Under the terms of the License Agreement, the Company and Elan agreed that, subject to the future negotiation of a commercial manufacture and supply agreement, Elan, or an affiliate of Elan, will have the sole and exclusive right to manufacture and supply finished commercial product of ZX002 to the Company under agreed upon financial terms.

Elan also granted the Company, in the event that Elan is unwilling or unable to manufacture or supply commercial product to the Company, a non-exclusive license to make product under Elan’s intellectual property rights. This non-exclusive license also includes the right to sublicense product manufacturing to a third party, other than certain technology competitors of Elan.

Under the License Agreement, the Company paid an upfront fee of $500,000 to Elan, which was recorded as research and development expense. As of December 31, 2009, the Company may be obligated to pay Elan up to $4,500,000 in total future milestone payments with respect to ZX002 depending upon the achievement of various development and regulatory events. The Company is also required to pay a mid single-digit percentage royalty on net sales of the product for an initial royalty term equal to the longer of the expiration of Elan’s patents covering the product in the United States, or 15 years after commercial launch, if Elan does not have patents covering the product in the United States. After the initial royalty term, the license agreement will continue automatically for three-year rolling periods during which the Company will continue to pay royalties to Elan on net sales of the product at a reduced low single-digit percentage rate in accordance with the terms of the license agreement.

Either party may terminate the agreement upon a material, uncured default or certain insolvency events of the other party or upon 12 months’ written notice prior to the end of the initial royalty term or any additional three-year rolling period. Elan may terminate the agreement in the event that the Company fails to meet specified development and commercialization milestones within specified time periods. The Company may terminate the agreement if the sale of ZX002 is prohibited by regulatory authorities, or if, despite commercially reasonable efforts, the Company is unable to obtain regulatory approval for ZX002. The Company may also terminate the agreement, with or without cause, at any time upon six months’ written notice prior to NDA approval for ZX002 and at any time upon 12 months’ prior written notice after NDA approval for ZX002.

Aradigm Corporation Asset Purchase Agreement

On August 25, 2006, the Company entered into an asset purchase agreement with Aradigm Corporation (Aradigm). Under the terms of the agreement, Aradigm assigned and transferred to the Company all of its right, title and interest to tangible assets and intellectual property related to the DosePro (formerly known as Intraject) needle-free drug delivery system. Aradigm also granted to the Company a non-exclusive, fully paid, worldwide, perpetual, irrevocable, transferable, sublicensable license under all other intellectual property of Aradigm that was owned, controlled or employed by Aradigm prior to the closing of the asset purchase and that is necessary or useful to the development, manufacture or commercialization of the DosePro delivery system. Aradigm also retained a worldwide, royalty-free, non-exclusive license, with a right to sublicense, under all transferred intellectual property

F-21

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

rights solely for purposes of the pulmonary field, and the Company granted Aradigm a license under other intellectual property rights solely for use in the pulmonary field.

The Company paid Aradigm $4,000,000 at the closing of the asset purchase and was required to make an additional $4,000,000 milestone payment to Aradigm upon the U.S. commercialization of Sumavel DosePro (which payment was made in February 2010). The Company is also required to pay a 3% royalty on global net sales of Sumavel DosePro, by the Company or one of the Company’s future licensees, if any, until the later of January 2020 or the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product. The Company has recorded the second milestone payment as other assets in the balance sheet and is amortizing the milestone over the estimated life of the technology. For the six months ended June 30, 2010, the Company recorded $382,000 of expense related to the amortization of the milestone and royalties from net sales of Sumavel DosePro.

In addition, in the event the Company or one of its future licensees, if any, commercializes a non-sumatriptan product in the DosePro delivery system, the Company will be required to pay Aradigm, at the Company’s election, either a 3% royalty on net sales of each non-sumatriptan product commercialized, or a fixed low-twenties percentage of the royalty revenues received by the Company from the licensee, if any, until the later of the ten year anniversary of the first commercial sale of the product in the United States or the expiration of the last valid claim of the transferred patents covering the manufacture, use or sale of the product. Royalty revenues under this agreement include, if applicable, running royalties on the net sales of non-sumatriptan products, license or milestone fees not allocable to development or other related costs incurred by the Company, payments in consideration of goods or products in excess of their cost, or payments in consideration for equity in excess of the then fair market value of the equity.

4. Balance Sheet Details

Inventory (in thousands)

	December 31,				June 30, 2010
	2008		2009
Raw materials	$	—	$	2,356	$	4,237
Work in process		—		7,838		7,111
Finished goods		—		2,966		4,056
	$	—	$	13,160	$	15,404

Prepaid Expenses and Other Current Assets (in thousands)

	December 31,				June  30, 2010
	2008		2009
Receivable from collaboration partner for shared expenses	$	—	$	1,267	$	—
Prepaid clinical costs		—		454		1,354
Value added tax receivable		590		276		740
Prepaid insurance		130		48		35
Prepaid other		299		743		518
	$	1,019	$	2,788	$	2,647

F-22

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Property and Equipment, Net (in thousands)

	December 31,						June  30, 2010
	2008			2009
Machinery, equipment and tooling	$	5,409		$	9,696		$	9,921
Construction in progress		6,572			4,064			5,069
Computer equipment and software		578			840			1,021
Furniture and fixtures		213			433			545
Leasehold improvements		150			138			762
Property and equipment, at cost		12,922			15,171			17,318
Less accumulated depreciation		(1,172	)		(2,180	)		(2,856	)
	$	11,750		$	12,991		$	14,462

Depreciation expense for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010 was $407,000, $755,000, $1,017,000, $435,000 and $676,000, respectively.

Accrued Expenses (in thousands)

	December 31,				June  30, 2010
	2008		2009
Accrued interest expense	$	301	$	521	$	622
Contract manufacturing fees		—		429		—
Accrued clinical expense		—		386		835
Other accrued expenses		1,137		1,155		1,766
	$	1,438	$	2,491	$	3,223

5. Commitments

Operating Leases

In March 2007, the Company entered into a non-cancelable operating lease that expired in May 2010. This office space is located in San Diego, California and was used for general and administrative and sales and marketing operations and personnel. The office lease, subject to a 3.0% increase each year for the duration of the lease, provided the Company the ability to extend the lease for an additional 17 months upon six months’ prior written notice and an option to expand into additional space. Effective November 2008, the Company relocated its operations and subsequently entered into a sublease agreement with a third party for a term of 35 months. The Company recorded an expense of approximately $54,000 to reflect the exit costs associated with this property, which is reflected in operating expenses in the statement of operations.

Effective October 1, 2009, both the office lease and the sublease were terminated and the Company did not incur any material additional costs associated with the early termination.

In August 2008, the Company entered into a 20-month operating lease for office facilities in San Diego, California commencing on September 1, 2008. Monthly rental payments are adjusted on an annual basis, and the office lease expires, as extended, in July 2011.

F-23

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

The Company also leases office space for its supply chain and inventory management and research and product development operations in Emeryville, California under a non-cancelable operating lease that expires in November 2011. The base rent is subject to a 3.0% increase each year for the duration of the lease. In October 2009, the Company amended the lease in order to acquire adjacent space. Under the terms of the amendment, the lease term was extended to September 2015 and the Company received an option to expand into additional space. The Company also received free rent for two months and a tenant improvement allowance of $305,000.

In August 2009, the Company entered an operating lease agreement to lease up to 95 vehicles. Each vehicle has a lease term of 36 months with a fixed monthly rental payment. As security for the vehicle leases, the lessor required a letter of credit for $200,000, which is collateralized by a certificate of deposit in the same amount.

The Company recognizes rent expense on a straight-line basis over the non-cancelable term of its operating leases. Rent expense for the years ended December 31, 2007, 2008 and 2009 was $316,000, $672,000 and $799,000, respectively.

Future minimum lease payments as of December 31, 2009 are as follows (in thousands):

2010	$	1,463
2011		1,420
2012		1,200
2013		638
2014 and thereafter		954
Total	$	5,675

Manufacturing and Supply Agreements

The Company has a manufacturing services agreement with Patheon UK Limited (Patheon) for the aseptic capsule assembly, filling and inspection, final device assembly and purchasing of Sumavel DosePro, as well as other manufacturing and support services, which agreement expires on October 31, 2013. The Company has manufacturing and supply agreements with several third-party suppliers for the production of key components of Sumavel DosePro, which expire on various dates between 2012 and 2020. As of December 31, 2009, the Company has non-cancellable purchase orders for 2010 totaling approximately $4,139,000 under these arrangements. In addition, the Company is required to pay Patheon a monthly manufacturing fee of £283,000, or approximately $451,000 (based on the exchange rate as of December 31, 2009). As of December 31, 2009, the Company was committed to pay Patheon a total manufacturing fee of £13,033,000, or approximately $20,756,000 (based on the exchange rate as of December 31, 2009), which is payable monthly over the remaining 46 months of the Patheon manufacturing services agreement.

6. Debt

Bridge Loans

In February 2009, the Company entered into a Note and Warrant Purchase Agreement, pursuant to which certain investors agreed to loan the Company up to $14,800,000 (the Bridge Financing). During 2009, the Company drew down the entire $14,800,000 available under the Bridge Financing in four tranches. Outstanding balances under the Bridge Financing accrued interest at a rate of 8% per annum compounded annually. The Company issued to investors in the Bridge Financing subordinated

F-24

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

unsecured convertible promissory notes (Convertible Promissory Notes) under which all the then outstanding principal and interest amounts were due one year from the date of issuance. Upon the occurrence of a Qualified Financing (as defined in the Convertible Promissory Notes), the Convertible Promissory Notes and related accrued interest were convertible into shares issued in conjunction with the Qualified Financing at a conversion rate of $1.10 per share. In September 2009, the Company completed a Qualified Financing with the close of the first tranche of its Series B convertible preferred stock financing (Series B Financing — see Note 7) at which time all the Convertible Promissory Notes and related accrued interest converted into shares of Series B convertible preferred stock.

In connection with the Bridge Financing, the loan investors also received warrant coverage equal to 25% of the shares to which the Convertible Promissory Notes convert, based on the original principal amount of the Convertible Promissory Notes. The warrants are exercisable into the same equity instrument issued in the Qualified Financing and have a seven year term. With the close of the Company’s Series B Financing in September 2009 and the resulting conversion of the Convertible Promissory Notes, the warrants became exercisable into 3,363,619 shares of Series B convertible preferred stock at an exercise price of $1.10 per share.

In addition to warrant coverage, the holders of the Convertible Promissory Notes received the benefit of a deemed conversion price of the Convertible Promissory Notes that was below the estimated fair value of the Series B convertible preferred stock at the time of their conversion. As a result, in 2009, the Company recorded $3,009,000 in interest expense in the statement of operations to reflect the value of this beneficial conversion feature.

Term Debt

In June 2008, the Company entered into and borrowed $18,000,000 under the Oxford Agreement with Oxford and CIT. The obligations under the Oxford Agreement were collateralized by personal property excluding certain intellectual property and all equipment pledged to secure the equipment financing facility described below. The borrowings under the Oxford Agreement bore an interest rate of 9.76%. The monthly repayment schedule included interest only payments for the first 10 months followed by principal and interest payments for the subsequent 36 months. The Oxford Agreement required a final payment of $990,000, in addition to principal repayments, at the loan maturity date. This final payment was being accrued as additional interest expense over the term of the loan.

The Company has the option to prepay the outstanding balance of the term loan in full, subject to a prepayment fee of 3% of the principal amount prepaid and the $990,000 final payment. In the event the Company becomes in default (as defined in the Oxford Agreement) of the Oxford Agreement, the lender has the right under a control agreement to assume control over the Company’s bank accounts, and also has the right to seize and sell the collateral pledge to secure the agreement. The outstanding principal balance of the Oxford Agreement as of December 31, 2009 is $14,441,000. In September 2009, Oxford Finance invested $500,000 in the Company’s Series B convertible preferred stock financing.

The Oxford Agreement was restructured through the Company’s entry into the Amended Oxford Agreement in July and October 2010. Please refer to Note 12 for further discussion.

Equipment Financing

In March 2007, the Company entered into a $10,000,000 master loan and security agreement (GE Agreement) with GE Capital Corporation (GE Capital) for the purpose of financing capital equipment purchases. Each borrowing is under a promissory note repayable in 48 monthly installments based upon a monthly repayment schedule bearing interest at an annual rate determined on the date of borrowing. The first promissory note was executed in March 2007 for $3,500,000 and bears an interest

F-25

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

rate of 10.08%. A second promissory note was executed in December 2007 for $1,000,000 and bears an interest rate of 9.91%. The Company’s ability to make further borrowing under the GE Agreement expired on December 21, 2007. The loan amounts are collateralized by specific manufacturing equipment owned by the Company.

There are no financial covenants under the terms of the GE Agreement; however, GE Capital maintains the right to determine, in its sole discretion, if the Company has experienced a material adverse change in its business and, in that event, require immediate settlement of the outstanding balance of the loan.

The Company has the option to prepay the outstanding balance of the promissory notes in full, subject to a prepayment fee as defined in the GE Agreement. The outstanding principal balance of the GE Agreement as of December 31, 2009 is $1,925,000.

Maturities of long-term debt as of December 31, 2009, are as follows (in thousands):

2010	$	8,332
2011		7,620
2012		3,332
2013		—
2014		—
Total minimum payments		19,284
Less amount representing interest		(2,918	)
Present value of net minimum payments		16,366
Less unamortized discount		(1,030	)
Total long-term debt		15,336
Less current portion		(6,558	)
Long-term portion	$	8,778

Interest expense related to long-term debt for the years ended December 31, 2007, 2008 and 2009 was $377,000, $1,718,000 and $2,712,000, respectively.

7. Convertible Preferred Stock and Stockholders’ Equity

Convertible Preferred Stock

Under the Company’s amended and restated certificate of incorporation, the Company’s convertible preferred stock is issuable in series. The Company’s board of directors is authorized to determine the rights, preferences and terms of each series.

The Company initially recorded each series of convertible preferred stock at their fair values on the dates of issuance, net of issuance costs. A redemption event will only occur upon the liquidation or winding up of the Company, a greater than 50% change of control or sale of substantially all of the assets of the Company. As the redemption event is outside the control of the Company, all shares of convertible preferred stock have been presented outside of permanent equity in accordance with accounting guidance for redeemable securities. Further, the Company has also elected not to adjust the carrying values of the convertible preferred stock to the redemption value of such shares, since it is uncertain whether or when a redemption event will occur. Subsequent adjustments to increase the carrying values will be made when it becomes probable that such redemption will occur.

F-26

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Series A-1 Convertible Preferred Stock Financing

During August 2006, the Company entered into agreements with several investors who collectively purchased 30,775,000 shares of Series A-1 convertible preferred stock (Series A-1) at $1.00 per share for net cash proceeds of approximately $30,000,000 and the conversion of $500,000 in bridge financing. In September and December 2007, the Company sold an additional 38,025,000 shares of Series A-1 to the same group of investors, resulting in net cash proceeds of approximately $38,005,000.

Series A-2 Convertible Preferred Stock Financing

In December 2007, the Company sold 9,090,909 shares of Series A-2 convertible preferred stock (Series A-2) at $1.10 per share to a new investor, resulting in net cash proceeds of approximately $9,937,000.

The December 2007 sale of Series A-1 and Series A-2 was issued at prices per share below the estimated fair value of the underlying common stock. Accordingly, the Company recorded a deemed dividend on the Series A-1 and Series A-2 of $18,360,000 in the statement of operations for the year ended December 31, 2007. This deemed dividend is equal to the number of shares of Series A-1 and Series A-2 sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series A-1 and Series A-2 conversion price per share.

Series B Convertible Preferred Stock Financing

In September 2009, the Company sold 32,689,062 shares of Series B convertible preferred stock (Series B) at $1.10 per share to five existing investors and one new investor. The Company received aggregate net cash proceeds of approximately $34,770,000, which includes proceeds of $14,770,000 received in connection with amounts borrowed under the Convertible Promissory Notes that were converted into shares of Series B. In December 2009, the Company sold an additional 31,818,171 shares of Series B to the same group of investors and one new investor, resulting in net cash proceeds of approximately $34,930,000.

The following is a summary of total gross proceeds raised under the Series A-1, Series A-2 and Series B financings (in thousands):

Series A-1	$	68,800
Series A-2		10,000
Series B		70,958
Total	$	149,758

Right Issued with Series A-1 Convertible Preferred Stock

Included in the terms of the Series A-1 shares were certain rights granted to the holders which obligated the Company to deliver additional shares of convertible preferred stock at a specified price in the future based on the achievement of a milestone or at the option of the investors in the series of convertible preferred shares (the Right). The Right related to the Series A-1 was exercised during 2007. Other income of $906,000 was recorded during 2007 related to the change in the fair value of this Right.

Rights, Preference and Privileges of Convertible Preferred Stock

Under the Company’s amended and restated certificate of incorporation, as of December 31, 2009, the Company is authorized to issue 156,416,317 shares of preferred stock, consisting of 69,000,000

F-27

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

shares of Series A-1, 10,000,000 shares of Series A-2 and 77,416,317 shares of Series B (collectively referred to as “convertible preferred stock”), with a $0.001 par value. The rights, preferences and privileges of the Company’s convertible preferred stock are as follows:

Dividends

The holders of Series A-1, Series A-2 and Series B are entitled to receive noncumulative dividends at a rate of 8.0%, 8.8% and 8.8%, respectively, per annum and are payable only when and if declared by the board of directors. Through December 31, 2009, the board of directors has not declared any dividends. Convertible preferred stock dividends are payable in preference and in priority to any dividends on common stock.

Liquidation Preference

In the event of liquidation, dissolution, or winding up of the Company, the holders of the Series A-1, Series A-2 and Series B shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of shares of common stock, an amount per share equal to $1.00, $1.10 and $1.10, respectively, for each outstanding share of convertible preferred stock (as adjusted for stock splits, stock dividends, combinations or other recapitalizations). Thereafter, if assets remain in the Company, the holders of common stock and convertible preferred stock shall receive all remaining assets pro rata based on the number of common stock (calculated on an as-converted basis) held by each holder. If available assets are insufficient to pay the full liquidation preference, the available assets will be distributed ratably to the holders in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. The aggregate distributions made to the preferred shareholders in a liquidation cannot exceed an amount equal to 2.5 times the liquidation preference plus any declared but unpaid dividends.

Conversion Rights

Each share of convertible preferred stock is convertible at the option of the holder into an equal number of shares of common stock based on the original issue price, subject to certain anti-dilution adjustments. Each share of convertible preferred stock will automatically convert into shares of common stock at the effective conversion price for each such share immediately upon the earlier of (i) the Company’s sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, in which the per share price is at least $3.00 (as adjusted for recapitalizations), and the gross proceeds are at least $40,000,000 or (ii) upon receipt by the Company of a written request of such conversion from the holders of 67% of the then outstanding shares of convertible preferred stock.

Voting Rights

The holders of convertible preferred stock are entitled to one vote for each share of common stock into which such convertible preferred stock could then be converted; and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

Anti-Dilution Provisions

Each share of convertible preferred stock is convertible at the option of the holder into an equal number of shares of common stock based on the original issue price, subject to certain anti-dilution adjustments. These anti-dilution adjustments consist of adjustments for subsequent issuances of common stock or convertible preferred stock to other investors and any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event. For subsequent

F-28

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

issuances of common stock or convertible preferred stock, the Series B conversion price will be adjusted to the issuance price of the new stock, while the Series A-1 and Series A-2 conversion prices will be adjusted based upon a predetermined formula. For all other anti-dilution adjustments, the conversion price will be adjusted proportionally to account for the impact of such adjustment.

Common Stock

Under the Company’s amended and restated certificate of incorporation, as of December 31, 2009, the Company is authorized to issue 183,982,947 shares of common stock with a $0.001 par value. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of convertible preferred stock.

In May and August 2006, in conjunction with the founding of the Company, 11,385,000 shares of common stock were issued to the founders (Founder’s Stock) at a price of $0.001 per share for total proceeds of $11,000. Of the total Founder’s Stock issued, 11,200,000 shares vest over periods between two and four years and the Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. There were 2,391,000, 872,000 and 160,000 unvested shares of common stock at December 31, 2008 and 2009 and June 30, 2010, respectively.

Common stock reserved for future issuance is as follows (in thousands):

	December 31, 2009	June 30, 2010
Conversion of convertible preferred stock	142,398	142,398
Stock options outstanding	8,075	14,784
Warrants to purchase convertible preferred stock (as if converted)	13,886	13,886
Shares authorized for future issuance under the 2006 Plan	148	2,439
	164,507	173,507

8. Convertible Preferred Stock Warrants

In connection with the issuance of the Convertible Promissory Notes from February to July 2009, the Company issued warrants to the lenders to purchase a total of 3,363,619 shares of Series B convertible preferred stock (the Bridge Loan Warrants). The Bridge Loan Warrants have an exercise price of $1.10 and expire between February and July 2016, subject to their earlier termination upon the completion of the Company’s initial public offering and certain mergers, acquisitions and similar transactions. The fair value of the Bridge Loan Warrants was estimated to be $3,009,000 at the date of issuance using the Black-Scholes valuation model. The fair value of the Bridge Loan Warrants was recorded to debt discount and was fully amortized to interest expense upon the conversion of the Convertible Promissory Notes in September 2009.

In connection with the closing of the second tranche of the Series B Financing in December 2009, the Company issued warrants to the participating Series B investors to purchase a total of 9,545,447 shares of Series B convertible preferred stock (the Series B Warrants), which warrants were amended in October 2010 to allow for their current exercisability. The Series B Warrants have an exercise price of $1.10 and expire in December 2016, subject to their earlier termination upon the completion of the Company’s initial public offering and certain mergers, acquisitions and similar transactions.

F-29

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

In connection with the execution of the Oxford Agreement in June 2008, the Company issued warrants to Oxford Finance and CIT Healthcare to purchase 410,227 and 367,046 shares, respectively, of Series A-2 convertible preferred stock (the Series A-2 Warrants). The warrants have an exercise price of $1.10 per share and expire in June 2018. The fair value of the warrants was estimated to be $1,327,000 at the date of issuance using the Black-Scholes valuation model. The fair value of the warrants was recorded to debt discount and is being amortized to interest expense using the effective interest method over the term of the loan.

In connection with the execution of the GE Agreement in March 2007, the Company issued a warrant to GE Capital to purchase 200,000 shares of Series A-1 convertible preferred stock (the Series A-1 Warrants). The warrant has an exercise price of $1.00 per share and expires in March 2014. The fair value of the warrant was estimated to be $151,000 at the date of issuance using the Black-Scholes valuation model. The fair value of the warrant was recorded to debt discount and is being amortized to interest expense using the effective interest method over the term of the loan.

At December 31, 2008 and 2009 and June 30, 2010, the estimated fair value of the Series A-1, Series A-2, and Series B warrants was calculated using the Black-Scholes valuation model resulting in an aggregate carrying value of $467,000, $5,041,000 and $18,061,000, respectively, and was based on the estimated fair value of the convertible preferred stock.

The warrant valuation was based on the following inputs:

	December 31,
	2008	2009	June 30, 2010
Assumed volatility	85.0%	84.0% to 98.3%	80.8% to 85.5%
Expected life (years)	5.2 to 9.5	4.2 to 8.5	3.7 to 8.0
Assumed risk-free interest rate	1.5% to 2.4%	2.2% to 3.6%	1.4% to 2.7%
Expected dividend yield	0%	0%	0%

The following is a summary of warrants outstanding as of December 31, 2009 and June 30, 2010:

	# of Shares	Exercise Price
Series A-1	200,000	$	1.00
Series A-2	777,273	$	1.10
Series B	12,909,066	$	1.10
Total	13,886,339

9. Stock Option Plan

During 2006, the Company adopted the 2006 Equity Incentive Award Plan (as amended, the 2006 Plan) under which 11,340,000 shares of common stock were reserved for issuance to employees, directors and consultants of the Company at December 31, 2009. The 2006 Plan provides for the grant of incentive stock options, non-qualified stock options and rights to purchase restricted stock to eligible recipients. Recipients of stock options shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2006 Plan is ten years. At December 31, 2009 and June 30, 2010, 148,000 and 2,439,000 shares of common stock were available for future issuance under the 2006 Plan, respectively.

F-30

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

The 2006 Plan is intended to encourage ownership of stock by employees, consultants and non-employee directors of the Company and to provide additional incentives for them to promote the success of the Company’s business. The board of directors is responsible for determining the individuals to receive equity grants, the number of shares subject to each grant, the exercise price per share and the exercise period of each option. Options granted pursuant to the 2006 Plan generally vest over four years and vest at a rate of 25% upon the first anniversary of the vesting commencement date and 1/48th per month thereafter. The 2006 Plan allows the option holders to exercise their options early and acquire option shares, which are then subject to repurchase by the Company at the original exercise price of such options. At December 31, 2008 and 2009 and June 30, 2010 there were 1,210,000, 1,023,000 and 358,000, respectively, of unvested shares of common stock issued to employees of the Company in connection with the early exercise of stock option grants which the Company has recorded as a liability in the accompanying balance sheets.

Information with respect to the number and weighted average exercise price of stock options under the 2006 Plan is summarized as follows (number of shares in thousands):

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2008	5,817		$	0.26
Granted	3,460			0.25
Exercised	(977	)		0.10
Canceled/Forfeited	(225	)		0.37
Outstanding at December 31, 2009	8,075		$	0.27	8.96	$	769
Granted	6,823			0.40
Exercised	—			—
Canceled/Forfeited	(114	)		0.37
Outstanding at June 30, 2010	14,784		$	0.33	6.51	$	15,080
Vested and Exercisable at June 30, 2010	3,778		$	0.25	8.17	$	4,139

The intrinsic values above represent the aggregate value of the total pre-tax intrinsic value based upon a common stock price of $0.36 and $1.35 at December 31, 2009 and June 30, 2010, respectively, and the contractual exercise prices. At December 31, 2009, the weighted average fair value of options outstanding was $0.23 per share.

	Year Ended December 31,
	2007		2008		2009
Weighted average grant date fair value	$	0.25	$	0.68	$	0.33
Total fair value of shares vested	$	67,000	$	159,000	$	414,000

F-31

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model for determining the estimated fair value and stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model are as follows:

	Year Ended December 31,			Six Month Ended June 30,
	2007	2008	2009	2009	2010
Risk-free interest rate	3.5% to 4.8%	2.7% to 3.2%	2.3% to 2.8%	—	2.0% to 2.3%
Expected term	1.0 to 6.1 years	5.0 to 6.1 years	5.0 to 6.1 years	—	5.0 to 5.9 years
Expected volatility	64.4% to 78.1%	80.6% to  86.0%	105.6% to 107.6%	—	94.6% to 95.7%
Expected dividend yield	0.0%	0.0%	0.0%	—	0.0%
Fair value of underlying stock	$0.05 to $1.60	$0.35 to $1.91	$0.32 to $0.36	—	$1.35

The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the historical volatility of comparable companies whose share prices are publicly available.

Historically, the fair value of the Company’s common stock has been determined contemporaneously by the Company’s board of directors on the date of grant. At the time of the issuances of stock options, the Company believed its estimates of the fair value of its common stock were reasonable and consistent with methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, and the Company’s understanding of how similarly situated companies in its industry were valued. In August 2010, the Company commenced the initial public offering process. In connection with the preparation of the financial statements necessary for inclusion in the registration statement related to this offering, the Company reassessed the estimated fair value of its common stock for financial reporting purposes for each quarter in 2009 and 2010. The reassessment included both the determination of the appropriate valuation models and related inputs. For the reassessed periods prior to June 30, 2010, the Company did not forecast or anticipate a liquidity event in the near term and, as such, utilized the option pricing method. These reassessments did not result in any significant difference in the estimated fair value of the common stock from those estimated by the Company’s contemporaneous valuations. As a result of the greater clarity available to the Company to define likely outcomes and the proximity to a liquidity event (i.e., this offering), the Company concluded that the probability weighted expected return method (PWERM) was more appropriate than the previously used option pricing model and provided a more refined estimate of the likely value of the Company’s common stock as of June 30, 2010. The type and timing of each potential liquidity event for the June 30, 2010 valuation was heavily influenced by the commencement of the initial public offering process while each prior reassessed valuation was based on the Company’s estimate of type and timing of liquidity event at that time. The reassessed fair value of the Company’s common stock as of June 30, 2010 was estimated to be $1.35 per share, an increase of $0.95 per share from the $0.40 fair value determined in good faith by the Company’s board of directors for option grants during the quarter ended June 30, 2010.

F-32

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

The Company recognized stock-based compensation expense as follows (in thousands):

	Year Ended December 31,						Six Months Ended June 30,
	2007		2008		2009		2009		2010
Cost of sales	$	—	$	—	$	—	$	—	$	41
Research and development		45		227		310		156		141
Selling, general and administrative		86		692		716		315		657
Total	$	131	$	919	$	1,026	$	471	$	839

The aggregate intrinsic value of options exercised for the years ended December 31, 2007, 2008 and 2009 was approximately $202,000, $17,000 and $256,000, respectively. As of December 31, 2009, there was approximately $2,850,000 of total unrecognized compensation costs related to outstanding options, which is expected to be recognized over a weighted average period of 2.35 years.

At December 31, 2009, all consultant stock options outstanding were vested. In accordance with accounting guidance for stock-based compensation, the Company periodically re-measured the fair value of stock option grants to non-employees and recognized the related income or expense during their vesting period. Expense recognized for consultant stock options was immaterial for the years ended December 31, 2007, 2008 and 2009, respectively. Consultant stock option expense is included within research and development expense in the statement of operations.

10. Employee Benefit Plan

Effective February 1, 2007, the Company has established a defined contribution 401(k) plan (the Plan) for all employees who are at least 21 years of age. Employees are eligible to participate in the Plan beginning on the first day of the month following one month of employment. Under the terms of the Plan, employees may make voluntary contributions as a percentage of compensation. The Company’s contributions to the Plan are discretionary, and no contributions have been made by the Company to date.

11. Income Taxes

In July 2006, the FASB issued a new accounting standard which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes to financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under this guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, this standard provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company adopted this new accounting standard on January 1, 2009. There were no unrecognized tax benefits as of the date of adoption, and there are no unrecognized tax benefits included in the balance sheets at December 31, 2008 and 2009, that would, if recognized, affect the effective tax rate.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrued interest or penalties on the balance sheets at

F-33

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

December 31, 2008 and 2009 and has recognized no interest and/or penalties in the statements of operations through the year ended December 31, 2009.

The Company is subject to taxation in the U.S. and state jurisdictions. The Company’s tax years for 2006 and forward can be subject to examination by the United States and state tax authorities due to the carry forward of net operating losses.

At December 31, 2009, the Company had federal and California income tax net operating loss carryforwards of approximately $108,355,000 and $105,069,000, respectively. The federal tax loss carryforwards will begin expiring in 2026 unless previously utilized, and the California tax loss carryforwards will begin expiring in 2016 unless previously utilized. In addition, the Company has federal and California research and development income tax credit carryforwards of $884,000 and $921,000, respectively. The federal research and development income tax credit carryforwards will begin to expire in 2026 unless previously utilized. The California research and development income tax credit carryforwards will carry forward indefinitely until utilized.

The Company has completed an analysis under Internal Revenue Service Code (IRC) Sections 382 and 383 to determine if the Company’s net operating loss carryforwards and research and development credits are limited due to a change an ownership. The Company has determined that as of December 31, 2009 the Company had one ownership change, as defined by IRC Sections 382 and 383, which occurred in August 2006 upon the issuance of the Series A-1 shares. As a result of this ownership change, the Company has reduced its net operating loss carryforwards by $1,900,000 and research and development income tax credits by $8,000. Pursuant to IRC Section 382 and 383, use of the Company’s net operating loss and research and development income tax credit carryforwards may be limited in the event of a future cumulative change in ownership of more than 50% within a three-year period.

Significant components of the Company’s deferred tax assets as of December 31, 2009 and 2008 are listed below. A valuation allowance of $47,195,000 and $32,141,000 for the years ended December 31, 2009 and 2008, respectively, has been established to offset the deferred tax assets as realization of such assets is uncertain. The components of the deferred tax assets are as follows (in thousands):

	December 31,
	2008			2009
Deferred tax assets:
Net operating losses	$	29,938		$	42,971
Research and development		1,031			1,489
Depreciation and amortization		646			348
Start-up/organization costs		168			153
Accrued vacation		157			242
Deferred rent		75			40
Inventory reserve and UNICAP		—			1,515
Accrued expenses		77			335
Other, net		49			102
Total deferred tax assets		32,141			47,195
Less valuation allowance		(32,141	)		(47,195	)
Net deferred tax assets	$	—		$	—

F-34

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

12. Subsequent Events

The Company has evaluated all subsequent events through the filing date of its registration statement on Form S-1 with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of June 30, 2010, and events which occurred subsequently but were not recognized in the financial statements. Except as described below, there were no other subsequent events which required recognition or disclosure in the financial statements.

In July and October 2010, the Company amended and restated the Oxford Agreement with Oxford and CIT and Oxford and Silicon Valley Bank are now party to the Amended Oxford Agreement. The Amended Oxford Agreement consists of a $25,000,000 term loan and a $10,000,000 revolving credit facility. The obligations under the Amended Oxford Agreement are collateralized by the Company’s personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash) but excluding, among other things, copyrights, patents, patent applications, trademarks, service marks, trade secret rights and equipment pledged to secure the GE Capital facility. The Amended Oxford Agreement includes financial covenants relating to the Company’s performance against revenue projections and was conditioned on the Company completing a subordinated debt financing of at least $15,000,000 in conjunction with the closing of the Amended Oxford Agreement (see discussion below), and additionally requires as the Company to complete an equity or subordinated debt financing of at least $10,000,000 prior to November 30, 2010.

The $25,000,000 term loan bears an interest rate of 12.06% per annum. The monthly repayment schedule includes interest only payments for the first 12 months followed by principal and interest payments for the subsequent 30 months. The term loan requires a final payment of $1,200,000, in addition to principal repayments, at the loan maturity date, which is January 1, 2014. The Company has the option to prepay the outstanding balance of the term loan in full, subject to the $1,200,000 final payment and a prepayment fee of either 2% or 3% of the principal amount prepaid depending upon when the prepayment occurs.

Under the terms of the revolving credit facility, the Company may borrow up to $10,000,000 based on eligible accounts receivable and inventory balances, as defined within the Amended Oxford Agreement. Amounts outstanding under the revolving credit facility accrue interest, payable monthly, at a floating rate per annum equal to the greater of 3.29% above Silicon Valley Bank’s prime rate or 7.29%. In addition, the Company pays a monthly fee equal to 0.5% per annum of the average unused portion of the revolving credit facility. The revolving credit facility requires a final payment of $100,000, in addition to principal and interest repayments, at the loan maturity date. The Company has the option to terminate the revolving credit facility prior to the loan maturity date and repay the outstanding balance in full, subject to a termination fee between $100,000 and $300,000 depending upon when the termination occurs.

In connection with the Amended Oxford Agreement, $12,757,000 of proceeds borrowed was used to repay the outstanding balance of the Oxford Agreement consisting of principal, accrued interest, prepayment fee and contractual settlement fee.

The Company also issued warrants to Oxford and Silicon Valley Bank to purchase 1,145,455 and 445,455 shares, respectively, of Series B convertible preferred stock at an exercise price of $1.10 per share, which both can be adjusted based upon the terms of the warrant agreement. The warrants expire upon the earlier of the tenth anniversary of the issuance date or five years following the effective date of the Company’s initial public offering. In accordance with accounting guidance for warrants for shares in redeemable securities, the Company will classify these warrants for convertible preferred stock as liabilities on the balance sheet. The Company will adjust the carrying value of these convertible

F-35

Zogenix, Inc.

Notes to Consolidated Financial Statements — (Continued)

preferred stock warrants to their estimated fair value at each reporting date with the increases or decreases in the fair value of such warrants recorded as change in fair value of warrant liability in the statement of operations. The fair value of the warrants will be recorded to debt discount and amortized to interest expense using the effective interest method over the term of the loan.

Concurrently with and as required by the Amended Oxford Agreement, the Company entered into a Note Purchase Agreement, pursuant to which the Company borrowed an aggregate of $15,000,000 from certain existing investors. Outstanding balances under the Note Purchase Agreement accrue interest at a rate of 8% per annum. The Company issued its investors subordinated unsecured convertible promissory notes (2010 Notes) under which all the then outstanding principal and interest amounts are due one year from the date of issuance. The principal amount of the 2010 Notes and accrued interest thereon will automatically convert into shares of the Company’s common stock upon completion of the Company’s IPO at a conversion price equal to the Company’s IPO price. If a deemed liquidation event (as defined in the Company’s amended and restated certificate of incorporation) occurs prior to the completion of the IPO, the holders of the 2010 Notes may elect to (i) receive the repayment of the notes or (ii) convert the notes into shares of Series B convertible preferred stock at a conversion rate of $1.10 per share.

In October 2010, the Company amended the Series B Warrants and such warrants are now exercisable to purchase an aggregate of 9,545,447 shares of Series B convertible preferred stock.

F-36

                    Shares

Common Stock

PROSPECTUS

                    , 2010

Wells Fargo Securities

Leerink Swann

Oppenheimer & Co.

Stifel Nicolaus Weisel

Through and including                     , 2010 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the fees and expenses, other than underwriting discounts and commissions, payable by us in connection with the offering described in this Registration Statement. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the Nasdaq Global Market listing fee.

Item	Amount to be paid
SEC Registration Fee	$	2,785
FINRA Filing Fee		875
Nasdaq Global Market Listing Fee		125,000
Legal Fees and Expenses		*
Accounting Fees and Expenses		*
Printing and Engraving Expenses		*
Blue Sky Qualification Fees and Expenses		*
Transfer Agent and Registrar Fees		*
Miscellaneous Expenses		*
Total	$	*

* To be completed by amendment.

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers from certain expenses in connection with legal proceedings and permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law.

Our amended and restated certificate of incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law.

Our amended and restated bylaws provide for the indemnification of officers, directors and third parties acting on our behalf if such persons act in good faith and in a manner reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, such indemnified party had no reason to believe his or her conduct was unlawful.

We are entering into indemnification agreements with each of our directors and executive officers, in addition to the indemnification provisions provided for in our charter documents, and we intend to enter into indemnification agreements with any new directors and executive officers in the future.

The underwriting agreement (to be filed as Exhibit 1.1 hereto) will provide for indemnification by the underwriters of us, specified officers and our directors, and indemnification of the underwriters by us, for certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, in connection with matters specifically provided in writing by the underwriters for inclusion in the registration statement and prospectus.

We intend to purchase and maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in that capacity, subject to certain exclusions and limits of the amount of coverage.

II-1

Item 15. Recent Sales of Unregistered Securities

In the three years preceding the filing of this registration statement, we have issued and sold the following unregistered securities:

1. In September and December 2007, we issued and sold an aggregate of 38,025,000 shares of Series A-1 convertible preferred stock to certain venture capital funds and individual investors at a per share price of $1.00, for aggregate consideration of $38.0 million. Upon completion of this offering, these shares of Series A-1 convertible preferred stock will convert into 38,025,000 shares of our common stock.

2. In March 2007, as consideration for entering into a debt facility, we issued warrants to a lender exercisable for an aggregate of 200,000 shares of our Series A-1 convertible preferred stock at an initial exercise price of $1.00 per share. Upon completion of this offering, these warrants will become exercisable for an aggregate of 200,000 shares of our common stock at an exercise price of $1.00 per share.

3. In December 2007, we issued and sold an aggregate of 9,090,909 shares of Series A-2 convertible preferred stock to certain venture capital funds at a per share price of $1.10, for aggregate consideration of approximately $10.0 million. Upon completion of this offering, these shares of Series A-2 convertible preferred stock will convert into 9,090,909 shares of our common stock.

4. In June 2008, as consideration for entering into a debt facility, we issued warrants to two lenders exercisable for an aggregate of 777,273 shares of our Series A-2 convertible preferred stock at an initial exercise price of $1.10 per share. Upon completion of this offering, these warrants will become exercisable for an aggregate of 777,273 shares of our common stock at an exercise price of $1.10 per share.

5. Between February and July 2009, we issued and sold an aggregate of $14.8 million in principal amount of convertible promissory notes to certain venture capital funds. These notes and the $457,969 of accrued interest thereon were subsequently converted into 13,454,546 and 416,335 shares of Series B convertible preferred stock, respectively, in September 2009. Upon completion of this offering, these shares of Series B convertible preferred stock will convert into an aggregate of 13,870,881 shares of our common stock. In connection with the issuance of these notes, for consideration equal to 0.01% of the principal amount of these notes, we issued warrants which are exercisable for an aggregate of 3,363,619 shares of Series B convertible preferred stock at an initial exercise price per share of $1.10. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of              shares of common stock assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.

6. In September and December 2009, we issued and sold an aggregate of 64,507,233 shares of Series B convertible preferred stock to certain venture capital funds and to one of our lenders at a per share price of $1.10 per share (inclusive of the shares of Series B convertible preferred stock issued upon the conversion of the promissory notes referred to in number 5 above), for aggregate consideration of approximately $71.0 million. Upon completion of this offering, these shares of Series B convertible preferred stock will convert into an aggregate of 64,507,233 shares of our common stock. We also issued and sold warrants exercisable for an aggregate of 9,545,447 shares of Series B convertible preferred stock at an initial exercise price per share of $1.10, for aggregate consideration of approximately $4,200. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of              shares of common stock assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover

II-2

page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.

7. In July 2010, as consideration for entering into a debt facility, we issued warrants to two lenders exercisable for an aggregate of 1,590,910 shares of our Series B convertible preferred stock at an initial exercise price of $1.10 per share. Upon completion of this offering, these warrants will become exercisable for an aggregate of 1,590,910 shares of our common stock at an exercise price of $1.10 per share.

8. In July 2010, we issued and sold an aggregate of $15.0 million in principal amount of convertible promissory notes to certain venture capital funds. Upon completion of this offering, these notes (including the interest thereon) will convert into              shares of our common stock, assuming an initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this preliminary prospectus) and assuming a conversion date of                      2010.

9. From January 1, 2007 through June 30, 2010, we granted stock options to purchase 21,460,500 shares of our common stock at a weighted average exercise price of $0.39 per share to our employees, consultants and directors under our 2006 equity incentive plan. From January 1, 2007 through June 30, 2010, we issued and sold an aggregate of 3,117,500 shares of our common stock to our employees, consultants, and directors at a weighted average exercise price of $0.07 per share pursuant to exercises of options granted under our 2006 equity incentive plan.

The issuance of securities described above in paragraphs (1) through (8) were exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder, as transactions by an issuer not involving any public offering. The purchasers of the securities in these transactions represented that they were accredited investors or qualified institutional buyers and they were acquiring the securities for investment only and not with a view toward the public sale or distribution thereof. Such purchasers received written disclosures that the securities had not been registered under the Securities Act of 1933, as amended, and that any resale must be made pursuant to a registration statement or an available exemption from registration. All purchasers either received adequate financial statement or non-financial statement information about the registrant or had adequate access, through their relationship with the registrant, to financial statement or non-financial statement information about the registrant. The sale of these securities was made without general solicitation or advertising.

The issuance of securities described above in paragraph (9) was exempt from registration under the Securities Act of 1933, as amended, in reliance on Rule 701 of the Securities Act of 1933, as amended, pursuant to compensatory benefit plans approved by the registrant’s board of directors.

All certificates representing the securities issued in these transactions described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters employed in connection with any of the transactions set forth in this Item 15.

II-3

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

Exhibit Number	Description
1.1*	Form of Underwriting Agreement
3.1(1)	Fourth Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
3.2(1)	Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Registrant
3.3(1)	Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Registrant
3.4(1)	Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Registrant
3.5*	Form of Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering
3.6(1)	Bylaws of the Registrant, as currently in effect
3.7*	Form of Amended and Restated Bylaws of the Registrant, to be in effect upon completion of the offering
4.1*	Form of the Registrant’s Common Stock Certificate
4.2(1)	Third Amended and Restated Investors’ Rights Agreement dated December 2, 2009
4.3(1)	Amendment to Third Amended and Restated Investors’ Rights Agreement dated as of July 1, 2010
4.4(1)	Warrant dated March 5, 2007 issued by the Registrant to General Electric Capital Corporation
4.5(1)	Warrant dated June 30, 2008 issued by the Registrant to Oxford Finance Corporation
4.6(1)	Warrant dated June 30, 2008 issued by the Registrant to CIT Healthcare LLC (subsequently transferred to The CIT Group/Equity Investments, Inc.)
4.7(1)	Transfer of Warrant dated March 24, 2009 from CIT Healthcare LLC to The CIT Group/Equity Investments, Inc.
4.8(1)	Form of Warrant issued to investors in the Registrant’s February 2009 bridge financing
4.9†(1)	Form of Warrant issued to investors in the Registrant’s December 2009 Series B preferred stock financing
4.10	Amendment to Warrants dated October 7, 2010 issued to investors in the Registrant’s December 2009 Series B preferred stock financing
4.11(1)	Warrant dated July 1, 2010 issued by the Registrant to Oxford Finance Corporation
4.12(1)	Warrant dated July 1, 2010 issued by the Registrant to Silicon Valley Bank
5.1*	Opinion of Latham & Watkins LLP
10.1*	Form of Director and Executive Officer Indemnification Agreement
10.2#(1)	Form of Executive Officer Employment Agreement
10.3#(1)	2006 Equity Incentive Plan, as amended, and form of option agreement thereunder
10.4#*	Independent Director Compensation Policy
10.5#*	2010 Equity Incentive Award Plan and form of option agreement thereunder
10.6#*	2010 Employee Stock Purchase Plan and form of Offering document thereunder

II-4

Exhibit Number	Description
10.7#(1)	Executive Officer Employment Agreement dated March 1, 2010 by and between the Registrant and Ann D. Rhoads
10.8†(1)	Supply Agreement dated September 29, 2004 by and among the Registrant, Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories Limited
10.9†(1)	Asset Purchase Agreement dated August 25, 2006 by and between the Registrant and Aradigm Corporation
10.10(1)	Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.11(1)	First Amendment to Lease dated July 10, 2007 by and between the Registrant and Emery Station Joint Venture, LLC
10.12(1)	Second Amendment to Lease dated October 20, 2009 by and between the Registrant and Emery Station Joint Venture, LLC
10.13†(1)	Master Loan and Security Agreement dated March 5, 2007 by and between the Registrant and General Electric Capital Corporation
10.14	Consent to Assignment Agreement dated August 29, 2008 between the Registrant, R.B. Income Properties and Verus Pharmaceuticals, Inc. and related Lease dated February 2, 2005 by and between R.B. Income Properties and Verus Pharmaceuticals, Inc. and amendment thereto dated August 28, 2008
10.15†(1)	License Agreement dated November 27, 2007 by and between the Registrant and Elan Pharma International Limited
10.16†(1)	First Amendment to License Agreement dated September 28, 2009 by and between the Registrant and Elan Pharma International Limited
10.17†(1)	Licensing and Distribution Agreement dated March 14, 2008 by and between the Registrant and Desitin Arzneimittel GmbH
10.18†(1)	Manufacturing Services Agreement dated November 1, 2008 by and between the Registrant and Patheon U.K. Ltd.
10.19†(1)	Commercial Manufacturing and Supply Agreement dated April 1, 2009 by and between the Registrant and MGlas AG
10.20†(1)	Co-Promotion Agreement dated July 31, 2009 by and between the Registrant and Astellas Pharma US, Inc.
10.21†(1)	Wholesale Purchase Agreement dated December 16, 2009 by and between the Registrant and various affiliates of Cardinal Health, Inc.
10.22†(1)	Developing Suppliers Program Distribution Services Agreement dated January 1, 2010 by and between the Registrant and various affiliates of Cardinal Health, Inc.
10.23†(1)	Strategic Redistribution Center and Core Distribution Agreement dated December 28, 2009 by and between the Registrant and McKesson Corporation
10.24#	General Release of Claims dated February 26, 2010 by and between the Registrant and David W. Nassif
10.25†	Second Amended and Restated Loan and Security Agreement dated October 8, 2010 by and between the Registrant, Oxford Finance Corporation and Silicon Valley Bank
10.26#	General Release of Claims dated August 13, 2010 by and between the Registrant and Jennifer D. Haldeman
10.27#†	Consulting Agreement dated March 1, 2010 by and between the Registrant and David W. Nassif

II-5

Exhibit Number	Description
23.1	Consent of Ernst & Young LLP, independent registered public accounting firm
23.2*	Consent of Latham & Watkins LLP (included in Exhibit 5.1)
24.1(1)	Power of Attorney

* To be filed by amendment.

(1) Filed with the Registrant’s Registration Statement on Form S-1 on September 3, 2010.

† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from the Registration Statement and submitted separately to the Securities and Exchange Commission.

# Indicates management contract or compensatory plan.

(b) Financial Statement Schedules

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

We hereby undertake that:

(a) We will provide to the underwriters at the closing as specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from a form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.

(c) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, Zogenix, Inc. has duly caused this Amendment No. 1 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in San Diego, California on the 12th day of October, 2010.

ZOGENIX, INC.
By:	/S/ ROGER L. HAWLEY
	Roger L. Hawley
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/S/ ROGER L. HAWLEY     Roger L. Hawley	Chief Executive Officer and Director (Principal Executive Officer)	October 12, 2010
/S/ ANN D. RHOADS     Ann D. Rhoads	Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)	October 12, 2010
* Cam L. Garner	Chairman of the Board	October 12, 2010
* James C. Blair, Ph.D.	Director	October 12, 2010
* Louis C. Bock	Director	October 12, 2010
* Stephen J. Farr, Ph.D.	President, Chief Operating Officer and Director	October 12, 2010
* Ken Haas	Director	October 12, 2010
* Erle T. Mast	Director	October 12, 2010
* Arda M. Minocherhomjee, Ph.D.	Director	October 12, 2010
* Kurt C. Wheeler	Director	October 12, 2010
* Alex Zisson	Director	October 12, 2010

* By:	/S/ ROGER L. HAWLEY
	Roger L. Hawley
	Attorney-in-Fact

II-7

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement
3.1(1)	Fourth Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
3.2(1)	Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Registrant
3.3(1)	Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Registrant
3.4(1)	Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of the Registrant
3.5*	Form of Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering
3.6(1)	Bylaws of the Registrant, as currently in effect
3.7*	Form of Amended and Restated Bylaws of the Registrant, to be in effect upon completion of the offering
4.1*	Form of the Registrant’s Common Stock Certificate
4.2(1)	Third Amended and Restated Investors’ Rights Agreement dated December 2, 2009
4.3(1)	Amendment to Third Amended and Restated Investors’ Rights Agreement dated as of July 1, 2010
4.4(1)	Warrant dated March 5, 2007 issued by the Registrant to General Electric Capital Corporation
4.5(1)	Warrant dated June 30, 2008 issued by the Registrant to Oxford Finance Corporation
4.6(1)	Warrant dated June 30, 2008 issued by the Registrant to CIT Healthcare LLC (subsequently transferred to The CIT Group/Equity Investments, Inc.)
4.7(1)	Transfer of Warrant dated March 24, 2009 from CIT Healthcare LLC to The CIT Group/Equity Investments, Inc.
4.8(1)	Form of Warrant issued to investors in the Registrant’s February 2009 bridge financing
4.9†(1)	Form of Warrant issued to investors in the Registrant’s December 2009 Series B preferred stock financing
4.10	Amendment to Warrants dated October 7, 2010 issued to investors in the Registrant’s December 2009 Series B preferred stock financing
4.11(1)	Warrant dated July 1, 2010 issued by the Registrant to Oxford Finance Corporation
4.12(1)	Warrant dated July 1, 2010 issued by the Registrant to Silicon Valley Bank
5.1*	Opinion of Latham & Watkins LLP
10.1*	Form of Director and Executive Officer Indemnification Agreement
10.2#(1)	Form of Executive Officer Employment Agreement
10.3#(1)	2006 Equity Incentive Plan, as amended, and form of option agreement thereunder
10.4#*	Independent Director Compensation Policy
10.5#*	2010 Equity Incentive Award Plan and form of option agreement thereunder
10.6#*	2010 Employee Stock Purchase Plan and form of Offering document thereunder
10.7#(1)	Executive Officer Employment Agreement dated March 1, 2010 by and between the Registrant and Ann D. Rhoads
10.8†(1)	Supply Agreement dated September 29, 2004 by and among the Registrant, Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories Limited
10.9†(1)	Asset Purchase Agreement dated August 25, 2006 by and between the Registrant and Aradigm Corporation

Exhibit Number	Description
10.10(1)	Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.11(1)	First Amendment to Lease dated July 10, 2007 by and between the Registrant and Emery Station Joint Venture, LLC
10.12(1)	Second Amendment to Lease dated October 20, 2009 by and between the Registrant and Emery Station Joint Venture, LLC
10.13†(1)	Master Loan and Security Agreement dated March 5, 2007 by and between the Registrant and General Electric Capital Corporation
10.14	Consent to Assignment Agreement dated August 29, 2008 between the Registrant, R.B. Income Properties and Verus Pharmaceuticals, Inc. and related Lease dated February 2, 2005 by and between R.B. Income Properties and Verus Pharmaceuticals, Inc. and amendment thereto dated August 28, 2008
10.15†(1)	License Agreement dated November 27, 2007 by and between the Registrant and Elan Pharma International Limited
10.16†(1)	First Amendment to License Agreement dated September 28, 2009 by and between the Registrant and Elan Pharma International Limited
10.17†(1)	Licensing and Distribution Agreement dated March 14, 2008 by and between the Registrant and Desitin Arzneimittel GmbH
10.18†(1)	Manufacturing Services Agreement dated November 1, 2008 by and between the Registrant and Patheon U.K. Ltd.
10.19†(1)	Commercial Manufacturing and Supply Agreement dated April 1, 2009 by and between the Registrant and MGlas AG
10.20†(1)	Co-Promotion Agreement dated July 31, 2009 by and between the Registrant and Astellas Pharma US, Inc.
10.21†(1)	Wholesale Purchase Agreement dated December 16, 2009 by and between the Registrant and various affiliates of Cardinal Health, Inc.
10.22†(1)	Developing Suppliers Program Distribution Services Agreement dated January 1, 2010 by and between the Registrant and various affiliates of Cardinal Health, Inc.
10.23†(1)	Strategic Redistribution Center and Core Distribution Agreement dated December 28, 2009 by and between the Registrant and McKesson Corporation
10.24#	General Release of Claims dated February 26, 2010 by and between the Registrant and David W. Nassif
10.25†	Second Amended and Restated Loan and Security Agreement dated October 8, 2010 by and between the Registrant, Oxford Finance Corporation and Silicon Valley Bank
10.26#	General Release of Claims dated August 13, 2010 by and between the Registrant and Jennifer D. Haldeman
10.27#†	Consulting Agreement dated March 1, 2010 by and between the Registrant and David W. Nassif
23.1	Consent of Ernst & Young LLP, independent registered public accounting firm
23.2*	Consent of Latham & Watkins LLP (included in Exhibit 5.1)
24.1(1)	Power of Attorney

* To be filed by amendment.

(1) Filed with the Registrant’s Registration Statement on Form S-1 on September 3, 2010.

† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from the Registration Statement and submitted separately to the Securities and Exchange Commission.

# Indicates management contract or compensatory plan.

EX-4.10

Exhibit 4.10

ZOGENIX, INC.

AMENDMENT TO WARRANTS

THIS AMENDMENT TO WARRANTS (this “Amendment”) is made and entered into as of October 7, 2010 by and among Zogenix, Inc., a Delaware corporation (the “Company”), and the investors (the “Investors”) holding Warrants (the “Warrants”) issued pursuant to that certain Amended and Restated Series B Preferred Stock Purchase Agreement dated December 2, 2009 by and among the Company and the persons and entities listed on the Schedule of Investors thereto.

WHEREAS, the Company and the Investors have determined that it is in their mutual interests to amend the Warrants as hereinafter set forth; and

WHEREAS, pursuant to their terms the Warrants may be amended and the observance of any term thereof may be waived with the written consent of the Company and the holders of sixty-seven percent (67%) of the shares issuable upon exercise of the Warrants.

NOW, THEREFORE, in consideration of the foregoing, the undersigned Investors hereby agree with the Company as follows:

1. Amendment to Warrants. Section 2.3 of the Warrants is hereby amended and restated in its entirety to read as follows:

“2.3 Term; Method of Exercise.

2.3.1 Term. Subject to the terms hereof, this Warrant may be exercised, in whole or in part, at any time after the date hereof and prior to 5:00 p.m. (Pacific Time) on the close of business on December 2, 2016 (the “Exercise Period”), unless sooner terminated as set forth in Section 6.3 below.

2.3.2 Method of Exercise. This Warrant is exercisable during the Exercise Period with respect to any or all of the Shares, at the option of Holder, upon surrender of this Warrant to the Company together with (a) a duly completed (i) Notice of Exercise, in the form attached hereto as Exhibit A, or (ii) Net Issue Election Notice, in the form attached hereto as Exhibit B and (b) payment of an amount equal to the Exercise Price multiplied by the number of Shares with respect to which this Warrant is being exercised as provided in Section 2.4 below. If Holder exercises this Warrant with respect to less than all of the Shares represented by this Warrant, the Company shall cancel this Warrant upon the surrender thereof and shall execute and deliver to Holder a new Warrant for the balance of such Shares.”

2. No Other Amendment. Except for the matters set forth in this Amendment, all other terms of the Warrants shall remain unchanged and in full force and effect.

3. Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to its conflicts of laws principles.

4. Counterparts. This Amendment may be executed in one or more counterparts, each of which will be deemed an original but all of which together shall constitute one and the same instrument.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties have executed this Amendment to Warrants as of the date first written above.

COMPANY:

ZOGENIX, INC.

a Delaware corporation

/s/ Ann D. Rhoads

Ann D. Rhoads

Executive Vice President and Chief Financial

Officer

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

INVESTORS:
DOMAIN PARTNERS VII, L.P.
By:	One Palmer Square Associates VII, L.L.C., its General Partner
By:	/s/ Kathleen K. Schoemaker
	Kathleen K. Schoemaker Managing Member
DP VII ASSOCIATES, L.P.
By:	One Palmer Square Associates VII, L.L.C., its General Partner
By:	/s/ Kathleen K. Schoemaker
	Kathleen K. Schoemaker Managing Member

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

INVESTORS:
SCALE VENTURE PARTNERS II, LP
By:	Scale Venture Management II, LLC its General Partner
By:	/s/ Louis C. Bock
	Louis C. Bock Managing Director

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

INVESTORS:
ABINGWORTH BIOVENTURES IV LP acting by:     Its manager Abingworth Management Ltd
By:	/s/ James Abell
Name:	James Abell
Title:	Director
ABINGWORTH BIOVENTURES IV EXECUTIVES LP acting by:     Its manager Abingworth Management Ltd
By:	/s/ James Abell
Name:	James Abell
Title:	Director

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

INVESTORS:
TMP ASSOCIATES II, L.P.
By:	/s/ James E. Thomas
Name:	James E. Thomas
Title:	Manager
TMP NOMINEE II, LLC
By:	/s/ James E. Thomas
Name:	James E. Thomas
Title:	Manager
THOMAS, MCNERNEY & PARTNERS II, L.P.
By:	/s/ James E. Thomas
Name:	James E. Thomas
Title:	Manager

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

INVESTORS:
CLARUS LIFESCIENCES I, L.P.
By:	Clarus Ventures I Management, L.P. its general partner
By:	Clarus Ventures I, LLC its general partner
By:	/s/ Kurt C. Wheeler
	Kurt C. Wheeler
	Managing Director

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

INVESTORS:
CHICAGO GROWTH PARTNERS II, L.P.
By:	Chicago Growth Management II, LP
Its:	General Partner
By:	Chicago Growth Management II, LLC
Its:	General Partner
By:	/s/ Arda Mincherhomjee
	Arda Minocherhomjee
	Partner

SIGNATURE PAGE TO

AMENDMENT TO WARRANTS

EX-10.14

Exhibit 10.14

CONSENT TO ASSIGNMENT AGREEMENT

This Consent to Assignment Agreement (this “Consent”), dated for reference purposes August 29, 2008, is made by R.B. INCOME PROPERTIES, a California limited partnership, (“Landlord”), to VERUS PHARMACEUTICALS, INC., a Delaware corporation (“Assignor”), and ZOGENIX, INC., a Delaware corporation (“Assignee”).

R E C I T A L S :

A. Landlord and Assignor entered into that certain Office Lease dated as of February 2, 2005, as amended by that certain First Amendment to Lease dated August 28,2008 (collectively, the “Lease”), whereby Landlord leased to Assignor and Assignor leased from Landlord approximately 12,929 rentable (12,415 usable) square feet of space commonly known as Suite 200 (the “Premises”) and located on the second floor of the building (the “Building”) located at 12671 High Bluff Drive, San Diego, California.

B. Assignor desires to assign to Assignee (effective on September 1, 2008), all of its right, title, and interest in, to and under the Lease pursuant to the provisions of that certain Assignment and Assumption of Lease dated as of August 29, 2008, between Assignor and Assignee (the “Assignment”), a copy of which Assignment is attached hereto as Exhibit A and incorporated by reference herein.

C. Assignor and Assignee desire to obtain Landlord’s consent to the Assignment and Landlord is willing to consent to the Assignment on the following terms and conditions.

A G R E E M E N T :

1. Consent; Assumption and No Release. Subject to the terms and conditions of this Consent, effective as of September 1, 2008 (the “Effective Date”), Landlord hereby consents to the Assignment on the terms of this Consent. Assignee does hereby expressly assume and agree to be bound by and to perform and comply with, for the benefit of Landlord, each and every obligation of the Tenant under the Lease and the obligations of Assignee under the Assignment. Notwithstanding the Assignment or Landlord’s consent thereto, Assignor shall remain fully liable for the payment of rents and for the performance of all other obligations of the Tenant under the Lease.

2. Subsequent Assignments. This Consent shall not constitute a consent to any subsequent subletting or assignment and shall not relieve Assignee or any person claiming under or through Assignee of the obligation to obtain the consent of Landlord, pursuant to Article 13 of the Lease, to any future assignment or sublease. Notwithstanding the foregoing, Landlord may consent to subsequent sublettings and assignments of the Lease without notifying Assignor or anyone else liable under the Lease and without obtaining their consent and such action shall not relieve such persons from liability.

-1-

3. Default under the Lease. In the event of any default of Assignee under the Lease, Landlord may proceed directly against Assignee, any guarantors or anyone else liable under the Lease without first exhausting Landlord’s remedies against any other person or entity liable thereon to Landlord.

4. Letter of Credit. Assignee shall obtain and deliver to Landlord on or before the Effective Date of this Consent the Replacement Letter of Credit required under Section 5 of the Assignment. Assignee shall cooperate with Assignor to have Landlord cancel Assignor’s Letter of Credit return same to the issuer.

5. Effectiveness of Consent. The effectiveness this Consent is subject to and conditioned upon (i) the full execution and delivery by and among the parties of the Assignment and this Consent on or before the Effective Date of this Consent; and (ii) the delivery to Landlord of the replacement Letter of Credit required pursuant to Section 5 of the Assignment, in form satisfactory to Landlord, on or before the Effective Date.

6. Brokerage Commission. Assignor and Assignee covenant and agree that under no circumstances shall Landlord be liable for any brokerage commission or other charge or expense in connection with the Assignment and Assignor and Assignee agree to protect, defend, indemnify and hold Landlord harmless from the same and from any cost or expense (including but not limited to attorneys’ fees) incurred by Landlord in resisting any claim for any such brokerage commission.

7. No Waiver. Except as explicitly set forth herein, nothing contained herein shall be deemed or construed to modify, waive, impair or affect any of the covenants, agreements, terms, provisions or conditions contained in the Lease. In addition, the acceptance of rents by Landlord from Assignee or anyone else liable under the Lease shall not be deemed a waiver by Landlord of any provisions of the Lease.

8. Binding Effect. This Consent shall not be effective and the Assignment shall not be valid or binding on Landlord unless and until a fully executed original counterpart of the Assignment and this Consent are delivered to Landlord.

9. Counterparts. This Consent may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute but one and the same instrument.

10. Capitalized Terms. All initial capitalized terms not otherwise defined in this Consent shall have the meanings set forth in the Lease. In the event of any conflict between the Assignment and this Consent, the provisions of this Consent shall control.

[Signature page immediately follows.]

-2-

IN WITNESS WHEREOF, Landlord, Assignor and Assignee have caused their duly authorized representatives to execute this Consent as of the date first above written.

“Assignee”:
ZOGENIX, INC.,
a Delaware corporation
By:	/s/ David Nassif
Name:	David Nassif
Its:	CFO
By:
Name:
Its:

“Assignor”:
VERUS PHARMACEUTICALS, INC.,
a Delaware corporation
By:	/s/ Richard G. Vincent
Name:	Richard G. Vincent
Its:	CFO
By:	/s/ Robert W. Keith
Name:	Robert W. Keith
Its:	CEO

“Landlord”:
R.B. INCOME PROPERTIES, a California limited partnership
By:	RBI PROPERTY MANAGEMENT, LLC, a California limited liability company, as General Partner
	By:	/s/ THOMAS G. BLAKE
		THOMAS G. BLAKE, President

-3-

EXHIBIT A

THE ASSIGNMENT

[ATTACHED]

-1-

ASSIGNMENT AND ASSUMPTION OF LEASE

This Assignment and Assumption of Lease (this “Assignment”), dated for reference purposes August 29, 2008, is made by and between VERUS PHARMACEUTICALS, INC., a Delaware corporation (“Assignor”), and ZOGENIX, INC., a Delaware corporation (“Assignee”).

R E C I T A L S :

A. Assignor is the tenant under that certain Office Lease dated as of February 2, 2005, as amended by that certain First Amendment to Lease dated August 28, 2008 (collectively, the “Lease”), between R.B. INCOME PROPERTIES, a California limited partnership (“Landlord”), as landlord, and Assignor, as tenant, for approximately 12,929 rentable (12,415 usable) square feet of space commonly known as Suite 200 (the “Premises”), located on the second floor of that certain office building located at 12671 High Bluff Drive, San Diego, California (the “Building”).

B. Assignor desires to assign its right, title and interest in, to and under the Lease and the Premises to Assignee, and Assignee desires to accept such assignment upon and subject to all of the terms and conditions hereinafter set forth.

A G R E E M E N T :

1. Assignment and Assumption. Subject to the terms and conditions of this Assignment, effective as of September 1, 2008 (the “Effective Date”), Assignor hereby assigns to Assignee all of its right, title and interest in, to and under the Lease and the Premises (including all of Assignor’s right, title, and interest in and to any prepaid rents as have been paid by Assignor pursuant to the Lease), and Assignee hereby accepts such assignment, assumes all of Assignor’s obligations under the Lease, agrees to be bound by all of the provisions thereof and to perform all of the obligations of the tenant thereunder from and after the effective date hereof. Such assignment and assumption is made upon, and is subject to, all of the terms, conditions and provisions of this Assignment.

2. Effectiveness Contingent Upon Landlord’s Consent. Assignor and Assignee acknowledge and agree that, pursuant to the terms of the Lease, Landlord’s consent is required prior to any assignment of the Lease. Assignor and Assignee expressly acknowledge and agree that the effectiveness this Assignment is subject to and conditioned upon (i) the full execution and delivery by and among the parties of that certain Consent to Assignment Agreement (the “Consent”) on or before the Effective Date, and (ii) the delivery to Landlord of the replacement Letter of Credit required pursuant to Section 5 below.

3. Condition of Premises. The Premises shall be delivered by Assignor to Assignee in “As Is” condition with all “FF&E” (as that term in defined in Section 4, below) and all other leasehold improvements located thereon, collectively for a total purchase price of One Dollar ($1.00).

-1-

4. Furniture, Fixtures, and Equipment. Notwithstanding anything to the contrary contained herein, Assignor and Assignee shall agree upon which furniture, fixtures, cabinets, book shelves, appliances, and equipment currently existing in the Premises (the “FF&E”), shall be transferred to Assignee from Assignor in fee (without any liens, or other encumbrances) concurrently with the execution and delivery hereof.

5. Security Deposit. Assignee acknowledges that Assignor has deposited with Landlord pursuant to Section 4.05 of the Lease as security for the performance by Assignor of its obligations under the Lease a Letter of Credit (as defined in the Lease). As a condition to the effectiveness of this Assignment, Assignee shall obtain and deliver to Landlord on or before the Effective Date a replacement letter of credit (“Replacement Letter of Credit”) in the amount and on the other terms and conditions required under Section 4.05 of the Lease. Assignee shall cooperate with Assignor to have Landlord cancel Assignor’s Letter of Credit return same to the issuer.

6. Payment of Base Rent. Assignee shall not be required to pay the Base Rent required to be paid under the Lease until December 1, 2008. Upon execution of this Assignment, Assignor will pre-pay to Landlord the Base Rent required to be paid under the Lease for the months of September, October and November 2008.

7. Payment of Assignee’s Existing Base Rent. Upon execution of this Assignment, Assignor agrees to pay the portion of Assignee’s existing base rent obligation per the attached Side Letter Agreement attached hereto as Exhibit A.

8. Further Assurances. Assignor and Assignee hereby covenant that each will, at any time and from time to time upon request by the other, and without the assumption of any additional liability thereby, execute and deliver such further documents and do such further acts as such party may reasonably request in order to fully effect the purpose of this Assignment.

9. Enforcement by Landlord. The provisions of this Assignment shall inure to the benefit of and be enforceable by Landlord.

10. Successors. The provisions of this Assignment shall be binding upon, and shall inure to the benefit of, each of the parties hereto and to their respective successors, transferees and assigns.

11. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute but one and the same agreement.

-2-

12. Governing Law. This Assignment shall be governed by and construed in accordance with California law.

13. Entire Agreement. This Assignment is the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements between the parties hereto with respect thereto. This Assignment may not be altered, amended, changed, terminated or modified in any respect or particular, unless the same shall be in writing and signed by the party to be charged and unless such amendment has been approved in writing by Landlord.

14. Headings. The headings of the paragraphs of this Assignment are inserted solely for convenience of reference and are not a part of and are not intended to govern, limit or aid in the construction of any terms or provision hereof.

IN WITNESS WHEREOF, Assignor and Assignee have caused their duly authorized representatives to execute this Assignment effective as of the date first above written.

“ASSIGNOR”
VERUS PHARMACEUTICALS, INC.,
a Delaware corporation
By:	/s/ Robert W. Keith
Name:	Robert W. Keith
Its:	President & Chief Operating Officer
By:	/s/ Richard G. Vincent
Name:	Richard G. Vincent
Its:	Chief Financial Officer
“ASSIGNEE”
ZOGENIX, INC.,
a Delaware corporation
By:	/s/ David Nassif
Name:	David Nassif
Its:	CFO
By:
Name:
Its:

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EXHIBIT A

SIDE LETTER AGREEMENT

[ATTACHED]

August 29, 2008

Mr. David Nassif

Executive VP & Chief Financial Officer

Zogenix, Inc.

11682 El Camino Real, Suite 320

San Diego CA 92130

Re: Side Letter Agreement (the “Side Letter”) by and between Verus Pharmaceuticals, Inc., a Delaware corporation (“Verus”), and Zogenix, Inc., a Delaware corporation (“Zogenix”)

Dear Mr. Nassif:

Reference is made to the Assignment and Assumption of Lease by and between Verus and Zogenix dated August 29, 2008 (the “Assignment”). Capitalized terms used but not otherwise defined herein shall have the meaning given such terms in the Assignment.

A. In accordance with Section 7 of the Assignment, Verus and Zogenix hereby agree as follows:

1. Zogenix shall make earnest and good faith efforts to sublet or otherwise assign or transfer (“Transfer”) Zogenix obligations for base rent pursuant to the Office sublease dated as of March 20, 2007 between TBA Entertainment Corporation, as landlord, and Zogenix, as tenant, for approximately 4,193 rentable square feet of space commonly known as Suite 320, located on the third floor of that certain office building located at 11682 El Camino Real, San Diego, California 92130 (the “Zogenix Lease”).

2. In the event that Zogenix is unable to Transfer its obligations for base rent under the Zogenix Lease on or before February 1, March 1 or April 1, 2009, Verus shall pay a portion of Zogenix base rent in the amount of Fourteen Thousand Eight Hundred Ninety Nine Dollars and Eighty-Three ($14,899.83) (each, a “Payment”) no later than the last day of each such calendar month during which a Transfer has not concluded.

3. Verus’ obligation for Payment is expressly conditioned upon Zogenix performance of its obligation set forth in Section A(l) hereof.

4. Verus’ obligation for Payment shall terminate concurrently with Zogenix Transfer of its base rent obligations under the Zogenix Lease at any time during the period commencing on February 1, 2009 and concluding on April 30, 2009. In the event a Transfer is concluded within a month, Verus shall only be obligated to pay a pro-rated portion of the Payment for such month.

5. Notwithstanding anything else herein to the contrary, in no circumstance shall Verus have any obligation for Payment prior to February 1, 2009 or on or after May 1, 2009.

B. In accordance with Section 4 of the Assignment, Verus and Zogenix hereby agree as follows:

1. Except for those items set forth on Exhibit 1 to this Side Letter (“Verus FF&E”), all other furniture, fixtures, cabinets, book shelves, appliances, and equipment currently existing on the Premises as of the effective date of the Assignment shall constitute FF&E and shall be transferred to Zogenix in accordance with the terms of the Assignment.

2. Verus shall retain all right title and interest in and to the Verus FF&E.

3. Zogenix agrees that the Verus FF&E shall be allowed to reside in the same space and location on and after the Assignment as prior thereto, and shall be allowed to remain there during the term of Verus’ continued occupancy of the Premises after the Assignment and for a reasonable period of time thereafter.

If Zogenix agrees to the foregoing, please execute two counterparts of this Side Letter and return one fully executed counterpart to the undersigned.

Sincerely yours,

VERUS PHARMACEUTICALS, INC.

/s/ Richard Vincent

Richard Vincent

Chief Financial Officer

AGREED AND ACCEPTED BY:

ZOGENIX, INC.

/s/ David Nassif

David Nassif

Executive VP & Chief Financial Officer

2

SCHEDULE 1

Verus F,F&E - Excluded Assets Listing

The information is provided pursuant to the Assignment and Assumption of Lease Agreement between Verus and Zogenix.

DESCRIPTION	LOCATION	QUANTITY
IT Rack and all related equipment contained therein	IT room	1
Any desktop computers and peripheral equipment contained in the suite (other than the Board room)	IT room and certain offices / cubes	Various
HP Laser Jet (4), Kyocera FS-7028M (1) and Brother MFC (2) printer / copy / fax machines and adjoining printer cabinets (2)	Various locations	7
Computer equipment, peripherals and items of a personal nature actively used by Verus / Meritage employees or consultants (including desktop printers / fax machines / desktop lamps)	Various offices or cubes	~15 Configurations
King Fire Proof Cabinets	Supply room	2
InView Projectors	IT room or Rich Vincent’s office	4
Small Refrigerator	David Luo office	1
All Cell Phones, entire telephone system and 1 Polycom system (2 Polycom’s will be part of the Zogenix purchase)	Throughout office and conference rooms	Various
Folding table, microwave and toaster	Kitchen	3
Rolling cart and flipchart	Supply room	1 each

CONFIDENTIAL

1

FIRST AMENDMENT TO LEASE

This FIRST AMENDMENT TO LEASE (“First Amendment”), dated for reference purposes and effective as of August 28, 2008 (the “Effective Date”), is made and entered into by and between R.B. INCOME PROPERTIES, a California limited partnership (“Landlord”) and VERUS PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), with reference to the following facts:

RECITALS

A. Landlord and Tenant are parties to that certain Office Lease dated February 2, 2005, as amended by that certain First Amendment to Lease dated August 14, 2008 (collectively, the “Lease”) for the lease of those certain premises consisting of approximately 12,929 rentable square feet of space commonly known as Suite 200 (the “Premises”), located on the second floor of that certain office building located at 12671 High Bluff Drive (the “Building”) located in the City of San Diego, County of San Diego, State of California, in that development commonly known as Del Mar Corporate Plaza (the “Project”), which is more particularly described in the Lease.

B. Capitalized terms used in this First Amendment not otherwise defined herein shall have the meaning as set forth in the Lease.

C. Landlord and Tenant now desire to amend the Lease upon the terms and conditions set forth herein.

NOW THEREFORE, FOR VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, LANDLORD AND TENANT HEREBY AGREE TO AMEND THE LEASE AS FOLLOWS:

1. Deletion of Sections of Lease. Sections 3.04, 4.01 (b) and (c), 9.02 (to the extent relating to Building signage rights) and 19.03 be, and they hereby are deleted in their entirety and shall be of no further force or effect.

2. Scope of Amendment/Ratification. This First Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, This First Amendment may not be amended or modified except by written instrument executed by all the parties hereto. The Lease, as modified by this First Amendment, supercedes any prior understanding, whether oral or written, by the parties, with respect to the subject matter thereof. Except as specifically set forth herein, all other terms, covenants, agreements and provisions of the Lease shall continue and remain in full force and effect, and the Lease hereby is in all respects ratified and confirmed. In the event of any conflict between this First Amendment and the Lease, the terms and of this First Amendment shall control and shall be paramount and the Lease shall be construed accordingly.

3. Counterparts. This First Amendment may be executed in counterparts, and when all counterpart documents are executed, the counterparts shall constitute a single binding instrument.

[Balance of page intentionally left blank]

-1-

IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above-written.

“Landlord”			“Tenant”
R. B. INCOME PROPERTIES, a California limited partnership			VERUS PHARMACEUTICALS, INC., a California corporation
By:	RBI PROPERTY MANAGEMENT, LLC, a Delaware limited liability company, as General Partner		By: Name: Its:	/s/ Robert W . Keith Robert W . Keith President & Chief Operating Officer
	By:	/s/ Thomas G. Blake	By:	/s/ Richard G. Vincent
		THOMAS G. BLAKE, President	Name:	Richard G. Vincent
			Its:	Chief Financial Officer

-2-

OFFICE LEASE

DEL MAR CORPORATE PLAZA

R.B. INCOME PROPERTIES,

a California limited partnership

as Landlord,

and

VERUS PHARMACEUTICALS, INC.,

a Delaware corporation

as Tenant

February 2, 2005

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BASIC LEASE INFORMATION

OFFICE LEASE

Lease Date:	February 2, 2005
Landlord:	R.B. Income Properties, a California limited partnership
Managing Agent:	Coast Income Properties, Inc., a California corporation; or such other entity designated in writing by Landlord
Landlord’s Address:	c/o Coast Income Properties, Inc. 4350 La Jolla Village Drive, Suite 150 San Diego, California 92122
Tenant:	Verus Pharmaceuticals, Inc., a Delaware corporation
Tenant’s Address:	12730 High Bluff Drive, Suite 410, San Diego, California 92130 prior to occupancy; Premises thereafter.
Legal Description of Land:	See Exhibit “A”
Premises:	The entire second floor of a three-story building located at 12671 High Bluff Drive, San Diego, California (the “Building”), in that development commonly known as Del Mar Corporate Plaza (the “Project”). The Building is sometimes herein referred to as Building “B” of the Project. The Premises are shown on Exhibit B attached hereto.
Rentable Area of the Premises:	Approximately 12,929 rentable square feet.
Rentable Area of the Building:	Approximately 39,439 rentable square feet.
Rentable Area of the Project:	Approximately 73,492 rentable square feet.
Usable Area of the Premises:	Approximately 12,415 usable square feet.
Usable Area of the Building:	Approximately 36,524 usable square feet.

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Permitted Uses:	General business office purposes, and any other legally permitted use consistent with the character and image of the Building and Project.
Term:	Five (5) years, subject to an option to extend pursuant to Section 3.04
Term Commencement Date:	April 11, 2005, subject to adjustment as provided in Section 3.01.

Base Rent:

Lease Year	Base Rent	Annual Base Rent
1	$2.70 per rentable sq. ft./month*	$32.40 per rentable sq. ft./month*
2	$2.78 per rentable sq. ft./month	$33.36 per rentable sq. ft./month
3	$2.86 per rentable sq. ft./month	$34.32 per rentable sq. ft./month
4	$2.95 per rentable sq. ft./month	$35.40 per rentable sq. ft./month
5	$3.04 per rentable sq. ft./month	$36.48 per rentable sq. ft./month**

* Base Rent for Lease Year 1 is subject to the rental abatement provisions of Section 19.01 of Exhibit G.

** Base Rent for Lease Year 5 is subject to the proration provisions of Section 4.01.

Tenant’s Project Share of Project Operating Expenses:	17.59%
Tenant’s Building Share of Building Operating Expenses:	32.78%
Base Calendar Year:	2005
Security:	A letter of credit in the amount of Two Hundred Nine Thousand Four Hundred Fifty Dollars ($209,450) (See Section 4.05).
Broker(s):	Grubb & Ellis/BRE Commercial, representing Landlord, and San Diego Corporate Real Estate Advisors, representing Tenant.
Broker’s Fee or Commission, if any, paid by:	R.B. Income Properties, a California limited partnership, pursuant to a separate agreement.
Business Hours:	7:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m. Saturdays, excluding certain holidays, being those days designated as Federal Holidays pursuant to 5 U.S.C. §6103 (“Holidays”).

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The foregoing Basic Lease Information is hereby incorporated into and made a part of this Lease. Each reference in this Lease to any of the terms above shall mean the respective information hereinabove set forth and shall be construed to incorporate all of the terms provided under the particular paragraph pertaining to such information. In the event of any conflict between any Basic Lease Information and the Lease, the latter shall control.

LANDLORD:                                                                                                                                        TENANT:

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R. B. INCOME PROPERTIES, a California limited partnership			VERUS PHARMACEUTICALS, INC., a California corporation
By:	RBI PROPERTY MANAGEMENT, LLC, a California limited liability company, as General Partner
	By:	/s/ Thomas G. Blake	By:	/s/ Robert W. Keith
		THOMAS G. BLAKE, President	Name:	Robert W. Keith
			Its:	President & Chief Operating Officer
			By:	/s/ Richard G. Vincent
			Name:	Richard G. Vincent
			Its:	Chief Financial Officer

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OFFICE LEASE

THIS LEASE (“Lease”), dated for reference purpose and effective as of February 2, 2005, (the “Lease Date”) is made and entered into by and between R.B. INCOME PROPERTIES, a California limited partnership (“Landlord”) and VERUS PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”) for space in the building located at 12671 High Bluff Drive (the “Building”) located in the City of San Diego, County of San Diego, State of California, in that development commonly known as Del Mar Corporate Plaza (the “Project”); described more particularly on the Legal Description, attached hereto as Exhibit A, shall be upon the terms and conditions contained hereinafter.

1. PREMISES

1.01. Premises. Landlord leases to Tenant, subject to the provisions of this Lease, the Premises in the Building as set forth in the Basic Lease Information, the usable space of which is shown on the Building Floor Plans, attached hereto as Exhibit B. The rentable square feet of the Premises, Building and Project shall be as set forth in the Basic Lease Information. By occupying the Premises, Tenant shall be deemed to accept the same in their condition existing as of the date of such occupancy and subject to all applicable municipal, county, state and federal statutes, laws, ordinances, including zoning ordinances, and regulations governing and relating to the Tenant’s use, occupancy or possession of the Premises. Tenant acknowledges that the only warranties and representations Landlord has made in connection with the physical condition of the Premises or Tenant’s use of the same upon which Tenant has relied directly or indirectly for any purpose are those expressly provided in this Lease.

1.02. Exhibits. The following Exhibits are attached to this Lease after the signatures and by reference thereto are incorporated herein:

Exhibit A — Legal Description

Exhibit B — Site Plan and Building Floor Plan

Exhibit C — Preliminary Plans

Exhibit D — Work Letter

Exhibit E — Rules and Regulations

Exhibit F — Letter of Credit

Exhibit G — Additional Lease Provisions

1.03. Common Areas. Tenant shall have, as appurtenant to the Premises and subject to reasonable nondiscriminatory rules and regulations from time to time made by Landlord of which Tenant is given reasonable notice, the right to the use of the following in common:

(a) Building Common Area. The common stairways and access ways, lobbies, entrances, stairs, elevators, maintenance and utility service areas and any passageways thereto, and the common pipes, ducts, conduits, wires and appurtenant equipment serving the Premises (the “Building Common Areas”);

(b) Project Common Area. The common walkways, sidewalks, landscape areas, parking spaces and driveways necessary for access to the Project and parking spaces, as well as the fitness center and locker room facilities (the “Project Common Areas”); and

(c) Parking Area. The common Project parking lot area (the “Parking Area” and together with the Building Common Areas and the Project Common Areas, the “Common Areas”).

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1.04. Landlord’s Reserved Rights in Common Areas and Project. Landlord reserves full control over the Building and Project to the extent not inconsistent with Tenant’s quiet enjoyment and use of, and access to, the Premises and the other rights of Tenant as granted by this Lease. This reservation includes but is not limited to right of Landlord, to grant easements and licenses to others and the right to maintain or establish ownerships of the Building separate from fee title to the land and other improvement in the Project. Tenant shall, should Landlord so request, promptly join with Landlord in execution of such documents as may be appropriate to assist Landlord to implement any such action provided Tenant need not execute any document which is of a nature wherein liability is created in Tenant or if, by reason of the terms of such document, Tenant may be deprived of the quiet enjoyment and use of, and access to, the Premises, and the other rights of Tenant, as granted by this Lease. Landlord reserves the right from time to time: (a) to install, use, maintain, repair, relocate and replace any pipes, ducts, conduits, wires and appurtenant meters and equipment for service to the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas; (b) to change the lines of the lot on which the Project stands (“Lot”) and to redesign and restripe the parking facilities around the Building and make other reasonable changes and grant other rights thereto, including without limitation, the granting of easements, rights of way and rights of ingress and egress and similar rights to users of parcels in or adjacent to the parcel on which the Building is situated; and (c) to alter or relocate any Common Areas or other facilities; provided that no such action shall have a material adverse effect on Tenant’s quiet enjoyment and use of, and access to, the Premises and the other rights of Tenant as granted by this Lease. Landlord reserves the right to grant exclusive use to portions of the Parking Area to specific tenants.

1.05. Rentable/Useable Area. As used in this Lease, the terms “Rentable Area” and “Useable Area” shall mean the rentable area and useable area of the Premises, Building and Project and shall be the square footage designated in the Basic Lease Information. The Annual Base Rent and Operating Expenses for the Premises are not solely and directly attributable to the actual rentable or useable area of the Premises, Building or Project and in the event that it is determined that the actual rentable or useable area of the Premises, Building or Project is different from the square footages set forth in the Basic Lease Information, no modification shall be made to the Base Rent or Operating Expenses set forth in the Basic Lease Information.

1.06. Tenant’s Parking Entitlements. Entitlements. Tenant shall be entitled to the non-exclusive use, without charge, during the Term and any extension thereof, of a pro rata number of parking spaces in the area of the Project designated as the Parking Area for the Project as shown on Exhibit B attached hereto. Landlord shall have no responsibility for policing or otherwise enforcing parking rights in the Project. Tenant shall be entitled to two (2) reserved non-covered parking spaces in the Parking Area on the west side of the Building in a location to be agreed upon by Landlord and Tenant as shown on Exhibit B, or otherwise agreed upon by Landlord and Tenant.

1.07. Condition of Premises. Landlord warrants that, as of the Lease Date, the electrical, plumbing and mechanical systems in the Building are in good working order. Tenant shall have the right to notify Landlord of any such deferred maintenance of the electrical, plumbing and mechanical systems within sixty (60) days following the Term Commencement Date and Landlord will be responsible for repairs thereof within fifteen (15) days following Tenant’s timely delivery to Landlord of such notice. Landlord warrants that, as of the Lease Date, to Landlord’s current actual knowledge, there are no Hazardous Materials (as defined below) located at the Building in amounts that violate Health and Safety Laws (as defined

Verus Lease v06 -1- February 2, 2005 (8:51 pm)

below) or other applicable laws and that there are no material defects in the construction of the Building and that the improvements in the Building constructed by Landlord and the common Areas in the Project comply with the requirements of the Americans With Disabilities Act as of such date. Tenant shall have the right to notify Landlord of any such non-compliance, and Landlord will be responsible for bringing such facilities into compliance. Except as otherwise set forth in this Section 1.07, Landlord makes no representations and warranties regarding the condition of the improvement in the Premises or their fitness for Tenant’s intended use. Except as specifically provided in Article 2 below, Landlord shall have no obligation to make any improvements to the Premises and, to the maximum extent permitted by law, Tenant hereby agrees to accept the Premises in their “as-is” condition.

2.TENANT’S IMPROVEMENTS

2.01. Plans. For the purposes of this Article 2, capitalized terms not otherwise defined elsewhere in this Lease shall have the meanings set forth in Exhibit “D” attached hereto (the “Work Letter”).

(a) Preliminary Plans. Landlord and Tenant have approved the preliminary plans and outline specifications identified in Exhibit C (“Preliminary Plans”) , for the construction by Landlord of Tenant’s Improvement Work (as defined in the Work Letter).

(b) Final Plans. Landlord shall have final plans and specifications (“Final Plans”) prepared by Facility Solutions (“Landlord’s Designer”), which Final Plans shall be substantially in conformity with the Preliminary Plans. “Tenant’s Improvement Plans” shall hereinafter mean Preliminary Plans and, when prepared and approved by Landlord and Tenant, Final Plans. Preparation and approval of the Final Plans and any changes requested by Tenant thereto shall be made only in accordance with the Work Letter.

2.02. Construction. Landlord shall cause the Tenant’s Improvement Work in the Premises to be constructed substantially in accordance with the Tenant’s Improvement Plans and the Work Letter. Landlord shall construct Tenant’s Improvement Work (as defined in the Work Letter) in accordance with the approved Tenant’s Improvement Plans, all in accordance with the provisions of the Work Letter. Costs and expenses of such work, including the costs of the Tenant’s Improvement Work, fees of Landlord’s Designer, building permit fees, the fee of Landlord’s Contractor (as defined in the Work Letter) and all other costs and expenses chargeable to Landlord pursuant to Exhibit “D” to this Lease (collectively the “Tenant Improvement Costs”), shall be paid by Landlord, except as otherwise provided in the Work Letter.

2.03. Failure to Complete Construction. Tenant’s only remedies for Landlord’s failure to cause Substantial Completion (as defined in the Work Letter) of the Tenant’s Improvement Work and the Landlord’s Work (as each term is defined in the Work Letter, and collectively, the “Improvements”) to occur on or before the Estimated Improvement Completion Date (as defined in the Work Letter), as extended pursuant to the Work Letter, shall be as set forth in this Section 2.03. If Substantial Completion of the Improvements has not occurred on or before the date which is two (2) months following the Scheduled Improvement Completion Date, as hereinafter defined (the “Termination Option Date”), Tenant shall have the option to terminate this Lease by the delivery to Landlord of written notice within ten (10) days after the Termination Option Date or any one month anniversary of the Termination Option Date until Substantial Completion of the Improvements occurs. Tenant shall not be entitled to terminate the Lease for any delay in completion of the Premises prior to the Termination Option Date. If

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it appears that Substantial Completion of the Improvements may not occur on or before the Estimated Improvement Completion Date, as extended pursuant to the Work Letter (the “Scheduled Improvement Completion Date”), due to Tenant Caused Delays (as defined in the Work Letter) Landlord shall be entitled to incur overtime charges (“Overtime Charges”) with Landlord’s Contractor and shall use commercially reasonable efforts to accelerate the completion of Tenant’s Improvement Work to meet the Scheduled Improvement Completion Date.

3. TERM

3.01. Commencement of Term. The Lease shall be for the Term set forth in the Basic Lease Information, commencing upon Term Commencement Date. The Term Commencement Date shall be the later of; (i) the date set forth in the Basic Lease Provisions, (ii) the date Landlord delivers to Tenant written notice that the Premises are ready for occupancy by Tenant, or (iii) the date the Premises would have been ready for occupancy had there been no Tenant Delays as set forth in the Work Letter.

3.02. Early Occupancy. Subject to the availability of the Premises, Tenant shall be permitted access to the Premises thirty (30 days prior to the Term Commencement Date for the purpose of coordinating the installation of its furniture, trade fixtures, equipment and technology systems in the Premises, the period between the date Tenant commences to enter into the Premises for such purposes and the Term Commencement Date being hereinafter referred to as the “Early Occupancy Period.” Such occupancy of the Premises shall be subject to all the provisions of this Lease, except that Tenant shall not be required to pay Monthly Base Rent or Operating Expenses for the Early Occupancy Period; provided, however, that Tenant shall have provided Landlord proof of Tenant’s insurance as set forth in Section 5.05; and provided further that Tenant shall pay or reimburse Landlord for all utilities and services to the Premises during the Early Occupancy Period. All furniture, materials, work, installations, equipment and decorations of any nature brought upon or installed in the Premises prior to the Term Commencement Date shall be at Tenant’s sole risk. Neither Landlord nor any party acting on Landlord’s behalf shall be responsible for any damage or loss or destruction of such items brought to or installed in the Premises prior to the Term Commencement Date. Prior to the Term Commencement Date, Landlord shall make available to Tenant reasonable access to any floor of the Building that Tenant may reasonably require to core drill and pull cable.

3.03. Notice of Lease Dates. Within ten (10) days after Landlord’s written request, Tenant shall execute a written confirmation of the commencement of the Term and expiration date of the Term in a form provided by Landlord. Such a notice shall be binding upon Tenant unless Tenant objects thereto in writing within such ten (10) day period.

3.04 Option to Extend Term. Tenant shall have the option to extend the Term of this Lease for one (1) additional period of five (5) years (the “Premises Option”). The period of the Premises Option is referred to herein as the “Option Term”. Tenant shall have no right or interest to exercise the Premises Option unless: (a) Tenant gives the Landlord written notice of its intent to exercise the Premises Option no earlier than three hundred thirty (330) days and no later than two hundred seventy (270) days prior to the end of the Term (the “Extension Notice”); (b) at the time the Extension Notice is given and on the date of the commencement of the Option Term, Tenant is not in default of any of the terms or conditions under this Lease beyond any applicable cure period, nor are there any conditions which with the passage of time could result in a default by Tenant at any time; (c) Tenant has not been in default in the performance of any of its obligations under this Lease more than two (2) times prior to the date

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the Extension Notice is given; (d) (I) Tenant has not filed, nor sought protection under any bankruptcy statute, and (ii) Tenant has not failed to obtain a vacation from any involuntary bankruptcy proceeding within sixty (60) days of such filing; and (e) (I) Tenant can establish by delivering to Landlord evidence reasonably acceptable to Landlord that the Tenant meets, as of the date the Extension Notice is given, and has continually met during the two (2) calendar quarters preceding the date the Extension Notice is given, the Tenant’s Financial Conditions as defined in Section 4.05, or (ii) the Letter of Credit provided for in Section 4.05 is posted with Landlord and then effective as of the date the Extension Notice is given and on the first day of the Option Term. Annual Base Rent during the Option Term shall be as set forth in Section 4.01(b) below. Time is of the essence with respect to Tenant’s exercise of the Premises Option. Tenants’ failure to exactly comply with any of the time or other requirements herein, shall cause the Premises Option to automatically expire and, in such event, this Lease shall terminate upon the expiration of the Term. The option to extend the Term pursuant hereto for the Option Term shall be personal to Tenant and shall not be exercisable by or for the benefit of any assignee, subtenant or other transferee of Tenant, except the Option may be transferred to an Affiliate Transferee to whom all of the interest of Tenant in the Lease has been transferred pursuant to Section 13.01.

3.05. Days. Except for the Rent payment requirements of Sections 4.01 and 4.02, when time periods of three (3) days or less are provided in this Lease, unless “calendar days” is expressly stated, such time periods are to be calculated such that “days” shall mean business days, regardless of whether “business days” is expressly stated.

4. RENT

4.01. Base Rent.

(a) Initial Term. The Annual Base Rent shall be the amount set forth in the Basic Lease Information payable in equal monthly installments of Monthly Base Rent as set forth in the Basic Lease Information. Tenant shall pay the Monthly Base Rent to Landlord in advance upon the first day of each calendar month of the Term, at Landlord’s address or at such other place designated by Landlord in a written notice delivered to Tenant, without any prior demand therefor and without any deduction, abatement or setoff whatsoever, in lawful money of the United States of America. If the Term shall commence or end on a day other than the first day of a calendar month, then Tenant shall pay, upon each of the Term Commencement Date and the first day of the last calendar month of the Term, a portion of the Monthly Base Rent, prorated on a per diem basis, with respect to the portions of the fractional calendar month included in the Term. Upon executing this Lease, Tenant shall pay the first full month’s installment of the Monthly Base Rent owing hereunder.

(b) Option Term. During the first year of the Option Term, if it occurs, Tenant shall pay to Landlord Base Rent equal to “Market Rent” (as defined below) for the Premises determined as of the commencement date of such Option Term adjusted annually during the Option Term in accordance with Section 4.03 below. As used herein, “Market Rent” shall mean the price that a ready and willing tenant would pay, at commencement of the Option Term, as monthly base rent to a ready and willing landlord of similar space in the geographical area of San Diego County known as Del Mar Heights if such office space were offered for lease on the open market for a reasonable period of time and be the product of the fair market annual rental rate per rentable square foot multiplied by the Rentable Area of the Premises (as set forth in the Basic Lease Information), determined as follows: (a) as mutually agreed by Landlord and Tenant within ten (10) days of Landlord’s delivery to Tenant of Landlord’s opinion of the Market Rent for the first year of the Option Term (“Landlord Rent Notice”, which shall be

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delivered to Tenant within ten (10) days of receipt of Tenant’s written Extension Notice; or (b) in the event that Landlord and Tenant are unable to so agree, the Market Rent shall be determined by concurrent appraisals pursuant to Section 4.01(c) below. In determining Market Rent, appraisers shall take into account the duration of the Option Term, the quality, condition and prestige of the Building and Premises (as tenant improvements are maintained as required by the terms and conditions of this Lease), recent monthly rental rates and annual base rent escalations for buildings of similar size and location imputed to the commencement of the Option Term, condition and quality of comparable tenant improvements in buildings of similar quality and location and all relevant economic terms of this Lease, including free rent and other economic inducements, it being the intent that Market Rent, as so determined, should reflect the total economic package which would be offered at the time of commencement of the Option Term to a new tenant for the Premises, or substantially similar space in a building of similar quality, condition, and location and with similar tenant improvements under a lease with substantially the same terms and provisions as the applicable terms and provisions of this Lease (“Market for Similar Space”) without discounting the rent for the creditworthiness of the Tenant or for the cost of real estate leasing commissions. Landlord’s Rent Notice, and any determination of Market Rent by appraisal as described herein, shall also set forth the market annual base rent escalation rate then prevailing in the relevant marketplace, which shall be used for purposes of determining Base Rent adjustments during the Option Term in accordance with Section 4.03 below.

(c) Market Rent Appraisal Procedure.

(i) If Tenant rejects the Market Rent proposed by Landlord in Landlord’s Rent Notice, Landlord and Tenant shall attempt to agree in good faith upon a single appraiser (the “Mutual Appraiser”) not later than five (5) days after the Landlord receives notice of Tenant’s rejection of Landlord’s proposed Market Rent (“Tenant’s Rejection Notice”), which date of receipt shall be within ten (10) days of Landlord’s delivery of Landlord’s Rent Notice. If Landlord and Tenant are unable to agree upon a Mutual Appraiser within such time period, then Landlord and Tenant shall each appoint one appraiser not later than ten (10) days after Landlord’s receipt of Tenant’s Rejection Notice. Within five (5) days thereafter, the two appointed appraisers shall appoint a third appraiser (the “Additional Appraiser”). Landlord and Tenant shall instruct the appraiser(s) to complete the determination of the Market Rent not later than fifteen (15) days after all appraisers have been appointed.

(ii) If either Landlord or Tenant fails to appoint its appraiser within the prescribed time period, the single appraiser appointed within the prescribed time period shall determine the Market Rent of the Premises for the first year of the Option Term. If both parties fail to appoint appraisers within the prescribed time periods, then the first appraiser thereafter selected by a party shall determine the Market Rent of the Premises for the first year of the Option Term.

(iii) Landlord and tenant shall each bear the cost of its own appraiser (including any single appraiser appointed in accordance with clause (ii) above) and the parties shall share equally the cost of the Mutual Appraiser or the Additional Appraiser, if applicable. All appraisers so designated herein shall have at least five (5) years’ experience in the appraisal of similar office buildings in the San Diego area and shall be members of MAI or similar professional organizations of substantially equivalent or better reputation.

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(iv) If a single Mutual Appraiser is chosen, then such Mutual Appraiser shall determine the Market Rent of the Premises for the first year of the Option Term. Otherwise, the Market Rent of the Premises for the first year of the Option Term shall be the arithmetic average of two (2) of the three (3) appraisals which are closest (or identical) in amount, and the third appraisal shall be disregarded. In the event that no two (2) appraisals are closer in amount than any other two (2) appraisals, then the Market Rent of the Premises for the first year of the Option Term shall be the arithmetic average of all three (3) appraisals. Notwithstanding anything else contained herein, the Market Rent as so determined shall not be less than the Basic Annual Rent payable during the year preceding the Option Term.

4.02. Additional Rent. All charges required to be paid by Tenant hereunder, including without limitation, payments for Operating Expenses and any other amounts payable under this Lease, shall be considered additional rent for the purposes of this Lease (“Additional Rent”), and Tenant shall pay Additional Rent as provided in Section 6.05. “Rent” shall mean Base Rent and Additional Rent.

4.03. Escalation. The Base Rent shall be adjusted during the initial Term as provided in the Basic Lease Information. The Base Rent shall be adjusted annually during any Option Term by the escalation rate determined as a function of the Market Rent determination pursuant to Section 4.01(b).

4.04. Late Payment. If any installment of Rent is not paid promptly within five (5) business days of the first of the month or otherwise when due, the unpaid amounts shall bear interest at the interest rate set forth in Section 12.02(e) from the date due to the date of payment. In addition, Tenant acknowledges that the late payment of any installment of Rent will cause Landlord to incur certain costs and expenses not contemplated under this Lease, the exact amount of which are extremely difficult or impractical to fix. These costs and expenses will include, without limitation, administrative and collection costs and processing and accounting expenses. Therefore, if any installment of Rent is not received by Landlord from Tenant when the installment is due, Tenant shall immediately pay to Landlord a charge for administration, collection and accounting expenses equal to ten percent (10%) of the amount of such delinquent amounts due in addition to the installment of Rent then owing with interest at the interest rate set forth in Section 12.02(e), regardless of whether or not a notice of default or notice of termination has been given by Landlord. Landlord and Tenant agree that the late payment charge represents a reasonable estimate of Landlord’s costs and expenses and is fair compensation to Landlord for its loss suffered by Tenant’s nonpayment of any amounts when due and payable pursuant to this Lease. This provision shall not relieve Tenant from payment of Rent at the time and in the manner herein specified.

4.05. Security. To secure Tenant’s obligations under this Lease to pay Rent and other monetary amounts, to maintain the Premises and repair damages thereto, to surrender the Premises to Landlord in clean and sanitary condition and repair upon termination of this Lease as required pursuant to Section 18.15 below and to discharge Tenant’s other obligations hereunder, Tenant shall deliver to Landlord, concurrently with Tenant’s execution of this Lease, a letter of credit in the amount of Two Hundred Nine Thousand Four Hundred Fifty Dollars ($209,450) (“Letter of Credit”). Said Letter of Credit shall be substantially in the form and of the substance of Exhibit F attached hereto, and issued by Silicon Valley Bank, or another financial institution reasonably acceptable to Landlord. Tenant shall replace the Letter of Credit with another Letter of Credit that meets the requirements set forth above for at least thirty (30) days before the Letter of Credit expires. Upon any default by Tenant which has not been cured within the applicable time period after any notice required by this Lease, including specifically but without limitation Tenant’s obligation to pay Rent or abide by any of its obligations under this Lease, Landlord shall be entitled to draw upon said Letter of Credit in the amount of the default(s) by the issuance of Landlord’s sole written demand to the issuing

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financial institution. Any such draw shall be without waiver of any rights Landlord may have under this Lease or at law or in equity as a result of the default. If any portion of the Letter of Credit is drawn after a default by Tenant, Tenant shall, within seven (7) business days after written demand by Landlord restore the Letter of Credit to its original amount. Provided that (a) Tenant is not in default in the performance of any of its obligations under this Lease on the date which is four (4) years after the Effective Date of this Lease (“Letter of Credit Termination Date”) and (b) Tenant can establish by delivering to Landlord evidence reasonably acceptable to Landlord that Tenant has as of the Letter of Credit Termination Date, and has continually had during the two (2) calendar quarters preceding the Letter of Credit Termination Date, liquid assets consisting of cash or cash equivalents (bonds and publicly traded securities) reserves of not less than Five Million Dollars ($5,000,000) and a ratio of current assets to current liabilities, as determined by generally accepted accounting principles, consistently applied, of not less than two-to-one (“Tenant’s Financial Requirement”), subject, however, to Tenant delivering to Landlord the Security Deposit described below in this Section 4.05, the obligation of Tenant to maintain the Letter of Credit shall terminate as of the Letter of Credit Termination Date. As a condition to the termination of Tenant’s obligation to maintain the Letter of Credit, Tenant shall deposit with Landlord on or before the Letter of Credit Termination Date an amount equal to the Base Rent payable for the month which contains the Letter of Credit Termination Date (“Security Deposit”). The Security Deposit when delivered shall secure Tenant’s obligations under the Lease secured by the Letter of Credit. Landlord may use and commingle the Security Deposit with other funds of Landlord. If Tenant fails to perform Tenant’s obligations hereunder, Landlord may, but without any obligation to do so, apply all or any portion of the Security Deposit towards fulfillment of Tenant’s unperformed obligations. If Landlord does so apply any portion of the Security Deposit, Tenant, shall immediately pay Landlord a sufficient amount in cash to restore the Security Deposit to the full original amount. In the event that Landlord shall expend the same in order to cure Tenant’s default hereunder, Tenant’s failure to forthwith remit to Landlord a sufficient amount in cash to restore the Security Deposit to the original sum deposited within five (5) days after Tenant’s receipt of notice from Landlord that such amounts have been so expended shall constitute an Event of Default. The Security Deposit shall be held by Landlord without liability for interest on the same. Upon termination of this Lease, if Tenant has then performed all of Tenant’s obligations hereunder, Landlord shall return the Security Deposit to Tenant. If Landlord sells or otherwise transfers Landlord’s rights or interest under this Lease, Landlord may deliver the Security and Security Deposit to the transferee, whereupon Landlord shall be released from any further liability to Tenant with respect to the Security and Security Deposit. Notwithstanding anything to the contrary contained in this Section 4.05, in the event the obligation of Tenant to maintain the Letter of Credit is terminated as provided above, if at any subsequent time during the Term of this Lease, including any extensions thereof, from and after the Letter of Credit Termination Date, Tenant shall fail to maintain the Tenant’s Financial Requirement, Tenant shall immediately give written notice thereof to Landlord and cause a replacement letter of credit to be delivered to Landlord, within ten (10)days after the date Tenant fails to meet the Tenant’s Financial Requirement, in the amount, and on the other terms of, the original Letter of Credit.

5. INSURANCE

5.01. Special Form Coverage.

(a) At all times during the Term, Landlord shall procure and maintain in full force and effect with respect to the Project (including the Building and the Tenant’s Improvement Work paid for by Landlord), a policy or policies of special form risk insurance (with extended coverage endorsement attached, including sprinkler, vandalism and malicious

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mischief coverage, and any other endorsements required by the holder of any fee or leasehold mortgage), naming Tenant as a loss payee, as its interest may appear, in an amount equal to one hundred percent (100%) of the full insurance replacement value (replacement cost new, including debris removal, and demolition) thereof and any other insurance Landlord reasonably deems necessary, including, but not limited to, boiler and machinery insurance. If the annual premiums charged Landlord for such casualty insurance exceed the standard premium rates because the nature of Tenant’s operations results in increased exposure, then Tenant shall, upon receipt of appropriate premium invoices, reimburse Landlord for such increased amount. Landlord shall also, to the extent same is available on commercially reasonable terms and at commercially reasonable rates, keep and maintain, by endorsement to its special form insurance or by a separate policy, rental abatement insurance insuring against abatement or loss of Rent in case of fire or other casualty insured against by a standard “special form” policy, in an amount at least equal to the amount of the Rent payable by Tenant during one (1) year next ensuing, as reasonably determined by Landlord. Should Landlord determine that rental abatement insurance is not available on the foregoing terms, Landlord shall give written notice thereof to Tenant within ten (10) days of the date such determination is made.

(b) At all times during the Term, Tenant shall, at its expense, procure and maintain in full force and effect a similar policy of insurance, naming Landlord as a loss payee as to tenant improvements only, as its interest may appear, with respect to property of every description and kind owned by Tenant upon the Premises or the Building, or for which Tenant is legally liable, including, without limitation, trade fixtures, furniture, equipment and other personal property, and all tenant improvements owned or installed by or on behalf of Tenant (but not with respect to those owned constructed by and owned by Landlord and defined in the Work Letter as Tenant’s Improvement Work) insuring one hundred percent (100%) of the full replacement value of said property and tenant improvements. Any policy proceeds shall be used for the repair and replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions on excessive damage or destruction set forth in Section 10.04 below. Notwithstanding anything to the contrary contained in this Section 5.01, Tenant shall reimburse Landlord within fifteen (15) days after receipt by Tenant of an invoice therefor, for the cost of the insurance provided in this Section 5.01 on any of Tenant’s Improvement Work in excess of Building standard improvements.

5.02. Liability Coverage. Within fifteen (15) days after the execution of this Lease, Tenant shall provide Landlord with certificates of insurance for all of Tenant’s insurance policies required hereunder so that Landlord may determine whether Tenant’s insurance policies are in such forms, amounts and are written by such insurance companies as required by Landlord. Tenant shall, at its own cost and expense, keep and maintain in full force during the Term, a policy or policies of broad form commercial general liability insurance with and cross-liability endorsements (insuring Tenant’s indemnification obligations under this Lease, including Section 5.09 hereof) written by an insurance company approved by Landlord in the form customary to the locality, insuring Tenant’s activities with respect to the Premises and/or Building against loss, damage or liability for personal and bodily injury (including wrongful death) of any person and loss or damage to property occurring in, upon or about the Premises covering personal and bodily injury in the amounts of not less than Two Million Dollars ($2,000,000) per person and Two Million Dollars ($2,000,000) per occurrence and covering property damage in the amount of not less than Two Million Dollars ($2,000,000) per occurrence. Landlord and the Managing Agent set forth in the Basic Lease Information shall be named as an additional insured under such policies. Such insurance shall be with insurance companies with a Best rating classification of not less than A- and a financial rating classification not less than XI and approved to do business in California. Such insurance shall have a deductible of no greater than Twenty-Five Thousand Dollars ($25,000). Tenant’s

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obligations to carry the insurance set forth herein may be satisfied by coverage under a so-called blanket policy of broad form commercial general liability insurance with the same endorsements and coverage for the Premises as described above, as well as coverage of other premises and properties of Tenant, or in which Tenant has some interest; provided, however, that Landlord and the Managing Agent set forth in the Basic Lease Information shall be named as an additional insured, the coverage afforded Landlord shall not be reduced or diminished, and the requirements set forth in this Lease are otherwise satisfied. Landlord shall have the right to require that the aforementioned limits of liability be increased to Three Million Dollars ($3,000,000) during any Option Term.

5.03. Worker’s Compensation Insurance. Tenant shall, at its own cost and expense, keep and maintain in full force during the Term, a policy or policies of worker’s compensation insurance, in statutory amounts and limits, and employer’s liability insurance with limits as follows: bodily injury each accident in the amount of not less than One Million Dollars ($1,000,000), bodily injury/disease each employee in an amount not less than One Million Dollars ($1,000,000), and a bodily injury/disease policy limit of not less than One Million Dollars ($1,000,000).

5.04. Business Interruption/Rental Abatement Insurance. Tenant shall, at its own cost and expense, keep and maintain in full force during the Term, a policy or policies of business interruption insurance and rental abatement insurance as Tenant may deem necessary or appropriate.

5.05. Insurance Certificates. Tenant shall furnish to Landlord, no more than ten (10) days prior to the earlier of Tenant’s occupancy of the Premises (as permitted by Section 3.02) or the Term Commencement Date of this Lease and thereafter no more than twenty (20) days prior to the expiration of each such policy, a certificate of insurance issued by the insurance carrier of each policy of insurance carried by Tenant pursuant hereto. Said certificates shall expressly provide that such policies shall not be calculable or subject to reduction of coverage or otherwise be subject to modification except after thirty (30) days’ prior written notice to the parties named as additional insureds in this Article 5; provided that such certificates may provide for cancellation for such policies due to non-payment of premiums upon twenty (20) days’ prior written notice to the parties named as additional insureds in this Article 5. Landlord, its successors and assigns, and any nominee of Landlord holding any interest in the Premises, including without limitation, any ground lessor and the holder of any fee or leasehold mortgage, shall be named as additional insureds under each such policy of insurance maintained by Tenant pursuant to this Lease (to be evidenced by the attached of an appropriate endorsement to the certificate of insurance delivered by Tenant to Landlord pursuant to this Section).

5.06. Tenant’s Failure. If Tenant fails to maintain any insurance required in this Lease, Tenant shall be liable for any loss or cost resulting from said failure. Notwithstanding the foregoing, Landlord may at Landlord’s sole discretion, but shall not be required to, procure said insurance on Tenant’s behalf and charge Tenant the premium for such policies, together with an administration surcharge of fifteen percent (15%) of the premium for such policies paid by Landlord. This Section 5.06 shall not be deemed to be a waiver of any of Landlord’s rights and remedies under any other section of this Lease.

5.07. Waiver of Subrogation. Any policy or policies of fire, extended coverage or similar casualty insurance, which either party obtains in connection with the Premises, or Tenant’s personal property therein, shall, to the extent the same can be obtained without unreasonable expense, include a clause or endorsement denying the insurer any rights of

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subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by insurance containing such a waiver of subrogation clause or endorsement to the extent of the injury or loss covered thereby.

5.08. Tenant’s Property and Fixtures. Tenant shall assume the risk of damage to any furniture, equipment, machinery, goods, supplies or fixtures which are or remain the property of Tenant or as to which Tenant retains the right of removal from the Premises.

5.09. Indemnification.

(a) To the fullest extent permitted by law, Tenant covenants with Landlord that Landlord, Landlord’s agents and employees shall not be liable for any damage or liability of any kind or for any injury to or death of persons, or damage to property of Tenant or any other person occurring from any cause whatsoever related to the use, improvement, occupancy or enjoyment of the Premises by Tenant or any person thereon or holding under Tenant, and, subject to Section 5.07, Tenant shall indemnify protect, defend and hold Landlord, Landlord’s agents and employees, the Premises, Building, Lot and Project, and Landlord’s related property, harmless from and against (i) any and all liability, fines, penalties, losses, damages, costs and expenses, demands, causes of action, claims or judgments (“Claims”) arising from or relating to any injury to any person or persons or any damage to any property as a result of any accident or other occurrence during the Term occasioned in any way as a result of Tenant’s or Tenant’s officers, employees, agents, servants, subtenants, concessionaires, licensees, contractors or invitees use, maintenance, occupation or operation of the Premises during the Term, (ii) all liens, claims and demands related to the use of the Premises and its facilities during the Term, or any repairs, alterations or improvements which Tenant may make or cause to be made upon the Premises, and (iii) from and against all legal costs and charges, including attorneys’ fees, incurred in and about any of such matters and the defense of any action arising out of the same or in discharging the Building, Project, Lot and Landlord’s related property or any part thereof from any and all liens, charges or judgments which may accrue or be placed thereon by reason of any act or omission of the Tenant; provided, however, that Tenant shall not be required to indemnify Landlord for any damage or injury arising as a result of the gross negligence or willful misconduct of Landlord, Landlord’s agents or employees.

(b) Landlord shall indemnify, defend and hold harmless Tenant, Tenant’s agents and employees from and against all Claims for damage to property outside the Premises to the extent that such Claims result from the gross negligence or willful misconduct of Landlord and its agents and employees in connection with their activities in, on or about the Project or the Building, except to the extent that such Claim (i) is for damage to Tenant’s Improvements or Tenant’s personal property, fixtures, furniture and equipment in the Premises and is covered by insurance that Tenant is required to obtain under this Lease (or would have been covered, had Tenant carried the insurance required under this Lease) or (ii) results from the negligent acts, omissions or willful misconduct of Tenant Parties.

5.10. Earthquake and Flood Insurance. In addition to any other insurance policies carried by Landlord in connection with the Project, Landlord may, if requested by Landlord’s mortgage lender, elect to procure and maintain in full force and effect during the Term, with respect to the Project, a policy of earthquake/volcanic action and flood and/or surface water insurance, including rental value insurance against abatement or loss of Rent in the case of damage or loss covered under such earthquake/volcanic and flood and/or surface water insurance, in an amount up to one hundred percent (100%) of the full insurance replacement value (including debris removal and demolition) of the Project improvements.

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6. OPERATING EXPENSES

6.01. Tenant’s Share.

(a) Tenant’s share of Building Operating Expenses (“Tenant’s Building Share”) is hereby mutually agreed to be that percentage set forth in the Basic Lease Information. Tenant shall pay as Additional Rent Tenant’s Building Share of Building Operating Expenses for any calendar year after the Base Calendar Year to the extent that Building Operating Expenses for such calendar year exceed the Building Operating Expenses for the Base Calendar Year.

(b) Tenant’s share of Project Operating Expenses (“Tenant’s Project Share”) is hereby mutually agreed to be that percentage set forth in the Basic Lease Information. Tenant shall pay as Additional Rent Tenant’s Project Share of Project Operating Expenses for any calendar year after the Base Calendar Year to the extent that Project Operating Expenses for such calendar year exceed the Project Operating Expenses for the Base Calendar Year.

6.02. Definition of Operating Expenses.

(a) “Building Operating Expenses” shall include all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the Building, including, without limitation: (i) all Impositions as set forth in Article 6; (ii) premiums for insurance maintained by Landlord pursuant to Article 5; (iii) wages, salaries and related expenses and benefits of all on-site employees, if any, and off-site employees, if any, engaged in operation, maintenance and security of the Building to the extent such services relate to the Building; (iv) all supplies, materials, tool and equipment rental used in operation of the Building; (v) all maintenance and repair, waste disposal, janitorial, security and service costs incurred in connection with the Building; (vi) a property management fee equal to three and one-half percent (3.5%) of the Base Rent of all tenants of the Building (the “Management Fee”); (vii) legal and accounting expenses, including the cost of audits by certified public accountants; (viii) repairs, replacements and general maintenance of the Building (excluding those paid for by proceeds of insurance or other parties and alterations attributable solely to tenants of the Building other than Tenant); (ix) all interior and exterior maintenance, repair and replacement costs, including, without limitation, service areas, elevators, mechanical rooms, plumbing, heating, ventilating and air conditioning (“HVAC”) equipment and non-structural walls and roof (all to the extent related to the interior or exterior of the Building); (x) all other reasonable operating, management and other expenses incurred by Landlord to the extent such expenses are incurred in connection with operation of the Building; and (xi) all charges for water and sewer services not separately metered by Tenant and used or consumed in the Building; (xii) any other costs, levies or assessments resulting from statutes or regulations promulgated by any governmental authority in connection with the use or occupancy of the Building or the Premises; (xiii) personal property taxes levied on or attributable to personal property used in connection with the Building; (xiv) outside consulting fees incurred directly attributable to the operation, management and maintenance of the Building; (xv) freight charges and transportation services attributable to the operation and/or management of the Building; and (xvi) reasonable accounting, audit and verification fees. Building Operating Expenses shall not include electricity and gas, if any, delivered to the Building, including Tenant’s Premises, which costs are Tenant’s proportionate or sole responsibility as further defined in Section 6.08. Notwithstanding the provisions of this Section 6.02, the following shall not be included within Building Operating Expenses:

(i) Any depreciation on the Building or any improvements thereto;

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(ii) Costs incurred due to a violation by Landlord or any other tenant of the Building of any of the terms and conditions of this Lease or of any other lease relating to the Building;

(iii) Any principal, interest, loan fees, legal expenses and other carrying costs related to any mortgage or deed of trust and all rental and other amounts payable due under any ground or underlying lease related to the Building, unless such costs are directly attributable to a Tenant’s breach or default under this Lease;

(iv) Real estate brokers’ leasing commissions or other real estate fees, attorneys fees, costs, expenses and disbursements of any kind whatsoever incurred in connection with marketing space or leasing space to tenants or prospective tenants, including tenant improvement expenses.

(v) Initial improvements or alterations to tenant spaces.

(vi) The cost of providing any service directly to and paid directly by any tenant.

(vii) Costs associated with:

(A) Operation of the business of the ownership of the Building or the Project or entity that constitutes Landlord or the Managing Agent set forth in the Basic Lease Information (or any other property manager), as distinguished from the cost of Building operations;

(B) Landlord’s general corporate or partnership overhead and general administrative expenses, including the salaries of management personnel other than those who are primarily engaged in the operation, maintenance, and repair of the Building, except to the extent that those costs and expenses are included in the Management Fees;

(viii) Costs of:

(A) Initial construction of the Building (including legal costs and professional consultants’ costs); or

(B) Reconstruction of the Building pursuant to Article 10;

(ix) Capital improvement costs related to the repair or replacement of the structural foundations, structural walls and structural roof of the Building and capital improvement costs related to the replacement or addition of other capital components of the Building, except to the extent of a pro-rata share of the cost of replacing any such capital components required to be replaced, determined based on the number of months then remaining in the Term of the Lease and an estimated useful life of such capital components;

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(x) All expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the other buildings in the Project or any surrounding property and supporting facilities, which are included in Project Operating Expenses.

(xi) Legal, accounting, audit, verification and other consulting fees relating to the ownership, as opposed to the operation, of the Building and the Project.

(xii) Impositions levied on any other tenant’s improvements in the Building to the extent the cost of such tenant improvements is in material excess of the Building standard improvements.

(xiii) Any and all costs of selling or exchanging the Building.

(xiv) Costs incurred by Landlord for the repair of damage to the Building to the extent that Landlord is reimbursed by insurance proceeds.

(xv) Attorneys’ fees and other costs incurred by Landlord to enforce the provisions of any lease of space in the Building due to the violation by any tenant of the terms and conditions of such lease by any tenant of the Building.

(xvi) Tax penalties incurred as a result of Landlord’s negligence or inability or refusal to make payments when due.

(xvii) Costs arising out of the presence of Hazardous Materials in or about the Building as of the Lease Date.

(xviii) Utility costs for which any tenant directly contracts with the local public service company.

(xix) Costs arising from the Landlord’s charitable or political contributions.

(xx) Costs, other than those incurred in ordinary maintenance and insurance, for sculpture, paintings or other art objects.

(xxi) Costs of any items to the extent Landlord receives reimbursement from insurance proceeds, condemnation awards or a third party, including payments pursuant to such third party’s indemnification.

(xxii) Insurance premiums to the extent of any refunds of those premiums.

(xxiii) Entertainment, dining, or travel expenses that are (a) not directly related to the management or maintenance of the Building or (b) in excess of reasonable and customary amounts.

(xxiv) Costs incurred in connection with upgrading the Building to comply with disability, life, fire and safety codes, ordinances, statues or laws in effect as of the Lease Date, including, without limitation, the Americans with Disabilities Act, including any penalties or damages incurred due to such non-compliance as of such date.

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(xxv) Advertising and promotional expenditures.

(b) “Project Operating Expenses” shall include all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the Project Common Areas and Parking Area, including, without limitation: (i) all Impositions as set forth in Article 6; (ii) premiums for insurance maintained by Landlord pursuant to Article 5; (iii) wages, salaries and related expenses and benefits of all on-site employees, if any, and off-site employees, if any, engaged in operation, maintenance and security of the Project Common Areas and Parking Area to the extent such services are for the Project; (iv) all supplies, materials, tool and equipment rental used in operation of the Project Common Areas and Parking Area; (v) all maintenance and repair, waste disposal, janitorial, security and service costs incurred in connection with the Parking Area and the Project Common Area, including, without limitation, locker rooms and exercise facilities; (vi) repairs, replacements and general maintenance of the Parking Area and the Project Common Area (excluding those paid for by proceeds of insurance or other parties and alterations attributable solely to tenants of the Project other than Tenant); (vii) all other reasonable operating, management and other expenses incurred by Landlord in connection with operation of the Parking Area and the Project Common Areas; (vii) all charges for water, electrical, and sewer services not separately metered by any tenant of the Project and used or consumed in the Parking Area or the Project Common Area; (ix) any other costs, levies or assessments resulting from statutes or regulations promulgated by any governmental authority in connection with the use or occupancy of the Project; (xi) personal property taxes levied on or attributable to personal property used in connection with the Project Common Areas and Parking Area; (xii) freight charges and transportation services to the extent attributable to the operation and/or management of the Project; and (xiii) reasonable accounting, audit, verification and other reasonable consulting fees. Project Operating Expenses shall not include electricity and gas, if any, delivered to the Project, which costs are the responsibility of any tenant of the Project as further defined in Section 6.08. Notwithstanding the provisions of this Section 6.02, the following shall not be included within Project Operating Expenses:

(i) Any depreciation on the Project Common Areas or Parking Area or any improvements thereto;

(ii) Costs incurred due to violation by Landlord, or any other tenant of the Project, of any of the terms and conditions of this Lease or of any other lease relating to the Project;

(iii) Any principal, interest, loan fees, legal expenses, and other carrying costs related to any mortgage or deed of trust and all rental and other amounts payable under any ground or underlying lease related to the Project, unless such costs are directly attributable to a Tenant’s breach or default under this Lease;

(iv) Real estate brokers’ leasing commissions or other real estate fees, attorneys fees, costs, expenses and disbursements of any kind whatsoever incurred in connection with marketing space or leasing space to tenants or prospective tenants, including tenant improvement expenses.

(v) Initial improvements or alterations to tenant spaces.

(vi) The cost of providing any service directly to and paid directly by any tenant.

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(vii) Costs associated with:

(A) Operation of the business of the ownership of the Project or the Project or entity that constitutes Landlord or the Managing Agent set forth in the Basic Lease Information (or any other property manager) as distinguished from the cost of Project operations; or

(B) Landlord’s general corporate or partnership overhead and general administrative expenses, including the salaries of management personnel other than those who are primarily engaged in the operation, maintenance, and repair of the Project Common Areas or Parking Area, except to the extent that those costs and expenses are included in the Management Fees.

(viii) Costs of:

(A) Initial construction of the Project Common Areas, Parking Area or any building in the Project other than the Building, and other buildings leased to tenants (including legal costs and professional consultants’ costs);

(B) Reconstruction of the Project Common Areas or Parking Area pursuant to Article 10.

(ix) Capital improvement costs related to the repair or replacement of the structural foundations, structural walls and structural roof of the of the Project Common Area or Parking Area and capital improvement costs related to the replacement or addition of other capital components of the Project Common Area or Parking Area, except to the extent of a pro-rata share of the cost of replacing any such capital components required to be replaced, determined based on the number of months then remaining in the Term of the Lease and an estimated useful life of such capital components.

(x) All expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the other buildings in the Project, which are included in Building Operating Expenses.

(xi) Legal, accounting, audit, verification and other consulting fees relating to the ownership, as opposed to the operation, of the Building and the Project.

(xii) Impositions levied on any other tenant’s improvements in the Building or the Project to the extent the cost of such tenant improvements is in material excess of the Building standard improvements.

(xiii) Any and all costs of selling or exchanging the Project.

(xvi) Tax penalties incurred as a result of Landlord’s negligence or inability or refusal to make payments when due.

(xv) Attorneys’ fees and other costs incurred by Landlord to enforce the provisions or any lease of space in the Project due to the violation by any tenant of the Project of the terms and conditions of such lease.

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(xvi) Tax penalties incurred as a result of Landlord’s negligence or inability or refusal to make payments when due.

(xvii) Costs arising out of the presence of Hazardous Materials in or about the Project (including, without limitation, the ground water or soil of the Project) as of the Lease date.

(xviii) Utility costs for which any tenant directly contracts with the local public service company.

(xix) Costs arising from the Landlord’s charitable or political contributions.

(xx) Costs, other than those incurred in ordinary maintenance and insurance, for sculpture, paintings or other art objects.

(xxi) Costs of any items to the extent Landlord receives reimbursement from insurance proceeds, condemnation awards or a third party, including payments pursuant to such third party’s indemnification.

(xxii) Insurance premiums to the extent of any refunds of those premiums.

(xxiii) Entertainment, dining, or travel expenses that are (a) not directly related to the management or maintenance of the Building or (b) in excess of reasonable and customary amounts.

(xxiv) Costs incurred in connection with upgrading the Building to comply with disability, life, fire and safety codes, ordinances, statues or laws in effect as of the Lease Date, including, without limitation, the Americans with Disabilities Act, including any penalties or damages incurred due to such non-compliance as of such date.

(xxv) Advertising and promotional expenditures.

(c) As used herein, “Operating Expenses” shall mean Building Operating Expenses or Project Operating Expenses, as applicable.

6.03. Proration. Any Operating Expenses attributable to a period which falls only partially within the Term shall be prorated between Landlord and Tenant so that Tenant shall pay only that proportion thereof which the part of such period within the Term bears to the entire period.

6.04. Survival. Any such sum payable by Tenant which would not otherwise be due until after the date of the termination of this Lease, shall, if the exact amount is uncertain at the time that this Lease terminates, be paid by Tenant to Landlord upon such termination in an amount to be determined by Landlord with an adjustment to be made once the exact amount is known.

6.05. Estimated Payments. Prior to the commencement of each calendar year of the Term, Landlord shall estimate the Additional Rent payable by Tenant pursuant to this provision and Tenant shall pay to Landlord on the first of each month in advance, one-twelfth (1/12) of Landlord’s estimated amount. After the end of each calendar year there shall be an

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adjustment made to account for any difference between the actual and the estimated Operating Expenses for the previous year. If Tenant has overpaid the amount of Additional Rent owing pursuant to this provision, Landlord shall credit Tenant the amount of such overpayment when determining Tenant’s estimated operating expense payments for the following calendar year; provided, that in the case of an overpayment for the final Lease Year of the Term identified in the Basic Lease Information, Landlord shall refund such overpayment to Tenant within ninety (90) days after the end of Tenant’s Lease Term. If Tenant has underpaid the amount of Additional Rent owing pursuant to this provision, Tenant shall pay the amount of such underpayment to Landlord, as Additional Rent, within ten (10) days after receipt of notice from Landlord of such underpayment.

6.06. Adjustment. Notwithstanding any provision herein to the contrary, in the event the Project and/or Building is not fully occupied (including because it is not yet constructed) during the Base Calendar Year or any subsequent calendar year, an adjustment shall be made in computing Operating Expenses and Tenant’s Share of Operating Expenses for such calendar year so that the same shall be computed for such calendar year as though the Building and/or Project had been ninety-five percent (95%) occupied during such year and fully tax assessed for such year. Additionally, if all capital improvements made by Landlord to the Common Area in calendar year 2005 are not included in the real property tax assessment for the Base Year, an adjustment for such improvements which are not included shall be made for the Base Year to reflect the increase in real tax assessment that would have been included in the real property tax assessment for the Base year if such improvements had been so included.

6.07. Impositions. “Impositions” shall collectively refer to all forms of: (i) real estate taxes, assessments, impact fees, transit charges, housing fund assessments, assessment bonds, license fees, license taxes, business license fees, commercial rental taxes and improvement bonds in connection with the Project and/or the Building ; (ii) governmental taxes, levies, fees and charges imposed by any authority having the direct power to tax, including but not limited to any city, county, state or federal government or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, and all other taxes relating to any legal or equitable interest in the Premises, Project and/or the Building; (iii) taxes which may be levied in lieu of real estate taxes; and (iv) other governmental charges (including, but not limited to, charges for traffic facilities improvements, water service studies and improvements, and fire service studies and improvements) or amounts necessary to be expended because of governmental orders. “Impositions” shall include all such governmental obligations, whether general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind and nature for public improvements, services, benefits, or any other purpose which are assessed, levied, confirmed, imposed or become a lien upon the Premises, Project and/or Building or become payable during the Term.

(a) Installment Election. In the case of any Impositions which may be evidenced by improvement or other bonds or which may be paid in annual or other periodic installments, Landlord shall cause such bonds to be issued or cause such assessment to be paid in installments over the maximum period permitted by law.

(b) Limitation. Nothing contained in this Lease shall require Tenant to pay (I) any franchise, estate, inheritance or succession transfer tax of Landlord, (ii) any assessment or penalty imposed by any governmental authority by reason of Landlord’s or the Project’s failure to comply with any applicable law (except as otherwise expressly set forth herein, or if resulting from the acts or omissions of Tenant), or (iii) any income, profits or revenue tax or charge, upon the net income of Landlord from all sources; provided, however,

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that if at any time during the Term under the laws of the United States Government or the State of California, or any political subdivision thereof, a tax or excise on rent, or any other tax however described, is levied or assessed by any such political body against Landlord on account of Rent, or a portion thereof, Tenant shall pay one hundred percent (100%) of any said tax or excise as Additional Rent.

(c) Personal Property Taxes. Tenant shall pay or cause to be paid, prior to delinquency, any and all taxes and assessments levied upon all trade fixtures, inventories and other personal property placed in and upon the Premises by Tenant.

(d) Impositions on Tenant Improvements in Excess of Building Standard Improvements. Tenant shall, within fifteen (15) days after receipt by Tenant of an invoice therefor, reimburse Landlord, and not as a part of Operating Expense, any and all Impositions levied upon the Tenant’s Improvements in the Premises to the extent the cost of such tenant improvements are in excess of Building standard improvements.

6.08. Services and Utilities. Tenant shall contract directly with the appropriate utility company for the supply of electricity to the Premises, which shall be separately metered. Landlord shall use its best reasonable efforts to provide during Business Hours, as specified in the Basic Lease Information, HVAC services to the Building. Said HVAC services will be rebilled to Tenant as Additional Rent with Tenant’s share hereby mutually agreed to be that percentage set forth in the Basic Lease Information. Landlord shall also use its best reasonable efforts to provide during the Business Hours, as specified in the Basic Lease Information, as an Operating Expense: (i) utilities and maintenance to the Common Areas; and (ii) janitorial service to Premises. Landlord shall not be liable for any failure or interruption of any utility or service, and Tenant shall not be entitled to any reduction or abatement of Rent on account of any such failure or interruption, unless such failure or interruption is shown by Tenant to be directly attributable to the gross negligence or intentional acts of Landlord, its agents or employees. In the event of any such interruption or failure of any services or utilities provided in this Lease resulting from the gross negligence or intentional acts of Landlord, Landlord’s agents or employees, Tenant’s sole remedy shall be the equitable abatement of Base Rent for the duration of the interruption or failure, which abatement shall not commence until Tenant has first provided notice to Landlord and given ten (10) days to cure such interruption or failure.

6.09. Special Services.

(a) Additional Services. In the event Landlord provides any utilities or services to Tenant beyond the standard services set forth in Section 6.08 of this Lease, Tenant shall pay Landlord for such special services, together with an administration surcharge of fifteen percent (15%) of the cost of such special services, as Additional Rent.

(b) Utility Consumption. As part of the Improvements of the Work Letter attached hereto as Exhibit D, Landlord shall install an HVAC override timer with an hourly counter attachment on each floor of the Premises. Tenant’s activating said override timer to obtain HVAC services after normal Business Hours (as set forth in the Basic Lease Information) will engage the Building’s package, condensing and fan coil units. Each quarter, Landlord shall determine the operating hours that Tenant has obtained HVAC services in excess of normal Business Hours (“Excess Operating Hours”). The total number of Excess Operating Hours derived will be multiplied by Thirty-five Dollars ($35) per hour per zone and said resulting amount will reflect the HVAC utilities usage, as well as the increased maintenance and repair costs and accelerated reduction of the useful life of the equipment associated with such Excess Operating Hours for the applicable quarter and will be billed by Landlord to Tenant and shall be promptly paid by Tenant to Landlord as Additional Rent.

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6.10 Audit Rights. Not more than once each calendar year, Tenant, upon ten (10) days advance written notice thereof to Landlord, at Tenant’s sole cost and expense, may retain an independent financial professional reasonably acceptable to Landlord, or utilize an employee of Tenant, to review and audit Landlord’s books and records with regard to the Operating Expenses and the calculation of Tenant’s proportionate share thereof. Landlord shall make the books and records relating to Operating Expense available at Landlord’s office for the purpose of such audit. If it is reasonably determined by such auditors that Tenant overpaid its share of any Operating Expenses, Landlord shall refund to Tenant the amount of such overpayment within thirty (30) days. If it is reasonably determined by such auditors that Tenant underpaid its share of any Operating Expenses, Tenant shall pay to Landlord the amount of such deficiency within thirty (30) days. The cost of any such audit shall be paid solely by Tenant, unless the audit shows that Landlord overstated the Operating Expenses by more than five percent (5%), in which case Landlord shall pay one-half ( ¹/2) of the reasonable cost and expense of such audit.

7. REPAIRS AND MAINTENANCE

7.01. Tenant Repairs and Maintenance. Except as otherwise specifically provided in this Lease, Tenant shall, at Tenant’s own expense, maintain the Premises in a clean, sanitary and safe condition and keep and maintain the integrity and quality of the Premises, all walls, ceilings, lights, fixtures, and floor coverings thereof, in first-class repair. Subject to Section 5.07, Tenant shall be responsible for the cost of any repairs due to damage caused by Tenant’s active negligence or wilful misconduct. Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect (including the provisions of California Civil Code Section 1942 and any successive sections or statutes of a similar nature). Tenant waives all rights to recover any losses or damages (including interference with or injury to Tenant’s business) resulting from Landlord’s performing or failure to perform any such repairs or maintenance, it being expressly understood and agreed that Tenant shall be solely responsible for and look solely to its insurance for any such damage and losses.

7.02. Inspection of Premises. Landlord, at reasonable times, and upon at least 24 hours advance notice to Tenant (except in the case of an emergency, when no notice shall be required), may enter the Premises to: (a) complete construction undertaken by Landlord on the Premises or Building; (b) to inspect, improve, clean or repair the same; (c) to inspect the performance by Tenant of the terms and conditions hereof; (d) to affix reasonable signs and displays; (e) to show the Premises to prospective purchasers, tenants and lenders; and (f) for all other purposes as Landlord shall reasonably deem necessary.

7.03. Liens. Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered at the request of Tenant and shall keep the Premises and Building free and clear of all mechanics’ and materialmen’s liens in connection therewith. Landlord shall have the right to post or keep posted on the Premises, or in the immediate vicinity thereof, any notices of non-responsibility for any construction, alteration or repair of the Premises by Tenant. If any such lien is filed, Landlord may, after Landlord has first provided notice to Tenant and given Tenant three (3) days to remove such lien, but shall not be required to, take such action or pay such amount as may be necessary to remove such lien; and, Tenant shall pay to Landlord as Additional Rent any such amounts expended by Landlord, together with an administration charge of fifteen percent (15%) of any such amounts, within five (5) days after notice is received from Landlord of the amount expended by Landlord.

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7.04. Landlord’s Maintenance Obligations. Subject to the terms and conditions provided for in this Lease, Landlord shall repair and maintain in good condition and repair, and in a manner that complies with all applicable governmental measures, the Common Areas, public areas, and structural portions of the Building and Project, including the exterior walls, under flooring and roof, basic plumbing, heating, air conditioning and electrical systems installed or furnished by Landlord, the cost of which shall be included in the Operating Expenses.

8. FIXTURES, PERSONAL PROPERTY AND ALTERATIONS

8.01. Fixtures and Personal Property. Tenant, at Tenant’s expense, may install any necessary trade fixtures, equipment and furniture in the Premises; provided, that such items are installed and are removable without damage to the structure or improvements of the Building. Landlord reserves the right to approve or disapprove of curtains, draperies, shades, paint or other interior improvements visible from outside the Premises on wholly aesthetic grounds. Such improvements must be submitted for Landlord’s written approval prior to installation, or Landlord may remove or replace such items at Tenant’s sole expense. Said trade fixtures, equipment and furniture shall remain Tenant’s property and shall be removed by Tenant upon expiration of the Term, or earlier termination of this Lease. At Landlord’s option, Landlord may notify Tenant in writing not to remove said improvements to the extent such removal may cause damage to the Premises or Building. Tenant shall repair, at Tenant’s sole expense, all damage caused by the installation or removal of trade fixtures, equipment, furniture or temporary improvements. If Tenant fails to remove the foregoing items within ten (10) days after the termination of this Lease, Landlord may (i) keep and use them, wherein Tenant surrenders possession of title and waives all rights of possession, or (ii) remove any or all of them and cause them to be stored or sold in accordance with applicable law.

8.02. Alterations. Tenant shall not make or allow to be made any alterations, additions or improvements to the Premises, either at the inception of this Lease or subsequently during the Term, except as permitted pursuant to Section 8.04 below, without obtaining the prior written consent of Landlord. Landlord shall not unreasonably withhold or delay its consent to any alterations, additions or improvements to the interior of the Premises proposed by Tenant, except to the extent such alterations, additions or improvements (i) affect the structural elements of the Building; (ii) affect the electrical, mechanical or plumbing systems of the Building; (ii) are visible from outside the Building or (iii) affect the improvements to the Premises constructed by Landlord. Tenant shall deliver to Landlord full and complete plans and specifications of all such alterations, additions or improvements, and no such work shall be commenced by Tenant until Landlord has given its written approval thereof. Landlord does not expressly or implicitly covenant or warrant that any plans or specifications submitted by Tenant are safe or that the same comply with any applicable laws, lawful ordinances, etc. Further, Tenant shall indemnify and hold Landlord harmless from any loss, cost or expense, including attorneys’ fees and costs, incurred by Landlord as a result of any defects in design, materials or workmanship resulting from Tenant’s alterations, additions or improvements to the Premises. All repairs, alterations, additions, and restoration by Tenant hereinafter required or permitted shall be done in a good and workmanlike manner and in compliance with all applicable laws and lawful ordinances, by-laws, regulations and orders of any federal, state, county, municipal or other public authority and of the insurers of the Building. Tenant shall not permit liens of any kind to be imposed upon the Premises or Building and Tenant shall discharge of record any such liens or post adequate security or bond within five (5) days after written notice thereof. Tenant shall reimburse Landlord for Landlord’s reasonable charges for

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reviewing and approving or disapproving plans and specifications for any alterations proposed by Tenant, and as a deposit against such obligation Tenant shall submit to Landlord with each request to make any alteration, additions or improvements to the Premises a deposit of Five Hundred Dollars ($500). Landlord shall refund all or any part of such deposit not actually expended or incurred by Landlord for reviewing and approving or disapproving Tenant’s plans as permitted herein. Tenant shall also reimburse Landlord for the costs of any increased insurance premiums incurred by Landlord to include such alterations in the Landlord’s all risk insurance coverage requirements set forth in Section 5.01; provided, however, that Landlord shall be required to include the Tenant’s alterations under Landlord’s all risk insurance only to the extent such insurance is actually obtained by Landlord and such alterations are insurable under Landlord’s insurance. If such Tenant alterations are not or cannot be included in the coverage of Landlord’s insurance, Tenant shall insure the alterations under Tenant’s all risk insurance policy or policies as set forth in Section 5.01. Tenant shall require that any contractors used by Tenant carry a comprehensive liability insurance policy covering bodily injury in the amounts of Two Million Dollars ($2,000,000) per person and Two Million Dollars ($2,000,000) per occurrence and covering property damage in the amount of Two Million Dollars ($2,000,000) per occurrence. Tenant shall obtain, on behalf of Tenant and at Tenant’s sole cost and expense, before proceeding with any alteration the cost of which exceeds Five Thousand Dollars ($5,000) a completion and lien indemnity bond, or other surety, reasonably satisfactory to Landlord for such alteration. Landlord may require proof of such insurance prior to commencement of any work on the Premises.

8.03. Removal of Alterations. All alterations, additions and improvements shall remain the property of Tenant until termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, by written notice at any time prior to the date which is thirty (30) days before the expiration of the Term (or immediately upon any sooner termination of the Lease) identify those items of Tenant’s alterations, additions or improvements which Landlord shall require Tenant to remove at the termination of this Lease. If Landlord requires Tenant to remove any such alterations, additions or improvements, Tenant shall at its sole cost, remove the identified items on or before the expiration or sooner termination of this Lease and repair any damage to the Premises and/or the Building caused by such removal.

8.04. Minor Alterations. The original Tenant shall be permitted to make minor alterations, additions or improvements to the interior improvements of the Premises (“Minor Alterations”) without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed, but only if:

(a) At least fifteen (15) days before construction commences, Tenant gives Landlord written notice of the nature and extent of the intended Minor Alterations, specifying the contractor that Tenant intends to use, a cost estimate of the proposed Minor Alterations and copies of all contracts relating thereto (those contracts not available at the time of Tenant’s notice shall be delivered to Landlord when they become available but in all events prior to commencement of construction of the Minor Alterations);

(b) The proposed alterations, additions or improvements do not affect the Building systems, the exterior appearance, the structural components of the Building, the value of the Building or the cost to Landlord of releasing of the Premises upon the expiration or termination of the term of the Lease;

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(c) The proposed Minor Alterations do not involve the installation of stairways, vaults or other equipment or improvements that would cost more to move or remove than ordinary improvements for general office use;

(d) The proposed Minor Alterations, together with all other Minor Alterations made without Landlord’s consent under this Section 8.04 within twelve (12) months of the proposed alteration, addition or improvement, do not cost more than Fifteen Thousand Dollars ($ 15,000) in the aggregate; and

(e) Tenant provides to Landlord within five (5) days of Landlord’s request such further information as Landlord may reasonably request regarding the proposed Minor Alterations and Tenant complies with all reasonable conditions imposed by Landlord.

Within thirty (30) days of completion of the Minor Improvements, Tenant shall deliver to Landlord a copy of as-built plans for such Minor Alterations, if such Minor Alterations are of a type for which as-built plans are reasonably available.

9. USE AND COMPLIANCE WITH LAWS

9.01. General Use and Compliance with Laws. Tenant shall only use the Premises for the Permitted Uses specified in the Basic Lease Information and for no other use without the prior written consent of Landlord. Tenant shall, at Tenant’s sole cost and expense, comply with all of the requirements of municipal, county, state, federal and other applicable governmental authorities now in force, or which may hereafter be in force, pertaining to the Premises, Project, Building, Lot and Parking Area and secure any necessary permits therefor and shall faithfully observe, in the use of the Premises, Project, Building, Lot and Parking Area, all municipal, county, state, federal and other applicable governmental entities’ requirements which are now in force, or which may hereafter be in force. Tenant, in Tenant’s use and occupancy of the Premises, shall not subject the Premises to any use which would tend to damage any portion thereof or which shall in any way increase the existing rate of any insurance on the Building or any portion thereof or cause any cancellation of any insurance policy covering the Building or portion thereof. Tenant shall not do or permit to be done anything which would obstruct or interfere with the rights of or injure other Tenants or occupants of the Project.

9.02. Signs. Landlord, at its sole cost and expense, shall furnish Tenant with initial Building Standard suite signage and Building Standard directory signage on the Building’s lobby directory board. The cost of any modifications to the initial signage shall be paid by Tenant. Tenant shall not install any sign on the Premises or Building unless Tenant receives prior written approval from Landlord for such sign; provided, however, that Tenant may, on a non-exclusive basis, install at its expense an identifying sign on the top portion of the west side of the Building in a style and size and in a location acceptable to Landlord, so long as such sign conforms to all laws, statutes, regulations, restrictions and zoning, is designed by Wieber Nelson Design or another designer acceptable to Landlord and is first approved by all required governmental agencies and by Landlord. Building signage rights provided to the Tenant in this Section 9.02 are personal to Verus Pharmaceuticals, Inc., the initial Tenant, and cannot be transferred in connection with any Transfer (as defined herein below) other than a Transfer by Verus Pharmaceuticals, Inc. to an Affiliate Transferee in connection with a transfer by Verus Pharmaceuticals, Inc. of its entire interest in the Lease. Any sign placed by Tenant on the Premises, the Building or the Project, shall be installed at Tenant’s sole cost and expense and shall contain only Tenant’s name, and no advertising matter. Tenant shall remove any such sign upon termination of this Lease and shall return the affected portion of the Premises, the Building or the Project, as applicable, to their condition prior to the placement or erection of said sign.

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9.03. Parking Access. In addition to the general obligation of Tenant to comply with laws and without limitation thereof, Landlord shall not be liable to Tenant nor shall this Lease be affected if any parking privileges appurtenant to the Premises are impaired by reason of any moratorium, initiative, referendum, statute, regulation, or other governmental decree or action which could in any manner prevent or limit the parking rights of Tenant hereunder. Any governmental charges or surcharges or other monetary obligations imposed relative to parking rights with respect to the Premises, Project, Building and Lot shall be considered as Impositions and shall be payable by Tenant under the provisions of Article 6 hereinabove. Tenant hereby acknowledges that Tenant shall not use in excess of Tenant’s pro rata share of the Project’s total parking spaces.

9.04. Floor Load. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor is designed to carry and which is then allowed by law.

9.05. Deliveries. All deliveries to and from the Premises shall be made in such a manner and during the time periods reasonably specified by Landlord so as to cause the minimum amount of interference with the business of other tenants.

10. DAMAGE AND DESTRUCTION

10.01. Reconstruction. If the Premises are damaged or destroyed during the Term by any cause not attributable to Tenant, its agents, employees or invitees, Landlord shall, to the extent that insurance proceeds are available therefor and are not applied by any lender against payment of an existing loan on the Project, Building or Lot, except as hereinafter provided, diligently repair or rebuild them to substantially the condition in which they existed immediately prior to such damage or destruction. If, however, insurance proceeds are not sufficient to pay the full cost of reconstruction of the Premises, or if the damage or destruction is due to the acts or omissions of Tenant, its agents, employees or contractors, Landlord may either terminate this Lease or promptly and diligently reconstruct the Premises to the extent necessary to restore the Premises to the condition existing as of the Lease Date, and Tenant shall be obligated for the restoration of all of Tenant’s leasehold improvements (but not with respect to those improvements owned by Landlord), trade fixtures and other personal property on the Premises.

10.02. Rent Abatement. If any portion of the Premises is damaged or destroyed during the Term to the extent that such portion is rendered unusable by Tenant, it is agreed that, except as provided in this Section 10.02, Tenant shall look solely to Tenant’s business interruption insurance for any damages or losses arising from substantial interference with the operation of Tenant’s business by reason of such damage or destruction. If Landlord has obtained rental abatement insurance as permitted by Section 5.04 hereinabove, and only to the extent of any proceeds received by Landlord from rental abatement insurance, Rent shall be abated proportionately following the date of such damage or destruction. Such abatement shall continue for the period commencing with the date of such damage and ending upon substantial completion by Landlord of the work of repair or reconstruction which Landlord is obligated or undertakes. In the event Landlord does not purchase rental abatement insurance, then no Rent shall be abated.

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10.03. Excessive Damage or Destruction. If the Building is damaged or destroyed to the extent that Landlord determines that it cannot, with reasonable diligence, be fully repaired or restored by Landlord within one hundred eighty (180) days after the date of the damage or destruction, Landlord may terminate this Lease. Notwithstanding the fact that the Premises have been damaged or destroyed, Landlord shall in good faith determine whether the Building can be fully repaired or restored within the one hundred eighty (180) day period, and Landlord’s determination shall be binding upon Tenant. Landlord shall notify Tenant of its determination, in writing, within forty-five (45) days after the date of the damage or destruction whether it elects to fully repair or restore the Building. If Landlord determines that the Building can be fully repaired or restored within the one hundred eighty (180) day period, or if Landlord determines that such repair or restoration cannot be made within said period, but Landlord does not elect to terminate within forty-five (45) days from the date of Landlord’s determination, this Lease shall remain in full force and effect and Landlord shall diligently repair and restore the damage as soon as reasonably possible.

10.04. Uninsured Casualties. Notwithstanding anything contained herein to the contrary, in the event of damage to or destruction of all or any portion of the Building which is not fully covered by the insurance proceeds received by Landlord under the insurance policies required under Section 5.01 hereinabove (without regard to Landlord’s deductible for such policies), Landlord may terminate this Lease by written notice to Tenant, given within forty-five (45) days after the date of notice to Landlord that said damage or destruction is not so covered. If Landlord does not elect to terminate this Lease, the Lease shall remain in full force and effect and Landlord shall commence reconstruction and restoration of Landlord’s Work in the Premises as described in Exhibit D and shall diligently repair or rebuild Landlord’s Work to substantially the condition in which it existed immediately prior to such damage or destruction.

10.05. Waiver. With respect to any destruction which Landlord is obligated to repair or may elect to repair under the terms of this Article 10, Tenant hereby waives all rights to terminate this Lease pursuant to rights otherwise presently or hereafter accorded by law to tenants, except as expressly otherwise provided herein.

11. EMINENT DOMAIN

11.01. Total Condemnation. If the whole of the Premises is acquired or condemned by eminent domain, inversely condemned or sold in lieu of condemnation, for any public or quasi-public use or purpose (“Condemned”), then the Term shall terminate as of the date of title vesting in such proceeding, and Rent shall be adjusted as of the date of such termination. Tenant shall immediately notify Landlord of any such occurrence.

11.02. Partial Condemnation. If any part of the Premises is partially Condemned, and such partial condemnation renders the Premises unusable for the business of the Tenant, as reasonably determined by Landlord, or in the event a substantial portion of the Building is Condemned, as reasonably determined by Landlord, then the Term shall terminate as of the date of title vesting in such proceeding and Rent shall be adjusted to the date of termination. If such condemnation is not sufficiently extensive to render the Premises unusable for the business of Tenant, as reasonably determined by Landlord, or less than a substantial portion of the Building is Condemned, then Landlord shall promptly restore the Premises to a condition comparable to its condition immediately prior to such condemnation less the portion thereof lost in such condemnation, and this Lease shall continue in full force and effect except that after the date of such title vesting the Base Rent shall be appropriately reduced as reasonably determined by Landlord.

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11.03. Landlord’s Award. If the Premises are wholly or partially Condemned, then, subject to the provision of Section 11.04 below, Landlord shall be entitled to the entire award paid for such condemnation, and Tenant waives any right or claim to any part thereof from Landlord or the condemning authority.

11.04. Tenant’s Award. Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant’s own right on account of any and all costs or loss incurred by Tenant including, without limitation, removing Tenant’s merchandise, furniture, fixtures, leasehold improvements and equipment to a new location.

11.05. Temporary Condemnation. If the whole or any part of the Premises shall be Condemned for any temporary public or quasi-public use or purpose, this Lease shall remain in effect and Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term. If a temporary condemnation remains in force at the expiration or earlier termination of this Lease, Tenant shall pay to Landlord a sum equal to the reasonable cost of performing any obligations required of Tenant by this Lease with respect to the surrender of the Premises, including without limitation, repairs and maintenance, and upon such payment such obligations shall be deemed satisfied. If a temporary condemnation is for an established period which extends beyond the Term, the Lease shall terminate as of the date of occupancy by the condemning authority, and the damages shall be as provided in Sections 11.03 and 11.04 hereinabove and Rent shall be adjusted to the date of occupancy.

11.06. Notice and Execution. Landlord shall, immediately upon service of process in connection with any condemnation or potential condemnation, give Tenant notice in writing thereof. Tenant shall immediately execute and deliver to the Landlord all instruments that may be required to effectuate the provisions of this Article.

12. DEFAULT

12.01. Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” on the part of Tenant:

(a) [Reserved].

(b) Payment. Failure to pay any installment of Base Rent, Additional Rent or other monies due and payable hereunder upon the date when said payment is due, where such failure continues uncured for a period of three (3) days after notice by Landlord to Tenant;

(c) Performance. Default in the performance of any of Tenant’s covenants, agreements or obligations hereunder (except default in the payment of Rent, Additional Rent or other monies), where such failure is curable and continues uncured for ten (10) days after notice by Landlord to Tenant, provided that if the nature of the default cannot be reasonably cured within ten (10) days, Tenant shall not be deemed in default if it shall commence curing the default within such ten (10) day period and diligently prosecutes same to completion;

(d) Assignment. A general assignment by Tenant for the benefit of creditors or any Unauthorized Assignment as defined below in Article 13;

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(e) Bankruptcy. The filing of a voluntary petition by Tenant, or the filing of an involuntary petition by any of Tenant’s creditors seeking the rehabilitation, liquidation or reorganization of Tenant under any law relating to bankruptcy, insolvency or other relief of debtors that is not dismissed within sixty (60) days of such filing;

(f) Receivership. The appointment of a receiver or other custodian to take possession of substantially all of Tenant’s assets or of this leasehold;

(g) Insolvency, Dissolution, Etc. Tenant shall become insolvent or unable to pay its debts, or shall fail generally to pay its debts as they become due; or any court shall enter a decree or order directing the winding up or liquidation of Tenant or of substantially all of its assets; or Tenant shall take any action toward the dissolution or winding up of its affairs or the cessation or suspension of its use of the Premises;

(h) Attachment. Attachment, execution or other judicial seizure of substantially all of Tenant’s assets or this leasehold; or

(i) Hazardous Materials Release. Any on-site or off-site contamination or violation of any Health and Safety Laws as set forth in Article 14.

12.02. Landlord’s Remedies.

(a) [Reserved].

(b) Termination. Following the occurrence of any Event of Default, Landlord shall have the right, so long as the default continues, to terminate this Lease by written notice to Tenant setting forth: (i) the default; (ii) the requirements to cure it; and (iii) a demand for possession, which shall be effective three (3) days after it is given or upon expiration of the times specified in Section 12.01 hereinabove, whichever is later.

(c) Possession. Following termination under subsection (b), without prejudice to any other remedies Landlord may have by reason of Tenant’s default or of such termination, Landlord may then or at anytime thereafter, (i) peaceably re-enter the Premises, or any part thereof, upon voluntary surrender by Tenant or expel or remove Tenant therefrom and any other persons occupying them, using such legal proceedings as are then available; (ii) repossess and enjoy the Premises, or relet the Premises or any part thereof for such term or terms (which may be for a term extending beyond the Term) at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion shall determine, with the right to make reasonable alterations and repairs to the Premises; and (iii) remove all personal property therefrom and, at Landlord’s option, retain all or any of such personal property (and title thereto shall thereupon vest in Landlord without compensation to Tenant) or dispose of all or any of such personal property, in any manner, without compensation to Tenant. In the event Landlord removes all or any of Tenant’s personal property pursuant to the foregoing provisions, Tenant shall pay to Landlord, upon demand, the actual expense of such removal and disposition and the cost of repairing any damage to the Premises resulting from such removal.

(d) Recovery. Following termination under subsection (b), Landlord shall have all the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California. The amount of damages which Landlord may recover following termination under subsection (b) shall include: (i) the worth at the time of the award of the unpaid rent and other amounts which had been earned at the time of termination; (ii) the worth at the time of the award of the amount by which the unpaid rent which would have been earned

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after termination until the time of the award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of rental loss Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform its obligations under this Lease. The “worth at the time of the award” of the amount referred to in (i) and (ii) above shall be computed by allowing interest thereon at the Default Rate (as set forth below). The “worth at the time of the award” of the amount referred to in (iii) above shall be computed by discounting such amount at the Default Rate (as set forth below). Tenant hereby covenants and agrees that the Rent Abatement granted by Landlord to Tenant pursuant to this Lease is granted by Landlord upon Landlord’s and Tenant’s presumption that Tenant shall remain on the Premises for the entire initial Term of the Lease and, therefore, in the event of termination under Section 12.02(b) during the initial Term as a result of the filing of a bankruptcy case or as a result of an assignment for the benefit of creditors, such abatement of Base Rent shall be forfeited by Tenant, and the “worth at the time of award” of the Base Rent unpaid by Tenant pursuant to the Lease, shall include damages in the amount of any and all Base Rent previously abated plus interest thereon as otherwise provided in the Lease. In the event of termination under Article 12 for any other reason during the initial Term, a pro-rate share of such abatement of Base Rent, determined based on the number of months then remaining in the initial Term of the Lease and the number of months in the initial Term of the Lease, shall be forfeited by Tenant, and the “worth at the time of award” of the Base Rent unpaid by Tenant pursuant to the Lease, shall include damages in such proportionate amount of any and all Base Rent previously abated plus interest thereon as otherwise provided in the Lease commencing on the date of termination.

(e) Additional Remedies. In addition to the foregoing remedies, Landlord shall, so long as this Lease is not terminated, have the right to remedy any default of Tenant to maintain or improve the Premises without terminating this Lease, to incur expenses on behalf of Tenant in seeking a new subtenant, or to cause a receiver to be appointed to administer the Premises and new or existing subleases, and to add to the Rent payable hereunder all of Landlord’s reasonable costs in so doing, with interest at the lower of the prime rate of interest at the time of said default charged by Bank of America N.A. plus three percent (3%) or the maximum lawful rate (the “Default Rate”).

(f) Other. If Tenant causes or threatens to cause a breach of any of the covenants, agreements, terms or conditions contained in this Lease, Landlord shall be entitled to retain all sums held by Landlord by any trustee or in any account provided for herein, to enjoin such breach or threatened breach, and to invoke any right and remedy allowed at law or in equity or by statute or otherwise as though re-entry, summary proceedings and other remedies were not provided for in this Lease. As used in this Section, the term “threatens” is limited to delivery to Landlord of a written statement by an officer, director, legal counsel or member of senior management of Tenant indicating Tenant’s intent to cause a breach or Tenant’s anticipation of its uncured default in the performance of, any of the covenants, agreements, terms or conditions contained in this Lease.

(g) Cumulative. Each right and remedy of Landlord provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. The exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease, or now or hereafter existing at law or in equity or by statute or otherwise, shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise.

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(h) No Waiver. No failure by Landlord to insist upon the strict performance of any term hereof or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach shall constitute a waiver of any such breach or of any such term. Efforts by Landlord to mitigate the damages caused by Tenant’s breach of this Lease shall not be construed to be a waiver of Landlord’s right to recover damages under this Article 12. No delay or omission in the exercise of any right or remedy of Landlord in the event of any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any default other than the particular Rent payment accepted. Landlord’s receipt and acceptance from Tenant, on any date (the “Receipt Date”), of an amount less than Rent due on such Receipt Date, or to become due at a later date but applicable to a period prior to such Receipt Date, shall not release Tenant of its obligation (i) to pay the full amount of such Rent due on such Receipt Date or (ii) to pay when due the full amount of such Rent to become due at a later date but applicable to a period prior to such Receipt Date. No act or conduct of Landlord, including without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance by Landlord of the surrender of the Premises by Tenant before the date of the expiration of the Term of this Lease. Only a written notice from Landlord to Tenant stating Landlord’s election to terminate Tenant’s right to possession of the Premises shall constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease. Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any other subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same of any other provision of this Lease. Tenant hereby waives any rights granted to Tenant under California Code of Civil Procedure Section 1179, California Civil Code Section 3275, and/or any successor statute(s). Tenant represents and warrants that if Tenant breaches this Lease and, as a result, this Lease is terminated, Tenant will not suffer any undue hardship as a result of such termination and, during the Term, will make such alternative or other contingency plans to provide for its vacation of the Premises and relocation in the even to such termination. Tenant acknowledges that Tenant’s waivers set forth in this paragraph are a material part of the consideration for Landlord’s entering into this Lease and that Landlord would not have entered into this Lease in the absence of such waivers. Nothing in this Article 12 affects the right of Landlord to indemnification by Tenant in accordance with Section 5.08 hereinabove for liability arising prior to the termination of this Lease for personal injuries or property damage.

13. ASSIGNMENT AND SUBLETTING

13.01. Assignment and Subletting; Prohibition. Tenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer, this Lease, in whole or in part, or any interest therein, nor sublet or permit occupancy by any party other than Tenant of all or any part of the Premises (each of the foregoing is hereinafter sometimes referred to as a “Transfer”), without the prior written consent of Landlord in each instance, which consent Landlord, subject to the satisfactions of the conditions set forth in this Section 13.01, shall not unreasonably withhold, delay or condition. As material consideration for this Lease, Tenant hereby agrees to provide the following written materials to Landlord regarding any proposed Transfer for Landlord’s approval: (i) the proposed Transfer agreement; (ii) the audited financial statements of the transferee for the three (3) years prior to the proposed Transfer (or, if audited financial statement are unavailable, financial statements prepared in accordance with generally

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accepted accounting principles consistently applied, certified by the chief executive officer and chief financial officer of the proposed transferee to be true and accurate); (iii) reasonably detailed summaries of the transferee’s business operations; (iv) a reasonably detailed credit report of the transferee; and (v) banking references for the transferee. Landlord shall have the right to review the written material submitted by Tenant regarding such Transfer for a period of fifteen (15) business days following Landlord’s receipt of such material to consent or decline to consent to such Transfer. No Transfer by Tenant shall relieve Tenant of any obligation under this Lease, including Tenant’s obligation to pay Base Rent and Additional Rent hereunder. Any purported Transfer contrary to the provisions hereof without Landlord’s consent (“Unauthorized Transfer”) shall be void. The consent by Landlord to any Transfer shall not constitute a waiver of the necessity for such consent to any subsequent Transfer. As Additional Rent hereunder, Tenant shall reimburse Landlord for actual legal and other expenses incurred by Landlord in connection with any request by Tenant for Landlord’s consent to the Transfer and, as a deposit against such obligation, Tenant shall submit to Landlord with each request for consent to a Transfer a deposit of One Thousand ($1,000). Any amount due in excess of the Tenant’s deposit shall be reimbursed by Tenant to Landlord within ten (10) days following the submission to Tenant of a written invoice from Landlord’s counsel for such costs and fees payable by Landlord with respect to any request by Tenant for Landlord’s consent to such a Transfer, whether or not Landlord ultimately approves such Transfer. Landlord shall promptly refund to Tenant all or any part of such deposit that exceeds the costs and fees actually so incurred by Landlord. Tenant shall have the right, without Landlord’s written consent, but subject to the foregoing obligations to deliver the relevant written materials to Landlord, to enter into an assignment of this Lease to any subsidiary corporation of Tenant, Tenant’s parent corporation, to any corporation or other entity that controls, is controlled by or under common control with Tenant or to any corporation, partnership or other entity succeeding to substantially all of the assets of Tenant as a result of a consolidation or merger, or to a corporation, partnership or other entity to which all or substantially all of the assets of Tenant have been sold (“Affiliate Transferee”), provided (a) any Affiliate Transferee that is an assignee (but not any sublessee) executes an instrument in form and content reasonably acceptable to Landlord assuming all of Tenant’s obligation under the Lease and (b)(i) Tenant can establish by delivering to Landlord evidence reasonably acceptable to Landlord, that the Affiliate Transferee has as of the date of the proposed Transfer, and has continually met during the two (2) calendar quarters preceding the date of the proposed Transfer, the Tenant’s Financial Conditions as defined in Section 4.05, or (ii) the Letter of Credit provided for in Section 4.05 is posted with Landlord and then effective as of the date the date of the proposed Transfer. No Transfer by Tenant to an Affiliate Transferee shall relieve Tenant of any obligation under this Lease, including Tenant’s obligation to pay Base Rent and Additional Rent hereunder.

13.02. Bonus Rental. If for any assignment or sublease, Tenant receives rent or other consideration, either initially or over the term of the assignment or sublease, in excess of the sum of (i) the Rent called for hereunder, or in case of the sublease of a portion of the Premises, in excess of such Rent fairly allocable to such portion, plus (ii) broker’s commissions to unrelated third parties, tenant improvement costs and other amounts actually paid by Tenant in connection with such assignment or sublease to the extent reasonable and customary, in the subleasing market in which the Project is located, after appropriate adjustments to assure that all other payments called for hereunder are appropriately taken into account, Tenant shall pay to Landlord, as Additional Rent hereunder, fifty percent (50%) of the excess of each such payment of rent or other consideration received by Tenant, which shall be due and payable by Tenant to Landlord promptly after its receipt by Tenant.

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13.03. Scope. The prohibition against Unauthorized Transfers contained in this Article shall be construed to include a prohibition against any transfer by operation of law. If this Lease or any interest therein be assigned, or if the underlying beneficial interest of Tenant is transferred, or if the Premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant and apply the net amount collected to the Rent herein reserved and apportion any excess rent so collected in accordance with the terms of the immediately preceding paragraph, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee), and Tenant shall not be released from performing any of the terms, covenants and conditions of this Lease.

13.04. Waiver. Notwithstanding any Transfer, or any indulgences, waivers or extensions of time granted by Landlord to any transferee, or failure by Landlord to take action against any transferee, Tenant waives notice of any default of any transferee and agrees that Landlord may, at its option, proceed against Tenant without having taken action against or joined such transferee, except that Tenant shall have the benefit of any indulgences, waivers and extensions of time granted to any such transferee. Tenant further waives monetary damages, of whatever kind or nature, from Landlord as a result of, or in any way related to any proposed Transfer, whether Landlord consented to such Transfer or withholds its consent to such Transfer.

13.05. Release. Whenever Landlord conveys its interest in the Project, Parking Area and/or Building, and the conveyee assumes Landlord’s obligations hereunder, Landlord shall be automatically released from the further performance of covenants on the part of Landlord herein contained, with respect to the interests conveyed, and from any and all further liability, obligations, costs and expenses, demands, causes of action, claims or judgments arising from or growing out of, or connected with this Lease after the effective date of said release. The effective date of said release shall be the date Landlord transfers title of the Project to the new owner. If requested, Tenant shall execute a form of release and such other documentation as may be required to further effect the provisions of this Article 13.

13.06 Recapture of Premises. In the event Tenant proposes to enter into a Transfer other than a Transfer to an Affiliate Transferee, which Transfer, when taken together with all previous transfers, relates to more than fifty percent (50%) of the rentable square feet of the Premises (the “Subject Space”) and is for the entire then remaining balance of the Term, or substantially all of the remaining balance of the Term, then Tenant shall notify Landlord in writing (the “Availability Notice”) if Tenant wishes to Transfer the Subject Space. Landlord shall have the option, by written notice to Tenant (the “Recapture Notice”) within ten (10) days after receiving any Availability Notice, to recapture the Subject Space as described below. A timely Recapture Notice terminates this Lease and Tenant’s obligations regarding the Subject Space for the remaining term of the Lease and as of the date sixty (60) days after Landlord delivers the Recapture Notice to Tenant. If Landlord declines to or fails timely to elect to recapture the Subject Space, Landlord shall have no further right under this Section 13.06 to the Subject Space unless Tenant fails to Transfer the Subject Space within one hundred fifty (150) days after Landlord receives the Availability Notice or it becomes available again after Transfer by Tenant. To determine the new Base Rent under the Lease if Landlord recaptures the Subject Space, the original Base Rent under the Lease shall be multiplied by a fraction, the numerator of which is the square feet of Rentable Area of the Premises retained by Tenant after Landlord’s recapture and the denominator of which is the total square feet of Rentable Area of the Premises before Landlord’s recapture. The Additional Rent, to the extent that it is calculated on the basis of the square feet of Rentable Area within the Premises, shall be reduced to reflect Tenant’s proportionate share based upon the square feet of Rentable Area of the Premises retained by Tenant after Landlord’s recapture.

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14. HAZARDOUS MATERIALS

14.01. Definitions.

(a) Health and Safety Laws. “Health and Safety Laws” means any and all federal, state or local laws, ordinances, rules, decrees, orders, regulations, court decisions and other authority relating to hazardous substances, hazardous materials, hazardous waste, toxic substances, materials or wastes, environmental conditions on, under or about the Premises, or soil and ground water conditions, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), as amended, 42 U.S.C. § 9601, et seq., the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §1801, et seq., the Federal Water Pollution Control Act of 1972, 33 U.S.C. § 1251, et. seq., the Safe Drinking Water Act, 42 U.S.C. § 300f, et seq., the Toxic Substances Control Act (“TSCA”), 15 U.S.C. § 2601, et seq., the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), 7 U.S.C. § 136, et seq., the Federal Hazardous Substances Control Act, 15 U.S.C. § 1261, et seq., the Noise Control Act of 1972, 42 U.S.C. § 4901, et seq., the Occupational Safety and Health Act (“OSHA”), 29 U.S.C. § 651, et seq., the California Hazardous Waste Control Act, Cal. Health and Safety Code § 25100, et seq., the Carpenter-Presley-Tanner Hazardous Substances Account Act, Cal. Health and Safety Code § 25300, et seq., the Safe Drinking Water and Toxic Enforcement Act of 1986 (“California Proposition 65”), Cal. Health and Safety Code § 25249.5, et seq., the Porter-Cologne Water Quality Control Act, Cal. Water Code § 13000, et. seq., any amendments to the foregoing, and any similar federal, state or local laws, ordinances, rules, decrees, orders or regulations.

(b) Hazardous Materials. “Hazardous Materials” means any chemical, compound, material, substance or other matter that: (i) is defined as a hazardous substance, hazardous material, hazardous waste or toxic substance, material or waste under any Health and Safety Law, including, but not limited to, those substances, materials or wastes regulated now or in the future under any statutes or regulations; (ii) is controlled or governed by any Health and Safety Law or gives rise to any reporting, notice or publication requirements thereunder, or gives rise to any liability, responsibility or duty on the part of Tenant or Landlord with respect to any third person hereunder; or (iii) is flammable or explosive material, oil or any other petroleum-based substance, freon, asbestos, urea formaldehyde, radioactive material, nuclear medicine material, drug, vaccine, bacteria, virus, hazardous waste, toxic substance, or related injurious or potentially injurious material (by itself or in combination with other materials).

(c) Off-Site Contamination. The term “Off-Site Contamination” shall mean the presence of any Hazardous Materials, associated in any way with Tenant’s, its successors’ or assigns’ use or occupation of the Premises, transported, arranged for disposal of, or disposed of by Tenant or any third party on behalf of Tenant or its agents, employees or officers to any site or location other than the Premises.

(d) On-Site Contamination. The term “On-Site Contamination” shall mean the presence of any Hazardous Materials in, on or under any portion of the Premises.

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14.02. Use. Tenant shall not allow any Hazardous Material to be used, generated, manufactured, released, stored or disposed of on, under or about, or transported from, the Premises, unless: (a) such use is specifically disclosed to and approved by Landlord in writing prior to such use; and (b) such use is conducted in compliance with the provisions of this Article 14. Landlord’s consent may be withheld in Landlord’s sole discretion, and, if granted, may be revoked at any time. Landlord may approve such use subject to reasonable conditions to protect the Premises and Landlord’s interests. Landlord may withhold approval if Landlord determines that such proposed use involves a material risk of a release or discharge of Hazardous Materials or a violation of any Health and Safety Laws or that Tenant has not provided reasonable assurances of its ability to remedy such a violation and fulfill its obligations under this Article 14. Notwithstanding the foregoing, Landlord hereby consents to Tenant’s use, storage or disposal of products containing small quantities of Hazardous Materials, which products are of a type customarily found in offices and households (such as aerosol cans containing insecticides, toner for copies, paints, paint remover and the like) (collectively, “Permitted Materials”), provided that Tenant shall handle, use, store and dispose of such Permitted Materials in a safe and lawful manner and shall not allow such Hazardous Materials to contaminate the Premises.

14.03. Compliance With Laws; Handling of Hazardous Materials. Tenant shall strictly comply with, and shall maintain the Premises in compliance with, all Health and Safety Laws. Tenant shall obtain, maintain in effect and comply with the conditions of all permits, licenses and other governmental approvals required for Tenant’s operations on the Premises under any Health and Safety Laws, including, but not limited to, the discharge of appropriately treated Hazardous Materials into or through any sanitary sewer serving the Premises. At Landlord’s request, Tenant shall deliver copies of, or allow Landlord to inspect, all such permits, licenses and approvals. All Hazardous Materials removed from the Premises (other than Permitted Materials)shall be removed and transported by duly licensed haulers to duly licensed disposal facilities, in compliance with all Health and safety Laws. Tenant shall be responsible for the proper disposal of any mercury-containing fluorescent lighting fixtures. Tenant shall perform any monitoring, testing, investigation, clean-up, removal, detoxification, preparation of closure or other required plans and any other remedial work required by any governmental agency or lender or reasonably recommended by Landlord’s environmental consultants as a result of any release or discharge or potential release or discharge of Hazardous Materials and resulting in On-Site Contamination or Off-Site Contamination or any violation or potential violation of Health and Safety Laws by Tenant or any successor or sublessee of Tenant or their respective agents, contractors, employees, licensees or invitees (collectively, “Remedial Work”). Landlord shall have the right to intervene in any governmental action or proceeding involving any Remedial Work, and to approve performance of the work, in order to protect Landlord’s interests. Landlord shall have the right to require Tenant to provide a Standard ASTM E 1527-93 Phase I (cost not to exceed $3,000.00) Environmental Clearance Report prepared for Landlord’s approval at the time Tenant vacates the Premises, if Landlord reasonably believes Hazardous Materials (other than Permitted Materials) have been released or discharged in, on, under or about the Premises. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to Hazardous Materials without notifying Landlord and providing ample opportunity for Landlord to intervene.

14.04. Compliance With Insurance Requirements. Tenant shall comply with the requirements of Landlord’s and Tenant’s insurers regarding Hazardous Materials and with such insurers’ recommendations based upon prudent industry practices regarding management of Hazardous Materials.

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14.05. Indemnity. Tenant shall indemnify, protect, defend and hold Landlord (and its partners and their respective officers, directors, employees and agents), the Premises, Building, Lot Parking Areas, and all other areas of the Project harmless from and against any and all liabilities, demands, penalties, fines, claims, suits, judgments, actions, investigations, proceedings, costs and expenses (including attorneys’ fees and court costs) arising out of or in connection with any breach of any provisions of this Article 14, directly or indirectly arising out of any liability of Tenant under any Health and Safety Law or associated with any On-Site Contamination or any Off-Site Contamination which is caused, suffered or permitted to be brought upon, kept, used, discharged, deposited or leaked in or about the Premises or any other portion of the Project by Tenant or any of Tenant’s assigns, agents, employees, contractors or invitees or by anyone in the Premises other than Landlord, Landlord’s agents, employees or contractors, including, but not limited to, the use, generation, storage, release, disposal or transportation of Hazardous Materials by Tenant, or any successor or sublessee of Tenant, or their respective agents, contractors, employees, licensees, or invitees, on, under or about the Premises during the Term, and including, but not limited to, all consequential damages and the cost of any Remedial Work. Any defense by Tenant pursuant to this Article shall be by counsel reasonably acceptable to Landlord. Neither the consent by Landlord to the use, generation, storage, release, disposal or transportation of Hazardous Materials nor the strict compliance with all Health and Safety Laws shall excuse Tenant from Tenant’s indemnification obligations pursuant to this Section 14.05. The foregoing indemnity shall be in addition to and not a limitation of the indemnification provisions of Section 5.09 of this Lease. Tenant’s obligations pursuant to this Section 14.05 shall survive the termination or expiration of the Lease.

14.06. Notice. Each party to this Lease shall notify the other party, in writing, as soon as reasonably possible, and in any event within five (5) business days after, any of the following: (a) a party has knowledge, or it has reasonable cause to believe, that any Hazardous Material has been released, discharged or is located on, under or about the Premises, whether or not the release or discharge is in quantities that would otherwise be reportable to a public agency; (b) a party receives any order of a governmental agency requiring any Remedial Work pursuant to any Health and Safety Laws; (c) a party receives any warning, notice of inspection, notice of violation or alleged violation, or a party receives notice or knowledge of any proceeding, investigation of enforcement action, pursuant to any Health and Safety Laws; or (d) a party receives notice or knowledge of any claims made or threatened by any third party against that party or the Premises relating to any loss or injury resulting from Hazardous Materials or from violation of any Health and Safety Law. If the potential risk of any of the foregoing events is material, the party having notice of such event shall deliver immediate verbal notice to the other party, in addition to written notice as set forth above. Landlord and Tenant agree to deliver to one another copies of all test results, reports and business or management plans required to be filed with any governmental agency pursuant to any Health and Safety Laws.

14.07. Default. The release or discharge of any Hazardous Material or the violation of any Health and Safety Law by Tenant or any successor or sublessee of Tenant shall be a material default by Tenant under the Lease. In addition to or in lieu of the remedies available under the Lease as a result of such default, Landlord shall have the right, without terminating the Lease, to require Tenant to suspend its operations and activities on the Premises until Landlord is satisfied that appropriate Remedial Work has been or is being adequately performed; Landlord’s election of this remedy shall not constitute a waiver of Landlord’s right thereafter to declare a default and pursue other remedies set forth in the Lease.

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14.08. Landlord’s Disclosure. Pursuant to the requirements of California Health and Safety Code Section 25359.7, Landlord hereby notifies Tenant that Landlord does not know, and does not have reasonable cause to believe, that any release of any Hazardous Material has come to be located on or beneath the Premises, Building or Project.

15. OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION

15.01. Estoppel Certificate. Within ten (10) days after request therefor by Landlord, or if on any sale, assignment or hypothecation by Landlord of Landlord’s interest in the Project, Building, Lot and/or Parking Area, or any part thereof, an Estoppel certificate shall be required from Tenant, Tenant shall deliver, in recordable form, such a certificate to any proposed mortgagee or purchaser, and to Landlord, certifying (if such be the case) that (i) this Lease is in full force and effect; (ii) the date of Tenant’s most recent payment of Rent, and that Tenant has no defenses or offsets outstanding, or stating those offsets or defenses claimed by Tenant; (iii) and any other information reasonably requested. Tenant’s failure to deliver said certificate in time shall be conclusive upon Tenant that: (i) this Lease is in full force and effect, without modification except as may be represented by Landlord; (ii) there are no uncured defaults in Landlord’s performance and Tenant has no right of offset, counterclaim or deduction against Rent hereunder; and (iii) no more than one period’s Base Rent has been paid in advance. Failure of Tenant to deliver such a certificate to Landlord or any proposed mortgagee or purchaser within ten (10) days following Landlord’s request therefor shall be deemed Tenant’s acknowledgment of the correctness of the statements made in the foregoing sentence and that the aforementioned mortgagee(s) and/or purchaser(s) may rely on said statements.

15.02. Attornment. Tenant shall, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by the Landlord, its successors or assigns, encumbering the Premises, or any part thereof, or in the event of termination of a ground lease, if any, and if so requested, attorn to the purchaser upon such foreclosure or sale or upon any grant of a deed in lieu of foreclosure and recognize such purchaser as the Landlord under this Lease.

15.03. Subordination. The rights of Tenant hereunder are and shall be, at the election of the mortgagee, subject and subordinate to the lien of such mortgage, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the Project, Building, Lot and/or Parking Area, and to all advances made or hereafter to be made upon the security thereof; provided, however, that notwithstanding such subordination, so long as Tenant is not in default under any of the terms, covenants and conditions of this Lease, neither this Lease nor any of the rights of Tenant hereunder upon Tenant’s covenanting that Tenant is not in default hereunder, shall be terminated or subject to termination by any trustee’s sale, any action to enforce the security, or by any proceeding or action in foreclosure. If requested, Tenant agrees to execute whatever documentation may be required to further effect the provisions of this Article.

16. NOTICES

16.01. Notices. All notices required to be given hereunder shall be in writing (except for notice required pursuant to Section 12.01(b)) and shall be (i) personally delivered, in which even they shall be deemed received on the date of delivery, (ii) sent by certified mail, postage prepaid, return receipt requested, or by a professional courier company which provides a receipt evidencing delivery, in which event they shall be deemed received on the date of delivery as evidenced by the receipt; or (iii) sent by electronically confirmed telecopy. Any notice, request, demand, direction or other communication sent by cable, telex or telecopy

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must be confirmed within forty-eight (48) hours by letter mailed or delivered in accordance with the foregoing. The Landlord’s and Tenant’s addresses for written notices required to be given hereunder shall be the addresses set forth in the Basic Lease Information, or at such other place designated by advance written notice delivered in accordance with the foregoing.

17. SUCCESSORS BOUND

17.01. Successors Bound. This Lease and each of its covenants and conditions shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and legal representatives and their respective assigns, subject to the provisions hereof. Whenever in this Lease a reference is made to the Landlord, such reference shall be deemed to refer to the person in whom the interest of the Landlord shall be vested and Landlord shall have no obligation hereunder as to any claim arising after the transfer of its interest in the Premises. Any successor or assignee of the Tenant who accepts an assignment or the benefit of this Lease and enters into possession or enjoyment hereunder shall thereby assume and agree to perform and be bound by the covenants and conditions thereof. Nothing herein contained shall be deemed in any manner to give a right of assignment to Tenant without the written consent of Landlord.

18. MISCELLANEOUS

18.01. Waiver. No waiver of any default or breach of any covenant by either party hereunder shall be implied from any omission by either party to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the waiver, and then said waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term or condition contained herein by either party shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by either party to or of any act by either party requiring further consent or approval shall not be deemed to waive or render unnecessary their consent or approval to or of any subsequent similar acts.

18.02. Easements. Landlord reserves the right to (i) subdivide or alter the boundaries of the Lot and (ii) grant easements on the Lot and dedicate for public use portions thereof without Tenant’s consent; provided, however, that no such grant or dedication shall materially interfere with Tenant’s enjoyment, use of, and access to the Premises and the other rights of Tenant as granted by this Lease. From time to time, and upon Landlord’s demand, Tenant shall execute, acknowledge and deliver to Landlord, in accordance with Landlord’s instructions, any and all documents, instruments, maps or plats necessary to effectuate Tenant’s covenants hereunder.

18.03. Reserved.

18.04. No Light, Air or View Easement. Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord.

18.05. Corporate Authority. If Tenant executes this Lease as a corporation, each of the persons executing this Lease on behalf of Tenant hereby covenants and warrants that: (i) Tenant is a duly authorized and existing corporation; (ii) Tenant is qualified to do business in the State of California; (iii) Tenant has full right and authority to enter into this Lease; and (iv) each of the persons executing on behalf of Tenant is authorized to do so.

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18.06. Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease.

18.07. Limitation of Liability. The obligations of Landlord under this Lease shall not constitute personal obligations of the individual members, partners, directors, officers, or shareholders of Landlord or any member of Landlord, and in consideration of the benefits accruing hereunder to Tenant and notwithstanding anything contained in this Lease to the contrary, Tenant hereby covenants and agrees for itself and all of its successors and assigns that the liability of Landlord for its obligations under this Lease shall be limited solely to, and Tenant’s and its successors’ and assigns’ sole and exclusive remedy shall be against the real estate that is the subject of this Lease and Tenant, its successors and assigns shall not seek recourse against the individual member, partners, directors, officers or shareholders of Landlord or any member of Landlord, or any of their personal assets for such satisfaction. Any claim, demand of right of defense of any kind by Tenant that is based upon or arises in any connection with the Lease at negotiations prior to its execution shall be barred unless Tenant commences an action thereon or initiates a legal proceeding or defense by reason thereof within ninety (90) days after the date of the occurrence of the event, act at omission to which the claim, demand of right of defense relates.

18.08. Time. Time is of the essence of every provision hereof.

18.09. Attorneys’ Fees. In any action or proceeding which the Landlord or the Tenant may be required to prosecute to enforce its respective rights hereunder, the less prevailing party therein agrees to pay all costs incurred by the more prevailing party therein, including reasonable attorneys’ fees, to be fixed by the court, and said costs and attorneys’ fees shall be made a part of the judgment in said action.

18.10. Captions and Article Numbers. The captions, article numbers and table of contents appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent or such sections or articles of this Lease nor in any way affect this Lease.

18.11. Severability. If any term, covenant, condition or provision of this Lease, or the application thereof to any person or circumstance, shall to any extent be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants, conditions or provisions of this Lease, or the application thereof to any person or circumstance, shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

18.12. Applicable Law. This Lease, and the rights and obligations of the parties hereto, shall be construed and enforced in accordance with the laws of the State of California.

18.13. Submission of Lease. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for leasing the Premises. This document shall become effective and binding only upon execution and delivery hereof by Landlord. No act or omission of any employee or agent of Landlord or of Landlord’s broker or the Managing Agent set forth in the Basic Lease Information shall alter, change, or modify any of the provisions hereof.

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18.14. Holding Over. Should Tenant, or any of its successors in interest, hold over the Premises, or any part thereof, after the expiration of the term of this Lease, unless otherwise agreed to in writing, such holding over shall constitute and be construed as tenancy from month-to-month only, at a monthly rent equal to one hundred fifty percent (150%) of the Base Rent owed during the final year of the Term of this Lease as the same may be extended from time to time. This inclusion of the preceding sentence shall not be construed as Landlord’s permission for Tenant to hold over.

18.15. Surrender. Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord in good order, condition and repair, except for reasonable wear and tear or as otherwise provided in Articles 8, 10 and 11. Tenant shall not commit or allow any waste or damage to be committed on any portion of the Premises, Building or Project. All property that Tenant is required to surrender shall become Landlord’s property upon the termination of this Lease. Landlord may cause any of said personal property that is not removed from the Premises within thirty (30) days after the date of any termination of this Lease to be removed from the Premises and stored at Tenant’s expense, or, at Landlord’s election said personal property thereafter shall belong to Landlord without the payment of any consideration, subject to the rights of any person holding a perfected security interest therein.

18.16. Rules and Regulations. At all times during the Term, Tenant shall comply with rules and regulations (“Rules and Regulations”) for the Project, as set forth in Exhibit E (and such amendments as Landlord may reasonably adopt), attached hereto and by this reference made a part hereof. In the event of any conflict between the Rules and Regulations and the provisions of this Lease, the provisions of this Lease shall control.

18.17. No Nuisance. Tenant shall conduct its business and control its agents, employees, invitees and visitors in such a manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Landlord in its operation of the Project.

18.18. Broker. Tenant warrants that it has had no dealings with any real estate broker or agent, other than the Broker set forth in the Basic Lease Information, in connection with the negotiation of this Lease, and that it knows of no other real estate broker or agent who is entitled to any commission or finder’s fee in connection with this Lease. Tenant agrees to indemnify and hold harmless Landlord from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including, without limitation, attorneys’ fees and costs) with respect to any leasing commission or equivalent compensation alleged to be owing on account of Tenant’s dealings with any real estate broker or agent other than Broker.

18.19. Landlord’s Right to Perform. Upon Tenant’s failure to perform any obligation of Tenant hereunder, including without limitation, payment of Tenant’s insurance premiums, charges of contractors who have supplied materials or labor to the Premises, etc., Landlord shall have the right to perform such obligation of Tenant on behalf of Tenant and/or to make payment on behalf of Tenant to such parties, provided Landlord has first provided written notice to Tenant and given Tenant ten (10) days to perform such obligation (unless another cure period is provided herein). Tenant shall reimburse Landlord the reasonable cost of Landlord’s performing such obligation on Tenant’s behalf, including reimbursement of any amounts that may be expended by Landlord, plus interest at the rate of three percent (3%) over the prime rate as announced, from time to time, by Bank of America, N.A. per annum, as Additional Rent.

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18.20. Mortgage Protection. Landlord shall not be in default under the terms of this Lease, or by law, unless Landlord fails to perform the obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing (“Mortgagee”) specifying wherein Landlord has failed to perform such obligation. If, however, the nature of Landlord’s obligation is such that more than thirty (30) days are required for performance, Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and diligently prosecutes the same to completion. Should Landlord be deemed to be in material default of this Lease, then Landlord shall be liable to Tenant for all damages sustained by Tenant as a direct result of Landlord’s breach. If any such default materially interferes with Tenant’s business operation in the Premises, Tenant may give Landlord and Mortgagee a second written notice specifying exactly the nature of the Landlord’s failure and its impact on Tenant’s business operation in the Premises and the further remedial action deemed necessary by Tenant. If such remedial action is not undertaken within thirty (30) days of such second written notice, Tenant shall be entitled to terminate this Lease, but in no event earlier than thirty (30) days after the second notice to Landlord and Mortgagee. Notwithstanding the foregoing, Tenant shall not be entitled to terminate this Lease as a result of Landlord’s default if Landlord is making diligent efforts to perform the obligations required of Landlord under this Lease. Nothing herein contained shall be interpreted to mean that Tenant is excused from paying any Rent due hereunder as a result of any default by Landlord.

18.21. Nonliability. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by reason (unless otherwise provided herein) of (i) the interruption of use of the Premises as a result of the installation of any equipment in connection with the Premises or Building or (ii) any failure to furnish or delay in furnishing any services required to be provided by Landlord when such failure or delay is caused by accident or any condition beyond the reasonable control of Landlord or by the making of necessary repairs or improvements to the Premises or to the Building, or the limitation, curtailment, rationing or restriction on use of water or electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or the Building. Landlord shall use reasonable efforts to remedy any interruption in the furnishing of such services.

18.22. Modification for Lender. If, in connection with obtaining construction, interim or permanent financing for the Project or the Building, the lender shall require reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant’s rights hereunder.

18.23. Quiet Enjoyment. So long as the Tenant shall fully and faithfully perform all of its obligations under this Lease when and as required under the terms of this Lease, Tenant shall enjoy peaceful and quiet possession of the Premises against any party claiming through Landlord.

18.24. Financial Information. Subject to the confidentiality provisions of this Section 18.24, Tenant shall submit to Landlord annually during the Term (including any Extension) (quarterly from and after the Letter of Credit Termination Date) on or before the last day of the second month following the month in which Tenant’s fiscal year ends (in the case required quarterly, on or before the first day of the second month following the end of each calendar quarter of Tenant’s fiscal year), Tenant’s audited financial statements for the preceding fiscal

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year, or calendar quarter, if applicable, prepared in accordance with generally accepted accounting principles, consistently applied, or if such audited statement are not available, copies of complete financial statements of If Tenant is required to submit financial statements quarterly and audited financial statements are unavailable, such financial statements shall be certified by the president and chief financial officer of Tenant to be true and complete. As a condition to receiving such information, Landlord agrees that it shall not disclose, and shall use its commercially reasonable efforts to ensure, that the Landlord Permitted Recipients (as defined below) do not disclose the content or substance of such information to any person (except to the officers, partners, directors, employee and agents of Landlord, Landlord’s current and prospective lenders, and prospective purchasers of the Building who need to know such information for the purpose of evaluating Tenant’s creditworthiness in connection with this Lease (the “Landlord Permitted Recipients”)) without Tenant’s prior written approval, which approval shall not be unreasonably withheld or delayed, and that it will not use such information for any commercial or competitive purpose.

18.25. Recording. Neither Landlord nor Tenant shall record this Lease without the consent of the other. Either party may, at its sole cost and expense, record a short form memorandum of this Lease in a form reasonably acceptable to the other party.

18.26. Entire Agreement. This Lease sets forth all covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Premises, Project, Building and Lot, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between Landlord and Tenant other than as are herein set forth. Except as herein otherwise provided no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant.

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18.27. Additional Lease Provisions. Additional Lease Provisions, if any, are set forth on Exhibit G, attached hereto.

IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above-written.

LANDLORD: TENANT:

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R. B. INCOME PROPERTIES, a California limited partnership			VERUS PHARMACEUTICALS, INC., a
By:	RBI PROPERTY MANAGEMENT, LLC, a California limited liability company, as General Partner		California corporation
	By:	/s/ Thomas G. Blake	By:	/s/ Robert W. Keith
		THOMAS G. BLAKE, President	Name:	Robert W. Keith
			Its:	President & Chief Operating Officer
			By:	/s/ Richard G. Vincent
			Name:	Richard G. Vincent
			Its:	Chief Financial Officer

IF TENANT SHALL BE A CORPORATION, THE AUTHORIZED OFFICERS MUST SIGN ON BEHALF OF THE CORPORATION. THE LEASE MUST BE EXECUTED BY THE PRESIDENT OR VICE-PRESIDENT AND THE SECRETARY OR ASSISTANT SECRETARY, UNLESS THE BY-LAWS OR A RESOLUTION OF THE BOARD OF DIRECTORS SHALL OTHERWISE PROVIDE, IN WHICH EVENT, THE BY-LAWS OR A CERTIFIED COPY OF THE RESOLUTION, AS THE CASE MAY BE, MUST BE FURNISHED. ALSO THE APPROPRIATE CORPORATE SEAL MUST BE AFFIXED.

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EX-10.24

Exhibit 10.24

GENERAL RELEASE OF CLAIMS

This General Release of Claims (“Release”) is entered into as of this 26^th day of February, 2010, between David W. Nassif, J.D. (“Executive”), and Zogenix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of May 7, 2008 (the “Employment Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Employment Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish to fully and finally to resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive described in Section 2(d) below, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that he would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1. Effective Date; Termination of Employment.

(a) Effective Date. This Release shall become effective upon the occurrence of both of the following events: (i) execution of the Release by the Parties; and (ii) expiration of the revocation period applicable under Section 3(c) below without any party hereto having given notice of revocation. The date of the last to occur of the foregoing events shall be referred to in this Release as the “Effective Date.” Until and unless both of the foregoing events occur, this Release shall be null and void. Executive understands that Executive will not be given any severance benefits under this Release unless the Effective Date occurs on or before the date that is sixty (60) days following the Termination Date (as defined below).

(b) Termination of Employment Status. Executive’s employment by the Company shall terminate effective as of February 26, 2010 (the “Termination Date”). Executive hereby irrevocably resigns from his position as Executive Vice President, Chief Financial Officer, Secretary and Treasurer (and any other titles or officer positions he may hold) of the Company (and any of its affiliates and subsidiaries) effective as of the Termination Date. Executive shall execute any additional documentation necessary to effectuate such resignations. Executive’s personnel file at the Company will reflect that Executive voluntarily resigned for personal reasons. Notwithstanding the foregoing, the Company shall not oppose Executive’s claim for unemployment benefits on the grounds that he resigned. Executive’s “separation from service” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), shall be the Termination Date.

(c) Surrender of Company Property. Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company.

2. Compensation.

(a) Compensation Through Termination Date. On the Termination Date, the Company shall issue Executive his final paycheck, reflecting (a) his earned but unpaid base salary at the annualized rate of $260,000 per year through the Termination Date ($10,833.33 gross), and (b) all accrued, unused paid time off due Executive through the Termination Date ($30,000 gross). Subject to Section 2(d) below, Executive acknowledges and agrees that with his final check, Executive will have received all monies, bonuses, commissions, expense reimbursement, paid time off, or other compensation he earned or was due during his employment by the Company.

(b) Expense Reimbursements. The Company, within thirty (30) days after the Termination Date, will reimburse Executive for any and all reasonable and necessary business expenses incurred by Executive in connection with the performance of his job duties prior to the Termination Date, which expenses shall be submitted to the Company with supporting receipts and/or documentation no later than thirty (30) days after the Termination Date.

(c) Benefits. Subject to Section 2(d)(ii) below, Executive’s entitlement to benefits from the Company, and eligibility to participate in the Company’s benefit plans, shall cease on the Termination Date, except to the extent Executive elects to and is eligible to receive continued healthcare coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for himself and any covered dependents, at his sole expense in accordance with the provisions of COBRA.

(d) Severance. In exchange for Executive’s agreement to be bound by the terms of this Release, including, but not limited to, the release of claims in Section 3, Executive shall be entitled to receive the following, which shall be the exclusive severance benefits to which Executive is entitled, unless Executive has materially breached the provisions of this Release, in which case the last sentence of Section 4 shall apply:

(i) A cash payment equal to $260,000, representing Executive’s annual base salary as in effect immediately prior to the Termination Date, payable in a lump sum within ten (10) days following the Effective Date;

(ii) For the period beginning on the Termination Date and ending on the date which is twelve (12) full months following the Termination Date (or, if earlier, the date on which the applicable continuation period under COBRA expires), the Company shall pay the monthly premium Executive would be required to pay for continuation coverage pursuant to COBRA for Executive and his eligible dependents who were covered under the Company’s health plans as of the Termination Date such that Executive’s premiums are the same as for active employees. Executive shall be solely responsible for all matters relating to his continuation of coverage pursuant to COBRA, including, without limitation, his election of such coverage and his timely payment of the employee portion of any COBRA premiums. Following the COBRA Coverage Period, the Executive will then be responsible for paying the full cost of continuation coverage under COBRA for the Executive and his eligible dependents should the Executive elect to continue coverage after such period;

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(iii) On the Effective Date, the vesting and/or exercisability of each of Executive’s outstanding Stock Awards (as defined below) shall be automatically accelerated as to the number of Stock Awards that would vest over the twelve (12) month period following the Termination Date had Executive remained continuously employed by the Company during such period. In addition, in the event of a Change of Control (as defined in the Employment Agreement) on or before May 26, 2010, the vesting and/or exercisability of all of Executive’s Stock Awards shall be automatically accelerated on the date of the Change of Control. Following the Termination Date, Executive’s vested Stock Awards shall be exercisable by Executive in accordance with the terms of the Company equity plan(s) and stock award agreements pursuant to which they were granted; provided, however, that in the event of a Change of Control on or before May 26, 2010, any portion of those Stock Awards granted to Executive on or after May 7, 2008 that become exercisable on the date of such Change pursuant to the second sentence of this Section 2(d)(iii) may be exercised by Executive (or Executive’s legal guardian or legal representative) until the date that is three (3) months after the date of the Change in Control; provided, further, that in no event shall any Stock Award remain exercisable beyond the original outside expiration date of such Stock Award. Except as modified above, Executive’s Stock Awards shall continue to be governed by the terms and conditions of the Stock Award agreements and the Company’s equity plan pursuant to which such Stock Awards were granted. For purposes of this Release, “Stock Awards” means all stock options, stock appreciation rights, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof; and

(iv) Notwithstanding anything to the contrary in this Section 2(d), in the event of a Change in Control occurs on or before May 26, 2010, Executive shall be entitled to receive, in addition to the severance benefits described in clauses (i), (ii) and (iii) above, an amount equal to $47,504, representing Executive’s “Bonus” (as defined in the Employment Agreement) calculated as of the Termination Date, which amount shall be payable in a lump sum within ten (10) days following the later of (A) Effective Date and (B) the date of the Change in Control.

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3. General Release of Claims by Executive.

(a) Executive, on behalf of himself and his executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(i) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii) Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(iii) Claims pursuant to the terms and conditions of the federal law known as COBRA;

(iv) Claims for indemnity under the bylaws of the Company, as provided for by California law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(v) Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement; and

(vi) Claims Executive may have to vested benefits under any benefit plan maintained by the Company.

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(b) EXECUTIVE ACKNOWLEDGES THAT HE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

(c) Executive acknowledges that this Release was presented to him on the date indicated above and that Executive is entitled to have twenty-one (21) days’ time in which to consider it. Executive further acknowledges that the Company has advised him that he is waiving his rights under the ADEA, and that Executive should consult with an attorney of his choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before twenty-one (21) days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

(d) Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after his execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

(e) Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8^th) day after his execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.

4. Confirmation of Continuing Obligations. Executive hereby expressly reaffirms his obligations under Section 5 of the Employment Agreement, a copy of which is attached to this Agreement as Exhibit A and incorporated herein by reference, and under the Company’s standard employee proprietary information and inventions agreement (the “Employee Proprietary Information and Inventions Agreement”) a copy of which is attached to this Agreement as Exhibit B and incorporated herein by reference, and agrees that such obligations shall survive the Termination Date and any termination of his services to the Company. The Company shall be entitled to cease all severance payments to Executive in the event of his material breach of this Section 4.

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5. Nondisparagement; Confidentiality. Executive agrees that neither he nor anyone acting by, through, under or in concert with him shall disparage or otherwise communicate negative statements or opinions about the Company, its Board members, officers, employees or business. The Company agrees that neither its Board members nor officers shall disparage or otherwise communicate negative statements or opinions about Executive. Except as may be required by law, neither Executive, nor any member of Executive’s family, nor anyone else acting by, through, under or in concert with Executive will disclose to any individual or entity (other than Executive’s legal or tax advisors) the terms of this Agreement. Nothing in this Section 5 shall prohibit Executive from testifying in any legal proceeding in which his testimony is compelled by law or court order and no breach of this provision shall occur due to any accurate, legally compelled testimony.

6. Indemnification Agreement. The Company hereby reaffirms its obligations under that certain Indemnification Agreement, dated May 16, 2007, between the Company and Executive attached hereto as Exhibit C (the “Indemnification Agreement”). The Company’s obligations under the Indemnification Agreement shall survive Executive’s termination of employment by or service to the Company.

7. Agreed-Upon Statement; Employment References. Any inquiries regarding Executive from prospective employers shall be forwarded to the Chairman of the Board, who shall confirm that Executive resigned from the Company for personal reasons. Except as required by law or court order, the Company shall not make any additional or inconsistent internal or public statements regarding Executive’s resignation.

8. Litigation Cooperation. Executive agrees to provide reasonable assistance to the Company (including the board of directors and any committees thereof) and its counsel and accountants in any financial audits or internal investigation involving securities, financial, accounting, or other matters, and in its defense of, or other participation in, any administrative, judicial, or other proceeding arising from any charge, complaint or other action which has been or may be filed relating to the period during which Executive was employed by the Company. The Company agrees to reimburse Executive for his reasonable expenses incurred in connection with such cooperation within thirty (30) days after receipt of an invoice from Executive setting forth in reasonable detail such expenses. Notwithstanding the foregoing, the Company shall have no obligation by virtue of this Section 8 to pay Executive for time spent by Executive in any pending or future litigation or arbitration where Executive is a co-defendant or party to the arbitration or litigation or with respect to which Executive requests indemnification pursuant to Section 6.

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9. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the JAMS Employment Arbitration Rules and Procedures (the “Rules”), and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by JAMS in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys’ fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award, but in no event later than the last day of the Executive’s taxable year following the taxable year in which the fees, costs and expenses were incurred; provided, further, that the parties’ obligations pursuant to this sentence shall terminate on the tenth (10^th) anniversary of the Termination Date. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, JAMS administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 9 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

10. Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. Unless expressly provided otherwise, “Company” as used herein shall mean the Company as defined in this Agreement and any successor to its business and/or assets as aforesaid.

11. Survival. The covenants, agreements, representations and warranties contained in or made in this Release, the Employee Proprietary Information and Inventions Agreement, the Indemnification Agreement and Section 5 of the Employment Agreement, shall survive any termination of Executive’s services or any termination of this Agreement.

12. Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

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13. Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Agreement. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release. Either party’s failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

14. Governing Law and Venue. This Release will be governed by and construed in accordance with the laws of the United States of America and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Any suit brought hereon shall be brought in the state or federal courts sitting in San Diego County, California, the Parties hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

15. Entire Agreement; Amendment. This Release, the Employee Proprietary Information and Inventions Agreement, the Indemnification Agreement and Executive’s Stock Award agreements and the Company’s equity plan pursuant to which such Stock Awards were granted constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. Except as provided in Section 4 hereof with respect to Section 5 of the Employment Agreement, the Employment Agreement shall be superseded entirely by this Release and the Employment Agreement shall be terminated and be of no further force or effect. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

16. Counterparts. This Release may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

17. Section 409A of the Code. This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payments payable under Sections 4(b) and 4(c) shall be paid no later than the later of: (a) the fifteenth (15th) day of the third month following Executive’s first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (b) the fifteenth (15th) day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. To the extent applicable, this Agreement shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder.

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18. Taxes. All compensation payable to Executive under this Agreement shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order. Executive acknowledges that the payments and benefits provided in this Agreement may have tax ramifications to him. The Company has provided no tax or other advice to Executive on such matters and Executive is free to consult with an accountant, legal counsel, or other tax advisor regarding the tax consequences he may face.

19. RIGHT TO ADVICE OF COUNSEL. EXECUTIVE ACKNOWLEDGES THAT HE HAS THE RIGHT, AND IS ENCOURAGED, TO CONSULT WITH HIS LAWYER; BY HIS SIGNATURE BELOW, EXECUTIVE ACKNOWLEDGES THAT HE HAS CONSULTED, OR HAS ELECTED NOT TO CONSULT, WITH HIS LAWYER CONCERNING THIS AGREEMENT.

(Signature Page Follows)

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IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release.

EXECUTIVE		ZOGENIX, INC.
/s/ David W. Nassif		By:	/s/ Roger Hawley
Print Name: David W. Nassif, J.D.		Print Name: Roger Hawley
Date:	February 26, 2010	Title:	Chief Executive Officer
		Date:	February 26, 2010

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EXHIBIT A

EMPLOYMENT AGREEMENT

[Attached]

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between Zogenix, Inc., a Delaware corporation (the “Company”), and David W. Nassif (“Executive”), and shall be effective as of May 7, 2008 (the “Effective Date”).

WHEREAS, the Company desires to continue to employ Executive, and Executive desires to continue employment with the Company, on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:

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

(a) Board. “Board” means the Board of Directors of the Company.

(b) Bonus. “Bonus” means an amount equal to the average of the bonuses awarded to Executive for each of the three (3) fiscal years prior to the date of Executive’s termination of employment, or such lesser number of years as may be applicable if Executive has not been employed for three (3) full years on the date of Executive’s termination of employment; provided that, to the extent Executive has not received any bonus prior to the date of his or her termination of employment due to the fact that his or her employment commenced during the fiscal year in which his or her termination of employment occurs, his or her “Bonus” for purposes of Section 4 shall be equal to his or her target bonus for the fiscal year in which such termination occurs (calculated by reference to the target bonus level in effect on the date of termination) multiplied by the corporate performance achievement percentage approved by the Board or its designee with respect to the payment of executive bonuses for the preceding fiscal year, which Bonus shall be annualized. For purposes of determining Executive’s “Bonus,” (i) to the extent Executive received no bonus in a year due to a failure to meet the applicable performance objectives, such year will still be taken into account (using zero (0) as the applicable bonus) in determining Executive’s “Bonus,” and (ii) to the extent Executive was not employed for an entire fiscal year, the bonus received by Executive for such fiscal year shall be annualized for purposes of the preceding calculation. If any portion of the bonuses awarded to Executive consisted of securities or other property, the fair market value thereof shall be determined in good faith by the Board.

(c) California WARN Act. “California WARN Act” means California Labor Code Sections 1400 et seq.

(d) Cause. “Cause” means any of the following:

(i) the commission of an act of fraud, embezzlement or dishonesty by Executive, or the commission of some other illegal act by Executive, that has a material adverse impact on the Company or any successor or affiliate thereof;

(ii) a conviction of, or plea of “guilty” or “no contest” to, a felony by Executive;

(iii) any unauthorized use or disclosure by Executive of confidential information or trade secrets of the Company or any successor or affiliate thereof that has, or may reasonably be expected to have, a material adverse impact on any such entity;

(iv) Executive’s gross negligence, insubordination or material violation of any duty of loyalty to the Company or any successor or affiliate thereof, or any other material misconduct on the part of Executive;

(v) Executive’s ongoing and repeated failure or refusal to perform or neglect of Executive’s duties as required by this Agreement, which failure, refusal or neglect continues for fifteen (15) days following Executive’s receipt of written notice from the Board or the Company’s Chief Executive Officer (the “CEO”) stating with specificity the nature of such failure, refusal or neglect; or

(vi) Executive’s breach of any Company policy or any material provision of this Agreement;

provided, however, that prior to the determination that “Cause” under this Section 1(d) has occurred, the Company shall (A) provide to Executive in writing, in reasonable detail, the reasons for the determination that such “Cause” exists, (B) other than with respect to clause (v) above which specifies the applicable period of time for Executive to remedy his or her breach, afford Executive a reasonable opportunity to remedy any such breach, (C) provide the Executive an opportunity to be heard prior to the final decision to terminate the Executive’s employment hereunder for such “Cause” and (D) make any decision that such “Cause” exists in good faith.

The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Executive for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.

(e) Change in Control. “Change in Control” means and includes each of the following:

(i) a transaction or series of transactions (other than an offering of the Company’s common stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act), of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

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(ii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination or (B) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case other than a transaction:

(1) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(2) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (2) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

Notwithstanding the foregoing, a transaction shall not constitute a “Change in Control” if: (i) its sole purpose is to change the state of the Company’s incorporation; (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction; (iii) it constitutes the Company’s initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise). The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters thereto.

(f) Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other interpretive guidance issued thereunder.

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(g) Good Reason. “Good Reason” means the occurrence of any of the following events or conditions without Executive’s written consent:

(i) a material diminution in Executive’s authority, duties or responsibilities;

(ii) a material diminution in Executive’s base compensation, unless such a reduction is imposed across-the-board to senior management of the Company;

(iii) a material change in the geographic location at which Executive must perform his or her duties; or

(iv) any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Executive under this Agreement.

Executive must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive’s written consent within ninety (90) days of the occurrence of such event. The Company or any successor or affiliate shall have a period of thirty (30) days to cure such event or condition after receipt of written notice of such event from Executive.

(h) Involuntary Termination. “Involuntary Termination” means (i) the Executive’s Separation from Service by reason of Executive’s discharge by the Company other than for Cause, or (ii) the Executive’s Separation from Service by reason of Executive’s resignation of employment with the Company for Good Reason. Executive’s Separation from Service by reason of Executive’s death or discharge by the Company following Executive’s Permanent Disability shall not constitute an Involuntary Termination. The Executive’s Separation from Service by reason of resignation from employment with the Company for Good Reason shall be an “Involuntary Termination” only if such Separation from Service occurs within two (2) years following the initial existence of the act or failure to act constituting Good Reason. The Executive’s Separation from Service by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary.

(i) Permanent Disability. Executive’s “Permanent Disability” shall be deemed to have occurred if Executive shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge his or her duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Executive’s Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves the right to have the Executive examined by a physician chosen by the Company at the Company’s expense.

(j) Separation from Service. “Separation from Service,” with respect to the Executive, means the Executive’s “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).

(k) Stock Awards. “Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

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(l) WARN Act. “WARN Act” shall mean the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 et seq., and the Department of Labor regulations thereunder.

2. Services to Be Rendered.

(a) Duties and Responsibilities. Executive shall serve as Executive Vice President, Chief Financial Officer, Secretary and Treasurer of the Company. In the performance of such duties, Executive shall report directly to the CEO and shall be subject to the direction of the CEO and to such limits upon Executive’s authority as the CEO may from time to time impose. In the event of the CEO’s incapacity or unavailability, Executive shall be subject to the direction of the Board. Executive hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the CEO. Executive shall be employed by the Company on a full time basis. Executive’s primary place of work shall be the Company’s facility in San Diego, California, or such other location within San Diego County as may be designated by the CEO from time to time. Executive shall also render services at such other places within or outside the United States as the CEO may direct from time to time. Executive shall be subject to and comply with the policies and procedures generally applicable to senior executives of the Company to the extent the same are not inconsistent with any term of this Agreement.

(b) Exclusive Services. Executive shall at all times faithfully, industriously and to the best of his or her ability, experience and talent perform to the satisfaction of the Board and the CEO all of the duties that may be assigned to Executive hereunder and shall devote substantially all of his or her productive time and efforts to the performance of such duties. Subject to the terms of the Employee Proprietary Information and Inventions Agreement referred to in Section 5(b), this shall not preclude Executive from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with his or her duties to the Company, as determined in good faith by the CEO. Executive agrees that he or she will not join any boards, other than community and civic boards (which do not interfere with his or her duties to the Company), without the prior approval of the CEO.

3. Compensation and Benefits. The Company shall pay or provide, as the case may be, to Executive the compensation and other benefits and rights set forth in this Section 3.

(a) Base Salary. The Company shall pay to Executive a base salary of $260,000 per year, payable in accordance with the Company’s usual pay practices (and in any event no less frequently than monthly). Executive’s base salary shall be subject to review annually by and at the sole discretion of the Compensation Committee of the Board or its designee.

(b) Bonus. Executive shall participate in any bonus plan that the Board or its designee may approve for the senior executives of the Company.

(c) Benefits. Executive shall be entitled to participate in benefits under the Company’s benefit plans and arrangements, including, without limitation, any employee benefit

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plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein; provided, that any reduction of Executive’s benefits such that Executive’s benefits are, in the aggregate, materially less favorable to Executive than those benefits offered to Executive as of the Effective Date shall be considered a material breach of this Agreement by the Company.

(d) Expenses. The Company shall reimburse Executive for reasonable out-of-pocket business expenses incurred in connection with the performance of his or her duties hereunder, subject to (i) such policies as the Company may from time to time establish, (ii) Executive furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures, (iii) Executive receiving advance approval from the CEO in the case of expenses for travel outside of North America, and (iv) Executive receiving advance approval from the CEO in the case of expenses (or a series of related expenses) in excess of $5,000. Any amounts payable under this Section 3(d) shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive’s taxable year following the taxable year in which Executive incurred the expenses. The amounts provided under this Section 2(d) during any taxable year of Executive’s will not affect such amounts provided in any other taxable year of Executive’s, and Executive’s right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.

(e) Paid Time Off. Executive shall be entitled to such periods of paid time off (“PTO”) each year as provided from time to time under the Company’s PTO policy and as otherwise provided for senior executive officers.

(f) Equity Plans. Executive shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. Except as otherwise provided in this Agreement, Executive’s participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan.

(g) Stock Award Acceleration.

(i) In the event of a Change in Control, the vesting and exercisability of fifty percent (50%) of Executive’s outstanding unvested Stock Awards shall be automatically accelerated effective immediately prior to the consummation of such Change in Control.

(ii) In the event of Executive’s Involuntary Termination or Executive’s Separation from Service by reason of Executive’s death or discharge by the Company following Executive’s Permanent Disability, the vesting and/or exercisability of each of Executive’s outstanding unvested Stock Awards shall be automatically accelerated on the date of Executive’s Separation from Service as to the number of Stock Awards that would vest over the twelve (12) month period following the date of Executive’s Separation from Service had Executive remained continuously employed by the Company during such period.

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(iii) In the event of Executive’s Involuntary Termination within three (3) months prior to or twelve (12) months following a Change in Control, the vesting and/or exercisability of any outstanding unvested portions of such Stock Awards shall be automatically accelerated on the later of (A) the date of Executive’s Separation from Service and (B) the date of the Change in Control. In addition, with respect to Stock Awards granted to Executive on or after the Effective Date, such Stock Awards may be exercised by Executive (or Executive’s legal guardian or legal representative) until the latest of (A) three (3) months after the date of Executive’s Separation from Service, (B) with respect to any portion of the Stock Awards that become exercisable on the date of a Change in Control pursuant to this Section 3(g)(iii), three (3) months after the date of the Change in Control, or (C) such longer period as may be specified in the applicable Stock Award agreement; provided, however, that in no event shall any Stock Award remain exercisable beyond the original outside expiration date of such Stock Award.

(iv) The vesting pursuant to clauses (i), (ii) and (iii) of this Section 3(g) shall be cumulative. The foregoing provisions are hereby deemed to be a part of each Stock Award and to supersede any less favorable provision in any agreement or plan regarding such Stock Award.

4. Severance. Executive shall be entitled to receive benefits upon a Separation from Service only as set forth in this Section 4:

(a) At-Will Employment; Termination. The Company and Executive acknowledge that Executive’s employment is and shall continue to be at-will, as defined under applicable law, and that Executive’s employment with the Company may be terminated by either party at any time for any or no reason, with or without notice. If Executive’s employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement. Executive’s employment under this Agreement shall be terminated immediately on the death of Executive.

(b) Separation from Service by Death or Following Permanent Disability. Subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, in the event of Executive’s Separation from Service as a result of Executive’s death or discharge by the Company following Executive’s Permanent Disability, Executive or Executive’s estate, as applicable, shall be entitled to receive, in lieu of any severance benefits to which Executive or Executive’s estate may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) and the last sentence of clause (iii) below, will be payable in a lump sum within ten (10) days following the effective date of Executive’s Release (or, in the event of Executive’s death, within ten (10) days following the date of Executive’s death):

(i) the Company shall pay to Executive or Executive’s estate, as applicable, Executive’s fully earned but unpaid base salary, when due, through the date of

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Executive’s Separation from Service at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive or Executive’s estate may be entitled pursuant to the terms of such plans or agreements at the time of Executive’s Separation from Service;

(ii) Executive or Executive’s estate, as applicable, shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive’s monthly base salary as in effect immediately prior to the date of Executive’s Separation from Service; and

(iii) for the period beginning on the date of Executive’s Separation from Service and ending on the date which is twelve (12) full months following the date of Executive’s Separation from Service (or, if earlier, the date on which the applicable continuation period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) expires), the Company shall arrange to provide Executive (in the case of Executive’s Separation of Service as a result of discharge by the Company following Executive’s Permanent Disability) and/or his or her eligible dependents who were covered under the Company’s health insurance plans as of the date of Executive’s Separation from Service with health (including medical and dental) insurance benefits substantially similar to those provided to Executive and his or her dependents immediately prior to the date of such Separation from Service. If any of the Company’s health benefits are self-funded as of the date of Executive’s Separation from Service, instead of providing continued health insurance benefits as set forth above, the Company shall instead pay to Executive or Executive’s estate, as applicable, an amount equal to twelve (12) multiplied by the monthly premium Executive or his or her dependents would be required to pay for continuation coverage pursuant to COBRA for Executive (if applicable) and his or her eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Separation from Service (calculated by reference to the premium as of the date of Executive’s Separation from Service).

(c) Severance Upon Involuntary Termination. Subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, if Executive’s employment is Involuntarily Terminated, Executive shall be entitled to receive, in lieu of any severance benefits to which Executive may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) and the last sentence of clause (iii) (if applicable) will be payable in a lump sum within ten (10) days following the effective date of Executive’s Release:

(i) the Company shall pay to Executive his or her fully earned but unpaid base salary, when due, through the date of Executive’s Involuntary Termination at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive may be entitled pursuant to the terms of such plans or agreements at the time of Executive’s Involuntary Termination;

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(ii) Executive shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive’s monthly base salary as in effect immediately prior to the date of Executive’s Involuntary Termination; and

(iii) for the period beginning on the date of Executive’s Involuntary Termination and ending on the date which is twelve (12) full months following the date of Executive’s Involuntary Termination (or, if earlier, the date on which the applicable continuation period under COBRA expires), the Company shall arrange to provide Executive and his or her eligible dependents who were covered under the Company’s health insurance plans as of the date of Executive’s Involuntary Termination with health (including medical and dental) insurance benefits substantially similar to those provided to Executive and his or her dependents immediately prior to the date of such Involuntary Termination. If any of the Company’s health benefits are self-funded as of the date of Executive’s Involuntary Termination, instead of providing continued health insurance benefits as set forth above, the Company shall instead pay to Executive an amount equal to twelve (12) multiplied by the monthly premium Executive would be required to pay for continuation coverage pursuant to COBRA for Executive and his or her eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination (calculated by reference to the premium as of the date of Involuntary Termination).

(iv) Notwithstanding anything to the contrary in this Section 4(c), and subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, in the event of Executive’s Involuntary Termination during the period commencing sixty (60) days prior to a Change in Control or twelve (12) months following a Change in Control, Executive shall be entitled to receive, in addition to the severance benefits described in clauses (i), (ii) and (iii) above, an amount equal to Executive’s Bonus for the year in which Executive’s Involuntary Termination occurs, which amount shall be payable in a lump sum within ten (10) days following the later of (A) the effective date of Executive’s Release and (B) the date of the Change in Control.

(d) Termination for Cause or Voluntary Resignation Without Good Reason. In the event of Executive’s termination of employment as a result of Executive’s discharge by the Company for Cause or Executive’s resignation without Good Reason (other than as a result of Executive’s death or Separation of Service by reason of discharge by the Company following Executive’s Permanent Disability), the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (i) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by COBRA or applicable law. In addition, in the event of Executive’s Separation from Service as a result of Executive’s discharge by the Company for Cause or Executive’s resignation without Good Reason (other than as a result of Executive’s death or Separation of Service by reason of discharge by the Company following Executive’s Permanent Disability), all vesting of Executive’s unvested Stock Awards previously granted to him or her by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination. The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

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(e) Release. As a condition to Executive’s receipt of any post-termination benefits pursuant to Sections 4(b) and (c) above, Executive shall execute and not revoke a general release of all claims in favor of the Company (the “Release”) in the form attached hereto as Exhibit A. In the event Executive’s Release does not become effective within the fifty-five (55) day period following the date of Executive’s Separation from Service, Executive shall not be entitled to the aforesaid payments and benefits.

(f) Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination. In the event of Executive’s termination of employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Section 4. In addition, Executive acknowledges and agrees that he or she is not entitled to any reimbursement by the Company for any taxes payable by Executive as a result of the payments and benefits received by Executive pursuant to this Section 4, including, without limitation, any excise tax imposed by Section 4999 of the Code. Any payments made to Executive under this Section 4 shall be inclusive of any amounts or benefits to which Executive may be entitled pursuant to the WARN Act or the California WARN Act.

(g) No Mitigation. Except as otherwise provided in Section 4(b)(iii) or 4(c)(iii) above, Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Executive to the Company may be offset by the Company against amounts payable to Executive under this Section 4.

(h) Return of the Company’s Property. In the event of Executive’s termination of employment for any reason, the Company shall have the right, at its option, to require Executive to vacate his or her offices prior to or on the effective date of separation and to cease all activities on the Company’s behalf. Upon Executive’s termination of employment in any manner, as a condition to the Executive’s receipt of any severance benefits described in this Agreement, Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Executive shall deliver to the Company a signed statement certifying compliance with this Section 4(h) prior to the receipt of any severance benefits described in this Agreement.

(i) Waiver of the Company’s Liability. Executive recognizes that his or her employment is subject to termination with or without Cause for any reason and therefore Executive agrees that Executive shall hold the Company harmless from and against any and all

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liabilities, losses, damages, costs and expenses, including but not limited to, court costs and reasonable attorneys’ fees, which Executive may incur as a result of Executive’s termination of employment. Executive further agrees that Executive shall bring no claim or cause of action against the Company for damages or injunctive relief based on a wrongful termination of employment. Executive agrees that the sole liability of the Company to Executive upon termination of this Agreement shall be that determined by this Section 4. In the event this covenant is more restrictive than permitted by laws of the jurisdiction in which the Company seeks enforcement thereof, this covenant shall be limited to the extent permitted by law.

5. Certain Covenants.

(a) Noncompetition. Except as may otherwise be approved by the Board, during the term of Executive’s employment, Executive shall not have any ownership interest (of record or beneficial) in, or have any interest as an employee, salesman, consultant, officer or director in, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other business that engages in any county, city or part thereof in the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Company’s business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Executive may own, directly or indirectly, solely as an investment, securities of any entity which are traded on any national securities exchange if Executive (i) is not a controlling person of, or a member of a group which controls, such entity; or (ii) does not, directly or indirectly, own one percent (1%) or more of any class of securities of any such entity.

(b) Confidential Information. Executive and the Company have entered into the Company’s standard employee proprietary information and inventions agreement (the “Employee Proprietary Information and Inventions Agreement”). Executive agrees to perform each and every obligation of Executive therein contained.

(c) Solicitation of Employees. Executive shall not during the term of Executive’s employment and for the applicable severance period for which Executive receives severance benefits following any termination hereof pursuant to Section 4(b) or (c) above (regardless of whether Executive receives payment of severance amounts payable thereunder in a lump sum) (the “Restricted Period”), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any employee of the Company or any of its affiliates.

(d) Solicitation of Consultants. Executive shall not during the term of Executive’s employment and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultant’s engagement by the Company or any of its affiliates.

(e) Rights and Remedies Upon Breach. If Executive breaches or threatens to commit a breach of any of the provisions of this Section 5 (the “Restrictive Covenants”), the

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Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:

(i) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company; and

(ii) Accounting and Indemnification. The right and remedy to require Executive (A) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (B) to indemnify the Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys’ fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants.

(f) Severability of Covenants/Blue Pencilling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Executive hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.

(g) Enforceability in Jurisdictions. The Company and Executive intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Executive that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

(h) Definitions. For purposes of this Section 5, the term “Company” means not only Zogenix, Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Zogenix, Inc.

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6. Insurance; Indemnification.

(a) Insurance. The Company shall have the right to take out life, health, accident, “key-man” or other insurance covering Executive, in the name of the Company and at the Company’s expense in any amount deemed appropriate by the Company. Executive shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies.

(b) Indemnification. Executive will be provided with indemnification against third party claims related to his or her work for the Company as required by Delaware law. The Company shall provide Executive with directors and officers liability insurance coverage at least as favorable as that which the Company may maintain from time to time for members of the Board and other executive officers.

7. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys’ fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award, but in no event later than the last day of the Executive’s taxable year following the taxable year in which the fees, costs and expenses were incurred; provided, further, that the parties’ obligations pursuant to this sentence shall terminate on the tenth (10^th) anniversary of the date of Executive’s termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 7 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

8. General Relationship. Executive shall be considered an employee of the Company within the meaning of all federal, state and local laws and regulations including, but not limited to, laws and regulations governing unemployment insurance, workers’ compensation, industrial accident, labor and taxes.

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9. Miscellaneous.

(a) Modification; Prior Claims. This Agreement and the Employee Proprietary Information and Inventions Agreement set forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, including that certain offer letter dated, April 30, 2007, between the Company and Executive. This Agreement may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

(b) Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

(c) Survival. The covenants, agreements, representations and warranties contained in or made in Sections 3(g), 4, 5, 6, 7 and 9 of this Agreement shall survive any Executive’s termination of employment.

(d) Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.

(e) Waiver. The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such party’s rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.

(f) Section Headings. The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

(g) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by email, telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to Executive at the address listed on the Company’s personnel records and to the Company at its principal place of business, or such other address as either party may specify in writing.

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(h) Severability. All Sections, clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.

(i) Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Except as provided in Sections 5 and 7, any suit brought hereon shall be brought in the state or federal courts sitting in San Diego, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

(j) Non-transferability of Interest. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.

(k) Gender. Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word “person” shall include any corporation, firm, partnership or other form of association.

(l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

(m) Construction. The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.

(n) Withholding and other Deductions. All compensation payable to Executive hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.

(o) Code Section 409A Exempt.

(i) This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payments payable under Sections 4(b) and 4(c) shall be paid no later than the later of: (A) the fifteenth

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(15th) day of the third month following Executive’s first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (B) the fifteenth (15th) day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. To the extent applicable, this Agreement shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder.

(ii) If the Executive is a “specified employee” (as defined in Section 409A of the Code), as determined by the Company in accordance with Section 409A of the Code, on the date of the Executive’s Separation from Service, to the extent that the payments or benefits under this Agreement are subject to Section 409A of the Code and the delayed payment or distribution of all or any portion of such amounts to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion deferred pursuant to this Section 9(o)(ii) shall be paid or distributed to Executive in a lump sum on the earlier of (A) the date that is six (6)-months following Executive’s Separation from Service, (B) the date of Executive’s death or (C) the earliest date as is permitted under Section 409A of the Code. Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

(iii) To the extent applicable, this Agreement shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code. If Executive and the Company determine that any payments or benefits payable under this Agreement intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, Executive and the Company agree to amend this Agreement, or take such other actions as Executive and the Company deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder (and any applicable transition relief) while preserving the economic agreement of the parties. If any provision of the Agreement would cause such payments or benefits to fail to so comply, such provision shall not be effective and shall be null and void with respect to such payments or benefits, and such provision shall otherwise remain in full force and effect.

(iv) As provided in Internal Revenue Service Notice 2007-86, notwithstanding any other provision of this Agreement, with respect to an election or amendment to change a time and form of payment under this Agreement that is subject to Section 409A made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

ZOGENIX, INC.

By: /s/ Roger Hawley                                      

Name: Roger Hawley                                      

Title: Chief Executive Officer                        

EXECUTIVE

/s/ David W. Nassif

David W. Nassif

SIGNATURE PAGE TO EMPLOYMENT AGREEMENT

EXHIBIT A

GENERAL RELEASE OF CLAIMS

[The language in this Release may change based on legal developments and evolving best practices; this form is provided as an example of what will be included in the final Release document.]

This General Release of Claims (“Release”) is entered into as of this      day of             ,         , between              (“Executive”), and Zogenix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of May 7, 2008 (the “Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish to fully and finally to resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive pursuant to the Agreement, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that he or she would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1. General Release of Claims by Executive.

(a) Executive, on behalf of himself or herself and his or her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his or her employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation,

defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(i) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii) Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(iii) Claims pursuant to the terms and conditions of the federal law known as COBRA;

(iv) Claims for indemnity under the bylaws of the Company, as provided for by California law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(v) Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement; and

(vi) Claims Executive may have to vested or earned compensation and benefits.

(b) EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

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BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE OR SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[Note: Clauses (c), (d) and (e) apply only if Executive is age 40 or older at time of termination]

(c) Executive acknowledges that this Release was presented to him or her on the date indicated above and that Executive is entitled to have [twenty-one (21)][forty-five (45)] days’ time in which to consider it. Executive further acknowledges that the Company has advised him or her that he or she is waiving his or her rights under the ADEA, and that Executive should consult with an attorney of his or her choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before [twenty-one (21)][forty-five (45)] days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

(d) Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after his or her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

(e) Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8^th) day after his or her execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.

(f) Executive further understands that Executive will not be given any severance benefits under the Agreement unless this Release is effective on or before the date that is fifty-five (55) days following the date of Executive’s termination of employment.

2. No Assignment. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that Executive may have against the Company Releasees. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any such assignment or transfer from Executive.

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3. Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

4. Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Agreement. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release. Either party’s failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

5. Governing Law and Venue. This Release will be governed by and construed in accordance with the laws of the United States of America and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Any suit brought hereon shall be brought in the state or federal courts sitting in San Diego County, California, the Parties hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

6. Entire Agreement. This Release and the Agreement constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

7. Counterparts. This Release may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

(Signature Page Follows)

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IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.

EXECUTIVE	ZOGENIX, INC.
______________________________________________	By:
Print Name: ____________________________________	Print Name:
	Title:

EXHIBIT B

COMPANY CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT

[Attached]

PROPRIETARY INFORMATION

AND INVENTIONS AGREEMENT

In consideration of my employment or continued employment by Zogenix (the “Company”), and the compensation now and hereafter paid to me, I hereby agree as follows:

1. RECOGNITION OF COMPANY’S RIGHTS; NONDISCLOSURE. At all times during the term of my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company’s Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of the Company and its assigns and the Company and its assigns shall be the sole owner of all trade secret rights, patent rights, copyrights, mask work rights and all other rights throughout the world (collectively, “Proprietary Rights”) in connection therewith.

The term “Proprietary Information” shall mean trade secrets, confidential knowledge, data or any other proprietary information of the Company. By way of illustration but not limitation, “Proprietary Information” includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques (hereinafter collectively referred to as “Inventions”); and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; and information regarding the skills and compensation of other employees of the Company.

2. THIRD PARTY INFORMATION. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose (to anyone other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorized by an officer of the Company in writing.

3. ASSIGNMENT OF INVENTIONS.

1 ASSIGNMENT. I hereby assign to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company which are related to or useful in the business of the Company or result from tasks assigned to me by the Company or result from the use of premises leased, owned or contracted for by the Company. Inventions assigned to or as directed by the Company by this paragraph 3 are hereinafter referred to as “Company Inventions.” I recognize that this Agreement does not require assignment of any invention which qualifies fully for protection under Section 2870 of the California Labor Code (hereinafter “Section 2870”), which provides as follows:

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (i), the provision is against the public policy of this state and is unenforceable.

2 GOVERNMENT. I also assign to or as directed by the Company all my right, title and interest in and to any and all Inventions, full title to which is required to be in the United States by a contract between the Company and the United States or any of its agencies.

3 WORKS FOR HIRE. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101).

4. ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in every proper way to obtain and from time to time enforce United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Company’s request on such assistance.

In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company.

5. OBLIGATION TO KEEP COMPANY INFORMED. During the period of my employment and for six (6) months after termination of my employment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or on my behalf within a year after termination of employment. At the time of each such disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under Section 2870; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and will not disclose to third parties without my consent any proprietary information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of Section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under Section 2870.

I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of my employment at the Company, which records shall be available to and remain the sole property of the Company at all times.

6. PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement. If disclosure of any such Invention on Exhibit A would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Inventions in Exhibit A but am to inform the Company that all such Inventions have not been listed for that reason.

7. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the Company I will not, without the Company’s express written consent, engage in any employment or business activity other than for the Company. I agree further that for the period of my employment by the Company and for one (1) year after the date of termination of my employment by the Company I will not (i) induce any employee of the Company to leave the employ of the Company or (ii) solicit the business of any client or customer of the Company (other than on behalf of the Company).

8. NO IMPROPER USE OF MATERIALS. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of

confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.

9. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.

10. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with the Company in completing and signing the Company’s termination statement for technical and management personnel.

11. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.

12. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three days after the date of mailing.

13. GENERAL PROVISIONS.

1 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by California residents.

2 ENTIRE AGREEMENT. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. As used in this Agreement, the period of my employment includes any time during which I may be retained by the Company as a consultant.

3 SEVERABILITY. If one or more of the provisions in this Agreement are deemed unenforceable by law, then such provision will be deemed stricken from this Agreement and the remaining provisions will continue in full force and effect.

4 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

5 SURVIVAL. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee.

6 EMPLOYMENT. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause.

7 WAIVER. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.

This Agreement shall be effective as of the first day of my employment with the Company, namely: May 16, 2007.

I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY’S CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.

I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.

Dated: May 16, 2007

/s/ David Nassif
	Signature
	David Nassif
	Name of Employee

ACCEPTED AND AGREED TO:

Zogenix

By: /s/ Roger Hawley

Name: Roger Hawley

Title: Chief Executive Officer

EXHIBIT A

Zogenix	Zogenix
5858 Horton St., Ste 455	12671 High Bluff Drive, Suite 200
Emeryville, CA 94608	San Diego, CA 92130

To Whom It May Concern:

14. The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by Zogenix (the “Company”) that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

/ /	No inventions or improvements.
/ /	See below:
/ /	Due to confidentiality agreements with prior employer, I cannot disclose certain inventions that would otherwise be included on the above-described list.
/ /	Additional sheets attached.

15. I propose to bring to my employment the following devices, materials and documents of a former employer or other person to whom I have an obligation of confidentiality that are not generally available to the public, which materials and documents may be used in my employment pursuant to the express written authorization of my former employer or such other person (a copy of which is attached hereto):

/ /	No material.
	1.
/ /	See below:
/ /	Additional sheets attached.

Date:                     , 20    

Very truly yours,

Employee

EXHIBIT C

INDEMNIFICATION AGREEMENT

[Attached]

ZOGENIX, INC.

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made as of May 16, 2007 by and between ZOGENIX, INC., a Delaware corporation (the “Company”), and David W. Nassif (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors, officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The certificate of incorporation and bylaws of the Company require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”). The certificate of incorporation, bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the certificate of incorporation and bylaws of the Company and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

WHEREAS, Indemnitee does not regard the protection available under the Company’s certificate of incorporation, bylaws and insurance as adequate in the present circumstances, and may not be willing

to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. SERVICES TO THE COMPANY. Indemnitee will serve or continue to serve as an officer, director or key employee of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation.

2. DEFINITIONS. As used in this Agreement:

(a) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

(b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities;

(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50.1% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; or

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(c) “Corporate Status” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

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(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(e) “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(g) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(h) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(i) “Person” shall have the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(j) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken (or failure to act) by him or her or of any action (or failure to act) on his or her part while acting as a director or officer of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement.

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(k) References to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, he or she had no reasonable cause to believe that his or her conduct was unlawful.

4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. If Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue or matter on which Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

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6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

7. ADDITIONAL INDEMNIFICATION.

(a) Notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) For purposes of Section 7(a), the meaning of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

(i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and

(ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

8. EXCLUSIONS. Notwithstanding any other provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy or other indemnity provision;

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 13(d)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

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9. ADVANCES OF EXPENSES; DEFENSE OF CLAIM.

(a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the expenses incurred by Indemnitee in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 9(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s prior written consent.

10. PROCEDURE FOR NOTIFICATION AND APPLICATION FOR INDEMNIFICATION.

(a) Within sixty (60) days after the actual receipt by Indemnitee of notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The omission by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee (i) otherwise than under this Agreement and (ii) under this Agreement only to the extent the Company can establish that such omission to notify resulted in actual prejudice to the Company.

(b) Indemnitee shall thereafter deliver to the Company a written application to indemnify Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, Indemnitee’s entitlement to indemnification shall be determined in accordance with Section 11(a) of this Agreement.

11. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 10(b), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board; or (ii) if so requested by Indemnitee, in his or her sole discretion, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses

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(including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction (the “Court”) for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

12. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by the Board or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by the Board or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

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(b) If the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period shall be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

13. REMEDIES OF INDEMNITEE.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within the time period specified in Section 12(b) of this Agreement, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification pursuant to Section 3 or Section 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

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(b) In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 11(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 13, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 9 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 13, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication or arbitration. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses reasonably incurred by Indemnitee in connection with such judicial adjudication or arbitration.

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company under this Agreement or any other agreement or provision of the Company’s certificate of incorporation or bylaws now or hereafter in effect or (ii) recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance or insurance recovery, as the case may be.

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14. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s certificate of incorporation, the Company’s bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law, in equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

15. DURATION OF AGREEMENT. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final

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termination of any Proceeding (including any rights of appeal thereto) then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto (including any rights of appeal of any Section 13 Proceeding).

16. SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

17. ENFORCEMENT AND BINDING EFFECT.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall apply to Indemnitee’s service as an officer, director or key employee of the Company prior to the date of this Agreement.

(d) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

18. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

20. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (b) if

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mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Zogenix, Inc.

11682 El Camino Real, Suite 320

San Diego, California 92130

Attn: Secretary

or to any other address as may have been furnished to Indemnitee in writing by the Company.

21. CONTRIBUTION. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect: (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

22. APPLICABLE LAW AND CONSENT TO JURISDICTION. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

23. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

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24. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this INDEMNIFICATION AGREEMENT to be signed as of the day and year first above written.

ZOGENIX, INC., a Delaware corporation		INDEMNITEE:
By:	/s/ Roger Hawley	/s/ David W. Nassif
Name:	Roger Hawley	David W. Nassif
Title:	Chief Executive Officer

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EX-10.25

Exhibit 10.25

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of October 8, 2010 (the “Effective Date”) among OXFORD FINANCE CORPORATION (in its individual capacity, “Oxford”; in its capacity as Administrative Agent, “Administrative Agent”; collectively with the other Lenders from time to time a party hereto, the “Lenders”, and Oxford and each such lender individually, a “Lender”) and ZOGENIX, INC., a Delaware corporation (“Borrower”), amends and restates the terms of that certain Loan and Security Agreement by and among Oxford, Administrative Agent, the Lenders party thereto and Borrower, dated as of June 30, 2008 (as amended from time to time, including by that certain Amended and Restated Loan and Security Agreement dated as of July 1, 2010, the “Original Agreement”), and provides the terms on which Lenders shall lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 14. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

2 LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Administrative Agent, for the benefit of the Lenders, the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with Section 2.3 of this Agreement.

2.1.1 Growth Capital Loan Facility.

(a) Availability. On or about the date of the Original Agreement, Lenders, severally and not jointly, made an advance (the “Growth Capital Advance”), according to each Lender’s pro rata share, and in the aggregate amount of the Growth Capital Loan Commitment (based upon the respective Growth Capital Loan Commitment Percentage of each Lender). When repaid, the Growth Capital Advance may not be re-borrowed.

(b) Repayment. Subject to the terms and conditions of this Agreement, Borrower shall continue to make monthly payments of interest only, in arrears, commencing on the first day of the month following the month in which the Growth Capital Funding Date occurred and continuing thereafter on the first day of each successive calendar month (each a “Growth Capital Interest Only Payment Date”) during the Growth Capital Interest Only Period. Commencing on the Growth Capital Amortization Date and continuing thereafter during the Growth Capital Repayment Period on the first day of each successive calendar month (each a “Growth Capital Scheduled Payment Date”), Borrower shall make thirty (30) equal monthly payments of principal and interest, in arrears, which would fully amortize the outstanding amount of the Growth Capital Advance as of the Growth Capital Amortization Date over the Growth Capital Repayment Period (individually, the “Growth Capital Scheduled Payment”, and collectively, “Growth Capital Scheduled Payments”). All unpaid principal and accrued and unpaid interest and all other amounts due on account of the Growth Capital Advance shall be due and payable in full on the Maturity Date. The Growth Capital Advance may only be prepaid in accordance with Sections 2.1.1(c) - 2.1.1(e). Each Growth Capital Interest Only Payment Date and each Growth Capital Scheduled Payment Date are sometimes referred to as a “Growth Capital Payment Date.”

(c) Mandatory Prepayment Upon an Acceleration. If the Growth Capital Advance is accelerated following the occurrence of an Event of Default in accordance with the terms of this Agreement, Borrower shall immediately pay to Administrative Agent, for the benefit of the Lenders according to each Lender’s

pro rata share (based upon the respective Growth Capital Loan Commitment Percentage of each Lender), an amount equal to the sum of: (i) all outstanding principal plus accrued and unpaid interest on the Growth Capital Advance, (ii) the Growth Capital Final Payment, (iii) the Growth Capital Prepayment Fee, plus (iv) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts. Notwithstanding (but without duplication with) the foregoing, Borrower shall pay to Administrative Agent, for the benefit of the Lenders according to each Lender’s pro rata share (based upon the respective Growth Capital Loan Commitment Percentage of each Lender), on the Maturity Date, the Growth Capital Final Payment.

(d) Permitted Prepayment. Borrower shall have the option to prepay all, but not less than all, of the Growth Capital Advance advanced by Lenders under this Agreement, provided Borrower, (i) provides written notice to Administrative Agent (who will forward the same to each Lender), of its election to prepay the Growth Capital Advance at least ten (10) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued interest, (B) the Growth Capital Prepayment Fee, (C) the Growth Capital Final Payment, plus (D) all other sums that have become due and payable, including Lenders Expenses, if any, and interest at the Default Rate with respect to any past due amounts. Notwithstanding any provision herein to the contrary, the Growth Capital Prepayment Fee shall not apply to or be assessed upon any prepayment made by Borrowers if such payments were required by Administrative Agent to be made pursuant to Section 6.5.

(e) Application of Mandatory Prepayments. All principal amounts required to be paid pursuant to Sections 2.1.1 (c) or (d) shall be applied to the Growth Capital Advance applied in the inverse order of maturity to the remaining Growth Capital Scheduled Payments thereof.

2.1.2 Revolving Advances.

(a) Availability. Subject to the terms and conditions of this Agreement and to deduction of the Letter of Credit Reserve, Lenders agree, severally and not jointly, to lend to Borrower from time to time prior to the Maturity Date, according to each Lender’s pro rata share of the Revolving Line (based upon the respective Revolving Commitment Percentage of each Lender), Revolving Advances not to exceed the Availability Amount. Amounts borrowed hereunder may be repaid and, prior to the Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

(b) Termination; Repayment. The Revolving Line terminates on the Maturity Date, when the principal amount of all Revolving Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line (including but not limited to the Revolving Line Termination Fee) shall be immediately due and payable.

2.1.3 Letters of Credit Sublimit.

(a) Letters of Credit. As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for Borrower’s account. Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Revolving Advances under the Revolving Line. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed One Million Five Hundred Thousand Dollars ($1,500,000), inclusive of Credit Extensions relating to Sections 2.1.4 and 2.1.5. The aggregate amount available to be used for the issuance of Letters of Credit may not exceed (i) the lesser of (A) the Revolving Line or (B) the Borrowing Base, minus (ii) the outstanding principal amount of any Revolving Advances (including any amounts used for Cash Management Services and the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) and minus (iii) the FX Reduction Amount. If, on the Maturity Date, there are any outstanding Letters of Credit, then on such date (through the date such Letters of Credit continue to be outstanding) Borrower shall provide to Administrative Agent cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”). Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit

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guarantied by Bank and opened for Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower understands and agrees that Lenders shall not be liable for any error, negligence, or mistake, whether of omission or commission in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.

(b) Letter of Credit Participations. Bank irrevocably agrees to grant and hereby grants to each Lender, and, to induce the Bank to issue Letters of Credit, each Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from Bank, on the terms and conditions set forth below, for such Lender’s own account and risk an undivided interest equal to such Lender’s Revolving Commitment Percentage in Bank’s obligations and rights under and in respect of each Letter of Credit and the amount of each draft paid by Bank thereunder. Each Lender agrees with Bank that, if a draft is paid under any Letter of Credit for which Bank is not reimbursed in full by the Borrower pursuant to Section 2.1.3(c), such Lender shall pay to Bank upon demand at Bank’s address for notices specified herein an amount equal to such Lender’s Revolving Commitment Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. Each Lender’s obligation to pay such amount shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such Lender may have against Bank, the Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Sections 3.1 or 3.2, (iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan Document by the Borrower or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

(c) Reimbursement.

(i) If Bank shall make any disbursement in respect of a Letter of Credit, the Borrower shall pay or cause to be paid to Bank an amount equal to the entire amount of such disbursement not later than the immediately following Business Day. Each such payment shall be made to Bank at its address for notices referred to herein in Dollars and in immediately available funds.

(ii) If Bank shall not have received from the Borrower the payment that it is required to make pursuant to Section 2.1.3(c)(i) with respect to a Letter of Credit within the time specified in such Section, Bank will promptly notify the Administrative Agent of the disbursement and the Administrative Agent will promptly notify each Lender of such disbursement and its Revolving Commitment Percentage thereof, and each Lender shall pay to Bank upon demand at Bank’s address for notices specified herein an amount equal to such Lender’s Revolving Commitment Percentage of such disbursement; upon such payment pursuant to this paragraph to reimburse Bank for any disbursement, the Borrower shall be required to reimburse the Lenders for such payments (including interest accrued thereon from the date of such payment until the date of such reimbursement at the rate applicable to Revolving Advances under the Revolving Line) on demand and the Lenders shall be deemed to have extended, and the Borrower shall be deemed to have accepted, a Revolving Advance under the Revolving Line in the aggregate principal amount of such payment without further action on the part of any party, and the Letter of Credit sublimit shall be permanently reduced by such amount; any amount so paid by Lenders pursuant to this paragraph shall, on and after the payment date thereof, be deemed to be Revolving Advances under the Revolving Line for all purposes hereunder.

(d) Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, Bank shall promptly notify the Borrower and the Administrative Agent of the date and amount thereof. The responsibility of Bank to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. If Bank shall make any disbursement in respect of a Letter of Credit, then, unless either the Borrower shall reimburse such disbursement in full within the time period specified in Section 2.1.3(c) or the Lenders shall reimburse such disbursement in full on such date as provided in Section 2.1.3(c) in each case the unpaid amount thereof shall bear interest for the account of Bank, for each day from and including the date of such disbursement to but excluding the earlier of the date of payment by the Borrower, at the rate per annum that would apply to such amount if such amount were a Revolving Advance under the Revolving Line; provided that the provisions of Section 2.1.3(c)(ii) shall be applicable to any such amounts not paid when due.

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(e) Obligations Absolute. The Borrower’s obligations under this Section 2.1.3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against Bank, any Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with each Lender that no Lender shall be responsible for, and the Borrower’s obligations hereunder shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. No Lender shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Lender. The Borrower agrees that any action taken or omitted by any Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Borrower and shall not result in any liability of any Lender to the Borrower.

In addition to amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees to pay and to protect, indemnify, and save each Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees and allocated costs of internal counsel) that any Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit, or (B) the failure of Bank or of any Lender to honor a demand for payment under any Letter of Credit thereof as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority, in each case other than to the extent solely as the result of the gross negligence or willful misconduct of Bank or such Lender (as finally determined by a court of competent jurisdiction).

(f) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Revolving Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

(g) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

2.1.4 Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may enter into foreign exchange contracts with Lenders under which Borrower commits to purchase from or sell to Lenders (in accordance with their Revolving Commitment Percentages) a specific amount of Foreign Currency (each, a “FX Forward Contract”) on a specified date (the “Settlement Date”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract in a maximum aggregate amount equal to One Hundred Fifty Thousand Dollars ($150,000) (such maximum shall be the “FX Reserve”). The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the amount of the FX Reserve. The amount otherwise available for Credit Extensions under the Revolving Line shall be reduced by an amount equal to ten percent (10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”). Any amounts that are not paid by Borrower for any FX Forward Contracts will be treated as Revolving Advances under the Revolving Line and will accrue interest at the interest rate applicable to Revolving Advances.

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2.1.5 Cash Management Services Sublimit. Borrower may use up to One Million Five Hundred Thousand Dollars ($1,500,000), inclusive of Credit Extensions relating to Sections 2.1.3 and 2.1.4 of the Revolving Line for Bank’s cash management services which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Bank’s various cash management services agreements (collectively, the “Cash Management Services”). Any amounts Bank pays on behalf of Borrower for any Cash Management Services will be treated as Revolving Advances under the Revolving Line and will accrue interest at the interest rate applicable to Revolving Advances.

2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any Revolving Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), plus (c) the FX Reduction Amount, exceeds the lesser of either the Revolving Line or the Borrowing Base (such amount being an “Overadvance”), Borrower shall immediately pay to Lenders in cash the ratable amount (according to each such Lender’s Revolving Commitment Percentage) of such Overadvance. Without limiting Borrower’s obligation to repay Lenders any amount of the Overadvance, Borrower agrees to pay Lenders interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

2.3 Payment of Interest on the Credit Extensions.

(a) Interest.

(i) Growth Capital Advance. Subject to Section 2.3(b), the Growth Capital Advance shall bear interest on the outstanding principal amount thereof from the Growth Capital Funding Date until paid in full at a fixed rate per annum equal to 12.06%. Pursuant to the terms hereof, interest on the Growth Capital Advance shall be paid in arrears on the first day of each month. Interest shall also be paid on the date of any prepayment of the Growth Capital Advance pursuant to this Agreement for the portion of the Growth Capital Advance so prepaid and upon payment (including prepayment) in full thereof. All accrued but unpaid interest on the Growth Capital Advance shall be due and payable on the Maturity Date. Interest shall accrue on the Credit Extension for the day on which the Credit Extension is made, and shall not accrue on the Credit Extension, or any portion thereof, for the day on which the Credit Extension or such portion is paid.

(ii) Revolving Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the greater of 3.29% above the Prime Rate or 7.29%, which interest shall be payable monthly in accordance with Section 2.3(h) below.

(b) Default Interest. After an Event of Default, Obligations shall bear interest at a rate per annum which is the rate that is otherwise applicable thereto, plus four percent (4.00%) (the “Default Rate”). Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of any Lender.

(c) 360-Day Year. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.

(d) Debit of Accounts. Each Lender may debit any of Borrower’s deposit accounts with Silicon Valley Bank, through automatic debit of such accounts, Automated Clearinghouse or other transfers, for scheduled principal and interest payments or any other amounts Borrower owes Administrative Agent (or any of the Lenders) when due. Administrative Agent will promptly notify Borrower when it debits Borrower’s accounts. These debits shall not constitute a set-off.

(e) Payments.

(i) Unless otherwise provided, interest is payable monthly on the first calendar day of each month. Payments of principal and/or interest received after 4:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue.

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(ii) All payments to be made by the Borrower of principal, interest, fees and other Obligations shall be absolute and unconditional and shall be made without condition or deduction for any counterclaim, defense, recoupment, setoff or rescission. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 4:00 p.m. Eastern time on the date specified herein. The Administrative Agent will promptly distribute to each Lender its pro rata share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 4:00 p.m. Eastern time shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(iii) Unless the Borrower or any Lender has notified the Administrative Agent (who will forward the same to each Lender), prior to the date any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent and each Lender may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then:

(A) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and

(B) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent at a rate per annum equal to the Federal Funds Rate from time to time in effect.

(f) Sharing of Payments. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Credit Extensions made by it, any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its pro rata share (or other share contemplated hereunder) thereof, such Lender shall immediately (a) notify the Administrative Agent and each other Lender of such fact, and (b) purchase from the other Lenders such participations in the Credit Extensions made by them as shall be necessary to cause such purchasing Lender to share the excess payment in respect of such Credit Extensions or such participations, as the case may be, pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender under any of the circumstances described in Section 12.11 (including pursuant to any settlement entered into by the purchasing Lender in its discretion), such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s ratable share (according to the proportion of (i) the amount of such paying Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered, without further interest thereon. The Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 9.5) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep

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records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. Each Lender that purchases a participation pursuant to this Section shall from and after such purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased.

(g) Evidence of Debt. The Credit Extensions made by each Lender shall be evidenced by Notes in the form of Exhibit E and/or other records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations.

(h) Payment; Interest Computation; Float Charge. Interest on the Revolving Line is payable monthly on the last calendar day of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest, (i) all Payments received after 12:00 p.m. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change. In addition, Lenders shall be entitled to charge Borrower a “float” charge in an amount equal to two (2) Business Days’ interest, at the interest rate applicable to the Revolving Advances whether or not any Revolving Advances are outstanding, on all Payments received by each Lender. The float charge for each month shall be payable on the last day of the month. Lenders shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to any Lender in its good faith business judgment, and Lenders may charge Borrower’s Designated Deposit Account for the amount of any item of payment which is returned unpaid.

2.4 Fees. Borrower shall pay to Administrative Agent, for the benefit of the Lenders:

(a) Growth Capital Loan Fee. A fully earned, non refundable loan fee (the “Growth Capital Loan Fee”) of Two Hundred Fifty Thousand Dollars ($250,000) (to be shared between Oxford and Bank pursuant to their respective Growth Capital Loan Commitment Percentage). Administrative Agent and Lenders acknowledge and confirm receipt of payment by Borrower of the Growth Capital Loan Fee prior to the Original Effective Date;

(b) Growth Capital Final Payment. The Growth Capital Final Payment when due on the Maturity Date or pursuant to the terms of Section 2.1.1, to be shared by the Lenders in accordance with the Growth Capital Loan Commitment Percentage of each Lender on such date;

(c) Growth Capital Prepayment Fee. The Growth Capital Prepayment Fee, if any, when due hereunder, to be shared by the Lenders in accordance with the Growth Capital Loan Commitment Percentage of each Lender on such date;

(d) Lenders Expenses. All Lenders Expenses (including reasonable attorneys’ fees and expenses incurred in connection with the documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due;

(e) Revolving Commitment Fee. A fully earned, non-refundable commitment fee (the “Revolving Commitment Fee”) on account of the Revolving Line in the amount of $175,000, of which $50,000 was received on the Effective Date of the Original Agreement (the “Original Effective Date”), an additional $50,000 shall be paid on the first and second anniversaries of the Original Effective Date, and an additional $25,000 shall be paid on the third anniversary of the Original Effective Date; in each case, to be shared among the Lenders pro rata according to their Revolving Commitment Percentages of the Revolving Line;

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(f) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility Fee”), payable monthly, in arrears, on a calendar year basis, in an amount equal to one half of one percent (0.50%) per annum of the average unused portion of the Revolving Line, as determined by Administrative Agent, for the ratable benefit of the Lenders according to their Revolving Commitment Percentages. The unused portion of the Revolving Line, for the purposes of this calculation, shall include amounts reserved under Section 2.1.4 and/or Section 2.1.5. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee previously earned by any Lender pursuant to this Section notwithstanding any termination of the Agreement, or suspension or termination of Lenders’ obligation to make loans and advances hereunder;

(g) Revolving Line Termination Fee. A fee (the “Revolving Line Termination Fee”), in the event of termination of the Revolving Line prior to the Maturity Date (whether at Borrower’s election, or at any Lender’s election due to the occurrence and continuance of an Event of Default), in addition to the payment of any other expenses or fees then-owing, payable to Lenders, pro rata according to their Revolving Commitment Percentages of the Revolving Line, a termination fee in an amount equal to (x) Three Hundred Thousand Dollars ($300,000), if such termination occurs prior to the first anniversary of the Original Effective Date; (y) Two Hundred Thousand Dollars ($200,000), if such termination occurs after the first anniversary of the Original Effective Date but on or prior to the second anniversary of the Original Effective Date; and (z) One Hundred Thousand Dollars ($100,000), if such termination occurs thereafter; provided that (i) Borrower may terminate the Revolving Line effective three (3) Business Days after written notice of termination is given to Lenders; and (ii) notwithstanding any such termination, Lenders’ liens and security interests in the Collateral shall continue until Borrower fully satisfies its Obligations;

(h) Collateral Monitoring Fee. A monthly collateral monitoring fee of $750, payable in arrears on the last day of each month (prorated for any partial month at the beginning and upon termination of this Agreement), solely for the benefit of Bank; and

(i) Variance Fee. A fully earned, non-refundable fee, due and payable in full on the Effective Date, in the amount of $150,000, of which $95,000 shall be for the account of Oxford and $55,000 shall be for the account of Bank.

2.5 Taxes.

(a) Any and all payments by Borrower to or for the account of the Administrative Agent or any Lender under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges imposed by any Governmental Authority, and all liabilities with respect thereto, excluding, Excluded Taxes (all such non-Excluded Taxes) duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities imposed by any Governmental Authority being hereinafter referred to as “Taxes”). If Borrower shall be required by any Laws to deduct any Taxes from or in respect of any sum payable under any Loan Document to the Administrative Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), each of the Administrative Agent and such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Laws, and (iv) within thirty (30) days after the date of such payment, Borrower shall furnish to the Administrative Agent (which shall forward the same to such Lender) the original or a certified copy of a receipt evidencing payment thereof or if no receipt is available, other evidence of such payment reasonably satisfactory to the Administrative Agent or the Lenders.

(b) In addition, the Borrower agrees to pay any and all present or future stamp, court or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Loan Document (hereinafter referred to as “Other Taxes”).

(c) If the Borrower shall be required to deduct or pay any Taxes or Other Taxes from or in respect of any sum payable under any Loan Document to the Administrative Agent or any Lender, the Borrower shall also pay to the Administrative Agent or to such Lender, as the case may be, at the time interest is paid, such

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additional amount that the Administrative Agent or such Lender specifies is necessary to preserve the after-tax yield (after factoring in all taxes, including taxes imposed on or measured by net income) that the Administrative Agent or such Lender would have received if such Taxes or Other Taxes had not been imposed. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent (including Internal Revenue Service Form W-9) as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

(ii) duly completed copies of Internal Revenue Service Form W-8ECI,

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the IRC, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the IRC, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the IRC, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the IRC and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or

(iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

(d) The Borrower agrees to indemnify the Administrative Agent and each Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.5) paid by the Administrative Agent and such Lender, (ii) paid penalties, interest and expenses arising from or with respect to the obligations under the preceding clause (i) and not caused by actions within the control of the Administrative Agent or Lender, as applicable, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority, so long as such amounts have accrued on or after the day which is two hundred seventy (270) days prior to the date on which Lender or Administrative Agent first made demand therefor. Payment under this subsection (d) shall be made within thirty (30) days after the date the Lender or the Administrative Agent makes a demand therefor.

(e) If any Governmental Authority asserts that the Administrative Agent did not properly withhold or backup withhold, as the case may be, any tax or other amount from payments made to or for the account of any Lender, such Lender shall indemnify the Administrative Agent therefor, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section 2.5, and costs and expenses (including Lenders Expenses) of the Administrative Agent. The obligation of the Lenders under this Section shall survive the termination of all Growth Capital Loan Commitments to make Credit Extensions, repayment of all Obligations and the resignation of the Administrative Agent.

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(f) If the Administrative Agent or any Lender receives a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower and with respect to which the Borrower has paid additional amounts pursuant to this Section 2.5, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.5 with respect to the Taxes or Other Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority.

2.6 Increased Cost and Reduced Return; Capital Adequacy.

(a) If any change in Law occurs after the Effective Date which shall:

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender;

(ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement, or change the basis of taxation of payments to such Lender in respect thereof (except for Taxes or Other Taxes covered by Section 2.5 and the imposition of, or any change in the rate of, any Excluded Taxes payable by such Lender); or

(iii) impose on any Lender any other condition, cost or expense affecting this Agreement made by such Lender;

(b) and the result of any of the foregoing shall be to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered, so long as such costs have accrued on or after the day which is two hundred seventy (270) days prior to the date on which such Lender first made demand therefor.

(c) Without duplication of amounts payable pursuant to paragraphs (a) and (b) above, if any Lender determines that any change in Law affecting such Lender or any lending officer of such Lender or Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Growth Capital Loan Commitment and/or the Revolving Line of such Lender or the Credit Extensions made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

2.7 Matters Applicable to all Requests for Compensation. A certificate of the Administrative Agent or any Lender claiming compensation under this Article 2 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension. Lenders’ obligation to make the initial Credit Extension is subject to the condition precedent that Administrative Agent shall have received (who will forward the same to each Lender), in form and substance satisfactory to Administrative Agent, such documents, and completion of such other matters, as Administrative Agent or any Lender may reasonably deem necessary or appropriate, including, without limitation:

(a) duly executed original signatures to this Agreement;

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(b) a duly executed original signature to the Warrant to be issued to each of Oxford and Bank, receipt of which hereby is acknowledged by Lenders;

(c) duly executed original signatures to the Notes in favor of Oxford and Bank;

(d) duly executed original signatures to the Control Agreement, receipt of which hereby is acknowledged by Lenders;

(e) Borrower’s Operating Documents and a good standing certificate of Borrower certified by the Secretary of State of the States of Delaware and California as of a date no earlier than thirty (30) days prior to the duly executed original signatures to the completed Borrowing Resolutions for Borrower;

(f) certified copies, dated as of a recent date, of financing statement searches, as Administrative Agent or any Lender shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the Credit Extension, will be terminated or released;

(g) two (2) Perfection Certificate(s) executed by Borrower, receipt of which hereby is acknowledged by Lenders;

(h) a legal opinion of Borrower’s counsel, addressed to the Lenders, dated as of the Effective Date, together with the duly executed original signatures thereto, receipt of which hereby is acknowledged by Lenders;

(i) a copy of Borrower’s executed Investors’ Rights Agreement and any amendments thereto, receipt of which hereby is acknowledged by Lenders;

(j) insurance policies and/or endorsements required pursuant to Section 6.5 hereof, receipt of which hereby is acknowledged by Lenders;

(k) payment of the fees and Lenders Expenses then due as specified in Section 2.4 hereof;

(l) each document (including any UCC-1 financing statements) required by the Loan Documents or under Law or reasonably requested by the Administrative Agent or any Lender to be filed, registered or recorded in order to create in favor of the Administrative Agent, for its benefit and the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (subject only to Permitted Liens that may have superior priority to Administrative Agent’s Lien as permitted under this Agreement), which shall be in proper form for filing, registration or recordation;

(m) there exists no material pending or threatened Proceeding against the Borrower or any of its Affiliates or respective assets in any court or administrative forum;

(n) a certificate from the Chief Financial Officer of the Borrower attesting that the Borrower is solvent before and after giving effect to the funding of the Credit Extensions (and the application of proceeds thereof);

(o) timely receipt by the Administrative Agent (who will forward the same to each Lender), of an executed Payment/Advance Form, Disbursement Letter and Transaction Report;

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(p) the representations and warranties in Section 5 shall be true in all material respects on the date of the Payment/Advance Form, the Disbursement Letter and the Transaction Report, and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension;

(q) after giving effect to each such Credit Extension, the total outstanding Growth Capital Advance shall not exceed the Growth Capital Loan Commitment and the total outstanding Revolving Advances shall not exceed the Availability Amount;

(r) duly executed copies of the Effective Date Subordinated Debt Documents, receipt of which hereby is acknowledged by Lenders;

(s) evidence of the receipt by Borrower of the Effective Date Subordinated Debt, receipt of which hereby is acknowledged by Lenders;

(t) the Effective Date Subordination Agreement, receipt of which hereby is acknowledged by Lenders;

(u) duly executed original signatures to the Post Closing Letter; and

(v) each Lender has determined in such Lender’s sole discretion, that there has not been a Material Adverse Change.

3.2 Covenant to Deliver. Borrower agrees to deliver to Administrative Agent (who will forward the same to each Lender), each item required to be delivered to Administrative Agent under this Agreement as a condition to any Credit Extension. Borrower expressly agrees that the making of the Credit Extension prior to the receipt by Administrative Agent and each Lender of any such item shall not constitute a waiver by Administrative Agent or any Lender of Borrower’s obligation to deliver such item, and any such Credit Extension in the absence of a required item shall be made in Lender’s sole discretion.

3.3 Procedures for Borrowing.

(a) Intentionally Omitted.

(b) Revolving Advances. Subject to the prior satisfaction of all other applicable conditions to the making of an Revolving Advance set forth in this Agreement, to obtain an Revolving Advance (other than Revolving Advances under Sections 2.1.2 or 2.1.4), Borrower shall notify Bank (who will forward the same to each Lender) (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Revolving Advance. Together with such electronic or facsimile notification, Borrower shall deliver to Bank (who will forward the same to each Lender) by electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or his or her designee. Each Lender shall credit Revolving Advances to the Designated Deposit Account, according to their Revolving Commitment Percentages of the Revolving Line. Lenders may make Revolving Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Revolving Advances are necessary to meet Obligations which have become due. Lenders may rely on any telephone notice given by a person whom a Lender believes is a Responsible Officer or designee.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Borrower hereby grants to the Administrative Agent, for the benefit of the Lenders, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to the Administrative Agent, for the benefit of the Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected

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security interest in the Collateral (excluding, but only until the covenant in Section 6.22 is required to be satisfied, the Additional European Collateral) (subject only to Permitted Liens that may have superior priority to the Administrative Agent’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify the Administrative Agent (who will forward the same to each Lender), in a writing signed by Borrower of the general details thereof and grant to the Administrative Agent, for the benefit of the Lenders, in such writing a security interest therein and in the proceeds thereof to secure the payment and performance in full of all the Obligations, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Administrative Agent. If this Agreement is terminated, the Administrative Agent’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Lenders’ obligations to make Credit Extensions has terminated, the Administrative Agent shall, at Borrower’s sole cost and expense, release its Liens in the Collateral granted hereunder and all rights therein shall revert to Borrower.

4.2 Authorization to File Financing Statements. Borrower hereby authorizes Administrative Agent, on behalf of the Lenders, to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Lenders’ interest or rights hereunder, including a notice that any disposition of the Collateral (except as permitted herein) by either Borrower or any other Person, shall be deemed to violate the rights of Lenders under the Code.

5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 Due Organization; Authorization; Power and Authority. Borrower and each of its Subsidiaries are duly existing and in good standing in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Administrative Agent (who has sent the same to each Lender), a completed certificate in the form provided by Administrative Agent signed by Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Lenders that as of the Effective Date (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect, and except for such filings as are necessary for the Administrative Agent to perfect its security interest in the Collateral, or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could have a material adverse effect on Borrower’s business.

5.2 Collateral. Borrower has good title to, and rights in the Collateral, and the power to grant those Liens upon the Collateral which it purports to grant hereunder, and such Collateral both is and will remain free and

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clear of any and all Liens except Permitted Liens. Borrower has no Deposit Accounts other than the Deposit Accounts, if any, described in the Perfection Certificate delivered to Administrative Agent (who sent the same to each Lender), in connection herewith, or of which Borrower has given Administrative Agent (who will forward the same to each Lender), notice and taken such actions as are necessary to give Administrative Agent, for the benefit of the Lenders, a perfected security interest therein.

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral are maintained at locations other than as provided in the Perfection Certificate, as permitted in Section 7.2, or as Borrower has given Administrative Agent, notice pursuant to Section 7.2. In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral (excluding, but only until the covenant in Section 6.22 is required to be satisfied, the Additional European Collateral) to a bailee, then Borrower will first cause such bailee to execute and deliver a bailee agreement, in form and substance reasonably satisfactory to Administrative Agent, in its sole discretion.

All Inventory is in all material respects of good and marketable quality, free from material defects. Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

5.3 Intellectual Property. Borrower owns, is licensed to use or otherwise has the right to use its Intellectual Property, except for non-exclusive licenses granted to its customers in the ordinary course of business. Each patent owned by Borrower and material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and to the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim could not reasonably be expected to have a material adverse effect on Borrower’s business. Borrower has not entered into, nor will it enter into any other agreement or financing arrangement in which a pledge or negative pledge in Borrower’s Intellectual Property is granted to any other party. Borrower owns or has rights to use all Intellectual Property material to the conduct of its business as now or heretofore conducted by it.

5.4 Litigation. As of the Effective Date, there is no civil, criminal or administrative action, suit, claim, indictment, proceeding, hearing, charge, complaint, demand, audit inspection or investigation pending or, to the knowledge of any Responsible Officer, threatened, by any Person or any federal, state or local governmental agency against Borrower or any Subsidiary or any Responsible Officer thereof, involving more than $100,000 or which, if adversely determined, could reasonably be expected to result in a Material Adverse Change, nor is there any basis therefore.

5.5 No Material Deviation in Financial Statements. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Administrative Agent (who will forward the same to each Lender), were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations, and show all material Indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries, in each case as of the date thereof, including liabilities for taxes Growth Capital Loan Commitments and Indebtedness. No event, change, condition or state of facts has occurred that has resulted in, or is reasonably likely to result in, individually or in the aggregate, a Material Adverse Change since December 31, 2009.

5.6 No Disposition. From the date of the most recent audited financial statements delivered to the Administrative Agent (who will forward the same to each Lender), to and including the date hereof, there has been no Transfer by the Borrower and its Subsidiaries, or any Involuntary Disposition, in each case of any material part of the business or Property of the Borrower and its Subsidiaries, taken as a whole, and no purchase or other acquisition by the Borrower or any of its Subsidiaries of any business or property (including any Capital Stock of any other Person) material in relation to the consolidated financial condition of the Borrower and its Subsidiaries, taken as a whole, in each case, which is not reflected in the foregoing financial statements or in the notes thereto or which has not otherwise been disclosed in writing to the Administrative Agent on or prior to the date hereof.

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5.7 Solvency. The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.8 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.

5.9 Compliance with Laws. Borrower and each Subsidiary is in compliance with the requirements of all Laws and all orders, writs, conditions of participation, contracts, standards, policies, injunctions, decrees, and Governmental Approvals applicable to it, its properties or the Facilities, except where noncompliance individually or in the aggregate could not reasonably be expected to result in a Material Adverse Change. Without limiting the generality of the foregoing:

(a) to Borrower’s knowledge neither Borrower nor any Subsidiary, nor any member of management of Borrower or any Subsidiary, has any criminal culpability or has been excluded from participation in any state or federal program for corporate or individual actions or failures to act known to Borrower or any Subsidiary where such culpability or exclusion has resulted or could reasonably be expected to result in an Exclusion Event and neither Borrower nor any Subsidiary nor any member of management of Borrower or any Subsidiary has been subject to sanction or been indicted or convicted of a crime, or pled nolo contendre or to sufficient facts, in connection with any allegation of violation of any state or federal program or other Applicable Law;

(b) neither Borrower nor any Subsidiary is in receipt of any written notice of any material violation by Borrower or any Subsidiary or any member of management of Borrower or any Subsidiary of any Law, statute, rule, regulation, ordinance, code, judgment, order writ, decree, permit, concession, franchise or other Governmental Approval applicable to it or any of its property, which notice, individually or in the aggregate, could reasonably be expected to result in an Exclusion Event or a Material Adverse Change; and

(c) neither Borrower nor any Subsidiary or any Affiliate thereof is in violation of and shall not violate any of the country or list based economic and trade sanctions administered and enforced by OFAC that are described or referenced at http://ustreas.gov/offices/enforcement/ofac/ or as otherwise published from time to time.

5.10 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments and except as reflected in the Perfection Certificate.

5.11 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Administrative Agent, with a copy to each Lender, in writing of the commencement of, and any material development in, the proceedings, and (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

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5.12 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

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

5.14 No Default.

(a) Borrower is not (i) in breach of or default under any Material Contract, or (ii) in breach of or default under any Contractual Obligation, in each case of clauses (i) and (ii), that could reasonably be expected to result in a Material Adverse Change.

(b) No Event of Default has occurred and is continuing.

5.15 Environmental Compliance. Except as could not reasonably be expected to result in a Material Adverse Change:

(a) The Businesses and each of the Facilities and all operations at the Facilities are in compliance with all applicable Environmental Laws and there are no conditions relating to the Facilities or the Businesses that could reasonably be expected to give rise to liability of the Borrower or any Guarantor or any Subsidiary under any applicable Environmental Laws.

(b) Neither Borrower nor any Subsidiary has received any written notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Facilities or the Businesses, nor does any Responsible Officer of Borrower have knowledge or reason to believe that any such notice will be received or is being threatened.

(c) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Responsible Officers of the Borrower, threatened, under any Environmental Law to which Borrower or any Subsidiary is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to Borrower, any Subsidiary, the Facilities or the Businesses.

5.16 ERISA Compliance.

(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code, the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the regulations and published interpretations thereunder, and other federal or state Laws. Borrower and each ERISA Affiliate has made all required contributions to each Plan subject to Section 412 of the Internal Revenue Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Internal Revenue Code has been made with respect to any Plan. Borrower and each ERISA Affiliate has performed in all material respects their obligations under each Plan according to their terms.

(b) There are no pending or, to the knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan.

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(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower nor or any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

5.17 Labor Matters. There are no collective bargaining agreements or Multiemployer Plans covering the employees of Borrower or any Subsidiary as of the date hereof, and neither Borrower nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five (5) years in each case except as otherwise described in the Perfection Certificate.

5.18 Material Contracts. Schedule 5.18 contains a true, correct and complete list of all Material Contracts in effect as of the date hereof, and except as described thereon, all such Material Contracts are in full force and effect and no material breaches, defaults or events of default currently exist thereunder, except as disclosed on Schedule 5.18.

5.19 Patriot Act. To the extent applicable, Borrower is in compliance with the (i) Trading with the Enemy Act, and each of the foreign assets control regulations of the Untied States Treasury Department (31 CFR, Subtitle B, Chapter V) and any other enabling legislation or executive order relating thereto, and (ii) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the “Patriot Act”). No part of the proceeds of the Credit Extensions will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

5.20 Licensing and Accreditation. Except as set forth in Schedule 5.20, each of the Borrower and its Subsidiaries has, to the extent applicable: (i) obtained (or been duly assigned) all required Governmental Approvals as required by the relevant state Governmental Authority for the acquisition, construction, expansion of, investment in or operation of its businesses and Facilities as currently operated; and (ii) obtained and maintains in good standing all Governmental Approvals; and (iii) ensured that all such Governmental Approvals are in full force and effect on the date hereof and have not been revoked or suspended or otherwise limited (collectively, “Certificates, Licenses and Government Approvals”). No event has occurred or other fact exists with respect to the Certificates, Licenses and Governmental Approvals that allows, or after notice or lapse of time or both, would allow, revocation, suspension, restriction, limitation or termination of any of the Certificates, Licenses and Governmental Approvals. No notice from any Governmental Authority in respect to the revocation, suspension, restriction, limitation or termination of any Certificates, Licenses and Governmental Approvals has been delivered, issued, proposed or threatened.

5.21 Accounts Receivable; Inventory.

(a) For each Account with respect to which Revolving Advances are requested, on the date each Revolving Advance is requested and made, such Account shall be an Eligible Account.

(b) All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. Whether or not an Event of Default has occurred and is continuing, Administrative Agent may notify any Account Debtor owing Borrower money of Administrative Agent’s security interest in such funds and verify the amount of such Eligible Account. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Transaction Report. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

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(c) For any item of Inventory consisting of Eligible Inventory in any Transaction Report, such Inventory (i) consists of finished goods, in good, new, and salable condition, which is not perishable, returned, consigned, obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom inventory, works in progress, packaging or shipping materials, or supplies; (ii) meets all applicable governmental standards; (iii) has been manufactured in compliance with the Fair Labor Standards Act; (iv) is not subject to any Liens, except the first priority Liens granted or in favor of Administrative Agent under this Agreement or any of the other Loan Documents; and (v) is located at the locations identified by Borrower in the Perfection Certificate where it maintains Inventory (or at any location permitted under Section 7.2), and in the case of Inventory in the possession of any third party, Administrative Agent has received written acknowledgment from such third party of Administrative Agent’s Lien in such Inventory, in form and content reasonably acceptable to Administrative Agent.

6 AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1 Government Compliance; Compliance with Laws.

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower or Borrower’s business.

(b) Obtain and keep in full force and effect, all of the Governmental Approvals necessary for the performance by Borrower of its business, its obligations under the Loan Documents to which it is a party and the grant of a security interest to Administrative Agent, for the benefit of the Lenders, in the Collateral. Borrower shall promptly provide copies of any such obtained Governmental Approvals to the Administrative Agent (who will forward the same to each Lender).

(c) Maintain its and all its Subsidiaries’ compliance with the laws and regulations described in Sections 5.15 and 5.16 and maintain its and all its Subsidiaries’ compliance at all times with the representations and warranties contain in Sections 5.15 and 5.16.

6.2 Financial Statements, Reports, Certificates.

(a) Deliver to Administrative Agent (who will forward the same to each Lender): (i) as soon as available, but no later than thirty (30) days after the last day of each month, a Borrower prepared consolidated balance sheet and income statement, and cash flow statement covering Borrower’s consolidated operations during such month in a form acceptable to Administrative Agent setting forth in each case in comparative form the figures as of the end of and for the corresponding month of the previous Fiscal Year, and certified by a Responsible Officer as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; (ii) as soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s Fiscal Year, audited consolidated financial statements, including consolidated balance sheet and income statement, statements of retained earnings and shareholders’ equity and cash flow statement covering Borrower’s consolidated operations during the period in a form acceptable to Administrative Agent setting forth in each case in comparative form the figures as of the end of the previous Fiscal Year, prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Administrative Agent in its reasonable discretion, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit; (iii) within five (5) days of delivery, copies of all statements, reports and notices made available to

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Borrower’s security holders or to any holders of Subordinated Debt; (iv) as soon as available, but no later than thirty (30) days after the last day of Borrower’s Fiscal Year, Borrower’s financial projections for the entire current fiscal year as approved by Borrower’s Board of Directors, which such annual projections shall be set forth in a month-by-month format and be in form and content reasonably acceptable to the Lenders (including, without limitation, consolidated balance sheets of the Borrower and its Subsidiaries as at the end of each such month, and the related consolidated statements of income or operations, retained earnings, shareholders’ equity and cash flows for each such month) (such annual projections as originally delivered to Administrative Agent and each Lender, the “Annual Projections”); (v) in the event that Borrower becomes subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, within five (5) days of filing, all reports on Form 10-K, 10-Q and 8 K filed with the Securities and Exchange Commission or a link thereto on Borrower’s or another website on the Internet; (vi) a prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of Two Hundred Fifty Thousand Dollars ($250,000) or more; and (vii) such budgets, sales projections, operating plans, board presentations and operating plans (including scientific updates) and other financial information reasonably requested by Administrative Agent or any Lender.

(b) Within thirty (30) days after the last day of each month, deliver to Administrative Agent, with a copy to the Lenders, with the monthly financial statements, a duly completed Compliance Certificate signed by a Responsible Officer.

(c) No later than thirty (30) days after the last day of each fiscal quarter, a management discussion and analysis describing any differences in the reported financial results as between the periods covered and that in the same periods during the immediately preceding Fiscal Year, and as between such periods and the same periods included in the budget delivered pursuant to Section 6.2 above, which shall include, among any other information or explanation reasonably requested by the Administrative Agent or any Lender.

(d) Promptly after the same are available (and in any event within ten (10) days thereof), deliver to Administrative Agent (who will forward the same to each Lender), all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration or any successor agencies or authorities concerning environmental, health or safety matters, and all material reports and written information to and from any state or local agency responsible for health and safety matters, or any successor agencies or authorities concerning environmental, health or safety matters.

(e) A Transaction Report (and any schedules related thereto): (x) with each request for a Revolving Advance; (y) monthly within thirty (30) days after the last day of each month, when Borrower’s cash on deposit with Bank is equal to or greater than Ten Million Dollars ($10,000,000); or (z) weekly, when Borrower’s cash on deposit with Bank is less than Ten Million Dollars ($10,000,000).

(f) within thirty (30) days after the end of each month, (A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, (C) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports and general ledger, (D) monthly perpetual inventory reports for Inventory valued on a first-in, first-out basis at the lower of cost or market (in accordance with GAAP) or such other inventory reports as are requested by Administrative Agent or any Lender in its good faith business judgment; and (E) monthly deferred revenue reports.

6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly notify Administrative Agent (who will forward the same to each Lender), of all returns, recoveries, disputes and claims by Account Debtors in each instance that involve more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate.

6.4 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.11 hereof, and shall deliver to

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Administrative Agent, with a copy to each Lender, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.5 Insurance. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Administrative Agent, or the Lenders, may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Administrative Agent or the Lenders. All property policies shall have a lender’s loss payable endorsement showing Administrative Agent, for the benefit of the Lenders, as an additional lender loss payee and waive subrogation against Administrative Agent, and all liability policies shall show, or have endorsements showing, Administrative Agent as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer must give Administrative Agent (who will forward the same to each Lender) at least thirty (30) days notice before canceling, or declining to renew its policy. At Administrative Agent’s or any Lender’s request, Borrower shall deliver Certificates of Insurance to Administrative Agent with a copy to each Lender. Proceeds payable under any policy shall, at Administrative Agent’s option or at the direction of the Lenders, be payable to Administrative Agent, for the benefit of the Lenders, on account of the Obligations, subject to the rights of General Electric Capital Corporation regarding the GE Collateral. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to Two Hundred Fifty Thousand Dollars ($250,000), in the aggregate, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Administrative Agent, on behalf of the Lenders, has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Administrative Agent or at the direction of the Lenders, be payable to Administrative Agent, for the benefit of the Lenders, on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Administrative Agent (who will forward the same to each Lender), Administrative Agent or the Lenders may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Administrative Agent or the Lenders deem prudent.

6.6 Operating Accounts.

(a) Maintain all of its and all of its Subsidiaries’ operating and other deposit accounts and securities accounts with Bank and Bank’s Affiliates, which accounts shall represent at least 85% of the dollar value of Borrower’s and such Subsidiaries accounts at all financial institutions. All such accounts shall be subject to Control Agreements in favor of, and in form and content reasonably acceptable to, Administrative Agent. Without limiting the foregoing, no part of any Credit Extension shall be credited to or held in any account unless Administrative Agent maintains a Control Agreement over such account.

(b) Provide Administrative Agent (who will forward the same to each Lender) five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Administrative Agent’s Lien in such Collateral Account in accordance with the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Administrative Agent and the Lenders by Borrower as such.

6.7 Protection of Intellectual Property Rights. Borrower shall: (a) protect, defend and maintain the validity and enforceability of its Intellectual Property consistent with its sound business judgment; (b) promptly advise Administrative Agent in writing, with a copy to each Lender, of material infringements of its material Intellectual Property; and (c) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Administrative Agent’s or the Lenders’ written consent consistent with its sound business judgment. Provide written notice to Administrative Agent within thirty (30) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to

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the public). Borrower shall take such steps as Administrative Agent requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Administrative Agent to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Administrative Agent to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Administrative Agent’s rights and remedies under this Agreement and the other Loan Documents.

6.8 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Administrative Agent and each Lender, without expense to Administrative Agent or Lender, as applicable, Borrower and its officers, employees and Administrative Agents and Borrower’s books and records, to the extent that Administrative Agent or any Lender may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Administrative Agent or any Lender with respect to any Collateral or relating to Borrower.

6.9 Right to Invest. Grant to each Lender or their Affiliates a right (but not an obligation) to invest up to One Million Dollars ($1,000,000) in the aggregate (each such Lender’s investment being limited to its pro rata share of $1,000,000) according to each Lender’s pro rata share (based upon the respective Growth Capital Loan Commitment Percentage of each Lender), in any of Borrower’s rounds of private equity financing occurring after the Effective Date on the same terms, conditions and pricing offered to the investors in such private equity financing round. Borrower shall give each Lender at least ten (10) days prior written notice of the applicable private equity financing which notice shall (a) contain the terms, conditions and pricing of such private equity financing, and (b) be delivered to each Lender at the address set forth in Section 10 hereof. The parties hereto acknowledge that no provision of this Section 6.9 or elsewhere in the Loan Documents requires any Lender to invest in Borrower, and any election to do so shall be at the sole discretion of each Lender. The right granted hereunder shall survive the termination of this Agreement.

6.10 Notices of Litigation and Default. Borrower shall give prompt written notice to Administrative Agent (who will forward the same to each Lender), of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which would reasonably be expected to result in a Material Adverse Change. Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within five (5) Business Days) upon Borrower obtaining knowledge of the existence of any Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default, Borrower shall give written notice to Administrative Agent (who will forward the same to each Lender) of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default.

6.11 Creation/Acquisition of Subsidiaries. In the event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Administrative Agent (who will forward the same to each Lender) of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required by Administrative Agent to cause each such Subsidiary to guarantee the Obligations of Borrower under the Loan Documents and grant a continuing pledge and security interest, in favor of the Administrative Agent, in and to the assets of such Subsidiary (substantially as described on Exhibit A hereto); and Borrower shall grant and pledge to Administrative Agent a perfected security interest in the stock, units or other evidence of ownership of each Subsidiary.

6.12 Further Assurances. Borrower shall execute any further instruments and take further action as Administrative Agent or Lenders reasonably request to perfect or continue Administrative Agent’s Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Administrative Agent with a copy to each Lender, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.

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6.13 Notices.

(a) Promptly (and in any event within five (5) Business Days) notify the Administrative Agent and each Lender in writing of the occurrence (i) of any Default or Event of Default, (ii) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Change, (iii) an ERISA Event, (iv) any material change in accounting policies or financial reporting practices by Borrower or any Subsidiary, (v) any fact or change in circumstances that would be expected to cause any of the representations and warranties contained in Section 5.15 to cease to be true in all material respects at any time during the duration of this Agreement, (vi) an actual or threatened (in writing) Exclusion Event, or the institution of any investigation, review or proceeding against Borrower that could reasonably be expected to result in an Exclusion Event, (vii) any notice of loss or threatened loss of any applicable Governmental Approval or accreditation, in each case, that could reasonably be expected to result in a Material Adverse Change, or (viii) any loss, damage or destruction to the Collateral in the amount of $100,000 or more individually, whether or not covered by insurance.

(b) Immediately upon the occurrence of, upon becoming aware of, or upon receipt of notice from a third party to Borrower of, (i) Borrower’s default pursuant to the terms of any Material Contract to which Borrower is a party or (ii) the termination of, or the intent or threat to terminate, any such Material Contract or lease, notify the Administrative Agent in writing with a copy to each Lender of such default, termination or threat.

(c) Each notice pursuant to this Section 6.13 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.13(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

6.14 Payment of Obligations. Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by Borrower or the applicable Subsidiary; and (b) all lawful claims which, if unpaid, would by law become a Lien upon its Property unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by Borrower or the applicable Subsidiary.

6.15 Maintenance of Properties.

(a) Maintain, preserve and protect all of its property necessary in the operation of its Business in good working order and condition, ordinary wear and tear and Involuntary Dispositions excepted.

(b) Make all necessary repairs thereto and renewals and replacements thereof.

(c) Use the standard of care typical in the industry in the operation and maintenance of its Facilities.

6.16 Books and Records.

(a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of Borrower or any of its Subsidiaries, as the case may be.

(b) Maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over Borrower or any applicable Subsidiary, as the case may be.

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6.17 Intentionally Omitted.

6.18 Pledged Assets.

(a) At all times, (a) cause all of the owned and leased Collateral of Borrower to be subject at all times to first priority, perfected Liens and in favor of the Administrative Agent to secure the Obligations pursuant to the terms and conditions of the Loan Documents or, with respect to any such Collateral (excluding, but only until the covenant in Section 6.22 is required to be satisfied, the Additional European Collateral) acquired subsequent to the date hereof, such other additional security documents as the Administrative Agent or any Lenders shall reasonably request, subject in any case to Permitted Liens and (b) deliver such other documentation as the Administrative Agent or any Lender may reasonably request in connection with the foregoing, including appropriate UCC financing statements, landlord’s waivers, certified resolutions and other organizational and authorizing documents of such Person, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of the Administrative Agent’s Liens thereunder) and other items of the types required to be delivered pursuant to Section 3.1(l), all in form, content and scope reasonably satisfactory to the Administrative Agent and each Lender.

(b) Without limiting the generality of the above, the Borrower will cause 100% of the issued and outstanding Capital Stock of each Subsidiary to be subject at all times to a first priority, perfected Lien in favor of the Administrative Agent pursuant to the terms and conditions of the Loan Documents or such other security documents as the Administrative Agent or any Lender shall request.

(c) With respect to each Account for which either the perfection, enforceability, or validity of the Administrative Agent’s Liens in such Account, or the Administrative Agent’s right or ability to obtain direct payment to the Administrative Agent of the proceeds of such Account, is governed by any federal, state, or local statutory requirements other than those of the UCC, the Borrower will take such steps as the Administrative Agent or any Lender may from time to time reasonably request, including compliance with the Federal Assignment of Claims Act of 1940, and the Social Security Act, in each case and such acts, rules and regulations may be amended, modified, supplemented and/or replaced from time to time.

6.19 Lenders Meetings. The Borrower will, upon the request of the Administrative Agent or any Lender, participate in a meeting of the Administrative Agent and Lenders once during each Fiscal Year to be held at the Borrower’s corporate offices (or at such other location as may be agreed to by the Borrower and the Administrative Agent) at such time as may be agreed to by the Borrower and the Administrative Agent; provided that during the existence of a Default or Event of Default, meetings may be held more frequently than once per Fiscal Year.

6.20 Agreement with Landlord. Borrower shall use commercially reasonable efforts to obtain and maintain such landlord agreements with respect to any real property on which (a) Borrower’s principal place of business, (b) Borrower’s Books, or (c) Collateral with an aggregate value in excess of $100,000 is located (other than real property owned by Borrower) as Administrative Agent or the Lenders may reasonably require.

6.21 UK Collateral. Borrower shall execute and cause to be filed such instruments, documents or agreements, each in form and substance acceptable to the Administrative Agent and Lenders, pursuant to which (i) the Additional European Collateral shall be subject to a first priority perfected lien (Fixed Charge) in favor of the Administrative Agent, for the benefit of the Lenders, under the laws of the United Kingdom (subject to Permitted Liens) (the “UK Fixed Charge”) and (ii) all of Borrower’s assets located in the United Kingdom shall be subject to a first priority perfected lien (Floating Charge) in favor of the Administrative Agent, for the benefit of the Lenders, under the laws of the United Kingdom (subject to Permitted Liens). In the event that after the Effective Date, Borrower obtains, in one or more transactions, Equipment located in the United Kingdom (other than the Equipment described in clause (i) of the definition of Excluded European Property, the Additional European Collateral and Equipment which is of a type not customarily subjected to a fixed charge lien in the United Kingdom) having an aggregate value which exceeds $500,000 in any twelve (12) month period beginning on the Effective Date or any anniversary thereof, Borrower shall, within thirty (30) days after the acquisition date of such Equipment, execute and cause to be filed such modifications, supplements or amendments to the UK Fixed Charge, each in form and substance acceptable to the Lenders, pursuant to which such Equipment shall be subject to the UK Fixed Charge (the “First Supplemental UK Equipment Filing”). After the First Supplemental UK Equipment Filing, Borrower shall be required to further modify, supplement or amend the UK Fixed Charge upon each incremental acquisition by Borrower, in one or more transactions, of Equipment (other than Equipment which is of a type not customarily subjected to a fixed charge lien in the United Kingdom) having an aggregate value which exceeds $250,000 in any 12-month period beginning on the Effective Date or any anniversary thereof

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6.22 European Collateral. In the event that after the Effective Date, Borrower obtains, in one or more transactions, property (other than Borrower’s Equipment described in clause (i) of the definition of Excluded European Property) located in any particular European country (other than the United Kingdom) having an aggregate value which exceeds $500,000 in any 12-month period beginning on the Effective Date or any anniversary thereof, Borrower shall, within thirty (30) days after the acquisition date of such Equipment, execute and cause to be filed such instruments, documents or agreements, each in form and substance acceptable to the Lenders, pursuant to which such property shall be subject to a first priority perfected lien in favor of the Administrative Agent, for the benefit of the Lenders, under the laws of the applicable jurisdiction (subject to Permitted Liens) (each a “Perfected First Lien”). Thereafter, Borrower shall be required to modify, supplement or amend any applicable Perfected First Lien upon each incremental acquisition by Borrower, in one or more transactions, of property in the applicable jurisdiction having an aggregate value which exceeds $250,000 in any 12-month period beginning on the Effective Date or any anniversary thereof.

6.23 Financial Covenants.

(a) Performance to Plan; Revenue. In the event Borrower fails to maintain a Liquidity Ratio of at least 1.25 to 1.00, Borrower shall achieve, on a consolidated basis with respect to Borrower and its Subsidiaries, as of the last day of each month, measured on a trailing 3-month basis, commencing with the 3-month period ended August 31, 2010, actual revenue of at least 75% of projected revenue as set forth in Borrower’s Annual Projections delivered to Administrative Agent and the Lenders pursuant to Section 6.2(a)(iv); provided that the Annual Projections for 2010 are the projections approved by Borrower’s Board of Directors on October 5, 2010. For the avoidance of doubt, In the event that the Liquidity Ratio is greater than or equal to 1.25 to 1.00, Borrower shall not be required to achieve the performance to plan covenant set forth above.

(b) Equity Event. Borrower shall consummate the Equity Event by no later than November 30, 2010.

6.24 Accounts Receivable.

(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Administrative Agent, with a copy to the Lenders, transaction reports and schedules of collections, as provided in Section 6.2, on Administrative Agent’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Administrative Agent’s Lien and other rights in all of Borrower’s Accounts, nor shall any Lender’s failure to advance or lend against a specific Account affect or limit Administrative Agent’s Lien and other rights therein. If requested by Administrative Agent or any Lender, Borrower shall furnish Administrative Agent, with a copy to the Lenders, with copies (or, at any Administrative Agent’s or any Lender’s request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts. In addition, Borrower shall deliver to Administrative Agent, with a copy to the Lenders, on any request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary endorsements, and copies of all credit memos.

(b) Disputes. Borrower shall promptly notify Administrative Agent and each Lender of all disputes or claims relating to Accounts. Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm’s-length transactions, and reports the same to Administrative Agent, with a copy to the Lender, in the regular reports provided to Administrative Agent; (ii) no Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Revolving Advances will not exceed the lesser of the Revolving Line or the Availability Amount.

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(c) Collection of Accounts. Borrower shall have the right to collect all Accounts, unless and until an Event of Default has occurred and is continuing. Prior to any Revolving Advances under the Revolving Line, all proceeds of Accounts shall be deposited by Borrower into a lockbox account, or such other “blocked account” as specified by Administrative Agent, pursuant to a blocked account agreement in such form as Administrative Agent may specify in its good faith business judgment. Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts to an account maintained with Bank to be applied (i) when Borrower’s aggregate Cash on deposit with Bank is greater than $10,000,000 (and no Event of Default has occurred or is continuing), pursuant to the terms of Section 2.3(e) hereof, and (ii) when Borrower’s aggregate Cash on deposit with Bank is less than $10,000,000 (and/or upon the occurrence and during the continuance of an Event of Default), pursuant to the terms of Section 9.4 hereof.

(d) Returns. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower with an aggregate value in excess of $125,000 per quarter, Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Administrative Agent, with a copy to the Lenders. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall immediately notify Administrative Agent and the Lenders of the return of such Inventory.

(e) Verification. Administrative Agent and Lenders may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower, Administrative Agent or such Lender or such other name as Administrative Agent or such Lender may choose.

(f) No Liability. Neither Administrative Agent nor any Lender shall be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Administrative Agent or any Lender be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Administrative Agent or any Lender from liability for its own gross negligence or willful misconduct.

6.25 Remittance of Proceeds. Except as otherwise provided in Section 6.23(c), deliver, in kind, all proceeds arising from the disposition of any Collateral to Administrative Agent, for the ratable benefit of the Lenders, according to their Revolving Commitment Percentage, in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations (a) prior to an Event of Default, pursuant to the terms of Section 2.3(e) hereof, and (b) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if no Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Administrative Agent the proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year). Borrower agrees that it will maintain all proceeds of Collateral in an account maintained with Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

6.26 Access to Collateral; Books and Records. Allow Administrative Agent, or its agents, at reasonable times, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, and to inspect the Collateral and audit and copy Borrower’s Books. Such visits, inspections or audits shall be conducted (x) at least 45 days prior to the first Revolving Advance, and (y) thereafter, no more often than once every six (6) months unless an Event of Default has occurred and is continuing. The foregoing visits, inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Administrative Agent’s or any Lender’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Administrative Agent or any Lender schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedules the audit with less than ten (10) days written notice to Administrative Agent or any such Lender, then (without limiting any of Administrative Agent’s rights or remedies), Borrower shall

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pay Administrative Agent or such Lender a fee of $1,000 plus any out-of-pocket expenses incurred by Administrative Agent or such Lender to compensate Administrative Agent or such Lender for the anticipated costs and expenses of the cancellation or rescheduling.

7 NEGATIVE COVENANTS

Neither Borrower, any Subsidiary, or Guarantor shall do any of the following without Administrative Agent’s or the Lenders’ prior written consent:

7.1 Dispositions. “Dispositions”. Convey, sell, lease, transfer or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for the GE Collateral and the Excluded European Property and Transfers (a) of Inventory in the ordinary course of business; (b) of worn out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive and exclusive licenses for the use of Intellectual Property and rights to Intellectual Property, collaborative transactions, and/or joint ventures each entered in the ordinary course of business; and (e) of abandoned Intellectual Property not material to Borrower’s business.

7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) have a change in management such that a Key Person resigns, is terminated, or is no longer actively involved in the management of the Borrower in his/her current position and is not replaced with a person acceptable to Borrower’s board of directors within one hundred twenty (120) days after departure from Borrower, or (ii) without limiting the application of Section 7.3, suffer or permit a Change in Control. Borrower shall not, without at least thirty (30) days prior written notice to Administrative Agent (who will forward the same to each Lender): (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in Collateral), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) total consideration including cash and the value of any non-cash consideration, for all such transactions does not in the aggregate exceed One Hundred Thousand Dollars ($100,000) in any Fiscal Year of Borrower; (b) no Default or Event of Default has occurred and is continuing or would exist after giving effect to the transactions; and (c) Borrower is the surviving legal entity. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. Notwithstanding the foregoing, Borrower may merge or consolidate so long as: (A) the entity or entities that result from such merger or consolidation (collectively, the “Surviving Entity”) shall have executed and delivered to Administrative Agent an agreement in form and substance reasonably satisfactory to Administrative Agent, containing an assumption by the Surviving Entity of the due and punctual payment and performance of all Obligations and performance and observance of each covenant and condition of Borrower in the Loan Documents: (B) all such obligations of the Surviving Entity to Lenders shall be guaranteed by any entity, if any, that directly or indirectly owns or controls more than 50% of the voting stock of the Surviving Entity (which guaranty shall be secured in the discretion of the Lenders); (C) immediately after giving effect to such merger or consolidation, no Default or Event of Default shall have occurred and be continuing; and (D) the credit risk to Lenders, in their reasonable discretion, of the Surviving Entity shall not be increased. In determining whether the proposed merger or consolidation would result in any increased credit risk, Lenders may consider, among other things, changes in Borrower’s management team, employee base, access to equity markets, investor support, financial position, business plan, and/or disposition of Intellectual Property rights which may reasonably be anticipated as a result of the transaction.

7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property (other than the GE Collateral), or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its

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Subsidiaries to do so, except in each case for Permitted Liens, permit any Collateral (excluding, but only until the covenant in Section 6.22 is required to be satisfied, the Additional European Collateral) not to be subject to the first priority security interest granted herein, or enter into, or permit to exist, any agreement, document, instrument or other arrangement binding upon it (except with or in favor of Administrative Agent for the benefit of the Lenders) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein.

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6 hereof.

7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment (other than a dividend, distribution or payment solely in capital stock) or redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock, and (iii) Borrower may repurchase the stock of former employees, directors or consultants pursuant to stock repurchase agreements or similar agreements made under equity incentive plans or programs that were approved by the board of directors of Borrower or the compensation committee so long as a Default or Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of One Hundred Thousand Dollars ($100,000) per Fiscal Year; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (a) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person; (b) the sale of Borrower’s equity securities or Subordinated Debt to its existing venture capital investors; (c) compensation and benefit arrangements (including the granting of options or other equity compensation arrangements) and any indemnification arrangements with employees, officers, directors or consultants approved by, or pursuant to any plan approved by, the board of directors of Borrower or the compensation committee of the board of directors of Borrower; or (d) as expressly permitted by Section 7.1.

7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Lenders.

7.10 Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of the Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

7.11 Ownership of Subsidiaries. Notwithstanding any other provisions of this Agreement to the contrary, (i) permit any Person (other than the Borrower) to own any Capital Stock of any Subsidiary, except to qualify directors where required by applicable law or to satisfy other requirements of applicable law with respect to the ownership of Capital Stock of Foreign Subsidiaries, (ii) permit any Subsidiary to issue or have outstanding any shares of preferred Capital Stock, or (iii) create, incur, assume or suffer to exist any Lien on any Capital Stock of any Subsidiary other than pursuant to the Loan Documents.

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7.12 Sale and Leaseback Transactions. Enter into any Sale and Leaseback Transaction.

7.13 Location of Collateral. Maintain, transfer, or move, at any time, any of the Collateral outside of the United States, with the exception of the Additional European Collateral.

8 EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) day grace period shall not apply to payments due on the Maturity Date). During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2 Covenant Default.

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.11, 6.13, 6.14, 6.18, 6.19, 6.21 or 6.22, or violates any covenant in Section 7; or

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period);

8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment; Levy; Restraint on Business.

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under control of Borrower (including a Subsidiary) on deposit with any Lender or any Lender Affiliate, or (ii) a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; and

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any part of its business;

8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

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8.6 Other Agreements. There is a default by Borrower or any Guarantor under any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or that could have a material adverse effect on Borrower’s or any Guarantor’s business;

8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of thirty (30) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction, vacation, or stay of such judgment, order, or decree);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to any Lender or to induce Lenders to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

8.9 Subordinated Debt. Borrower or any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Administrative Agent, breaches any terms of such agreement; or

8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term and could reasonably be expected to cause a Material Adverse Change or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal has, or could reasonably be expected to have, a Material Adverse Change.

9 ADMINISTRATIVE AGENT’S RIGHTS AND REMEDIES

9.1 Rights and Remedies. While an Event of Default occurs and continues the Administrative Agent shall, at the request of, or may, with the consent of, all Lenders, take any or all of the following actions, without notice or demand:

(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Lenders);

(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement;

(c) demand that Borrower (i) deposit cash with Bank in an amount equal to 110% of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

(d) terminate any FX Forward Contracts;

(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Administrative Agent considers advisable, notify any Person owing Borrower money of Administrative Agent’s (for the benefit of the Lenders) security interest in such funds, and verify the amount of such account;

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(f) make any payments and do any acts they consider necessary or reasonable to protect the Collateral and/or Administrative Agent’s security interest in the Collateral. Borrower shall assemble the Collateral if Administrative Agent requests and make it available as Administrative Agent designates. Administrative Agent may (to the extent not prohibited by applicable law) enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to their security interest and pay all expenses incurred. To the extend not prohibited by the applicable agreements pursuant to which Borrower leases or otherwise has occupancy rights, Borrower grants Administrative Agent a license to enter and occupy any of its premises, without charge, to exercise any of Administrative Agent’s rights or remedies;

(g) apply to the Obligations any balances and deposits of Borrower Administrative Agent holds on behalf of the Lenders;

(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral, to the extent not prohibited by applicable law. Administrative Agent is hereby granted to be exercised solely upon an Event of Default, a non-exclusive, royalty-free license or other right to use, subject to the rights of third parties and to the extent not prohibited by applicable law, without charge to Borrower, Borrower’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Administrative Agent’s exercise of its rights under this Section 9.1(f), Borrower’s rights under all licenses and all franchise agreements inure to Administrative Agent’s benefit, for the benefit of the Lenders;

(i) place a “hold” on any account maintained with Administrative Agent on behalf of the Lenders and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(j) demand and receive possession of Borrower’s Books;

(k) exercise all rights and remedies available to Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

9.2 Power of Attorney. Borrower hereby irrevocably appoints Administrative Agent as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Administrative Agent determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Administrative Agent or a third party as the Code permits. Borrower hereby appoints Administrative Agent as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Lenders are under no further obligation to make Credit Extensions hereunder. Administrative Agent’s foregoing appointment as Borrower’s attorney- in-fact, and all of Administrative Agent’s rights and powers, coupled with an interest, are irrevocable until all Obligations (other than inchoate indemnity obligations) have been fully repaid and performed and Lenders’ obligation to provide Credit Extensions terminates.

9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Administrative Agent may obtain such insurance or make such payment, and all amounts so paid by Administrative Agent are Lender Expenses and immediately due and payable, bearing interest at the Default Rate, and secured by the Collateral. Administrative Agent will make reasonable efforts to provide Borrower with notice of Administrative Agent obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Administrative Agent are deemed an agreement to make similar payments in the future or Administrative Agent’s waiver of any Event of Default.

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9.4 Application of Payments and Proceeds. Borrower shall have no right to specify the order or the accounts to which Administrative Agent shall allocate or apply any payments required to be made by Borrower to Administrative Agent or otherwise received by Administrative Agent under this Agreement when any such allocation or application is not specified elsewhere in this Agreement. If an Event of Default has occurred and is continuing, any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

(a) First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including Lenders Expenses) payable to the Administrative Agent in its capacity as such;

(b) Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including Lenders Expenses), ratably among them in proportion to the amounts described in this clause (b) payable to them;

(c) Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Credit Extensions and fees, premiums and scheduled periodic payments, and any interest accrued thereon, ratably among the Lenders in proportion to the respective amounts described in this clause (c) held by them;

(d) Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Credit Extensions and breakage, termination or other payments, and any interest accrued thereon, ratably among the Lenders in proportion to the respective amounts described in this clause (d) held by them;

(e) Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrowers or as otherwise required by Law.

9.5 Set-off. In addition to any rights and remedies of the Lenders provided by law, upon the occurrence and during the continuance of any Event of Default, each Lender and any Affiliate of a Lender is authorized at any time and from time to time, with the prior written consent of the Administrative Agent, but without prior notice to the Borrower, any such notice being waived by the Borrower to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender or such Affiliate to or for the credit or the account of the Borrower against any and all Obligations owing to such Lender hereunder or under any other Loan Document, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or indebtedness. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application.

9.6 Administrative Agent’s Liability for Collateral. So long as Administrative Agent complies with reasonable and customary Lenders’ practices regarding the safekeeping of the Collateral in the possession or under the control of Administrative Agent, Administrative Agent shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.7 No Waiver; Remedies Cumulative. Administrative Agent’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Administrative Agent thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Administrative Agent (and to the extent required pursuant to Section 12.5 all Lenders) and then is only effective for the specific instance and purpose

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for which it is given. Administrative Agent’s and the Lenders’ rights and remedies under this Agreement and the other Loan Documents are cumulative. Administrative Agent and Lenders have all rights and remedies provided under the Code, by law, or in equity. Administrative Agent’s and Lenders’ exercise of one right or remedy is not an election, and Administrative Agent’s and Lenders’ waiver of any Event of Default is not a continuing waiver. Administrative Agent’s and Lenders’ delay in exercising any remedy is not a waiver, election, or acquiescence.

9.8 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Administrative Agent, for the benefit of the Lenders, on which Borrower is liable.

10 NOTICES

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number indicated below. Each party may change its mailing or electronic mail address or facsimile number by giving the other parties written notice thereof in accordance with the terms of this Section 10.

If to Borrower:	Zogenix, Inc. 12671 High Bluff Drive, Suite 200 San Diego, California 92130 Attn: Chief Financial Officer Tel.: (858) 436-9208 Fax: (858) 259-1166 Email: arhoads@zogenix.com
with a copy to:	Latham & Watkins LLP 600 W. Broadway, Suite 1800 San Diego, California 92101 Attn: Stephanie L. Kuhlen Tel: (619) 238-2812 Fax: (619) 696-7419 Email: stephanie.kuhlen@lw.com
If to Bank:	Silicon Valley Bank 4370 La Jolla Village Drive, Suite 860 San Diego, CA 92122 Attn: Mike White Tel.: (858) 784-3310 Fax: (858) 622-1424 Email: mwhite@svb.com
If to Administrative: Agent	Oxford Finance Corporation 133 N. Fairfax Street Alexandria, VA 22314 Attn: Timothy A. Lex, Chief Operating Officer Tel.: (703) 519-4900 Fax: (703) 519-5225 Email: tlex@oxfordfinance.com

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with a copy to: DLA Piper LLP (US) 4365 Executive Drive, Suite 1100 San Diego, California 92121 Attn: Troy Zander Fax: (858) 638-5086 Email: troy.zander@dlapiper.com

11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

(a) California law governs the Loan Documents without regard to principles of conflicts of law. Borrower, Administrative Agent and each Lender each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Administrative Agent or any Lender from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Administrative Agent or any Lender. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

(b) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

(c) WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

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12 GENERAL PROVISIONS

12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Administrative Agent’s and each Lender’s prior written consent (which may be granted or withheld in their discretion; provided that such consent shall not be unreasonably withheld with respect to assignments made by other Lenders). Each Lender has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, such Lender’s obligations, rights, and benefits under this Agreement and the other Loan Documents. No Lender may assign any interest hereunder to the Borrower or a natural Person. In addition to the foregoing, no Lender may assign any interest hereunder other than to an Affiliate, without the prior written consent of Oxford and Bank, provided that Oxford and Bank continue to be a Lender hereunder.

12.2 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Borrower agrees to indemnify and hold harmless each Agent-Related Person, each Lender and the respective Affiliates of all such Persons, directors, officers, employees, counsel, trustees, advisors, agents and attorneys-in-fact (collectively the “Indemnitees”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including Lenders Expenses and other costs of investigation or defense, including those incurred upon any appeal) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (a) the execution, delivery, enforcement, performance or administration of any Loan Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (b) any Credit Extension or the use or proposed use of the proceeds therefrom, (c) any actual or alleged presence or release of Hazardous Materials on or from any property currently or formerly owned or operated by the Borrower or any Subsidiary, or any Environmental Liability related in any way to the Borrower or any Subsidiary, or (d) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) and regardless of whether any Indemnitee is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided, however, that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee (or such Indemnitee’s officers, directors, employees or agents). No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through the internet, IntraLinks or other similar information transmission systems in connection with this Agreement, nor shall any Indemnitee have any liability for any punitive, special, indirect or consequential damages relating to this Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether arising or occurring before or after the date hereof). All amounts due under this Section 12.2 shall be payable within ten (10) Business Days after demand therefor. The agreements in this Section 12.2 shall survive the resignation of the Administrative Agent, the replacement of any Lender and the Maturity Date. To the extent that the indemnification set forth in this Section 12.2 may be unenforceable, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable Law to the payment and satisfaction of all such indemnified liabilities incurred by the Indemnitees or any of them. Without limiting the generality of any provision of this Section 12.2, to the fullest extent permitted by law, Borrower hereby waives all rights for contribution or any other rights of recovery with respect to liabilities, losses, damages, costs and expenses arising under or relating to Environmental Laws that it might have by statute or otherwise against any Indemnitee, except to the extent that such items are determined by a final and non-appealable decision of a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of such Indemnitee.

12.3 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.

12.4 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

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12.5 Amendments.

(a) No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by a Borrower or any Subsidiary therefrom, may in any event be effective unless in writing signed by the Administrative Agent (and, in the case of any amendment, modification or supplement of or to any Loan Document to which Borrower or such Subsidiary is a party, signed by such party, and, in the case of any amendment, modification or supplement to Section 13, signed by Administrative Agent in its representative capacity), and then only in the specific instance and for the specific purpose given.

(b) No amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, or any consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and acknowledged by Administrative Agent and signed by, Borrower and Lenders having more than (x) 55% of the Commitment of all Lenders or (y) if such Commitment has expired or been terminated, 66 2/3% of the aggregate outstanding principal amount of the Growth Capital Advance (the “Requisite Lenders”).

(c) No amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document shall, unless in writing and signed by Administrative Agent and each Lender directly affected thereby: (i) increase or decrease the Commitment of any Lender (which shall be deemed to affect all Lenders), (ii) reduce the principal of or rate of interest on any Obligation or the amount of any fees payable hereunder (other than waiving the imposition of the Default Rate), (iii) postpone the date fixed for or waive any payment of principal of or interest on the Growth Capital Advance or any Revolving Advance, or any fees hereunder, (iv) release all or substantially all of the Collateral, or consent to a transfer of all or substantially all of the Intellectual Property, in each case, except as otherwise expressly permitted in the Loan Documents (which shall be deemed to affect all Lenders), (v) subordinate the lien granted in favor of the Administrative Agent securing the Obligations (which shall be deemed to affect all Lenders), (vi) release a Loan Party from, or consent to a Loan Party’s assignment or delegation of, such Loan Party’s obligations hereunder and under the other Loan Documents or any Guarantor from its guaranty of the Obligations (which shall be deemed to affect all Lenders) or (vii) amend, modify, terminate or waive Section 9.4, 9.5 or 12.5(b) or (c).

(d) Notwithstanding any provision in this Section 12.5 to the contrary, no amendment, modification, termination or waiver affecting or modifying the rights or obligations of Administrative Agent hereunder shall be effective unless signed by Borrower, Administrative Agent and Requisite Lenders.

12.6 Integration. This Agreement and the Loan Documents, together with all attachments hereto and thereto and all documents delivered in connection herewith or therewith, including but not limited to the Annual Projections, represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents.

12.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

12.8 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to indemnify the Administrative Agent and the Lenders shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

12.9 Confidentiality. In handling any confidential information, Administrative Agent and each Lender shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Administrative Agent’s or such Lender’s Subsidiaries or Affiliates in connection with their business with Borrower; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Administrative Agent or such Lender shall use commercially reasonable efforts to

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obtain such prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Administrative Agent’s or such Lender’s regulators or as otherwise required in connection with Administrative Agent’s or such Lender’s examination or audit; and (e) as Administrative Agent and Lenders consider appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of the Administrative Agent or any Lender so long as such service providers have executed a confidentiality agreement with the Administrative Agent or such Lender with terms no less restrictive than those contained herein. Confidential information does not include information that either: (i) is in the public domain or in the Administrative Agent’s or such Lender’s possession when disclosed to Administrative Agent or such Lender, or becomes part of the public domain after disclosure to Administrative Agent or such Lender; or (ii) is disclosed to Administrative Agent or a Lender by a third party, if Administrative Agent or such Lender does not know that the third party is prohibited from disclosing the information.

Administrative Agent and each Lender may use confidential information for any purpose, including, without limitation, for the development of client databases, reporting purposes, and market analysis, so long as Administrative Agent or such Lender does not disclose Borrower’s identity or the identity of any person associated with Borrower unless otherwise expressly permitted by this Agreement. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

12.10 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between Borrower and Administrative Agent or any Lender arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

12.11 Payments Set Aside. To the extent that any payment by or on behalf of Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.

12.12 [Reserved.]

12.13 Electronic Execution of Documents. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

12.14 Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

12.15 Construction of Agreement. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

12.16 Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

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12.17 Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

12.18 Effect of Amendment and Restatement. Except as otherwise set forth herein, this Agreement is intended to and does completely amend and restate, without novation, the Original Agreement. All security interests granted under the Original Agreement are hereby confirmed and ratified and shall continue to secure all Obligations under this Agreement.

13 THE ADMINISTRATIVE AGENT

13.1 Appointment and Authorization of Administrative Agent. Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

13.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through its, or its Affiliates’, agents, employees or attorneys-in-fact and shall be entitled to obtain and rely upon the advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct.

13.3 Liability of Administrative Agent. Except as otherwise provided herein, no Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by Borrower or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower or any Affiliate thereof.

13.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of all Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its

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satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of all Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

13.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default and/or Event of Default, unless the Administrative Agent shall have received written notice from a Lender or the Borrower, describing such Default or Event of Default. The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default and/or Event of Default as may be directed by all Lenders in accordance with Article 9; provided, however, that unless and until the Administrative Agent has received any such direction, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default and/or Event of Default as it shall deem advisable or in the best interest of the Lenders.

13.6 Credit Decision; Disclosure of Information by Administrative Agent. Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of Borrower or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and its respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any of its Affiliates which may come into the possession of any Agent-Related Person.

13.7 Indemnification of Administrative Agent. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so as to the extent, if any, provided under this Agreement), pro rata, and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities (which shall not include legal expenses of the Administrative Agent incurred in connection with the closing of the transactions contemplated by this Agreement) incurred by it; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person’s own gross negligence or willful misconduct; provided, however, that no action taken in accordance with the directions of all Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 13.7. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Lenders Expenses incurred after the closing of the transactions contemplated by this Agreement) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section 13.7 shall survive the Maturity Date and the resignation of the Administrative Agent.

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13.8 Administrative Agent in its Individual Capacity. With respect to its Credit Extensions, Oxford shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not the Administrative Agent, and the terms “Lender” and “Lenders” include Oxford in its individual capacity.

13.9 Successor Administrative Agent. The Administrative Agent may resign as the Administrative Agent upon ten (10) days’ notice to the Lenders. If the Administrative Agent resigns under this Agreement, all Lenders shall appoint from among the Lenders (or the affiliates thereof) a successor administrative agent for the Lenders, which successor administrative agent shall (unless an Event of Default has occurred and is continuing) be subject to the approval of the Borrower (which approval shall not be unreasonably withheld or delayed). If no successor administrative agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders, a successor administrative agent from among the Lenders (or the affiliates thereof). Upon the acceptance of its appointment as successor administrative agent hereunder, the Person acting as such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the respective term “Administrative Agent” means such successor administrative agent and the retiring Administrative Agent’s appointment, powers and duties in such capacities shall be terminated without any other further act or deed on its behalf. After any retiring Administrative Agent’s resignation hereunder as the Administrative Agent, the provisions of this Article 13 and Sections 2.4(d) and 12.2 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as the Administrative Agent by the date ten (10) days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Lenders appoint a successor agent as provided for above.

13.10 Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Borrower, the Administrative Agent (irrespective of whether the principal of any Loan, shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Credit Extensions and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 2.4 allowed in such judicial proceeding; and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.4.

13.11 Collateral and Guaranty Matters. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Guarantor and any Lien on any Collateral granted to or held by the Administrative Agent under any Loan Document (i) upon the date that all Obligations due hereunder have been fully and indefeasibly paid in full and no Growth Capital Loan Commitments or other obligations of any Lender to provide funds to the Borrower under this Agreement remain outstanding, (ii) that is transferred or to be transferred as part of or in connection with any Transfer permitted hereunder or under any other Loan Document or any Involuntary Disposition, or (iii) as approved in accordance with Section 12.01. Upon request by the Administrative Agent at any time, all Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of Property, pursuant to this Section 13.11.

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13.12 Cooperation of Borrower. If necessary, Borrower agrees to (i) execute any documents (including new Notes) reasonably required to effectuate and acknowledge each assignment of a Growth Capital Loan Commitment or Loan to an assignee in accordance with Section 12.1, and (ii) make the Borrower’s management available once during each Fiscal Year to meet with the Administrative Agent and the prospective participants and assignees of Growth Capital Loan Commitments or Credit Extensions. Subject to the provisions of Section 12.9, Borrower authorizes each Lender to disclose to any prospective participant or assignee of a Growth Capital Loan Commitment, any and all information in such Lender’s possession concerning the Borrower and its financial affairs which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement, or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender’s credit evaluation of the Borrower prior to entering into this Agreement provided that such prospective participant is bound to abide by the provisions of Section 12.9.

13.13 Nonliability of Lenders. The relationship between the Borrower on the one hand and the Lenders and the Administrative Agent on the other hand shall be solely that of borrower or guarantor, as applicable, and lender. Neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the borrower, on the one hand, and the Administrative Agent and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. Neither the Administrative Agent nor any Lender undertakes any responsibility to Borrower to review or inform Borrower of any matter in connection with any phase of any Borrower’s business or operations. The Borrower agrees that neither the Administrative Agent nor any Lender shall have liability to Borrower (whether sounding in tort, contract or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. NO LENDER PARTY SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, NOR SHALL ANY LENDER OR ITS AFFILIATES HAVE ANY LIABILITY WITH RESPECT TO, AND THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE). The Borrower acknowledges that it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party. No joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Administrative Agent, Lenders or among the Borrower and the Lenders and the Administrative Agent.

13.14 Payments Set Aside. To the extent that any payment by or on behalf of Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.

13.15 Deliveries by Administrative Agent. In all cases where Administrative Agent agrees hereunder to provide copies of correspondence from Borrower to another Lender, Administrative Agent shall do so promptly under the circumstances.

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14 DEFINITIONS

14.1 Definitions. As used in this Agreement, the following terms have the following meanings:

“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“Additional European Collateral” is that certain (1) Intraject Final Assembly Machine and Trayloader for inspection purchased from Sortimat Technology GmbH, (2) Automatic Inspection Machine purchased from Seidnader Maschinenbau GmbH, and (3) Cartoners purchased from IMA s.p.a., in the principal amount not to exceed Seven Million Dollars ($7,000,000.00).

“Administrative Agent” has is defined in the preamble hereof.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 14.1 or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.

“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Agent-Related Persons” means the Administrative Agent, together with its Affiliates, and its Approved Funds, and the officers, directors, employees, agents, advisors, auditors and Controlling Persons and attorneys-in-fact of such Persons and Affiliates; provided, however, that no Agent-Related Person shall be an Affiliate of the Borrower.

“Agreement” is defined in the preamble hereof, as the same may be amended, amended and restated, supplemented, or otherwise modified in accordance with the terms thereof from time to time.

“Approved Fund” means (i) any Person (other than a natural person) engaged in making, purchasing, holding, or investing in commercial loans and similar extensions of credit and that is advised, administered, or managed by a Lender, or an Affiliate of a Lender (or an entity or an Affiliate of an entity that administers, advises or manages a Lender); (ii) with respect to any Lender that is an investment fund, any other investment fund that invests in loans and that is advised, administered or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor; and (iii) any third party which provides “warehouse financing” to a Person described in the preceding clause (i) or (ii) (and any Person described in said clause (i) or (ii) shall also be deemed an Approved Fund with respect to such third party providing such warehouse financing).

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Revolving Advances.

“Bank” is Silicon Valley Bank.

“Borrower” is defined in the preamble hereof.

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“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrowing Base” is (a) 85% of Eligible Accounts plus (b) the lesser of 30% of the value of Borrower’s Eligible Inventory (valued at the lower of cost or wholesale fair market value) or $3,000,000, as determined by Lenders from Borrower’s most recent Transaction Report; provided, however, that Lenders may decrease the foregoing percentages (and amount) in their good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Lenders, may adversely affect Collateral.

“Borrowing Resolutions” are, with respect to any Person, those resolutions substantially in the form attached hereto as Exhibit F.

“Business Day” is any day other than a Saturday, Sunday or other day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.

“Businesses” means, at any time, a collective reference to the businesses operated by the Borrower and its Subsidiaries at such time.

“Capital Lease” means, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee which would, in accordance with GAAP, be required to be accounted for as a capital lease on the balance sheet of such person.

“Capital Stock” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interest in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (c) Lender’s certificates of deposit issued maturing no more than one (1) year after issue. For the avoidance of doubt, the direct purchase by the Borrower, co-borrower, or any Subsidiary of the Borrower of any Auction Rate Securities, or purchasing participations in, or entering into any type of swap or other derivative transaction, or otherwise holding or engaging in any ownership interest in any type of Auction Rate Security by the Borrower, co-borrower, or any Subsidiary of the Borrower shall be conclusively determined by the Lenders as an ineligible Cash Equivalent, and any such transaction shall expressly violate each other provision of this agreement governing Permitted Investments. Notwithstanding the foregoing, Cash Equivalents does not include and each Borrower and Subsidiary is prohibited from purchasing, purchasing participations in, entering into any type of swap or other equivalent derivative transaction, or otherwise holding or engaging in any ownership interest in any type of debt instrument, including, without limitation, any corporate or municipal bonds with a long-term nominal maturity for which the interest rate is reset through a dutch auction and more commonly referred to as an auction rate security.

“Cash Management Services” is defined in Section 2.1.5.

“Change in Control” means any event, transaction, or occurrence as a result of which (a) the shareholders of record, as of the Effective Date shall cease to own of record (i) at least 60% of the Capital Stock of Borrower, or (ii) Capital Stock having a majority of the ordinary voting power for the election of directors of Borrower (on a fully diluted basis), (b) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)), other than an existing investor, or a trustee or other fiduciary

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holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing twenty-five percent (25%) or more of the combined voting power of Borrower’s then outstanding securities; or (c) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose election by the Board of Directors of Borrower was approved by a vote of at least two-thirds of the directors then still in office who either were directions at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Lenders’ Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

“Commitment” is the Growth Capital Loan Commitment or the Revolving Loan Commitment, as applicable.

“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit B.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 5% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

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“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and the Administrative Agent pursuant to which the Administrative Agent obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account

“Credit Extension” is the Growth Capital Advance, any Revolving Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by any Lender for Borrower’s benefit.

“Debtor Relief Laws” means the Title 11 of the United States code entitled “Bankruptcy” as now and hereafter in effect or any successor statute, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” is defined in Section 2.3(b).

“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“Designated Deposit Account” is Borrower’s deposit account, account number [***], maintained with Silicon Valley Bank.

“Disbursement Letter” is that certain form attached hereto as Exhibit C-2.

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

“Effective Date” is defined in the preamble hereof.

“Effective Date Subordinated Debt” is Subordinated Debt received by Borrower on the Original Effective Date, on terms and from investors reasonably acceptable to Administrative Agent and the Lenders, of at least Ten Million Seven Hundred Thousand Dollars ($10,700,000).

“Effective Date Subordinated Debt Documents” means that certain Note Purchase Agreement dated as of the Original Effective Date, and all Exhibits and Schedules thereto, and all instruments and documents to be executed and or delivered in connection therewith, all in form and content reasonably acceptable to Administrative Agent and the Lenders, pursuant to which Borrower will raise the Effective Date Subordinated Debt.

“Effective Date Subordination Agreement” is a Subordination Agreement, in form and content reasonably acceptable to Administrative Agreement and the Lenders, duly executed by the holders of the Original Effective Date Subordinated Debt.

“Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.21. Administrative Agent and Lenders reserve the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in their good faith business judgment. Unless Administrative Agent otherwise agrees in writing, Eligible Accounts shall not include:

(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

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[***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within ninety (90) days of invoice date;

(c) Accounts owing from an Account Debtor which does not have its principal place of business in the United States or Canada unless such Accounts are otherwise Eligible Accounts and (i) covered in full by credit insurance satisfactory to Administrative Agent, less any deductible, (ii) supported by letter(s) of credit acceptable to Administrative Agent, (iii) supported by a guaranty from the Export-Import Bank of the United States, or (iv) that Administrative Agent otherwise approves of in writing;

(d) Accounts billed and/or payable outside of the United States unless Administrative Agent has a first priority, perfected security interest or other enforceable Lien in such Accounts under all applicable laws, including foreign laws;

(e) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise—sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business;

(f) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or agent;

(g) Accounts with credit balances over ninety (90) days from invoice date;

(h) Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Administrative Agent and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

(i) Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’s payment may be conditional;

(j) Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

(k) Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

(l) Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

(m) Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

(n) Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Administrative Agent, Borrower, and the Account Debtor have entered into an agreement acceptable to Administrative Agent in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);

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(o) Accounts for which the Account Debtor has not been invoiced;

(p) Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;

(q) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90 days;

(r) Accounts subject to chargebacks or others payment deductions taken by an Account Debtor;

(s) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

(t) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);

(u) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts (except for Cardinal, McKesson and AmeriSource Bergen and, for which such percentage is fifty percent (50%)), for the amounts that exceed such percentage, unless Administrative Agent and Lenders approve in writing; and

(v) Accounts for which Administrative Agent in its good faith business judgment determines collection to be doubtful.

“Eligible Inventory” means Inventory that meets all of Borrower’s representations and warranties in Section 5.21 and is otherwise acceptable to Administrative Agent in all respects; provided that Eligible Inventory is limited to finished goods Inventory located at Borrower’s domestic distribution facility, with respect to which Administrative Agent has obtained a bailee agreement or lessor’s acknowledgement, in form and content reasonably acceptable to Administrative Agent.

“Environmental Laws” means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. § 5101, et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901, et seq.), the Federal Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. § 300f to 300j-26 et seq.), the Oil Pollution Act of 1990 (33 U.S.C. § 2701 et seq.) and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), as such laws may be amended or otherwise modified from time to time, and any other federal, state, local, foreign and other applicable statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions and common law relating to pollution, the protection of the environment, natural resources, human health or the release of any materials into the environment, including those related to Hazardous Materials, hazardous substances or wastes, indoor and outdoor air emissions, soil, groundwater, wastewater, surface water, stormwater, wetlands, sediment and discharges of wastewater to public treatment systems.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, losses, punitive damages, consequential damages, costs of environmental investigation and remediation, fines, penalties, indemnities or expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants)), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

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“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“Equity Event” means the receipt by Borrower, after the Effective Date, and in addition to the Effective Date Subordinated Debt and the Post-Effective Date Subordinated Debt, of net proceeds from the sale and issuance of Borrower’s equity securities or Subordinated Debt, or from a partnership or collaboration (in each case, on terms and conditions reasonably acceptable to Administrative Agent), of at least Ten Million Dollars ($10,000,000).

“ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations.

“ERISA Affiliate” means any corporation, trade or business (whether or not incorporated) under common control with Borrower within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code). Any former ERISA Affiliate of Borrower or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Borrower or any of its Subsidiaries within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Borrower or any of its Subsidiaries and with respect to liabilities arising after such period for which Borrower or any of its Subsidiaries could be liable under the Internal Revenue Code or ERISA.

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by a Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate; (g) the occurrence of an act or omission which could give rise to the imposition on Borrower or any ERISA Affiliate of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Plan; (h) the assertion of a material claim (other than routine claims for benefits) against any Plan other than a Multiemployer Plan or the assets thereof, or against the Borrower or any ERISA Affiliate in connection with any Plan; (i) receipt from the IRS of notice of the failure of any Pension Plan (or any other Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; (j) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan; (k) the commencement of any administrative investigation, audit or other administrative proceeding by the Department of Labor, IRS or other Governmental Authority, including any voluntary compliance submission through the IRS’s Employee Plans Compliance Resolution System or the Department of Labor’s Voluntary Fiduciary Correction Program; or (l) the occurrence of a non-exempt “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

“European Collateral” means specific items of equipment which the Lenders agree in writing, in their sole and absolute discretion, to exclude from the definition of Collateral hereunder.

“Event of Default” is defined in Section 8.

“Excluded European Property” means (i) Borrower’s Equipment (other than the Additional European Collateral) located in any European country as of the Effective Date, and (ii) any other specific item(s) of Borrower’s property located in any European country after the Effective Date which the Lenders expressly agree in writing, in their sole and absolute discretion, to exclude from the definition of “Collateral” hereunder; for purposes of the foregoing clause (ii), Lenders agree that to the extent Borrower is not required pursuant to the terms of

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Sections 6.21 and 6.22 to cause any particular property to become subject to the UK Fixed Charge or a Perfected First Lien, such property shall be deemed “Excluded European Property”. For the avoidance of doubt, the Additional European Collateral is not “Excluded European Property.

“Excluded Taxes” means, with respect to the Administrative Agent or any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder or under any other Loan Document, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, and (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located.

“Exclusion Event” means an event or events resulting in the exclusion of the Borrower or any Subsidiary or any of the Facilities from participation in any Federal program relevant to Borrower’s business.

“Facilities” means, at any time, the facilities and real properties owned, leased, managed or operated by Borrower or any Subsidiary, from which Borrower or any Subsidiary provides or furnishes goods or services.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Administrative Agent on such day on such transactions as determined by the Administrative Agent, in its sole discretion.

“First Supplemental UK Equipment Filing” is defined in Section 6.21 hereof.

“Fiscal Year” means the fiscal year of Borrower ending on December 31 of each calendar year.

“Foreign Currency” means lawful money of a country other than the United States.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than the United States of America. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Funding Date” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency.

“FX Forward Contract” is defined in Section 2.1.4.

“FX Reduction Amount” is defined in Section 2.1.4.

“FX Reserve” is defined in Section 2.1.4.

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

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“GE Collateral” means the “Collateral” (as defined in that certain Master Loan and Security Agreement by and between General Electric Capital Corporation and Borrower, dated as of March 5, 2007, and attached as Exhibit G hereto, the “GE Document”), and the proceeds thereof.

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“Growth Capital Advance” is defined in Section 2.1.1(a).

“Growth Capital Amortization Date” means August 1, 2011.

“Growth Capital Final Payment” means a fee in the amount of One Million Two Hundred Thousand Dollars ($1,200,000).

“Growth Capital Funding Date” is any date on which the Growth Capital Advance is made to or on account of Borrower.

“Growth Capital Interest Only Payment Date” is defined in Section 2.1.1(b).

“Growth Capital Interest Only Period” means the period of time commencing on the Growth Capital Funding Date through the day before the Growth Capital Amortization Date.

“Growth Capital Loan Commitment” is Twenty Five Million Dollars ($25,000,000).

“Growth Capital Loan Commitment Percentage” means 72% with respect to Oxford and 28% with respect to Bank.

“Growth Capital Payment Date” is defined in Section 2.1.1(b).

“Growth Capital Prepayment Fee” is an additional fee payable to the Lenders in the amount equal to (x) three percent (3.0%) of the principal amount of any portion of the Growth Capital Advance prepaid from the Effective Date through July 1, 2012; and (y) two percent (2.0%) of the principal amount of any portion of the Growth Capital Advance prepaid at any time thereafter.

“Growth Capital Repayment Period” is a period of time equal to thirty (30) consecutive months commencing on the Growth Capital Amortization Date.

“Growth Capital Scheduled Payment” is defined in Section 2.1.1(b).

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“Growth Capital Scheduled Payment Date” is defined in Section 2.1.1(b).

“Guarantor” is any present or future guarantor of the Obligations.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, lead-based paint, toxic mold or fungus, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“Indemnified Liabilities” has the meaning set forth in Section 12.2 hereof.

“Indemnitees” has the meaning set forth in Section 12.2 hereof.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” means any copyright, trademark, servicemark, patent, design right, software, trade secret of Borrower and any applications, registrations, renewals, extensions, and improvements thereof.

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“Involuntary Disposition” means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any Property of Borrower.

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

“Key Person” is any of Borrower’s Chief Executive Officer (who is Roger L. Hawley as of the Effective Date), Chief Financial Officer (who is Ann Rhodes as of the Effective Date), or President (who is Stephen J. Farr, Ph.D. as of the Effective Date).

“Knowledge” means the actual knowledge of Borrower.

“Letter of Credit” means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.3(a).

“Letter of Credit Application” is defined in Section 2.1.3(a).

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.3(g).

“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, compacts, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

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“Lenders Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) incurred by the Administrative Agent and each Lender for preparing, negotiating, administering, amending, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

“Lending Office” means, as to any Lender, such office or offices as a Lender may from time to time notify the Administrative Agent.

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

“Liquidity Ratio” means a ratio of unrestricted cash and Cash Equivalents maintained with Bank or Bank’s Affiliates, plus excess availability under the Revolving Line, to all Indebtedness owing the Lenders.

“Loan Documents” are, collectively, this Agreement, the Warrants, the Perfection Certificate, the Disbursement Letter, the Side Letter, any Note or Notes, and any other present or future agreement between Borrower any Guarantor and/or for the benefit of any Lender in connection with this Agreement, all as amended, restated, or otherwise modified.

“Loan Party” means any future or existing Borrower or Guarantor hereunder.

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Lenders’ Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

“Material Contract” means any lease of real or personal property, contract or other arrangement to which Borrower or any of its Subsidiaries is a party (other than the Loan Documents), for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to result in a Material Adverse Change.

“Maturity Date” is the earliest of (a) January 1, 2014, (b) the occurrence of an Event of Default resulting in the Obligations becoming due and payable in accordance with the terms of this Agreement, or (c) the date of any prepayment of all outstanding Obligations hereunder.

“Multiemployer Plan” means any employee benefit plan of the type described in Sections 4001(a)(3) or 3(37) of ERISA that is sponsored or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding six (6) plan years, has made or been obligated to make contributions.

“Note” means for the Growth Capital Advance and the Revolving Advances, one of the secured promissory notes of Borrower substantially in the form of Exhibit E.

“Obligations” are Borrower’s obligation to pay when due any debts, principal, interest, Lender Expenses, Growth Capital Final Payment, Growth Capital Prepayment Fee, Revolving Line Termination Fee and other amounts Borrower owes any Lender now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to any Lender, and the performance of Borrower’s duties under the Loan Documents.

“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than thirty (30) days prior to the

51

Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“Original Effective Date” is defined in Section 2.4(e).

“Overadvance” is defined in Section 2.2.

“Oxford” is defined in the preamble hereof.

“Payment” means all checks, wire transfers and other items of payment received by any Lender (including proceeds of Accounts and payment of the Obligations in full) for credit to Borrower’s outstanding Credit Extensions or, if the balance of the Credit Extensions has been reduced to zero, for credit to its deposit accounts.

“Payment/Advance Form” is that certain form attached hereto as Exhibit C-1.

“Pension Plan” means any Plan, other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding six (6) plan years.

“Perfected First Lien” is defined in Section 6.22.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a) Borrower’s Indebtedness to Lenders under this Agreement and the other Loan Documents;

(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

(c) Subordinated Debt;

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

(f) Indebtedness secured by Permitted Liens;

(g) financing from General Electric Capital Corporation or its successor or assigns pursuant to the GE Document; and

(h) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investments” are:

(a) Investments shown on the Perfection Certificate and existing on the Effective Date;

(b) Cash Equivalents;

52

(c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;

(d) Investments consisting of deposit accounts in which Lenders have a perfected security interest;

(e) Investments accepted in connection with Transfers permitted by Section 7.1;

(f) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year; provided each Subsidiary in whom such Investment is made is a guarantor of the Obligations;

(g) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;

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

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

(j) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash investments by Borrower do not exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any Fiscal Year.

“Permitted Liens” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

(d) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

(e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

53

(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) and (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

(g) leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or Intellectual Property) granted in the ordinary course of Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit granting Lenders a security interest;

(h) non-exclusive license of Intellectual Property granted to third parties in the ordinary course of business, and licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property that may be exclusive in the ordinary course of business;

(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

(j) Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions, provided that the Lenders have a perfected security interest in the amounts held in such deposit and/or securities accounts; and

(k) Liens on the GE Collateral pursuant to the GE Document up to a principal amount not to exceed One Million Five Hundred Thousand Dollars ($1,500,000).

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

“Plan” means (i) any “employee benefit plan” as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by the Borrower, any of its Subsidiaries or any of its ERISA Affiliates; and (ii) all other employee benefit plans, programs, policies, agreements or arrangements, including any deferred compensation plan, incentive plan, bonus plan or arrangement, stock option plan, stock purchase plan, stock award plan or other equity-based plan, change in control agreement, retention, severance pay plan, dependent care plan, sick leave, disability, death benefit, group insurance, hospitalization, dental, life, any fund, trust or arrangement providing health benefits including multiemployer welfare arrangements, a multiple employer welfare fund or arrangement, cafeteria plan, employee assistance program, scholarship program, employment contract, retention incentive agreement, termination agreement, severance agreement, non-competition agreement, consulting agreement, confidentiality agreement, vacation policy, employee loan, or other similar plan, agreement or arrangement, whether written or oral, funded or unfunded, or actual or contingent which is or was sponsored, maintained or contributed to by, or required to be contributed by, the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates.

“Post Closing Letter” means that certain Post Closing Letter dated as of October 8, 2010, by and among Borrower and the Lenders.

“Post-Effective Date Subordinated Debt” is Subordinated Debt received by Borrower, on terms and from investors reasonably acceptable to the Lenders, of at least Four Million Three Hundred Thousand Dollars ($4,300,000); provided that the same is subject to the Post-Effective Date Subordination Agreement.

“Post-Effective Date Subordination Agreement” is a Subordination Agreement, in form and content reasonably acceptable to Administrative Agreement, duly executed by the holders of the Post-Effective Date Subordinated Debt.

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.

“Proceedings” means any actual or threatened civil, equitable or criminal proceeding litigation, action, suit, claim, investigation (governmental or judicial or otherwise), dispute indictment or prosecution, pleading, demand or the imposition of any fine or penalty or similar matter.

54

“Property” means any interest of any kind in any property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Requisite Lenders” is defined in Section 12.5.

“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.

“Restricted License” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of which could reasonably be expected to interfere with the Administrative Agent’s right to sell any Collateral.

“Revolving Advance” or “Revolving Advances” means an advance (or advances) under the Revolving Line.

“Revolving Commitment Percentage” means 80% with respect to Bank and 20% with respect to Oxford.

“Revolving Line” is an amount equal to Ten Million Dollars ($10,000,000).

“Revolving Line Termination Fee” is defined in Section 2.4(g).

“Sale and Leaseback Transaction” means, with respect to Borrower or any Subsidiary, any arrangement, directly or indirectly, with any Person whereby Borrower or such Subsidiary shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“Settlement Date” is defined in Section 2.1.4.

“Side Letter” is that certain Side Letter to Security Trust Deed dated as of the Original Effective Date, by and between Borrower and Administrative Agent.

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Lenders (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Lenders entered into between Lenders and the other creditor), in such amounts and on terms as are acceptable to Lenders.

“Subsidiary” means, with respect to any Person, any Person of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person or one or more of Affiliates of such Person.

“Surviving Entity” is defined in Section 7.3.

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“Transaction Report” is that certain report of transactions and schedule of collections in the form attached hereto as Exhibit D.

“Transfer” is defined in Section 7.1.

“UCC” means the Uniform Commercial Code as in effect in any applicable jurisdiction.

“UK Fixed Charge” is defined in Section 6.21.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Internal Revenue Code for the applicable plan year.

“Warrants” are that certain Warrant to Purchase Stock executed by Borrower in favor of Bank and delivered to Bank in connection with the Original Agreement, and those certain Warrants to Purchase Stock dated on or about the Original Effective Date executed by Borrower in favor of Oxford and delivered to Oxford in connection with the Original Agreement.

[Signature page follows.]

56

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

BORROWER:
ZOGENIX, INC.
By	/s/ Ann D. Rhoads
Name:	Ann D. Rhoads
Title:	CFO
ADMINISTRATIVE AGENT AND LENDER:
OXFORD FINANCE CORPORATION
By	/s/ John G. Henderson
Name:	John G. Henderson
Title:	Vice President & General Counsel
LENDER:
SILICON VALLEY BANK
By	/s/ Derek R. Brunelle
Name:	Derek R. Brunelle
Title:	Team Leader

[Signature Page to Second Amended and Restated Loan and Security Agreement]

EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property (the “Collateral”):

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except in each case as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include: (a) the GE Collateral, or (b) any of the following, whether now owned or hereafter acquired any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing; provided, however, the Collateral shall include all Accounts, license and royalty fees and other revenues, proceeds, or income arising out of or relating to any of the foregoing, or (c) any Excluded European Property.

Pursuant to the terms of a certain negative pledge arrangement with Lenders and except as is otherwise permitted in Section 7.1 hereof and by the definition of “Permitted Lien” herein, Borrower has agreed not to encumber any of its copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, without Lenders' prior written consent

EXHIBIT B

COMPLIANCE CERTIFICATE

TO:	Oxford Finance Corporation, as Administrative Agent
FROM:	Zogenix, Inc.

The undersigned authorized officer of Zogenix, Inc. hereby certifies that in accordance with the terms and conditions of the Second Amended and Restated Loan and Security Agreement between Borrower, Administrative Agent and Lenders (the “Agreement”),

(i) Borrower and Guarantor are in complete compliance for the period ending              with all required covenants except as noted below and

(ii) All representations and warranties of Borrower and Guarantor stated in the Agreement are true and correct as of the date hereof. Attached are the required documents, if any, supporting our certification(s). The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.

Please indicate compliance status since the last Compliance Certificate by circling Yes, No, or N/A under “Complies” column.

	Reporting Covenant	Requirement		Complies
1)	Financial statements	Monthly within 30 days		Yes	No	N/A
2)	Annual (CPA Audited) statements	Within 180 days after Fiscal Year End; 2009 audited financials by 8/31/10		Yes	No	N/A
3)	Annual Financial Projections/Budget	Annually within 30 days of FYE and when revised		Yes	No	N/A
4)	A/R & A/P agings, Deferred Revenue report; inventory report	Monthly within 30 days		Yes	No	N/A
5)	Compliance Certificate	Monthly within 30 days		Yes	No	N/A
6)	Collateral Audit	Initial and Semi-Annual		Yes	No	N/A
7)	10-K and 10-Q Filings	If applicable		Yes	No	N/A
8)	Transaction Report	Monthly within thirty (30) days, when Borrower’s cash on deposit with Bank is equal to or greater than Ten Million Dollars ($10,000,000); Weekly otherwise; and, with each Revolving Advance request		Yes	No	N/A
9)	Total amount of Borrower’s cash and cash equivalents		$
10)	Total amount of Borrower’s cash and cash equivalents maintained with Lender(s) as specified in Agreement.	If applicable	$	Yes	No	N/A
	Financial Covenants	Requirement		Complies
11)	Minimum Liquidity Ratio	1.25:1.00		Yes	No	N/A
12)	Performance to Plan (Revenues)*	75% of projected revenues		Yes	No	N/A
13)	Equity Event	Minimum $10 million in equity or Sub Debt by November 30, 2010		Yes	No	N/A

* measured only if Liquidity Ratio is < 1.25:1.00; commencing with the 3-month period ended 8/31/10.

Deposit and Securities Accounts (Please list all accounts; attach separate sheet if additional space needed)

	Bank	Account Number	New Account?		Acct Control Agmt in  place?
1)			Yes	No	Yes	No
2)			Yes	No	Yes	No
3)			Yes	No	Yes	No
4)			Yes	No	Yes	No
5)			Yes	No	Yes	No
Other Matters
Have there been any changes in management?					Yes	No
Have there been any transfers/sales/disposals/retirement of Collateral or IP?					Yes	No
Have there been any new or pending claims or causes of action against Borrower?					Yes	No

Exceptions

Please explain any exceptions with

respect to the certification above: (If

no exceptions exist, state “No

exceptions.” Attach separate sheet if

additional space needed.)

SIGNATURE	DATE	LENDERS USE ONLY  Received by:                     Verified by:
		Date:                                 Date:
TITLE
		Compliance Status          Yes             No

[Signature Page to Compliance Certificate]

EXHIBIT C-1

LOAN PAYMENT/ADVANCE REQUEST FORM

Fax To: Date:                                 

LOAN PAYMENT:

ZOGENIX, INC.

From Account #		To Account #
	(Deposit Account #)		(Loan Account #)
Principal $		and/or Interest $

Authorized Signature:	Phone Number:
Print Name/Title:

LOAN ADVANCE:

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

From Account #		To Account #
	(Loan Account #)		(Deposit Account #)
Amount of Advance $

All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

Authorized Signature:	Phone Number:
Print Name/Title:

OUTGOING WIRE REQUEST:

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, P.S.T.

Beneficiary Name:	Amount of Wire: $
Beneficiary Lender:	Account Number:
City and State:

Beneficiary Lender Transit (ABA) #:	Beneficiary Lender Code (Swift, Sort, Chip, etc.):
	(For International Wire Only)

Intermediary Lender: Transit (ABA) #:

For Further Credit to:

Special Instruction:

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

Authorized Signature: 2^nd Signature (if required):

Print Name/Title: Print Name/Title:

Telephone #: Telephone #:

EXHIBIT C-2

DISBURSEMENT LETTER

The undersigned, being the duly elected and acting Chief Financial Officer of ZOGENIX, INC., a Delaware corporation (“Borrower”), does hereby certify to OXFORD FINANCE CORPORATION, (“Oxford”), as Administrative Agent (the “Administrative Agent”), (Oxford and Administrative Agent each a “Lender” and collectively, the “Lenders”) in connection with that certain Second Amended and Restated Loan and Security Agreement dated as of October 8, 2010, by and between Borrower, Administrative Agent and Lenders (the “Loan Agreement”; with other capitalized terms used below having the meanings ascribed thereto in the Loan Agreement) that:

1. The representations and warranties made by Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true, correct and complete in all material respects on the date hereof; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, correct and complete in all material respects as of such date.

2. No event or condition has occurred that would constitute an Event of Default under the Loan Agreement or any other Loan Document.

3. Borrower is in compliance with the covenants and requirements contained in Sections 4, 6 and 7 of the Loan Agreement.

4. All conditions referred to in Section 3 of the Loan Agreement to the making of the Initial Credit Extension to be made on or about the date hereof have been satisfied.

5. No Material Adverse Change has occurred.

6. The variance fee set forth in Section 2.4(a) shall be disbursed to the Lenders as follows:

$95,000 to Oxford per the wire instructions below:

ABA#: [***]

Bank name: Bank of America

Acct#: [***]

Acct name: Oxford Finance Corporation

Address: 1655 Grant Street

Concord, CA 94520

and, $55,000 to Bank; which amounts may be debited from any accounts maintained with Bank.

7. Legal Fees and Costs through October 7, 2010

DLA Piper (US)	$	38,128.00
DLA Piper (UK)	$	20,646.51
Total	$	58,774.51

[Balance of Page Intentionally Left Blank]

[***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Dated as of the date first set forth above.

BORROWER:
ZOGENIX, INC.
By	/s/ Ann D. Rhoads

Name: Ann D. Rhoads

Title: CFO

AS ADMINISTRATIVE AGENT AND AS A LENDER:
OXFORD FINANCE CORPORATION
By	/s/ John G. Henderson

Name: John G. Henderson

Title: Vice President & General Counsel

AS A LENDER:
SILICON VALLEY BANK
By	/s/ Derek R. Brunelle

Name: Derek R. Brunelle

Title: Team Leader

EXHIBIT D

Transaction Report

Zogenix, Inc.

GENERAL INPUT SHEET

	Report No:	1
3003 Tasman Drive, Santa Clara, CA 95054	Date	January 0, 1900

	To:
Company name	All		Zogenix, Inc.
Report number	All		1
Report date	All		1/0/1900
Gross A/R Balance (Line 7)	BBC	$	—
Beg Loan Balance (Line 19)	BBC	$	—
Current day’s Loan advance request	BBC	$	—
SALES JOURNAL
Invoices :	Sch. A	$	—	Enter as positive
Credit Memos:	Sch. A	$	—	Enter as positive
Misc. Adj. - Sales related	Sch. A			If addition, enter positive. If reduction, enter negative.
Check figure - Net sales journal		$	—
CASH RECEIPTS JOURNAL
Credit posted to A/R	Sch. B	$	—	Enter as negative
Discounts & other non-cash reductions to A/R	Sch. B	$	—	Enter as positive
Non-A/R collections applied to Loan	Sch. B	$	—	Enter as negative
Total cash collected applied to Loan	Sch. B	$	—	Enter as positive
Check figure - Should be -0-		$	—
OTHER ADJUSTMENTS
Other Adjustments - All others (Include detail)	BBC	$	—	If addition enter as positive
Detail separately & remit to Bank				If reduction, enter as negative
Inventory
Finished Goods Inventory		$	—	Enter as positive
Ineligible Finished Goods Inventory		$	—	Enter as negative
RESERVES
Letter of Credit		$	—	Enter as positive
Cash Management		$	—	Enter as positive
Other		$	—	Enter as positive

svb.com General Input Sheet

Zogenix, Inc.

TRANSACTION REPORT AND LOAN REQUEST

	Report No:	1
3003 Tasman Drive, Santa Clara, CA 95054	Date	January 0, 1900

	ACCOUNTS RECEIVABLE COLLATERAL
1	Beginning A/R Balance Per Previous Report (Line 7)						$	—
2	Add: Sales for Period (Schedule A)						$	—
3	Add: Misc. Customers						$	—
4	Less: Credit Memos (Schedule A)						$	—
5	Less: Cash Receipts Applied To A/R (Direct-Schedule B)				$	—
	Less: Cash - Other (DDA, etc.)				$	—
	Less: Cash - Lockbox				$	—
5a	Total Cash (Applied to Accounts Receivable)						$	—
6	Adjustments: Dr. - Increase Cr. (Decrease)						$	—
7	Ending Accounts Receivable Balance (Sum Lines 1-4a,5a,6)						$	—
8	Deduct: Ineligible Accounts Receivable Per Aging Dated:		1/0/1900				$
9	Total Eligible Accounts Receivable						$
	Other
10	Finished Goods Inventory						$	—
11	Ineligible Finished Goods Inventory				$	—
12	Eligible Finished Goods Inventory						$	—
	COMPUTATION OF BORROWING AVAILABILITY
13	Line 9 X Advance rate						$
14	Inventory						$	—
	Lower of Calculated Availability or Line Limit						$
15	Less Reserves:	Other			$	—
		Letter of Credit			$	—
		Cash Management			$	—
15a	Total of Reserves:						$	—
16	Net Borrowing Availability: Before Loans (Line 10 minus Line 11a)						$
	COMPUTATION OF LOAN
17	Beginning Loan Balance (Line 19 of Previous Report)				$	—
18	Add: Monthly Interest Charge				$	—
19	Add: Returned Checks (NSF, Endorsement, etc.)				$	—
20	Add: Other: Principal Payments, Fees & Charges etc.				$	—
21	Less: Cash Applied To Loan - Accounts Receivable (Direct)				$	—
	Less: Cash - Lockbox				$	—
	Less: Cash - Incoming Wires				$	—
	Less: Cash - Other (DDA, etc.)				$	—
22	Ending Loan Balance - Before Loan Request (Sum Lines 13-15 all items)						$	—
23	Unused Borrowing Availability Before Loan Request (Line 12 minus Line 16)				$
	New Loan Request: The undersigned hereby requests a loan advance in the amount shown adjacent hereto.
	Please deposit/wire loan proceeds to my Checking A/C No.
24	At Silicon Valley Bank Office:			Advance =	$	—
25	New Loan Balance - After Loan Advance						$	—
26	Remaining Unused Borrowing Availability - After Loan Request				$

The above described Collateral is subject to a security interest in favor of SILICON VALLEY BANK pursuant to the terms and conditions of a Loan & Security Agreement’s, as executed by and between SILICON VALLEY BANK and the undersigned.

$                      has been deposited/wired to your account pursuant to the request set forth above.

BORROWER	SILICON VALLEY BANK
Signature	Signature
Name	Name
Title	Title
Date	Date

svb.com Transaction Report and Loan Request

Zogenix, Inc.

SCHEDULE A - ACCOUNTS RECEIVABLE ASSIGNED

	Report No:	1
3003 Tasman Drive, Santa Clara, CA 95054	Date	January 0, 1900

Report No. 1						1/0/1900
Cust. #	Customer Name	Invoice Date	Shipping Date	Invoice Number	Invoice Amount
	INVOICES - See attached detail				$	—
	CREDIT MEMOS - See attached detail				$	—
	MISC. CUSTOMERS - See attached detail				$	—
			Net Sales Assignment		$	—

Company Name                                 Zogenix, Inc.		Silicon Valley Bank
Signature		Signature
Name	0	Name
Title	0	Title
Date	0-Jan-00	Date

svb.com Schedule A

Zogenix, Inc.

SCHEDULE B - ACCOUNTS RECEIVABLE COLLECTION REPORT

	Report No:	1
3003 Tasman Drive, Santa Clara, CA 95054	Date	January 0, 1900

Report No. 1

Date of Remittance: 1/0/1900

Date Received

Customer No.

Customer Name

Invoice Number

Original Invoice Amt.

Actual Funds

Discount/DM

Amt. Credited to A/R

Non-A/R Collections

Coll. Source

—

—

—

—

Totals:

$

—

$

—

$

—

$

—

$

—

(Trans Rpt Ln 21)                   (Trans Rpt Ln 5-5a)

Company Name                                 Zogenix, Inc.		Silicon Valley Bank
Signature		Signature
Name	0	Name
Title	0	Title
Date	0-Jan-00	Date

svb.com Schedule B

Zogenix, Inc.

INELIGIBLE CALCULATION

	Report No:	1
3003 Tasman Drive, Santa Clara, CA 95054	Date	January 0, 1900

As of		5/31/2010
	f	Intercompany / Affiliate / Employee	$	—
	a	90 Days Passed Invoice Date	$	—
	g	Credit Balances over 90 Days	$	—
	b	Balance of 50% over 90 Day Accounts (Cross-Age or Current Affected)	$	—
	c	Foreign Account Debtor Accounts	$	—
	d	Foreign Invoiced and/or Collected Accounts	$	—
	e	Contra / Customer Deposit Accounts	$	—
	u	Concentration Limits	$	123,253.22
	h	U.S. Government Accounts	$	—
	i	Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts	$	—
	j	Accounts with Memo or Pre-Billings;	$	—
	k	Contract Accounts; Accounts with Progress / Milestone Billings	$	—
	l	Accounts for Retainage Billings	$	—
	m	Trust / Bonded Accounts	$	—
	n	Bill and Hold Accounts	$	—
	o	Unbilled Accounts	$	—
	p	Non-Trade Accounts (If not already deducted above)	$	—
	q	Accounts with Extended Term Invoices (Net 90+)	$	—
	r	Chargebacks Accounts / Debit Memos	$	—
		Product Returns/Exchanges	$	—
	s	Disputed Accounts; Insolvent Account Debtor Accounts	$	—
	t	Deferred Revenue / Other (Please explain on next page)	$	—
		Total Ineligible Accounts: (to BBC)	$	123,253.22

svb.com Ineligible Calculation

EXHIBIT E

FORMS OF SECURED PROMISSORY NOTE

SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE

$18,000,000 Dated: October 8, 2010

FOR VALUE RECEIVED, the undersigned, ZOGENIX, INC., a Delaware corporation (“Borrower”), HEREBY PROMISES TO PAY to the order of OXFORD FINANCE CORPORATION (“Lender”) the principal amount of Eighteen Million Dollars ($18,000,000) or such lesser amount as shall equal the outstanding principal balance of the Growth Capital Advance made to Borrower by Lender pursuant to the Loan Agreement (defined below), and to pay all other amounts due with respect to the Growth Capital Advance on the dates and in the amounts set forth in the Loan Agreement. (Capitalized terms, unless defined in this Note, shall have the meaning given such capitalized term in the Loan Agreement.)

Interest on the principal amount of this Note from the date of this Note shall accrue at the per annum rate set forth in the Loan Agreement, based on a 360-day year of twelve 30-day months or, if applicable, the Default Rate. Borrower shall make payments of accrued interest only on the outstanding principal amount of the Growth Capital Advance on the first day of each month, commencing August 1, 2010, through and including the date immediately prior to the Growth Capital Amortization Date. Commencing on the Growth Capital Amortization Date, and continuing on the first day each of each month thereafter, Borrower shall make to Lender thirty (30) equal payments of principal and accrued interest on the then outstanding principal amount in the amount of Six Hundred Ninety Seven Thousand Nine Hundred Seventy Five Dollars and 63/100 ($697,975.63). Any and all remaining principal and interest shall be due and payable on the Maturity Date.

Principal, interest and all other amounts due with respect to the Growth Capital Advance, is payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

This Note is one of the Notes referred to in, and is entitled to the benefits of, the Second Amended and Restated Loan and Security Agreement, dated as of October 8, 2010, to which Borrower and Lender are parties (the “Loan Agreement”). The Loan Agreement, among other things, (a) provides for the making of secured Growth Capital Advance to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid except as provided in the Loan Agreement. This Note and the obligation of Borrower to repay the unpaid principal amount of the Growth Capital Advance, interest on the Growth Capital Advance and all other amounts due Lenders under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Lenders in the enforcement or attempt to enforce any of Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.

Notwithstanding the foregoing, this Second Amended and Restated Secured Promissory Note completely amends and restates that certain Secured Promissory Note dated as of July 1, 2010, which Original Note shall be deemed void and of no further force or effect upon the execution and delivery of this Note to (and receipt hereof by) Lender.

[Remainder of page left intentionally blank; signature page follows]

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.

ZOGENIX, INC.
By:	/s/ Ann D. Rhoads

Name: Ann D. Rhoads

Title: Chief Financial Officer

Second Amended and Restated Secured Promissory Note (Growth Capital Loan)

Zogenix, Inc. – Oxford Finance Corporation

LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL

Date Principal Amount Interest Rate Scheduled
Payment Amount Notation By

AMENDED AND RESTATED SECURED PROMISSORY NOTE

$7,000,000 Dated: October 8, 2010

FOR VALUE RECEIVED, the undersigned, ZOGENIX, INC., a Delaware corporation (“Borrower”), HEREBY PROMISES TO PAY to the order of SILICON VALLEY BANK (“Lender”) the principal amount of Seven Million Dollars ($7,000,000) or such lesser amount as shall equal the outstanding principal balance of the Growth Capital Advance made to Borrower by Lender pursuant to the Loan Agreement (defined below), and to pay all other amounts due with respect to the Growth Capital Advance on the dates and in the amounts set forth in the Loan Agreement. (Capitalized terms, unless defined in this Note, shall have the meaning given such capitalized term in the Loan Agreement.)

Interest on the principal amount of this Note from the date of this Note shall accrue at the per annum rate set forth in the Loan Agreement, based on a 360-day year of twelve 30-day months or, if applicable, the Default Rate. Borrower shall make payments of accrued interest only on the outstanding principal amount of the Growth Capital Advance on the first day of each month, commencing August 1, 2010, through and including the date immediately prior to the Growth Capital Amortization Date. Commencing on the Growth Capital Amortization Date, and continuing on the first day each of each month thereafter, Borrower shall make to Lender thirty (30) equal payments of principal and accrued interest on the then outstanding principal amount in the amount of Two Hundred Seventy One Thousand Four Hundred Thirty Four Dollars and 97/100 ($271,434.97). Any and all remaining principal and interest shall be due and payable on the Maturity Date.

Principal, interest and all other amounts due with respect to the Growth Capital Advance, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

This Note is one of the Notes referred to in, and is entitled to the benefits of, the Second Amended and Restated Loan and Security Agreement, dated as of October 8, 2010, to which Borrower and Lender are parties (the “Loan Agreement”). The Loan Agreement, among other things, (a) provides for the making of secured Growth Capital Advance to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid except as provided in the Loan Agreement. This Note and the obligation of Borrower to repay the unpaid principal amount of the Growth Capital Advance, interest on the Growth Capital Advance and all other amounts due Lenders under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Lenders in the enforcement or attempt to enforce any of Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.

Notwithstanding the foregoing, this Amended and Restated Secured Promissory Note completely amends and restates that certain Secured Promissory Note dated as of July 1, 2010, which Original Note shall be deemed void and of no further force or effect upon the execution and delivery of this Note to (and receipt hereof by) Lender.

[Remainder of page left intentionally blank; signature page follows]

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.

ZOGENIX, INC.
By:	/s/ Ann D. Rhoads

Name: Ann D. Rhoads

Title: Chief Financial Officer

Amended and Restated Secured Promissory Note (Growth Capital Loan)

Zogenix, Inc. – Silicon Valley Bank

LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL

Date Principal Amount Interest Rate Scheduled
Payment Amount Notation By

AMENDED AND RESTATED SECURED PROMISSORY NOTE

$2,000,000 Dated: October 8, 2010

FOR VALUE RECEIVED, the undersigned, ZOGENIX, INC., a Delaware corporation (“Borrower”), HEREBY PROMISES TO PAY to the order of OXFORD FINANCE CORPORATION (“Lender”) the principal amount of Two Million Dollars ($2,000,000) or such lesser amount as shall equal the outstanding principal balance of the Revolving Advances made to Borrower by Lender pursuant to the Loan Agreement (defined below), and to pay all other amounts due with respect to the Revolving Advances on the dates and in the amounts set forth in the Loan Agreement. (Capitalized terms, unless defined in this Note, shall have the meaning given such capitalized term in the Loan Agreement.)

Principal, interest and all other amounts due with respect to the Revolving Advances, is payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

This Note is one of the Notes referred to in, and is entitled to the benefits of, the Second Amended and Restated Loan and Security Agreement, dated as of October 8, 2010, to which Borrower and Lender are parties (the “Loan Agreement”). The Loan Agreement, among other things, (a) provides for the making of secured Revolving Advances to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid except as provided in the Loan Agreement. This Note and the obligation of Borrower to repay the unpaid principal amount of the Revolving Advances, interest on the Revolving Advances and all other amounts due Lenders under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Lenders in the enforcement or attempt to enforce any of Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.

Notwithstanding the foregoing, this Amended and Restated Secured Promissory Note completely amends and restates that certain Secured Promissory Note dated as of July 1, 2010, which Original Note shall be deemed void and of no further force or effect upon the execution and delivery of this Note to (and receipt hereof by) Lender.

[Remainder of page left intentionally blank; signature page follows]

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.

ZOGENIX, INC.
By:	/s/ Ann D. Rhoads

Name: Ann D. Rhoads

Title: Chief Financial Officer

Amended and Restated Secured Promissory Note (Revolving Line)

Zogenix, Inc. – Oxford Finance Corporation

LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL

Date Principal Amount Interest Rate Scheduled
Payment Amount Notation By

AMENDED AND RESTATED SECURED PROMISSORY NOTE

$8,000,000 Dated: October 8, 2010

FOR VALUE RECEIVED, the undersigned, ZOGENIX, INC., a Delaware corporation (“Borrower”), HEREBY PROMISES TO PAY to the order of SILICON VALLEY BANK (“Lender”) the principal amount of Eight Million Dollars ($8,000,000) or such lesser amount as shall equal the outstanding principal balance of the Revolving Advances made to Borrower by Lender pursuant to the Loan Agreement (defined below), and to pay all other amounts due with respect to the Revolving Advances on the dates and in the amounts set forth in the Loan Agreement. (Capitalized terms, unless defined in this Note, shall have the meaning given such capitalized term in the Loan Agreement.)

Principal, interest and all other amounts due with respect to the Revolving Advances, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note.

This Note is one of the Notes referred to in, and is entitled to the benefits of, the Second Amended and Restated Loan and Security Agreement, dated as of October 8, 2010, to which Borrower and Lender are parties (the “Loan Agreement”). The Loan Agreement, among other things, (a) provides for the making of secured Revolving Advances to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

This Note may not be prepaid except as provided in the Loan Agreement. This Note and the obligation of Borrower to repay the unpaid principal amount of the Revolving Advances, interest on the Revolving Advances and all other amounts due Lenders under the Loan Agreement is secured under the Loan Agreement.

Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived.

Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred by Lenders in the enforcement or attempt to enforce any of Borrower’s obligations hereunder not performed when due. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.

Notwithstanding the foregoing, this Amended and Restated Secured Promissory Note completely amends and restates that certain Secured Promissory Note dated as of July 1, 2010, which Original Note shall be deemed void and of no further force or effect upon the execution and delivery of this Note to (and receipt hereof by) Lender.

[Remainder of page left intentionally blank; signature page follows]

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof.

ZOGENIX, INC.
By:	/s/ Ann D. Rhoads

Name: Ann D. Rhoads

Title: Chief Financial Officer

Amended and Restated Secured Promissory Note (Revolving Line)

Zogenix, Inc. – Silicon Valley Bank

LOAN INTEREST RATE AND PAYMENTS OF PRINCIPAL

Date Principal Amount Interest Rate Scheduled
Payment Amount Notation By

EXHIBIT F

BORROWING RESOLUTIONS

CORPORATE BORROWING CERTIFICATE

BORROWER:	ZOGENIX, INC.	DATE:	October 8, 2010
LENDERS:	Silicon Valley Bank (“Bank”) and Oxford Finance Corporation (collectively, “Lenders”)

I hereby certify as follows, as of the date set forth above:

1. I am the Secretary, Assistant Secretary or other officer of Borrower. My title is as set forth below.

2. Borrower’s exact legal name is set forth above. Borrower is a corporation existing under the laws of the State of Delaware.

3. Attached hereto are true, correct and complete copies of Borrower’s Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 1 above. Such Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

4. The following resolutions were duly and validly adopted by Borrower’s Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate action). Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Lenders may rely on them until each Lender receives written notice of revocation from Borrower.

RESOLVED, that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act on behalf of Borrower:

Name	Title	Signature	Authorized to Add or Remove Signatories
Roger L. Hawley	Chief Executive Officer	/s/ Roger L. Hawley	¨
Ann Rhoads	Chief Financial Officer	/s/ Ann Rhoads	¨
			¨
			¨

RESOLVED FURTHER, that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf of Borrower.

RESOLVED FURTHER, that such individuals may, on behalf of Borrower:

Borrow Money. Borrow money from Lenders.

Execute Loan Documents. Execute any loan documents any Lender requires.

Grant Security. Grant Lenders a security interest in any of Borrower’s assets.

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.

Letters of Credit. Apply for letters of credit from Bank.

Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.

Issue Warrants. Issue warrants for Borrower’s capital stock.

Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they believe to be necessary to effectuate such resolutions.

RESOLVED FURTHER, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.

5. The persons listed above are Borrower’s officers or employees with their titles and signatures shown next to their names.

By: /s/ Ann D. Rhoads

Name: Ann D. Rhoads

Title: Chief Financial Officer

*** If the Secretary, Assistant Secretary or other certifying officer executing above is designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers, this Certificate must also be signed by a second authorized officer or director of Borrower.

I, the Chief Executive Officer of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

            [print title]

By: /s/ Roger L. Hawley

Name: Roger L. Hawley

Title: Chief Executive Officer

EXHIBIT G

(Master Loan and Security Agreement by and between General Electric Capital Corporation

and Borrower, dated as of March 5, 2007)

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

MASTER LOAN AND SECURITY AGREEMENT

THIS MASTER LOAN AND SECURITY AGREEMENT, dated as of March 5, 2007, (this “Agreement”), between General Electric Capital Corporation (together with its successors and assigns, if any, “Secured Party”) and ZOGENIX, INC. (“Debtor”). Secured Party has an office at 83 Wooster Heights Road, Danbury, CT 06810. Debtor is a corporation organized and existing under the laws of the State of Delaware (the “State”). Debtor’s mailing address and chief place of business is 12760 High Bluff Drive, Suite 130, San Diego, CA 92130.

1. LOANS, TERMS OF PAYMENT AND CONDITIONS PRECEDENT.

(a) The Loan and Terms of Payment

(i) The Loan. Subject to the terms and conditions of this Agreement, Secured Party hereby agrees to make one or more term loans (each, a “Credit Extension”) to Debtor in the aggregate principal amount not to exceed TEN MILLION DOLLARS and NO/100 ($10,000,000.00) (the “Term Loan Commitment”), which Term Loan Commitment shall terminate on December 21, 2007 (the “Term Loan Commitment Termination Date”), after which the Secured Party shall have no further obligation to make any additional Credit Extensions; provided, however, (x) on or after a date that is 30 days prior to the Term Loan Commitment Termination Date, Debtor may request that the Term Loan Commitment Termination Date be extended for an additional six (6) month period, in which case, if such extension is granted, the Term Loan Commitment shall terminate on June 21, 2008 (the “Extended Commitment Termination Date”), and (y) on or after a date that is 30 days prior to the Extended Commitment Termination Date, Debtor may request that the Extended Commitment Termination Date be extended for an additional six (6) month period, in which case, if granted, the Term Loan Commitment shall terminate on December 21, 2008. In the case of clauses (x) and (y) above, such extensions shall be granted by the Secured Party in its reasonable discretion. Each Credit Extension hereunder shall be evidenced by a Note (as defined below), which Notes are deemed incorporated into and made a part of this Agreement by this reference.

(ii) Borrowing Mechanics. When Debtor desires a Credit Extension, Debtor will notify Secured Party by facsimile or electronic mail (or by telephone, provided that such telephonic notice shall be promptly confirmed in writing). Each Credit Extension shall be in an amount greater than or equal to $250,000 or such lesser amount as may be agreed to by Secured Party in its sole discretion. Secured Party shall make Credit Extensions for costs associated with the purchase of the equipment listed on Schedule 1 attached hereto and incorporated herein or other equipment identified by Debtor from time to time by wire transfer to such account as specified by Debtor at such time as Debtor has complied to the satisfaction of the Secured Party with the conditions precedent set forth in Section 1(b) below.

(iii) Repayment. Debtor unconditionally promises to pay Secured Party the aggregate unpaid principal amount of each Credit Extension, together with interest on the unpaid principal amount of such Credit Extensions from the date of such Credit Extension until repaid at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) at a fixed rate equal to the Treasury Rate (as defined below) and as set forth in the respective promissory note, the form of which is attached hereto as Exhibit A (as each may be amended, modified, increased, restated or replaced from time to time, collectively, the “Notes” and each a “Note”); provided, however, after the occurrence and during the continuance of an Event of Default (as defined below), at the option of the Secured Party, such rate shall be equal to the default rate set forth in each Note. For each Credit Extension, Debtor shall make monthly payments of principal and accrued interest in the amounts provided by Secured Party and set forth in the respective Note. Once a Credit Extension is prepaid, it cannot be reborrowed. Each Note shall have a term of forty-eight (48) months.

“Treasury Rate” means a rate per annum equal to the Treasury Index plus five and  ⁴³/100 percent (5.43%).

“Treasury Index” means the greater of (i) four and  ⁴⁸/100 percent (4.48%) and (ii) the Treasury Constant Maturities Rate, as published by the United States Federal Reserve in Statistical Release H.15(519) entitled “Selected Interest Rates” for a term equal to the term of the Note evidencing such Credit Extension (and if there is no Treasury Constant Maturities Rate published for such term, the rate resulting from the interpolation between the Treasury Constant Maturities Rate published for the next shorter term and the next longer term), two (2) days prior to the funding of such Credit Extension, including the initial Credit Extension. If any such date is not a business day, then the quote shall be obtained on the business day immediately preceding such date. If the United States Treasury (a) quotes more than one such rate, then the highest of such quotes shall apply, or (b) ceases to quote such rate, then the Treasury Index shall be determined from such substitute financial reporting service or source as the Secured Party in its reasonable discretion shall determine.

(iv) Prepayment. Debtor may voluntarily prepay, in full, the outstanding amount of any Credit Extension subject to the prepayment premium set forth in the respective Note.

(b) Conditions of Credit Extensions

(i) Conditions Precedent to Initial Credit Extension. On or before the initial Credit Extension Debtor shall deliver, or ensure delivery of, the following to Secured Party:

(A) a counterpart of this Agreement;

(B) a Note evidencing the initial Credit Extension;

(C) the Security Transfer Agreement, dated as of even date herewith, between Debtor and Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the “German Security Agreement”);

(D) the Chattel Mortgage, dated as of even date herewith, between Debtor and Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the “UK Security Agreement”);

(E) the Warrant to Purchase 200,000 Shares of Series A Preferred Stock, dated March 5, 2007, made by Debtor in favor of Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Warrant”);

(F) a certificate of the Secretary of Debtor, the form of which is attached hereto as Exhibit B (the “Secretary’s Certificate”), providing verification of incumbency and attaching Debtor’s board resolutions approving the transactions contemplated by this Agreement and the other Debt Documents and Debtor’s governing documents;

2

(G) collateral assignments, as Secured Party shall request in its reasonable discretion;

(H) certificates of insurance evidencing the insurance coverage required pursuant to Section 5 below;

(I) current UCC lien, judgment, bankruptcy and tax lien search results demonstrating that there are no other security interests or liens on the Collateral, other than Permitted Liens (as defined below), as Secured Party shall request in its reasonable discretion;

(J) a certificate of good standing of Debtor as of a date acceptable to Secured Party from the jurisdiction of Debtor’s organization;

(K) the Subordination and Waiver Agreement among MGlas AG, Debtor and Secured Party, the Deed of Subordination and Waiver among Patheon UK Limited, the Debtor and the Secured Party, the Deed of Subordination and Waiver among Bespak Europe Limited, the Debtor and the Secured Party, and the Deed of Subordination and Waiver among Dawson Shanahan Limited, the Debtor and the Secured Party, each dated on or about the date hereof (as each may be amended, restated, supplemented or otherwise modified from time to time, collectively, the “Initial Landlord Consents”);

(L) legal opinions of counsel for Debtor located in the United States, England and Germany, each in form and substance reasonably satisfactory to Secured Party;

(M) one or more schedules of equipment and personal property related thereto listing in detail sufficient to specifically identify the Collateral and its location (as each may be amended, restated, supplemented or otherwise modified from time to time the “Collateral Schedules”), which Collateral Schedules shall be annexed to and made a part hereof, the UK Security Agreement and/or the German Security Agreement and the respective Initial Landlord Consents, as applicable;

(N) UCC financing statements (and to the extent any such Collateral is to be located in a country other than the United States, such other documents, forms and schedules necessary to perfect Secured Party’s interest in such other jurisdiction in the Collateral) in the correct form for filing in the necessary filing office; and

(O) all other documents, agreements, opinions, filings and instruments as Secured Party may reasonably deem necessary or appropriate to effectuate the intent and purpose of this Agreement (together with this Agreement, Note, the German Security Agreement, the UK Security Agreement, the Warrant, the Initial Landlord Consents, Landlord Consents, the Collateral Schedules and the Secretary’s Certificate, as each may be amended, restated, supplemented or otherwise modified from time to time, collectively, the “Debt Documents”).

(ii) Conditions Precedent to Subsequent Credit Extensions. Upon each subsequent Credit Extension, Debtor shall deliver, or ensure delivery of, the following to Secured Party:

(A) a certificate by an officer of Debtor confirming that (1) all representations and warranties in Section 3 below shall be true as of the date of such Credit Extension, (2) no Event of Default or any other event, which with the giving of notice or the passage of time, or both, would constitute an Event of Default (such event, a “Default”) has occurred and is continuing or will result from the making of any Credit Extension and (3) there shall not have occurred one or more events, acts, conditions or occurrences of whatever nature, whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, which gives rise to a material adverse change in, or a material adverse effect upon, any of (I) the condition (financial or otherwise), operations, business, prospects or properties of Debtor, (II) the rights and remedies of Secured Party under any Debt Document, or the ability of Debtor to perform any of its obligations under any Debt Document, (III) the legality, validity or enforceability of any Debt Document, or (IV) the existence, perfection or priority of any security interest granted in any Debt Document or the value of any Collateral (a “Material Adverse Change”);

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(B) amendment, restatement or other modification to, or redelivery or supplemental delivery of, the items set forth in the following sections to the extent circumstances have changed since the initial Credit Extension: Sections 1(b)(i)(C), (D), (E), (F), (G), (H), (I), (J), (M), (N) and (O);

(C) a Note evidencing such Credit Extension;

(D) a landlord consent and waiver or similar document in favor of Secured Party executed by Debtor, the Secured Party and landlord or contract manufacturer, as the case may be, for each third party location where Collateral is located, that is not covered by the Initial Landlord Consents, or amendments, restatements, supplements or other modifications to any Initial Landlord Consent to identify such new equipment if not already identified therein, as the case may be, each satisfactory to Secured Party in its sole discretion (as each may be amended, restated, supplemented or otherwise modified from time to time, collectively, the “Landlord Consents”);

(E) if Collateral is located in a jurisdiction other than England, Germany or the United States, a security agreement or similar document pursuant to which the Debtor grants in favor of the Secured Party a security interest in and to, and a lien upon, the Collateral located in such jurisdiction, which document shall be governed and construed by the laws of such jurisdiction;

(F) evidence satisfactory to Secured Party in its sole discretion of payment in full of the purchase price of new equipment that is to become Collateral and the related soft expenses directly related to the purchase of such equipment including leasehold improvements, software, taxes and freight costs (collectively, “Soft Costs”) and evidence that at least 80% of such purchase price is attributable to the actual hard cost of such equipment and the remaining 20% or less is attributable to the related Soft Costs; and

(G) a responsible officer of the Debtor certifies in writing to the Secured Party that such new equipment is to be used in the ordinary course of the Debtor’s business and has been delivered and installed and is fully operable, all to the satisfaction of the Debtor.

(c) Fees and Deposits

As an inducement to Secured Party to make the Credit Extensions hereunder, Debtor has paid to Secured Party a good faith deposit equal to one percent (1%) of the amount of the Term Loan Commitment (the “Commitment Fee”). Debtor and Secured Party agree that the one-half of the Commitment Fee (an amount equal to $50,000.00) has been credited to the account of the Secured Party as a fully earned, non-refundable up-front fee and that the remaining portion of the Commitment Fee shall be applied to the initial payment of each such Credit Extension (including the initial advance) as follows: (i) an amount equal to (A) the amount of such Credit Extension (B) divided by the Term Loan Commitment and (C) multiplied by $50,000, shall be applied to Debtor’s first scheduled payment of such Credit Extension and (ii) any amount of the Commitment Fee not applied on or before the Term Loan Commitment Termination Date shall be retained by Secured Party as a non-utilization fee.

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2. CREATION OF SECURITY INTEREST.

Debtor grants to Secured Party, its successors and assigns, a security interest in and against all of the right, title and interest of Debtor in and to property listed on any Collateral Schedule now or in the future signed by Debtor and in and against all additions, attachments, accessories and accessions to such property, all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such property is individually and collectively called the “Collateral”). This security interest is given to secure the prompt payment and performance, whether at the stated maturity, by acceleration or otherwise, of all and any debts, monies, obligations and liabilities, of any kind whatsoever, now or in the future due or owing by Debtor to Secured Party in whatever currency denominated, whether actually or contingently, alone or jointly with any other person, as principal or surety, and whether on any current or other account or otherwise including, without limitation, any such debts, monies, obligations and liabilities of Debtor to Secured Party under or in respect of the Debt Documents any other document executed in connection with or pursuant to the foregoing, and together with all interest, commissions, fees and legal and other costs charges and expenses which Secured Party may charge Debtor or incur in relation to Debtor or this Agreement or the Collateral on a full indemnity basis, and any renewals, extensions and modifications of such debts, monies, obligations and liabilities (collectively, the “Obligations”).

3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.

Debtor represents and warrants, as of the date of this Agreement and as of the date of each Collateral Schedule, and covenants for the duration of this Agreement that:

(a) Debtor’s exact legal name is as set forth in the preamble of this Agreement and Debtor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations;

(b) Debtor has adequate power and capacity to enter into, and to perform its obligations under each and every Debt Document;

(c) This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws;

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(d) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of, any of the Debt Documents, except any already obtained;

(e) The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any of Debtor’s property (except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party;

(f) There are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could reasonably be expected to, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or proceedings are threatened;

(g) All financial statements delivered to Secured Party in connection with the Obligations have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change in Debtor’s financial condition;

(h) The Collateral is not, and will not be, used by Debtor for personal, family or household purposes;

(i) The Collateral is, and will remain, in good condition and repair, ordinary wear and tear and damage by casualty excepted, and Debtor will not be negligent in its care and use;

(j) Debtor is, and will remain, the sole and lawful owner of the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement, the German Security Agreement and the UK Security Agreement;

(k) The Collateral is, and will remain, free and clear of all mortgages, charges, liens, claims and encumbrances of any kind whatsoever, except for (i) liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the Collateral and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP, and (iii) inchoate materialmen’s, mechanic’s, repairmen’s and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all of such liens are called “Permitted Liens”); and

(l) Debtor is and will remain in full compliance with all laws and regulations applicable to it including, without limitation, (i) ensuring that no person who owns a controlling interest in or otherwise controls Debtor is or shall be (Y) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (Z) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and (ii) compliance with all applicable Bank Secrecy Act (“BSA”) laws, regulations and government guidance on BSA compliance and on the prevention and detection of money laundering violations.

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4. COLLATERAL.

(a) Debtor shall not move the Collateral from its current location, except that Secured Party shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral in which Secured Party’s security interest may be perfected only by possession. Secured Party may inspect any of the Collateral during normal business hours after giving Debtor reasonable prior notice and otherwise complying with the provisions of any estoppel, consent or similar agreement between Secured Party and any third parties pertaining to the applicable Collateral to be inspected. If Secured Party asks, Debtor will promptly notify Secured Party in writing of the location of any Collateral.

(b) Debtor shall, or shall cause other parties to, (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good operating order and repair, normal wear and tear excepted, (iii) use and maintain the Collateral only in compliance with manufacturers recommendations and all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for Permitted Liens).

(c) Secured Party does not authorize and Debtor agrees it shall not (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the country in which it is located, or (iii) sell, rent, lease, mortgage, license, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral.

(d) Debtor shall pay promptly, or cause to be promptly paid, when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on its use, or on this Agreement or any of the other Debt Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral and effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor agrees to reimburse Secured Party, on demand, all costs and expenses incurred by Secured Party in connection with such payment or performance and agrees that such reimbursement obligation shall be part of the Obligations.

(e) Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party shall have the right to inspect and make copies of all of Debtor’s books and records relating to the Collateral during normal business hours, after giving Debtor reasonable prior notice.

(f) Debtor agrees and acknowledges that any third person who may at any time possess all or any portion of the Collateral shall be deemed to hold, and shall hold, the Collateral as the agent of, and as pledge holder for, Secured Party. Secured Party may at any time give notice to any third person described in the preceding sentence that such third person is holding the Collateral as the agent of, and as pledge holder for, Secured Party.

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5. INSURANCE.

(a) Debtor shall at all times bear the entire risk of any loss, theft, damage to, or destruction of, any of the Collateral from any cause whatsoever.

(b) Debtor agrees to keep the Collateral insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, and if requested by Secured Party, against such other risks as Secured Party may reasonably require. The insurance coverage shall be in an amount no less than the full replacement value of the Collateral, and deductible amounts, insurers and policies shall be acceptable to Secured Party. Debtor shall deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as additional insured and Secured Party’s loss payee, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or representation made therein, shall not be subject to co-insurance, and shall provide that coverage may not be canceled or altered by the insurer except upon thirty (30) days prior written notice to Secured Party. Debtor hereby irrevocably authorizes and instructs any insurer (to whom this authority and instruction may be disclosed) to disclose all relevant information to Secured Party and appoints Secured Party as its attorney-in-fact to make proof of loss, claim for insurance and adjustments with insurers, and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Secured Party shall not act as Debtor’s attorney-in-fact unless an Event of Default shall have occurred and is continuing. Proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Obligations. To the extent such proceeds of insurance are applied to reduce any of the Obligations, such payment shall not be subject to the prepayment premium set forth in the Notes.

6. REPORTS.

(a) Debtor shall promptly notify Secured Party of (i) any change in the name of Debtor, (ii) any change in the state of its incorporation, organization or registration, (iii) any relocation of its chief executive offices, (iv) any relocation of any of the Collateral, (v) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (vi) any lien, claim or encumbrance other than Permitted Liens attaching to or being made against any of the Collateral.

(b) Debtor will deliver to Secured Party financial statements as follows. If Debtor is a privately held company, then Debtor agrees to provide monthly financial statements, certified by Debtor’s president or chief financial officer including a balance sheet, statement of operations and cash flow statement within 30 days of each month end and its complete audited annual financial statements, certified by a recognized firm of certified public accountants, within 120 days of fiscal year end or at such time as Debtor’s Board of Directors receives the audit. If Debtor is a publicly held company, then Debtor agrees to provide quarterly unaudited statements and annual audited statements, certified by a recognized firm of certified public accountants, within 10 days after the statements are provided to the Securities and Exchange Commission (“SEC”). All such statements are to be prepared using generally accepted accounting principles (“GAAP”) and, if Debtor is a publicly held company, are to be in compliance with SEC requirements.

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7. FURTHER ASSURANCES.

(a) Debtor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and shall do such other acts and things as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall use its best efforts to obtain and furnish to Secured Party any subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, and similar documents as may be from time to time reasonably requested by, and in form and substance reasonably satisfactory to, Secured Party; provided, however, in the event of any sale of the premises in which any Collateral is located by the contract manufacturer or landlord party to the Initial Landlord Consent, Debtor shall obtain and furnish to Secured Party any subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, or similar documents as may be reasonably requested by, and in form and substance reasonably satisfactory to, Secured Party; provided, further, that the foregoing shall not apply, and Debtor shall not be required to obtain any such subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, control agreements or similar documents, if following such sale (i) the party to the Initial Landlord Consent pertaining to such premises remains in possession and control of that portion of the premises where the respective Collateral is located, and (ii) each provision of the Initial Landlord Consent remains enforceable against such party to the same extent that such Initial Landlord Consent was enforceable immediately prior to such sale.

(b) Debtor authorizes Secured Party to file a financing statement and amendments thereto describing the Collateral and containing any other information required by the applicable Uniform Commercial Code. Debtor irrevocably grants to Secured Party the power, exercisable by Secured Party only while an Event of Default has occurred and is continuing, to sign Debtor’s name and generally to act on behalf of Debtor to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral; this power is coupled with Secured Party’s interest in the Collateral. Debtor shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain and promptly deliver to Secured Party such certificate showing the lien of this Agreement with respect to the Collateral. Debtor ratifies its prior authorization for Secured Party to file financing statements and amendments thereto describing the Collateral and containing any other information required by the Uniform Commercial Code if filed prior to the date hereof.

(c) Debtor shall indemnify and defend Secured Party, its successors and assigns, and their respective directors, officers and employees, from and against all claims, actions and suits (including, without limitation, related attorneys’ fees) of any kind whatsoever arising, directly or indirectly, in connection with any of the Collateral, this Agreement, any other Debt Document, and the transactions contemplated hereby or thereby, except for claims, actions or suits arising from the gross negligence or willful misconduct of Secured Party or its successors or assigns and their respective directors, officers and employees as determined by final judgment of a court of competent jurisdiction.

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8. DEFAULT AND REMEDIES.

(a) The occurrence of any one or more of the following events shall constitute an “Event of Default” under this Agreement and each of the other Debt Documents:

(i) Debtor breaches its obligation to pay when due any installment or other amount due or coming due under any of the Debt Documents and fails to cure the breach within ten (10) days;

(ii) Debtor, without the prior written consent of Secured Party, attempts to or does relocate, move, sell, rent, lease, license, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral;

(iii) Debtor breaches any of its insurance obligations under Section 5;

(iv) Debtor breaches any of its other obligations under any of the Debt Documents and fails to cure that breach within thirty (30) days after written notice from Secured Party;

(v) Any warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Obligations shall be false or misleading in any material respect as of the date made;

(vi) Any of the Collateral is subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise, or if any legal or administrative proceeding is commenced against Debtor or any of the Collateral, which in the good faith judgment of Secured Party subjects any of the Collateral to a material risk of attachment, execution, levy, seizure or confiscation and no bond is posted or protective order obtained to negate such risk;

(vii) Debtor breaches or is in default under any other agreement between Debtor and Secured Party;

(viii) Debtor or any guarantor or other obligor for any of the Obligations (collectively “Guarantor”) dissolves, terminates its existence, becomes insolvent or ceases to do business as a going concern;

(ix) If Debtor or any Guarantor is a natural person, Debtor or any such Guarantor dies or becomes incompetent;

(x) A receiver is appointed for all or of any part of the property of Debtor or any Guarantor, or Debtor or any Guarantor makes any assignment for the benefit of creditors;

(xi) Debtor or any Guarantor files a petition under any bankruptcy, insolvency or similar law, or any such petition is filed against Debtor or any Guarantor and is not dismissed within forty-five (45) days;

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(xii) Debtor’s improper filing of an amendment or termination statement relating to a filed financing statement describing the Collateral;

(xiii) Any Material Adverse Change has occurred, as determined solely by Secured Party;

(xiv) Any Guarantor revokes or attempts to revoke its guaranty of any of the Obligations or fails to observe or perform any covenant, condition or agreement to be performed under any guaranty or other related document to which it is a party;

(xv) Debtor defaults under any other material obligation for (A) borrowed money, (B) the deferred purchase price of property or (C) payments due under any lease agreement; or

(xvi) At any time during the term of this Agreement Debtor experiences a change of control such that any person or entity acquires either more than 50% of the voting stock of Debtor or all or substantially all of Debtor’s assets, in either case, without Secured Party’s prior written consent.

(b) Upon the occurrence and during the continuance of an Event of Default, Secured Party, at its option, may declare any or all of the Obligations to be immediately due and payable, without demand or notice to Debtor or any Guarantor. The accelerated obligations and liabilities shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law.

(c) Upon the occurrence and during the continuance of an Event of Default, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor or any obligor on any instrument which constitutes part of the Collateral to make payment to Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession of and remove the Collateral from the premises or store it on the premises (provided, however, that any such action by Secured Party shall be carried out in a manner that complies with the provisions of any estoppel, consent or similar agreement between Secured Party and any third parties pertaining to the Collateral), (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds from such disposition to the Obligations. If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at Debtor’s premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice that Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least five (5) days prior to such action.

(d) Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys’, appraisers’, and auctioneers’ fees; second, to discharge the Obligations; third, to discharge any other obligation or indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Debtor, if there exists any surplus. Debtor shall remain fully liable for any deficiency.

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(e) Debtor agrees to pay all reasonable attorneys’ fees and other fees, costs and expenses incurred by Secured Party (including, without limitation, the allocated cost of in-house legal counsel) in connection with the enforcement, assertion, defense or preservation of Secured Party’s rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor further agrees that such fees and costs shall be part of the Obligations.

(f) Secured Party’s rights and remedies under this Agreement or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the part of Secured Party to exercise any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise of that or any other right, power or privilege. SECURED PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER SIGNED BY DEBTOR UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY SECURED PARTY. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.

(g) DEBTOR AND SECURED PARTY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE OBLIGATIONS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

FOR THE PURPOSE OF ANY ENFORCEMENT BY SECURED PARTY OF ANY OR ALL OF ITS RIGHTS UNDER THIS AGREEMENT IN THE UNITED STATES, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO ANY DEBT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, DEBTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTIONS.

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EACH DEBTOR (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND OTHER DOCUMENTS AND OTHER SERVICE OF PROCESS OF ANY KIND AND CONSENTS TO SUCH SERVICE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA WITH RESPECT TO OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH ANY DEBT DOCUMENT BY ANY MEANS PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, INCLUDING BY THE MAILING THEREOF (BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID) TO THE ADDRESS OF THE DEBTOR SPECIFIED IN PREAMBLE HERETO (AND SHALL BE EFFECTIVE WHEN SUCH MAILING SHALL BE EFFECTIVE, AS PROVIDED THEREIN). EACH DEBTOR (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

FOR THE PURPOSE OF ANY ENFORCEMENT BY SECURED PARTY OF ANY OR ALL OF ITS RIGHTS UNDER THIS AGREEMENT, (i) IN THE UNITED KINGDOM DEBTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE ENGLISH COURTS AND HEREBY APPOINTS LAW DEBENTURE CORPORATE SERVICES LIMITED WHOSE ADDRESS IS FIFTH FLOOR, 100 WOOD STREET, LONDON, EC2V 7EX AS ITS AGENT FOR SERVICE OF ANY LEGAL PROCEEDINGS IN THE ENGLISH COURTS AND (ii) IN GERMANY, DEBTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE GERMAN COURTS AND HEREBY APPOINTS MR. TIM SCHWARZBURG, NEUHAUS MASSENKEIL ZELLER & PARTNER, SCHLOßSTRAßE 1, 56068 KOBLENZS ITS AGENT FOR SERVICE OF ANY LEGAL PROCEEDINGS IN THE GERMAN COURTS. DEBTOR WILL MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN EACH OF ENGLAND AND GERMANY.

9. MISCELLANEOUS.

(a) This Agreement, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor agrees not to assert against any such assignee, or assignee’s assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may at any time have against Secured Party for any reason whatsoever. Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor will pay all amounts payable under any assigned Debt Documents to such assignee or as instructed by Secured Party. Debtor also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Secured Party or assignee.

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(b) All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth in this Agreement (unless and until a different address may be specified in a written notice to the other party and, with respect to any notice given to Secured Party, with a copy to Hogan & Hartson LLP, 555 Thirteenth Street, N.W. Washington, D.C. 20004, attention Deborah K. Staudinger), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term “business day” shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed.

(c) Debtor agrees to pay all reasonable attorneys’ fees and all other fees, costs and expenses incurred by Secured Party (including, without limitation, the allocated cost of in-house legal counsel) in connection with the preparation, negotiation and closing of the transactions contemplated in this Agreement and all related documents and schedules and in connection with the continued administration thereof, including, without limitation, any amendments, modifications, consents or waivers thereof and in connection with the protection, monitoring or preservation of the Collateral. Debtor further agrees that such fees and costs shall part of the Obligations.

(d) Secured Party may correct patent errors and fill in all blanks in this Agreement or in any Collateral Schedule consistent with the agreement of the parties.

(e) Time is of the essence of this Agreement. This Agreement shall be binding, jointly and severally, upon all parties described as the “Debtor” and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns.

(f) This Agreement, its Collateral Schedules and any additional security interest given by Debtor to Secured Party under security agreements and other documents and agreements related thereto with respect to the Collateral located abroad, and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior understandings (whether written, verbal or implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL SCHEDULES SHALL NOT BE CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation of this Agreement.

(g) This Agreement shall continue in full force and effect until all of the Obligations has been indefeasibly paid in full to Secured Party or its assignee. The surrender, upon payment or otherwise, of any Note or any of the other documents evidencing any of the Obligations shall not affect the right of Secured Party to retain the Collateral for such other Obligations as may then exist or as it may be reasonably contemplated will exist in the future. This Agreement shall automatically be reinstated if Secured Party is ever required to return or restore the payment of all or any portion of the Obligations (all as though such payment had never been made).

(h) Debtor authorizes Secured Party to use its name, logo and/or trademark without notice to or consent by Debtor, in connection with certain promotional materials that Secured Party may disseminate to the public. The promotional materials may include, but are not limited to, brochures, video tape, internet website, press releases, advertising in newspaper and/or other periodicals, lucites, and any other materials relating the fact that Secured Party has a financing relationship with Debtor and such materials may be developed, disseminated and used without Debtor’s review. Nothing herein obligates Secured Party to use Debtor’s name, logo and/or trademark, in any promotional materials of Secured Party.

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(i) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL.

(j) Secured Party shall have no obligation to marshal any assets in favor of Debtor, or against or in payment of any obligations owed to Secured Party by Debtor.

15

IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid.

SECURED PARTY:		DEBTOR:
General Electric Capital Corporation		Zogenix, Inc.
By:	/s/ Diane Earle	By:	/s/ Roger L. Hawley
Name:	Diane Earle	Name:	Roger L. Hawley
Title:	Duly Authorized Signatory	Title:	CEO

S-1

Exhibit A

Form of Note

$                      [DATE]

FOR VALUE RECEIVED, Zogenix, Inc., a Delaware corporation located at the address stated below (“Maker”) promises to pay to the order of General Electric Capital Corporation or any subsequent holder hereof (each, a “Payee”) at its office located at 83 Wooster Heights Road, Danbury, CT 06810 or at such other place as Payee may designate by written notice to Maker, the principal sum of              DOLLARS ($            ), with interest on the unpaid principal balance, from the date hereof through and including the dates of payment, at a fixed interest rate of              percent (    %) per annum (the “Contract Rate”) in installments consisting of [(i) FORTY SEVEN (47) consecutive monthly installments of principal and interest (each, a “Periodic Installment”) and (ii) a final installment which shall be in the amount of the total outstanding and unpaid principal, accrued interest and any and all amounts due hereunder and under the other Debt Documents (as defined below)], all as set forth on Schedule 1, attached hereto. The first Periodic Installment shall be due and payable on             , and the subsequent Periodic Installments and the final installment shall be due and payable on the same day of each succeeding period (each, a “Payment Date”). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of Payee, be calculated and applied on an assumption that such payment would be made on its due date.

All payments shall be applied: first, to interest due and unpaid hereunder and under the other Debt Documents; second, to all other amounts due and unpaid hereunder and under the other Debt Documents, and then to principal due hereunder and under the other Debt Documents. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at such time or at any prior or subsequent time. The payment of any Periodic Installment prior to its due date shall result in a corresponding increase in the portion of the Periodic Installment credited to the remaining unpaid principal balance.

All amounts due hereunder and under the other Debt Documents are payable in the lawful currency of the United States of America. Maker hereby expressly authorizes Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto.

This Note is one of the “Notes” as defined in that certain Master Loan and Security Agreement, dated as of March 5, 2007, between Maker and Payee (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) and may be further secured by security agreements, chattel mortgages, pledge agreements or like instruments. Capitalized terms used, but not otherwise defined herein shall have the meaning given such terms in the Loan Agreement.

Time is of the essence hereof, If Payee does not receive from Maker payment in full of any Periodic Installment or any other sum due under this Note or any other Debt Document is not received within ten (10) days after its due date, Maker agrees to pay a late fee equal to five percent (5%) on such late Periodic Installment or other sum, but not exceeding any lawful maximum. Such late fee will be immediately due and payable, and is in addition to any other costs, fees and expenses that Maker may owe as a result of such late payment. Additionally, if (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Debt Document, in each case beyond all applicable notice and cure periods, then (x) the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any other Debt Document, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment) and/or (y) Payee may enforce its rights under any or all Debt Documents. The application of such 18% interest rate shall not be interpreted or deemed to extend any cure period set forth in this Note or any other Debt Document, cure any default or otherwise limit Payee’s right or remedies hereunder or under any Debt Document.

The Maker may prepay in full, but not in part, its entire indebtedness hereunder upon payment of the entire indebtedness, interest costs and fees due and owing hereunder plus an additional sum as a premium equal to the following percentages of the outstanding principal balance for the indicated period:

Period	Prepayment Premium
On or before the first annual anniversary of this Note	4%
After the first anniversary but prior to the second annual anniversary	3%
After the second anniversary but prior to the third annual anniversary	2%
After the third anniversary but prior to the fourth annual anniversary	1%
Thereafter	0%

It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any other Debt Document, in no event shall this Note or any other Debt Document require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any other Debt Document, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any other Debt Document on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event: (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Debt Document which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Payee to receive a greater interest per annum rate than is presently allowed, Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America.

Maker hereby consents to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any other Debt Document or any term and provision of either, which may be made, granted or consented to by Payee, and agrees that suit may be brought and maintained against Maker and/or any and all sureties, endorsers, guarantors or any others who may at any time become liable for payments and performance under this Note and any other Debt Documents (each such person, other than Maker, an “Obligor”), at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. Maker hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee’s actual attorneys’ fees.

THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

MAKER AND PAYEE UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE OBLIGATIONS SECURED HEREBY, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR NOTES RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY TILE COURT.

FOR THE PURPOSE OF ANY ENFORCEMENT BY PAYEE OF ANY OR ALL OF ITS RIGHTS UNDER THIS NOTE IN THE UNITED STATES, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO ANY DEBT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS NOTE, MAKER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTIONS.

EACH MAKER (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND OTHER DOCUMENTS AND OTHER SERVICE OF PROCESS OF ANY KIND AND CONSENTS TO SUCH SERVICE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA WITH RESPECT TO OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH ANY DEBT DOCUMENT BY ANY MEANS PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, INCLUDING BY THE MAILING THEREOF (BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID) TO THE ADDRESS OF THE MAKER SPECIFIED IN PREAMBLE HERETO (AND SHALL BE EFFECTIVE WHEN SUCH MAILING SHALL BE EFFECTIVE, AS PROVIDED THEREIN). EACH MAKER (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON TILE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

This Note and the other Debt Documents constitute the entire agreement of Maker and Payee with respect to the subject matter hereof and supersede all prior understandings, agreements and representations, express or implied.

No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.

Any provision in this Note or any of the other Debt Documents which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.

Payment Authorization

Payee is hereby directed and authorized by Maker to advance and/or apply the proceeds of the loan as evidenced by this Note to the following parties in the stipulated amounts as set forth below:

Company Name	Amount
Maker	$
Legal Fees	$
Total	$

* Funds from your Commitment Fee have been applied as follows: $              towards balance of interim interest due             .

Any provision in this Note or any of the other Debt Documents which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.

Exhibit B

Form of Secretary’s Certificate

Reference is made to the Master Loan and Security Agreement, dated as of the date hereof, between [Customer Name] (the “Agreement”), a [corporation/limited liability company/limited liability partnership/limited partnership] organized and existing under the laws of the State of [            ] (the “Debtor”) and General Electric Capital Corporation (the “Secured Party”). Capitalized terms used but not defined herein are used with the meanings assigned to such terms in the Agreement.

I,                                                              , do hereby certify that:

(i) I am the duly elected, qualified and acting [Assistant] Secretary of Debtor;

(ii) attached hereto as Exhibit A is a true, complete and correct copies of Debtor’s [Certificate/Articles of Incorporation or Articles of Organization/Certificate of Formation] and the [Bylaws/LLC Agreement/Partnership Agreement] (collectively, the “Governing Documents”), each of which is in full force and effect on and as of the date hereof;

(iii) each of the following named individuals is a duly elected or appointed, qualified and acting officer of Debtor who holds the offices set opposite such individual’s name, and the signature written opposite the name and title of such officer is such officer’s genuine signature:

Name Title Signature

(iv) attached hereto as Exhibit B are true, complete and correct copies of resolutions adopted by the Board of Directors/Members of Debtor (the “Board”) authorizing the execution, delivery and performance of the Debt Documents to which Debtor is a party, which resolutions were duly adopted by the Board on [DATE] and all such resolutions are in full force and effect on the date hereof in the form in which adopted without amendment, modification, rescission or revocation;

(iv) the execution and delivery of the Debt Documents is not prohibited by or in any manner restricted by the terms of (i) Debtor’s Governing Documents, (ii) any loan agreement, indenture or contract to which Debtor is a party or under which it is bound or (iii) federal or state statute, rule, regulation or court order applicable to Debtor;

(v) the foregoing authority shall remain in full force and effect, and Secured Party shall be entitled to rely upon same, until written notice of the modification, rescission or revocation of same, in whole or in part, has been delivered to Secured Party, but no such modification, rescission or revocation shall, in any event, be effective with respect to any documents executed or actions taken in reliance upon the foregoing authority before said written notice is delivered to Secured Party; and

(vi) there are no actions, suits, proceedings or investigations pending or threatened against or affecting Debtor before any court, federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any basis therefor, which involves the possibility of any judgment or liability not covered in full by insurance which could result in any material adverse effect, or materially impair the right or ability of Debtor to carry on its operations substantially as now conducted or anticipated to be conducted in the future, or which questions the validity of the Debt Documents, or the other documents required thereby or any action to be taken to be taken pursuant to any of the foregoing.

IN WITNESS WHEREOF, I have hereunto set my hand as of the first date written above

Name: Title: [Assistant] Secretary

[Following signature block required if signatory above will be signing Debt Documents]

The undersigned does hereby certify on behalf of Debtor that he is the duly elected or appointed, qualified and acting [TITLE] of Debtor and that [NAME FROM ABOVE] is the duly elected or appointed, qualified and acting [Assistant] Secretary of Debtor, and that the signature set forth immediately above is his genuine signature.

Name: Title:

Schedule 1

Equipment

[***]

*** Twelve (12) pages have been omitted pursuant to request for special treatment.

EX-10.26

Exhibit 10.26

GENERAL RELEASE OF CLAIMS

This General Release of Claims (“Release”) is entered into as of this 13^th day of August, 2010, between Jennifer D. Haldeman (“Executive”), and Zogenix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of May 7, 2008 (the “Employment Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Employment Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish to fully and finally resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive described in Section 2(d) below, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that she would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1. Effective Date; Termination of Employment.

(a) Effective Date. This Release shall become effective upon the occurrence of both of the following events: (i) execution of the Release by the Parties; and (ii) expiration of the revocation period applicable under Section 3(d) below without any party hereto having given notice of revocation. The date of the last to occur of the foregoing events shall be referred to in this Release as the “Effective Date.” Until and unless both of the foregoing events occur, this Release shall be null and void. Executive understands that Executive will not be given any severance benefits under this Release unless the Effective Date occurs on or before the date that is sixty (60) days following the Termination Date (as defined below).

(b) Termination of Employment Status. Executive’s employment by the Company terminated effective as of July 26, 2010 (the “Termination Date”). Executive hereby irrevocably resigns from her position as Chief Commercial Officer (and any other titles or officer positions she may hold) of the Company (and any of its affiliates and subsidiaries) effective as of the Termination Date. Executive shall execute any additional documentation necessary to effectuate such resignations. Executive’s personnel file at the Company will reflect that Executive voluntarily resigned for personal reasons. Notwithstanding the foregoing, the Company shall not oppose Executive’s claim for unemployment benefits. Executive’s “separation from service” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), shall be the Termination Date.

(c) Surrender of Company Property. Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company.

2. Compensation.

(a) Compensation Through Termination Date. On the Termination Date, the Company issued Executive her final paycheck, reflecting (a) her earned but unpaid base salary at the annualized rate of $255,000 per year through the Termination Date, and (b) all accrued, unused paid time off due Executive through the Termination Date. Subject to Section 2(d) below, Executive acknowledges and agrees that with her final check, Executive received all monies, bonuses, commissions, expense reimbursements, paid time off, or other compensation she earned or was due during her employment by the Company.

(b) Expense Reimbursements. The Company, within thirty (30) days after the Termination Date, will reimburse Executive for any and all reasonable and necessary business expenses incurred by Executive in connection with the performance of her job duties prior to the Termination Date, which expenses shall be submitted to the Company with supporting receipts and/or documentation no later than thirty (30) days after the Termination Date.

(c) Benefits. Subject to Section 2(d)(ii) below, Executive’s entitlement to benefits from the Company, and eligibility to participate in the Company’s benefit plans, shall cease on the Termination Date, except to the extent Executive elects to and is eligible to receive continued healthcare coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for herself and any covered dependents, at her sole expense in accordance with the provisions of COBRA.

(d) Severance. In exchange for Executive’s agreement to be bound by the terms of this Release, including, but not limited to, the release of claims in Section 3, Executive shall be entitled to receive the following, which shall be the exclusive severance benefits to which Executive is entitled, unless Executive has materially breached the provisions of this Release, in which case the last sentence of Section 4 shall apply:

(i) A cash payment equal to $255,000, representing Executive’s annual base salary as in effect immediately prior to the Termination Date, payable in a lump sum via wire transfer to Executive within ten (10) days following the Effective Date;

(ii) For the period beginning on the Termination Date and ending on the date which is twelve (12) full months following the Termination Date (or, if earlier, the date on which the applicable continuation period under COBRA expires) (the “COBRA Coverage Period”), the Company shall reimburse Executive for that portion of the monthly premium Executive is required to pay for continuation coverage pursuant to COBRA for Executive and her eligible dependents who were covered under the Company’s health plans as of the Termination Date which is equal to the amount the Company was paying toward Executive’s health insurance coverage (including for eligible dependents) immediately prior to the Termination Date (or in the event of a change in health insurance plans available, the amount the Company would pay toward comparable coverage for an active employee). Executive shall remain responsible for paying that portion of the COBRA premium that is equal to the difference between the full COBRA premium minus the amount reimbursed by the Company. Except for the foregoing, Executive shall be solely responsible for all matters relating to her continuation of coverage pursuant to COBRA, including, without limitation, her election of such coverage and her timely payment of her portion of any COBRA premiums. Following the COBRA Coverage Period, the Executive will then be responsible for paying the full cost of continuation coverage under COBRA for the Executive and her eligible dependents should the Executive elect to continue coverage after such period;

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(iii) On the Effective Date, the vesting and/or exercisability of each of Executive’s outstanding Stock Awards (as defined below) shall be automatically accelerated as to the number of options or shares of such Stock Awards that would have vested over the twelve (12) month period following the Termination Date had Executive remained continuously employed by the Company during such period. In addition, in the event of a Change in Control (as defined in the Employment Agreement) on or before October 26, 2010, the vesting and/or exercisability of all of Executive’s Stock Awards shall be automatically accelerated in full on the date of the Change in Control. Following the Termination Date, Executive’s vested Stock Awards (including any shares accelerated on the Effective Date and/or upon a Change in Control) shall be exercisable by Executive (or Executive’s legal guardian or legal representative) until July 26, 2011. Except as modified above, Executive’s Stock Awards shall continue to be governed by the terms and conditions of the Stock Award agreements and the Company’s equity plan pursuant to which such Stock Awards were granted. For purposes of this Release, “Stock Awards” means all stock options, stock appreciation rights, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof; and

(iv) Notwithstanding anything to the contrary in this Section 2(d), in the event of a Change in Control occurs on or before September 26, 2010, Executive shall be entitled to receive, in addition to the severance benefits described in clauses (i), (ii) and (iii) above, an amount equal to $52,085, representing Executive’s “Bonus” (as defined in the Employment Agreement) calculated as of the Termination Date, which amount shall be payable in a lump sum within ten (10) days following the later of (A) Effective Date and (B) the date of the Change in Control.

3. General Release of Claims by Executive.

(a) Executive, on behalf of herself and her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of her employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.

3

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(i) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii) Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(iii) Claims pursuant to the terms and conditions of the federal law known as COBRA;

(iv) Claims for indemnity under the bylaws of the Company, as provided for by California law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(v) Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement; and

(vi) Claims Executive may have to vested benefits under any benefit plan maintained by the Company.

(b) EXECUTIVE ACKNOWLEDGES THAT SHE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

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BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

(c) Executive acknowledges that this Release was presented to her on the date indicated above and that Executive is entitled to have twenty-one (21) days’ time in which to consider it. Executive further acknowledges that the Company has advised her that she is waiving her rights under the ADEA, and that Executive should consult with an attorney of her choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before twenty-one (21) days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

(d) Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

(e) Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8^th) day after her execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.

4. Confirmation of Continuing Obligations. Executive hereby expressly reaffirms her obligations under Section 5 of the Employment Agreement, a copy of which is attached to this Agreement as Exhibit A and incorporated herein by reference, and under the Company’s standard employee proprietary information and inventions agreement (the “Employee Proprietary Information and Inventions Agreement”) a copy of which is attached to this Agreement as Exhibit B and incorporated herein by reference, and agrees that such obligations shall survive the Termination Date and any termination of her services to the Company. The Company shall be entitled to cease all severance payments to Executive in the event of her material breach of this Section 4.

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5. Nondisparagement; Confidentiality. Executive agrees that she shall not disparage or otherwise communicate negative statements or opinions about the Company, its Board members, officers, employees, shareholders or agents; provided, however, that Executive shall not be prohibited from making such statements or opinions to her immediate family so long as such statements or opinions are not likely to be harmful to the Company, its Board members, officers, employees, shareholders or agents or its or their businesses, business reputations, or personal reputations. The Company agrees that neither its Board members nor officers shall disparage or otherwise communicate negative statements or opinions about Executive. Except as may be required by law, neither Executive, nor any member of Executive’s family, nor anyone else acting by, through, under or in concert with Executive will disclose to any individual or entity (other than Executive’s legal or tax advisors) the terms of this Agreement. Nothing in this Section 5 shall prohibit Executive from testifying in any legal proceeding in which her testimony is compelled by law or court order and no breach of this provision shall occur due to any accurate, legally compelled testimony.

6. Indemnification Agreement. The Company hereby reaffirms its obligations under that certain Indemnification Agreement, dated October 9, 2006, between the Company and Executive attached hereto as Exhibit C (the “Indemnification Agreement”). The Company’s obligations under the Indemnification Agreement shall survive Executive’s termination of employment by or service to the Company.

7. Agreed-Upon Statement; Employment References. Any inquiries regarding Executive from prospective employers shall be forwarded to the Chief Executive Officer, who shall confirm that Executive resigned from the Company for personal reasons. Except as required by law or court order, the Company shall not make any additional or inconsistent internal or public statements regarding Executive’s resignation.

8. Litigation Cooperation. Executive agrees to provide reasonable assistance to the Company (including the board of directors and any committees thereof) and its counsel and accountants in any financial audits or internal investigation involving securities, financial, accounting, or other matters, and in its defense of, or other participation in, any administrative, judicial, or other proceeding arising from any charge, complaint or other action which has been or may be filed relating to the period during which Executive was employed by the Company. The Company agrees to reimburse Executive for her reasonable expenses incurred in connection with such cooperation within thirty (30) days after receipt of an invoice from Executive setting forth in reasonable detail such expenses. Notwithstanding the foregoing, the Company shall have no obligation by virtue of this Section 8 to pay Executive for time spent by Executive in any pending or future litigation or arbitration where Executive is a co-defendant or party to the arbitration or litigation or with respect to which Executive requests indemnification pursuant to Section 6.

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9. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the JAMS Employment Arbitration Rules and Procedures (the “Rules”), and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the Parties are unable to agree upon an arbitrator, one shall be appointed by JAMS in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; provided, however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys’ fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award, but in no event later than the last day of the Executive’s taxable year following the taxable year in which the fees, costs and expenses were incurred; provided, further, that the Parties’ obligations pursuant to this sentence shall terminate on the tenth (10^th) anniversary of the Termination Date. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, JAMS administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 9 is intended to be the exclusive method for resolving any and all claims by the Parties against each other for payment of damages under this Release or relating to Executive’s employment; provided, however, that neither this Release nor the submission to arbitration shall limit the Parties’ right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

10. Assignment; Assumption by Successor. The rights of the Company under this Release may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Release in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. Unless expressly provided otherwise, “Company” as used herein shall mean the Company as defined in this Release and any successor to its business and/or assets as aforesaid.

11. Survival. The covenants, agreements, representations and warranties contained in or made in this Release, the Employee Proprietary Information and Inventions Agreement, the Indemnification Agreement and Section 5 of the Employment Agreement, shall survive any termination of Executive’s services or any termination of this Release.

12. Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the Parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

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13. Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Release. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release. Either party’s failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

14. Governing Law and Venue. This Release will be governed by and construed in accordance with the laws of the United States of America and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Any suit brought hereon shall be brought in the state or federal courts sitting in San Diego County, California, the Parties hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

15. Entire Agreement; Amendment. This Release, the Employee Proprietary Information and Inventions Agreement, the Indemnification Agreement and Executive’s Stock Award agreements and the Company’s equity plan pursuant to which such Stock Awards were granted constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. Except as provided in Section 4 hereof with respect to Section 5 of the Employment Agreement, the Employment Agreement shall be superseded entirely by this Release and the Employment Agreement shall be terminated and be of no further force or effect. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

16. Counterparts. This Release may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

17. Section 409A of the Code. This Release is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payments payable under Sections 2(d)(i) and (iv) shall be paid no later than the later of: (a) the fifteenth (15th) day of the third month following Executive’s first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (b) the fifteenth (15th) day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. To the extent applicable, this Release shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder.

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18. Taxes. All compensation payable to Executive under this Release shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order. Executive acknowledges that the payments and benefits provided in this Release may have tax ramifications to her. The Company has provided no tax or other advice to Executive on such matters and Executive is free to consult with an accountant, legal counsel, or other tax advisor regarding the tax consequences she may face.

19. RIGHT TO ADVICE OF COUNSEL. EXECUTIVE ACKNOWLEDGES THAT SHE HAS THE RIGHT, AND IS ENCOURAGED, TO CONSULT WITH HER LAWYER; BY HER SIGNATURE BELOW, EXECUTIVE ACKNOWLEDGES THAT SHE HAS CONSULTED, OR HAS ELECTED NOT TO CONSULT, WITH HER LAWYER CONCERNING THIS RELEASE.

(Signature Page Follows)

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IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release.

EXECUTIVE		ZOGENIX, INC.
/s/ Jennifer D. Haldeman		By:	/s/ Roger Hawley
Print Name: Jennifer D. Haldeman		Print Name: Roger Hawley
Date:	August 13, 2010	Title: Chief Executive Officer
		Date:	August 13, 2010

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EXHIBIT A

EMPLOYMENT AGREEMENT

[Attached]

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between Zogenix, Inc., a Delaware corporation (the “Company”), and Jennifer D. Haldeman (“Executive”), and shall be effective as of May 7, 2008 (the “Effective Date”).

WHEREAS, the Company desires to continue to employ Executive, and Executive desires to continue employment with the Company, on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:

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

(a) Board. “Board” means the Board of Directors of the Company.

(b) Bonus. “Bonus” means an amount equal to the average of the bonuses awarded to Executive for each of the three (3) fiscal years prior to the date of Executive’s termination of employment, or such lesser number of years as may be applicable if Executive has not been employed for three (3) full years on the date of Executive’s termination of employment; provided that, to the extent Executive has not received any bonus prior to the date of his or her termination of employment due to the fact that his or her employment commenced during the fiscal year in which his or her termination of employment occurs, his or her “Bonus” for purposes of Section 4 shall be equal to his or her target bonus for the fiscal year in which such termination occurs (calculated by reference to the target bonus level in effect on the date of termination) multiplied by the corporate performance achievement percentage approved by the Board or its designee with respect to the payment of executive bonuses for the preceding fiscal year, which Bonus shall be annualized. For purposes of determining Executive’s “Bonus,” (i) to the extent Executive received no bonus in a year due to a failure to meet the applicable performance objectives, such year will still be taken into account (using zero (0) as the applicable bonus) in determining Executive’s “Bonus,” and (ii) to the extent Executive was not employed for an entire fiscal year, the bonus received by Executive for such fiscal year shall be annualized for purposes of the preceding calculation. If any portion of the bonuses awarded to Executive consisted of securities or other property, the fair market value thereof shall be determined in good faith by the Board.

(c) California WARN Act. “California WARN Act” means California Labor Code Sections 1400 et seq.

(d) Cause. “Cause” means any of the following:

(i) the commission of an act of fraud, embezzlement or dishonesty by Executive, or the commission of some other illegal act by Executive, that has a material adverse impact on the Company or any successor or affiliate thereof;

(ii) a conviction of, or plea of “guilty” or “no contest” to, a felony by Executive;

(iii) any unauthorized use or disclosure by Executive of confidential information or trade secrets of the Company or any successor or affiliate thereof that has, or may reasonably be expected to have, a material adverse impact on any such entity;

(iv) Executive’s gross negligence, insubordination or material violation of any duty of loyalty to the Company or any successor or affiliate thereof, or any other material misconduct on the part of Executive;

(v) Executive’s ongoing and repeated failure or refusal to perform or neglect of Executive’s duties as required by this Agreement, which failure, refusal or neglect continues for fifteen (15) days following Executive’s receipt of written notice from the Board or the Company’s Chief Executive Officer (the “CEO”) stating with specificity the nature of such failure, refusal or neglect; or

(vi) Executive’s breach of any Company policy or any material provision of this Agreement;

provided, however, that prior to the determination that “Cause” under this Section 1(d) has occurred, the Company shall (A) provide to Executive in writing, in reasonable detail, the reasons for the determination that such “Cause” exists, (B) other than with respect to clause (v) above which specifies the applicable period of time for Executive to remedy his or her breach, afford Executive a reasonable opportunity to remedy any such breach, (C) provide the Executive an opportunity to be heard prior to the final decision to terminate the Executive’s employment hereunder for such “Cause” and (D) make any decision that such “Cause” exists in good faith.

The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Executive for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.

(e) Change in Control. “Change in Control” means and includes each of the following:

(i) a transaction or series of transactions (other than an offering of the Company’s common stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act), of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

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(ii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination or (B) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case other than a transaction:

(1) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(2) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (2) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

Notwithstanding the foregoing, a transaction shall not constitute a “Change in Control” if: (i) its sole purpose is to change the state of the Company’s incorporation; (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction; (iii) it constitutes the Company’s initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise). The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters thereto.

(f) Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other interpretive guidance issued thereunder.

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(g) Good Reason. “Good Reason” means the occurrence of any of the following events or conditions without Executive’s written consent:

(i) a material diminution in Executive’s authority, duties or responsibilities;

(ii) a material diminution in Executive’s base compensation, unless such a reduction is imposed across-the-board to senior management of the Company;

(iii) a material change in the geographic location at which Executive must perform his or her duties; or

(iv) any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Executive under this Agreement.

Executive must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive’s written consent within ninety (90) days of the occurrence of such event. The Company or any successor or affiliate shall have a period of thirty (30) days to cure such event or condition after receipt of written notice of such event from Executive.

(h) Involuntary Termination. “Involuntary Termination” means (i) the Executive’s Separation from Service by reason of Executive’s discharge by the Company other than for Cause, or (ii) the Executive’s Separation from Service by reason of Executive’s resignation of employment with the Company for Good Reason. Executive’s Separation from Service by reason of Executive’s death or discharge by the Company following Executive’s Permanent Disability shall not constitute an Involuntary Termination. The Executive’s Separation from Service by reason of resignation from employment with the Company for Good Reason shall be an “Involuntary Termination” only if such Separation from Service occurs within two (2) years following the initial existence of the act or failure to act constituting Good Reason. The Executive’s Separation from Service by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary.

(i) Permanent Disability. Executive’s “Permanent Disability” shall be deemed to have occurred if Executive shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge his or her duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Executive’s Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves the right to have the Executive examined by a physician chosen by the Company at the Company’s expense.

(j) Separation from Service. “Separation from Service,” with respect to the Executive, means the Executive’s “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).

(k) Stock Awards. “Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

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(l) WARN Act. “WARN Act” shall mean the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 et seq., and the Department of Labor regulations thereunder.

2. Services to Be Rendered.

(a) Duties and Responsibilities. Executive shall serve as Chief Commercial Officer of the Company. In the performance of such duties, Executive shall report directly to the CEO and shall be subject to the direction of the CEO and to such limits upon Executive’s authority as the CEO may from time to time impose. In the event of the CEO’s incapacity or unavailability, Executive shall be subject to the direction of the Board. Executive hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the CEO. Executive shall be employed by the Company on a full time basis. Executive’s primary place of work shall be the Company’s facility in San Diego, California, or such other location within San Diego County as may be designated by the CEO from time to time. Executive shall also render services at such other places within or outside the United States as the CEO may direct from time to time. Executive shall be subject to and comply with the policies and procedures generally applicable to senior executives of the Company to the extent the same are not inconsistent with any term of this Agreement.

(b) Exclusive Services. Executive shall at all times faithfully, industriously and to the best of his or her ability, experience and talent perform to the satisfaction of the Board and the CEO all of the duties that may be assigned to Executive hereunder and shall devote substantially all of his or her productive time and efforts to the performance of such duties. Subject to the terms of the Employee Proprietary Information and Inventions Agreement referred to in Section 5(b), this shall not preclude Executive from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with his or her duties to the Company, as determined in good faith by the CEO. Executive agrees that he or she will not join any boards, other than community and civic boards (which do not interfere with his or her duties to the Company), without the prior approval of the CEO.

3. Compensation and Benefits. The Company shall pay or provide, as the case may be, to Executive the compensation and other benefits and rights set forth in this Section 3.

(a) Base Salary. The Company shall pay to Executive a base salary of $255,000 per year, payable in accordance with the Company’s usual pay practices (and in any event no less frequently than monthly). Executive’s base salary shall be subject to review annually by and at the sole discretion of the Compensation Committee of the Board or its designee.

(b) Bonus. Executive shall participate in any bonus plan that the Board or its designee may approve for the senior executives of the Company.

(c) Benefits. Executive shall be entitled to participate in benefits under the Company’s benefit plans and arrangements, including, without limitation, any employee benefit

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plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein; provided, that any reduction of Executive’s benefits such that Executive’s benefits are, in the aggregate, materially less favorable to Executive than those benefits offered to Executive as of the Effective Date shall be considered a material breach of this Agreement by the Company.

(d) Expenses. The Company shall reimburse Executive for reasonable out-of-pocket business expenses incurred in connection with the performance of his or her duties hereunder, subject to (i) such policies as the Company may from time to time establish, (ii) Executive furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures, (iii) Executive receiving advance approval from the CEO in the case of expenses for travel outside of North America, and (iv) Executive receiving advance approval from the CEO in the case of expenses (or a series of related expenses) in excess of $5,000. Any amounts payable under this Section 3(d) shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive’s taxable year following the taxable year in which Executive incurred the expenses. The amounts provided under this Section 2(d) during any taxable year of Executive’s will not affect such amounts provided in any other taxable year of Executive’s, and Executive’s right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.

(e) Paid Time Off. Executive shall be entitled to such periods of paid time off (“PTO”) each year as provided from time to time under the Company’s PTO policy and as otherwise provided for senior executive officers.

(f) Equity Plans. Executive shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. Except as otherwise provided in this Agreement, Executive’s participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan.

(g) Stock Award Acceleration.

(i) In the event of a Change in Control, the vesting and exercisability of fifty percent (50%) of Executive’s outstanding unvested Stock Awards shall be automatically accelerated effective immediately prior to the consummation of such Change in Control.

(ii) In the event of Executive’s Involuntary Termination or Executive’s Separation from Service by reason of Executive’s death or discharge by the Company following Executive’s Permanent Disability, the vesting and/or exercisability of each of Executive’s outstanding unvested Stock Awards shall be automatically accelerated on the date of Executive’s Separation from Service as to the number of Stock Awards that would vest over the twelve (12) month period following the date of Executive’s Separation from Service had Executive remained continuously employed by the Company during such period.

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(iii) In the event of Executive’s Involuntary Termination within three (3) months prior to or twelve (12) months following a Change in Control, the vesting and/or exercisability of any outstanding unvested portions of such Stock Awards shall be automatically accelerated on the later of (A) the date of Executive’s Separation from Service and (B) the date of the Change in Control. In addition, with respect to Stock Awards granted to Executive on or after the Effective Date, such Stock Awards may be exercised by Executive (or Executive’s legal guardian or legal representative) until the latest of (A) three (3) months after the date of Executive’s Separation from Service, (B) with respect to any portion of the Stock Awards that become exercisable on the date of a Change in Control pursuant to this Section 3(g)(iii), three (3) months after the date of the Change in Control, or (C) such longer period as may be specified in the applicable Stock Award agreement; provided, however, that in no event shall any Stock Award remain exercisable beyond the original outside expiration date of such Stock Award.

(iv) The vesting pursuant to clauses (i), (ii) and (iii) of this Section 3(g) shall be cumulative. The foregoing provisions are hereby deemed to be a part of each Stock Award and to supersede any less favorable provision in any agreement or plan regarding such Stock Award.

4. Severance. Executive shall be entitled to receive benefits upon a Separation from Service only as set forth in this Section 4:

(a) At-Will Employment; Termination. The Company and Executive acknowledge that Executive’s employment is and shall continue to be at-will, as defined under applicable law, and that Executive’s employment with the Company may be terminated by either party at any time for any or no reason, with or without notice. If Executive’s employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement. Executive’s employment under this Agreement shall be terminated immediately on the death of Executive.

(b) Separation from Service by Death or Following Permanent Disability. Subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, in the event of Executive’s Separation from Service as a result of Executive’s death or discharge by the Company following Executive’s Permanent Disability, Executive or Executive’s estate, as applicable, shall be entitled to receive, in lieu of any severance benefits to which Executive or Executive’s estate may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) and the last sentence of clause (iii) below, will be payable in a lump sum within ten (10) days following the effective date of Executive’s Release (or, in the event of Executive’s death, within ten (10) days following the date of Executive’s death):

(i) the Company shall pay to Executive or Executive’s estate, as applicable, Executive’s fully earned but unpaid base salary, when due, through the date of

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Executive’s Separation from Service at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive or Executive’s estate may be entitled pursuant to the terms of such plans or agreements at the time of Executive’s Separation from Service;

(ii) Executive or Executive’s estate, as applicable, shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive’s monthly base salary as in effect immediately prior to the date of Executive’s Separation from Service; and

(iii) for the period beginning on the date of Executive’s Separation from Service and ending on the date which is twelve (12) full months following the date of Executive’s Separation from Service (or, if earlier, the date on which the applicable continuation period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) expires), the Company shall arrange to provide Executive (in the case of Executive’s Separation of Service as a result of discharge by the Company following Executive’s Permanent Disability) and/or his or her eligible dependents who were covered under the Company’s health insurance plans as of the date of Executive’s Separation from Service with health (including medical and dental) insurance benefits substantially similar to those provided to Executive and his or her dependents immediately prior to the date of such Separation from Service. If any of the Company’s health benefits are self-funded as of the date of Executive’s Separation from Service, instead of providing continued health insurance benefits as set forth above, the Company shall instead pay to Executive or Executive’s estate, as applicable, an amount equal to twelve (12) multiplied by the monthly premium Executive or his or her dependents would be required to pay for continuation coverage pursuant to COBRA for Executive (if applicable) and his or her eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Separation from Service (calculated by reference to the premium as of the date of Executive’s Separation from Service).

(c) Severance Upon Involuntary Termination. Subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, if Executive’s employment is Involuntarily Terminated, Executive shall be entitled to receive, in lieu of any severance benefits to which Executive may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) and the last sentence of clause (iii) (if applicable) will be payable in a lump sum within ten (10) days following the effective date of Executive’s Release:

(i) the Company shall pay to Executive his or her fully earned but unpaid base salary, when due, through the date of Executive’s Involuntary Termination at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive may be entitled pursuant to the terms of such plans or agreements at the time of Executive’s Involuntary Termination;

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(ii) Executive shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive’s monthly base salary as in effect immediately prior to the date of Executive’s Involuntary Termination; and

(iii) for the period beginning on the date of Executive’s Involuntary Termination and ending on the date which is twelve (12) full months following the date of Executive’s Involuntary Termination (or, if earlier, the date on which the applicable continuation period under COBRA expires), the Company shall arrange to provide Executive and his or her eligible dependents who were covered under the Company’s health insurance plans as of the date of Executive’s Involuntary Termination with health (including medical and dental) insurance benefits substantially similar to those provided to Executive and his or her dependents immediately prior to the date of such Involuntary Termination. If any of the Company’s health benefits are self-funded as of the date of Executive’s Involuntary Termination, instead of providing continued health insurance benefits as set forth above, the Company shall instead pay to Executive an amount equal to twelve (12) multiplied by the monthly premium Executive would be required to pay for continuation coverage pursuant to COBRA for Executive and his or her eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination (calculated by reference to the premium as of the date of Involuntary Termination).

(iv) Notwithstanding anything to the contrary in this Section 4(c), and subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, in the event of Executive’s Involuntary Termination during the period commencing sixty (60) days prior to a Change in Control or twelve (12) months following a Change in Control, Executive shall be entitled to receive, in addition to the severance benefits described in clauses (i), (ii) and (iii) above, an amount equal to Executive’s Bonus for the year in which Executive’s Involuntary Termination occurs, which amount shall be payable in a lump sum within ten (10) days following the later of (A) the effective date of Executive’s Release and (B) the date of the Change in Control.

(d) Termination for Cause or Voluntary Resignation Without Good Reason. In the event of Executive’s termination of employment as a result of Executive’s discharge by the Company for Cause or Executive’s resignation without Good Reason (other than as a result of Executive’s death or Separation of Service by reason of discharge by the Company following Executive’s Permanent Disability), the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (i) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by COBRA or applicable law. In addition, in the event of Executive’s Separation from Service as a result of Executive’s discharge by the Company for Cause or Executive’s resignation without Good Reason (other than as a result of Executive’s death or Separation of Service by reason of discharge by the Company following Executive’s Permanent Disability), all vesting of Executive’s unvested Stock Awards previously granted to him or her by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination. The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

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(e) Release. As a condition to Executive’s receipt of any post-termination benefits pursuant to Sections 4(b) and (c) above, Executive shall execute and not revoke a general release of all claims in favor of the Company (the “Release”) in the form attached hereto as Exhibit A. In the event Executive’s Release does not become effective within the fifty-five (55) day period following the date of Executive’s Separation from Service, Executive shall not be entitled to the aforesaid payments and benefits.

(f) Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination. In the event of Executive’s termination of employment with the Company, Executive’s sole remedy shall be to receive the payments and benefits described in this Section 4. In addition, Executive acknowledges and agrees that he or she is not entitled to any reimbursement by the Company for any taxes payable by Executive as a result of the payments and benefits received by Executive pursuant to this Section 4, including, without limitation, any excise tax imposed by Section 4999 of the Code. Any payments made to Executive under this Section 4 shall be inclusive of any amounts or benefits to which Executive may be entitled pursuant to the WARN Act or the California WARN Act.

(g) No Mitigation. Except as otherwise provided in Section 4(b)(iii) or 4(c)(iii) above, Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Executive to the Company may be offset by the Company against amounts payable to Executive under this Section 4.

(h) Return of the Company’s Property. In the event of Executive’s termination of employment for any reason, the Company shall have the right, at its option, to require Executive to vacate his or her offices prior to or on the effective date of separation and to cease all activities on the Company’s behalf. Upon Executive’s termination of employment in any manner, as a condition to the Executive’s receipt of any severance benefits described in this Agreement, Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Executive shall deliver to the Company a signed statement certifying compliance with this Section 4(h) prior to the receipt of any severance benefits described in this Agreement.

(i) Waiver of the Company’s Liability. Executive recognizes that his or her employment is subject to termination with or without Cause for any reason and therefore Executive agrees that Executive shall hold the Company harmless from and against any and all

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liabilities, losses, damages, costs and expenses, including but not limited to, court costs and reasonable attorneys’ fees, which Executive may incur as a result of Executive’s termination of employment. Executive further agrees that Executive shall bring no claim or cause of action against the Company for damages or injunctive relief based on a wrongful termination of employment. Executive agrees that the sole liability of the Company to Executive upon termination of this Agreement shall be that determined by this Section 4. In the event this covenant is more restrictive than permitted by laws of the jurisdiction in which the Company seeks enforcement thereof, this covenant shall be limited to the extent permitted by law.

5. Certain Covenants.

(a) Noncompetition. Except as may otherwise be approved by the Board, during the term of Executive’s employment, Executive shall not have any ownership interest (of record or beneficial) in, or have any interest as an employee, salesman, consultant, officer or director in, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other business that engages in any county, city or part thereof in the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Company’s business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Executive may own, directly or indirectly, solely as an investment, securities of any entity which are traded on any national securities exchange if Executive (i) is not a controlling person of, or a member of a group which controls, such entity; or (ii) does not, directly or indirectly, own one percent (1%) or more of any class of securities of any such entity.

(b) Confidential Information. Executive and the Company have entered into the Company’s standard employee proprietary information and inventions agreement (the “Employee Proprietary Information and Inventions Agreement”). Executive agrees to perform each and every obligation of Executive therein contained.

(c) Solicitation of Employees. Executive shall not during the term of Executive’s employment and for the applicable severance period for which Executive receives severance benefits following any termination hereof pursuant to Section 4(b) or (c) above (regardless of whether Executive receives payment of severance amounts payable thereunder in a lump sum) (the “Restricted Period”), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any employee of the Company or any of its affiliates.

(d) Solicitation of Consultants. Executive shall not during the term of Executive’s employment and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultant’s engagement by the Company or any of its affiliates.

(e) Rights and Remedies Upon Breach. If Executive breaches or threatens to commit a breach of any of the provisions of this Section 5 (the “Restrictive Covenants”), the

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Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:

(i) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company; and

(ii) Accounting and Indemnification. The right and remedy to require Executive (A) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (B) to indemnify the Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys’ fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants.

(f) Severability of Covenants/Blue Pencilling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Executive hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.

(g) Enforceability in Jurisdictions. The Company and Executive intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Executive that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

(h) Definitions. For purposes of this Section 5, the term “Company” means not only Zogenix, Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Zogenix, Inc.

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6. Insurance; Indemnification.

(a) Insurance. The Company shall have the right to take out life, health, accident, “key-man” or other insurance covering Executive, in the name of the Company and at the Company’s expense in any amount deemed appropriate by the Company. Executive shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies.

(b) Indemnification. Executive will be provided with indemnification against third party claims related to his or her work for the Company as required by Delaware law. The Company shall provide Executive with directors and officers liability insurance coverage at least as favorable as that which the Company may maintain from time to time for members of the Board and other executive officers.

7. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys’ fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award, but in no event later than the last day of the Executive’s taxable year following the taxable year in which the fees, costs and expenses were incurred; provided, further, that the parties’ obligations pursuant to this sentence shall terminate on the tenth (10^th) anniversary of the date of Executive’s termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 7 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties’ right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

8. General Relationship. Executive shall be considered an employee of the Company within the meaning of all federal, state and local laws and regulations including, but not limited to, laws and regulations governing unemployment insurance, workers’ compensation, industrial accident, labor and taxes.

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9. Miscellaneous.

(a) Modification; Prior Claims. This Agreement and the Employee Proprietary Information and Inventions Agreement set forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, including that certain offer letter dated, October 6, 2006, between the Company and Executive. This Agreement may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

(b) Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

(c) Survival. The covenants, agreements, representations and warranties contained in or made in Sections 3(g), 4, 5, 6, 7 and 9 of this Agreement shall survive any Executive’s termination of employment.

(d) Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.

(e) Waiver. The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such party’s rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.

(f) Section Headings. The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

(g) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by email, telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to Executive at the address listed on the Company’s personnel records and to the Company at its principal place of business, or such other address as either party may specify in writing.

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(h) Severability. All Sections, clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.

(i) Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Except as provided in Sections 5 and 7, any suit brought hereon shall be brought in the state or federal courts sitting in San Diego, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

(j) Non-transferability of Interest. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.

(k) Gender. Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word “person” shall include any corporation, firm, partnership or other form of association.

(l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

(m) Construction. The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.

(n) Withholding and other Deductions. All compensation payable to Executive hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.

(o) Code Section 409A Exempt.

(i) This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payments payable under Sections 4(b) and 4(c) shall be paid no later than the later of: (A) the fifteenth

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(15th) day of the third month following Executive’s first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (B) the fifteenth (15th) day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. To the extent applicable, this Agreement shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder.

(ii) If the Executive is a “specified employee” (as defined in Section 409A of the Code), as determined by the Company in accordance with Section 409A of the Code, on the date of the Executive’s Separation from Service, to the extent that the payments or benefits under this Agreement are subject to Section 409A of the Code and the delayed payment or distribution of all or any portion of such amounts to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion deferred pursuant to this Section 9(o)(ii) shall be paid or distributed to Executive in a lump sum on the earlier of (A) the date that is six (6)-months following Executive’s Separation from Service, (B) the date of Executive’s death or (C) the earliest date as is permitted under Section 409A of the Code. Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

(iii) To the extent applicable, this Agreement shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code. If Executive and the Company determine that any payments or benefits payable under this Agreement intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, Executive and the Company agree to amend this Agreement, or take such other actions as Executive and the Company deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder (and any applicable transition relief) while preserving the economic agreement of the parties. If any provision of the Agreement would cause such payments or benefits to fail to so comply, such provision shall not be effective and shall be null and void with respect to such payments or benefits, and such provision shall otherwise remain in full force and effect.

(iv) As provided in Internal Revenue Service Notice 2007-86, notwithstanding any other provision of this Agreement, with respect to an election or amendment to change a time and form of payment under this Agreement that is subject to Section 409A made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

ZOGENIX, INC.
By:	/s/ Roger Hawley
Name:	Roger Hawley
Title:	Chief Executive Officer
EXECUTIVE
/s/ Jennifer D. Haldeman
Jennifer D. Haldeman

SIGNATURE PAGE TO EMPLOYMENT AGREEMENT

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EXHIBIT A

GENERAL RELEASE OF CLAIMS

[The language in this Release may change based on legal developments and evolving best practices; this form is provided as an example of what will be included in the final Release document.]

This General Release of Claims (“Release”) is entered into as of this      day of             ,         , between              (“Executive”), and Zogenix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of May 7, 2008 (the “Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish to fully and finally to resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive pursuant to the Agreement, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that he or she would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1. General Release of Claims by Executive.

(a) Executive, on behalf of himself or herself and his or her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his or her employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation,

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defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(i) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii) Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(iii) Claims pursuant to the terms and conditions of the federal law known as COBRA;

(iv) Claims for indemnity under the bylaws of the Company, as provided for by California law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(v) Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement; and

(vi) Claims Executive may have to vested or earned compensation and benefits.

(b) EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

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BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE OR SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[Note: Clauses (c), (d) and (e) apply only if Executive is age 40 or older at time of termination]

(c) Executive acknowledges that this Release was presented to him or her on the date indicated above and that Executive is entitled to have [twenty-one (21)][forty-five (45)] days’ time in which to consider it. Executive further acknowledges that the Company has advised him or her that he or she is waiving his or her rights under the ADEA, and that Executive should consult with an attorney of his or her choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before [twenty-one (21)][forty-five (45)] days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

(d) Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after his or her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

(e) Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8^th) day after his or her execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.

(f) Executive further understands that Executive will not be given any severance benefits under the Agreement unless this Release is effective on or before the date that is fifty-five (55) days following the date of Executive’s termination of employment.

2. No Assignment. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that Executive may have against the Company Releasees. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any such assignment or transfer from Executive.

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3. Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

4. Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Agreement. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release. Either party’s failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

5. Governing Law and Venue. This Release will be governed by and construed in accordance with the laws of the United States of America and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Any suit brought hereon shall be brought in the state or federal courts sitting in San Diego County, California, the Parties hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

6. Entire Agreement. This Release and the Agreement constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

7. Counterparts. This Release may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

(Signature Page Follows)

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IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.

EXECUTIVE	ZOGENIX, INC.
	By: __________________________________________
Print Name: _________________________________________	Print Name: ____________________________________
	Title: _________________________________________

EXHIBIT B

COMPANY CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT

[Attached]

PROPRIETARY INFORMATION

AND INVENTIONS AGREEMENT

In consideration of my employment or continued employment by Zogenix (the “Company”), and the compensation now and hereafter paid to me, I hereby agree as follows:

1. RECOGNITION OF COMPANY’S RIGHTS; NONDISCLOSURE. At all times during the term of my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company’s Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of the Company and its assigns and the Company and its assigns shall be the sole owner of all trade secret rights, patent rights, copyrights, mask work rights and all other rights throughout the world (collectively, “Proprietary Rights”) in connection therewith.

The term “Proprietary Information” shall mean trade secrets, confidential knowledge, data or any other proprietary information of the Company. By way of illustration but not limitation, “Proprietary Information” includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques (hereinafter collectively referred to as “Inventions”); and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; and information regarding the skills and compensation of other employees of the Company.

2. THIRD PARTY INFORMATION. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose (to anyone other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorized by an officer of the Company in writing.

3. ASSIGNMENT OF INVENTIONS.

1 ASSIGNMENT. I hereby assign to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company which are related to or useful in the business of the Company or result from tasks assigned to me by the Company or result from the use of premises leased, owned or contracted for by the Company. Inventions assigned to or as directed by the Company by this paragraph 3 are hereinafter referred to as “Company Inventions.” I recognize that this Agreement does not require assignment of any invention which qualifies fully for protection under Section 2870 of the California Labor Code (hereinafter “Section 2870”), which provides as follows:

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (i), the provision is against the public policy of this state and is unenforceable.

2 GOVERNMENT. I also assign to or as directed by the Company all my right, title and interest in and to any and all Inventions, full title to which is required to be in the United States by a contract between the Company and the United States or any of its agencies.

3 WORKS FOR HIRE. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101).

4. ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in every proper way to obtain and from time to time enforce United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Company’s request on such assistance.

In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company.

5. OBLIGATION TO KEEP COMPANY INFORMED. During the period of my employment and for six (6) months after termination of my employment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or on my behalf within a year after termination of employment. At the time of each such disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under Section 2870; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and will not disclose to third parties without my consent any proprietary information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of Section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under Section 2870.

I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of my employment at the Company, which records shall be available to and remain the sole property of the Company at all times.

6. PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement. If disclosure of any such Invention on Exhibit A would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Inventions in Exhibit A but am to inform the Company that all such Inventions have not been listed for that reason.

7. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the Company I will not, without the Company’s express written consent, engage in any employment or business activity other than for the Company. I agree further that for the period of my employment by the Company and for one (1) year after the date of termination of my employment by the Company I will not (i) induce any employee of the Company to leave the employ of the Company or (ii) solicit the business of any client or customer of the Company (other than on behalf of the Company).

8. NO IMPROPER USE OF MATERIALS. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of

confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.

9. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.

10. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with the Company in completing and signing the Company’s termination statement for technical and management personnel.

11. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.

12. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three days after the date of mailing.

13. GENERAL PROVISIONS.

1 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by California residents.

2 ENTIRE AGREEMENT. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. As used in this Agreement, the period of my employment includes any time during which I may be retained by the Company as a consultant.

3 SEVERABILITY. If one or more of the provisions in this Agreement are deemed unenforceable by law, then such provision will be deemed stricken from this Agreement and the remaining provisions will continue in full force and effect.

4 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

5 SURVIVAL. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee.

6 EMPLOYMENT. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause.

7 WAIVER. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.

This Agreement shall be effective as of the first day of my employment with the Company, namely: October 9, 2006.

I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY’S CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.

I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.

Dated: 8/31/2007

/s/ J.D. Haldeman
	Signature
	J.D. Haldeman
	Name of Employee

ACCEPTED AND AGREED TO:

Zogenix

By: /s/ Roger Hawley

Name: Roger Hawley

Title: Chief Executive Officer

EXHIBIT A

Zogenix	Zogenix
5858 Horton St., Ste 455	12671 High Bluff Drive, Suite 200
Emeryville, CA 94608	San Diego, CA 92130

To Whom It May Concern:

14. The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by Zogenix (the “Company”) that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

x     No inventions or improvements.

/ /     See below:

/ /     Due to confidentiality agreements with prior employer, I cannot disclose certain inventions that would otherwise be included on the above-described list.

/ /     Additional sheets attached.

15. I propose to bring to my employment the following devices, materials and documents of a former employer or other person to whom I have an obligation of confidentiality that are not generally available to the public, which materials and documents may be used in my employment pursuant to the express written authorization of my former employer or such other person (a copy of which is attached hereto):

x     No material.

1.

/ /     See below:

/ /     Additional sheets attached.

Date:    8/31        , 2007

Very truly yours,

/s/ J.D. Haldeman

Employee

EXHIBIT C

INDEMNIFICATION AGREEMENT

[Attached]

ZOGENIX, INC.

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made as of October 9, 2006 by and between ZOGENIX, INC., a Delaware corporation (the “Company”), and Jennifer D. Haldeman (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors, officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The certificate of incorporation and bylaws of the Company require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”). The certificate of incorporation, bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the certificate of incorporation and bylaws of the Company and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

WHEREAS, Indemnitee does not regard the protection available under the Company’s certificate of incorporation, bylaws and insurance as adequate in the present circumstances, and may not be willing

to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. SERVICES TO THE COMPANY. Indemnitee will serve or continue to serve as an officer, director or key employee of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation.

2. DEFINITIONS. As used in this Agreement:

(a) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

(b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities;

(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50.1% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; or

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(c) “Corporate Status” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

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(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(e) “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(g) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(h) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(i) “Person” shall have the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(j) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken (or failure to act) by him or her or of any action (or failure to act) on his or her part while acting as a director or officer of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement.

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(k) References to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, he or she had no reasonable cause to believe that his or her conduct was unlawful.

4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. If Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue or matter on which Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

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6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

7. ADDITIONAL INDEMNIFICATION.

(a) Notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) For purposes of Section 7(a), the meaning of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

(i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and

(ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

8. EXCLUSIONS. Notwithstanding any other provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy or other indemnity provision;

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 13(d)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

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9. ADVANCES OF EXPENSES; DEFENSE OF CLAIM.

(a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the expenses incurred by Indemnitee in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 9(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s prior written consent.

10. PROCEDURE FOR NOTIFICATION AND APPLICATION FOR INDEMNIFICATION.

(a) Within sixty (60) days after the actual receipt by Indemnitee of notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The omission by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee (i) otherwise than under this Agreement and (ii) under this Agreement only to the extent the Company can establish that such omission to notify resulted in actual prejudice to the Company.

(b) Indemnitee shall thereafter deliver to the Company a written application to indemnify Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, Indemnitee’s entitlement to indemnification shall be determined in accordance with Section 11(a) of this Agreement.

11. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 10(b), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board; or (ii) if so requested by Indemnitee, in his or her sole discretion, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses

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(including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction (the “Court”) for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

12. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by the Board or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by the Board or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

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(b) If the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period shall be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

13. REMEDIES OF INDEMNITEE.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within the time period specified in Section 12(b) of this Agreement, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification pursuant to Section 3 or Section 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

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(b) In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 11(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 13, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 9 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 13, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication or arbitration. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses reasonably incurred by Indemnitee in connection with such judicial adjudication or arbitration.

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company under this Agreement or any other agreement or provision of the Company’s certificate of incorporation or bylaws now or hereafter in effect or (ii) recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance or insurance recovery, as the case may be.

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14. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s certificate of incorporation, the Company’s bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law, in equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

15. DURATION OF AGREEMENT. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final

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termination of any Proceeding (including any rights of appeal thereto) then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto (including any rights of appeal of any Section 13 Proceeding).

16. SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

17. ENFORCEMENT AND BINDING EFFECT.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall apply to Indemnitee’s service as an officer, director or key employee of the Company prior to the date of this Agreement.

(d) The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

18. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

20. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (b) if

mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

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(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Zogenix, Inc.

11682 El Camino Real, Suite 320

San Diego, California 92130

Attn: Secretary

or to any other address as may have been furnished to Indemnitee in writing by the Company.

21. CONTRIBUTION. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect: (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

22. APPLICABLE LAW AND CONSENT TO JURISDICTION. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

23. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

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24. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this INDEMNIFICATION AGREEMENT to be signed as of the day and year first above written.

ZOGENIX, INC., a Delaware corporation		INDEMNITEE:
By:	/s/ Roger Hawley	/s/ Jennifer D. Haldeman
Name:	Roger Hawley	Jennifer D. Haldeman
Title:	Chief Executive Officer

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EX-10.27

Exhibit 10.27

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (this “Agreement”) is effective as of March 1, 2010 (the “Effective Date”), by and between ZOGENIX, INC., a Delaware corporation (the “Company”), and David Nassif (the “Consultant”).

Section 1. SERVICES

The Company hereby retains Consultant and Consultant hereby agrees to render consulting services (“Services”) to the Company for the term of this Agreement. The Services shall include, but are not limited to, those duties set forth in Exhibit A hereto. The Consultant will not perform any Services for the Company except as authorized or requested by the Company. Consultant agrees to complete the Services in a satisfactory and workmanlike manner.

Section 2. TERM AND TERMINATION

a. This Agreement is effective as of the Effective Date, and will terminate on May 31, 2010 (the “Termination Date”), unless terminated earlier pursuant to subsection (b) below or extended by mutual consent of the Consultant and the Company.

b. This Agreement may be terminated (i) for any reason by the Company at any time prior to the Termination Date by giving thirty (30) days’ written notice of termination to Consultant, (ii) for cause by the Consultant at any time prior to the Termination Date by giving written notice of termination setting forth in reasonable detail the basis for the termination and providing the Company with thirty (30) days’ opportunity to cure, and (iii) automatically by the Company upon the death or disability of Consultant.

c. Termination of this Agreement shall not affect (i) the Company’s obligation to pay for Services previously rendered by the Consultant or expenses reasonably incurred by the Consultant for which the Consultant is entitled to reimbursement under Section 3 of this Agreement, or (ii) the Consultant’s continuing obligations to the Company under Sections 5, 6 and 7 of this Agreement.

d. In connection with the Consultant’s Services to the Company, the Consultant agrees to: (i) devote its, his or her efforts to the performance of Services not less than eight (8) business days per month, (ii) be available for consultation by telephone, fax or e-mail on a regular basis on reasonable prior notice; and (iii) be available to attend meetings with the President, CEO or Board of Directors of the Company at the Company’s headquarters on reasonable prior notice. In connection with the Consultant’s Services to the Company, the Consultant agrees to devote its, his or her efforts to the performance of Services described in Exhibit A.

Section 3. COMPENSATION

a. As compensation for the Services to be rendered pursuant to this Agreement, the Company shall pay to Consultant the sum of $300.00 per hour, to be paid monthly following the performance of the Services and commencing with the conclusion of the first full month following the Effective Date. Except as set forth in any amendment to this Agreement, Consultant shall not be entitled to any other compensation or benefits for the Services.

b. The Company shall reimburse the Consultant for actual travel and other out-of-pocket expenses performed pursuant to the Company’s express written request, reasonably incurred up to a pre-approved amount, after submission of reasonably detailed invoices documenting such expenses. Consultant is responsible for all other travel and other out of pocket expenses incurred in connection with this agreement.

Section 4. RELATIONSHIP OF THE PARTIES; NO CONFLICTS

a. Notwithstanding any provision of this Agreement to the contrary, the Consultant is and shall at all times be an independent contractor and not an employee, agent, partner, or joint venture of the Company. The Consultant shall have no right under this Agreement, or as a result of its, his or her consulting services to the Company, to participate in any other employee, retirement, insurance or other benefit program of the Company, nor will the Company make any deductions from the Consultant’s compensation for taxes, the payment of which shall be solely the Consultant’s responsibility.

b. The Consultant shall pay, when and as due, any and all taxes incurred as a result of its, his or her compensation hereunder, including estimated taxes, and if requested by the Company, provide the Company with proof of said payments. The Consultant further agrees to indemnify the Company and hold it harmless to the extent of any obligation imposed on the Company: (i) to pay withholding taxes or similar items; or (ii) resulting from the Consultant being determined not to be an independent contractor.

c. The Consultant represents and warrants that (a) neither this Agreement nor the performance thereof will conflict with or violate any obligation of the Consultant or right of any third party; (b) the Consultant is responsible for providing workers’ compensation coverage for itself/himself/herself and any employees of the Consultant assisting with the Services; (c) the Consultant is solely responsible for compensating such employees, if any; (d) the Consultant has obtained all licenses or certifications necessary to perform the Services; and (e) the Consultant shall comply with all applicable laws in the performance of the Services.

Section  5. NONDISCLOSURE OF CONFIDENTIAL INFORMATION

a. The Consultant recognizes and acknowledges that certain knowledge and information which it, he or she will acquire or develop relating to the business of the Company, including, without limitation, any financial information, business plans, clinical and product development plans, strategies, business forecasts,

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sales and merchandising materials, patent disclosures, patent applications, structures, models, techniques, know-how, trade secrets, processes, compositions, formulations, compounds and apparatus relating to the same and other proprietary information related to the current, future and proposed products and services of the Company (collectively, “Confidential Information”) are the valuable property of the Company.

b. The Consultant covenants and agrees that, without the prior written consent of the Company, the Consultant will not use, disclose, divulge or publish any Confidential Information at any time during the term hereof or thereafter except as may be necessary to perform the Services; provided, however, that the Consultant shall not be obligated to treat as confidential, any Confidential Information that the Consultant can prove through its own written documentation that (i) was publicly known at the time of disclosure to the Consultant, (ii) became publicly known or available thereafter other than by means in violation of this Agreement or any other duty owed to the Company by the Consultant, or (iii) was lawfully disclosed to the Consultant by a third party. In the event a court or governmental agency legally compels Consultant to disclose Confidential Information, Consultant shall promptly inform the Company of the compelled disclosure, so that the Company may seek a protective order or other remedy or waive compliance with this Agreement, or both. Consultant shall limit any compelled disclosure of Confidential Information to that legally required.

c. The Consultant agrees that any disclosure of Confidential Information will only be such as is reasonably necessary to the performance of the Services and will only be to its employee’s and assistants who are bound by written agreements with Consultant to maintain the Confidential Information in confidence.

d. The Consultant agrees not to disclose to the Company, or use in connection with the Consultant’s efforts for the Company, any Confidential Information belonging to any third party, including the Consultant’s prior employers, or any prior inventions made by him or her and which the Company is not otherwise legally entitled to learn of or use.

e. Upon termination of its, his or her service hereunder, the Consultant agrees to promptly deliver to the Company, all Confidential Information in its, his or her possession that is written or other tangible form (together with all copies or duplicates thereof, including computer files), and all other property, materials or equipment that belong to the Company, its customers, its prospects or its suppliers.

Section 6. INTELLECTUAL PROPERTY

a. “Intellectual Property” includes any and all new or useful art, discovery, improvement, technical development, or invention, whether or not patentable and all related know-how, designs, trademarks, formulae, processes, manufacturing techniques, trade secrets, ideas, artworks, software or other copyrightable or patentable work, that the Consultant, solely or jointly with others, makes, conceives or reduces to practice that resulted from the Consultant’s Services for the Company under this Agreement. All right, title and interest of every kind and nature whatsoever in and to the Intellectual Property made, discussed,

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developed, secured, obtained or learned by the Consultant during the term of this Agreement, or the 60-day period immediately following termination of this Agreement, are hereby assigned to the Company, and shall be the sole and exclusive property of the Company for any purposes or uses whatsoever, and shall be disclosed promptly by the Consultant to the Company.

b. The Consultant agrees to assist the Company in any reasonable manner to obtain and enforce for the Company’s benefit any patents, copyrights and other property rights in any and all countries, with respect to any Intellectual Property, and the Consultant agrees to execute, when requested, patent, copyright or similar applications and assignments to the Company and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement with respect thereto. In the event that the Company is unable for any reason to secure the Consultant’s signature to any document required to apply for or execute any patent, copyright or other applications with respect to any Intellectual Property (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), after a written demand is made therefor upon the Consultant (which shall refer to the provisions of this paragraph), the Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Consultant’s agents and attorneys-in-fact to act for and on the Consultant’s behalf and instead of the Consultant, to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights, mask works or other rights thereon with the same legal force and effect as if executed by the Consultant.

Section 7. NON-SOLICITATION AND AVOIDANCE OF CONFLICTS

a. During the term of this Agreement, the Consultant agrees that, without the prior written consent of the Company, the Consultant will refrain from performing any services in any capacity for any person or entity engaged in competition with the Company or any entity or person introduced by the Company to the Consultant.

b. During the term of this Agreement and for a period of twelve (12) months thereafter, the Consultant agrees that, without the prior written consent of the Company, the Consultant will not, directly or indirectly, on its, his or her behalf or on behalf of any other person or entity, (i) call upon, solicit, divert or take away or attempt to solicit, divert or take away any of the customers, business or patrons of the Company; or (ii) solicit or attempt to solicit for employment any person who is then an employee of or consultant to the Company or who was an employee of or consultant to the Company at any time during the twelve (12) month period immediately prior to the date of the subject solicitation.

c. The parties acknowledge that the foregoing restrictions placed upon the Consultant are necessary and reasonable in scope and duration and are a material inducement to the Company to execute, deliver and perform its obligations arising under or pursuant to this Agreement, and that despite such restrictions the Consultant will be able to earn its, his or her livelihood and engage in its, his or her profession during the term of this Agreement.

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Section 8. EMPLOYMENT OF ASSISTANTS

Should the Consultant deem it necessary to employ assistants to aid it, him or her in the performance of the Services, the Consultant shall so notify the Company and obtain the Company’s prior written consent. The parties agree that the Company will not direct, supervise, or control in any way such assistants to the Consultant in their performance of Services. The parties further agree that such assistants are employed solely by the Consultant, and that it, he or she alone is responsible for providing workers’ compensation insurance for its, his or her employees, for paying the salaries and wages of its, his or her employees, and for ensuring that all required tax withholdings are made. Consultant further represents and warrants that it, he or she maintains workers’ compensation insurance coverage for its, his or her employees and acknowledges that it, he or she alone has responsibility for such coverage. Consultant shall impose upon such assistants the same confidentiality obligations as contained in this Agreement.

Section 9 INDEMNIFICATION

a. To the fullest extent permitted by the Company’s bylaws and applicable law, the Company shall indemnify, defend and hold harmless the Consultant from and against losses and expenses (including reasonable attorneys’ fees, judgments, settlements and all other costs, direct or indirect) actually and reasonably incurred by reason of, or based upon, any threatened, pending or completed action, suit, proceeding, investigation or other dispute relating or pertaining to any alleged act or failure to act within the course and scope of the Services, provided that the Consultant was not in breach of this Agreement, acted in good faith and in a manner the Consultant reasonably believed to be in the best interests of the Company and, if any criminal proceedings are involved, had no reasonable cause to believe the Consultant’s conduct was unlawful. The Company’s obligations under the foregoing sentence are conditioned upon the Consultant: (a) providing the Company with prompt notice of any such claims; (b) allowing the Company to control the defense and settlement of such claims; (c) providing the Company with the information and assistance necessary for such defense and settlement of the claims; and (d) not entering into any settlement with respect to such claims without the express consent of the Company. The Company’s obligation to advance expenses or provide indemnity hereunder shall be deemed satisfied to the extent of any payments made by an insurer on behalf of the Company or Consultant.

b. The Consultant also agrees and undertakes to repay defense costs and expenses, including attorneys’ fees, reasonably incurred in defending against any such claim which may be advanced by the Company prior to the final disposition of any proceeding relating to such claim, if a court of competent jurisdiction ultimately shall determine that the Consultant is not entitled to indemnification pursuant to this Agreement or the indemnification is not consistent with any applicable law or regulation.

c. The Consultant agrees to indemnify, defend, and hold the Company free and harmless from all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties, attorneys’ fees, and costs, that the Company may incur as a result of a breach by Consultant of any representation or covenant contained in this Agreement.

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Section 10. RIGHTS AND REMEDIES UPON BREACH

If the Consultant breaches or threatens to commit a breach of any of the provisions of Sections 5, 6 or 7 of this Agreement (the “Protective Covenants”), Consultant agrees that such breach or threatened breach of the Protective Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. The Company shall also have any other rights and remedies available to the Company under law or in equity.

Section 11. MISCELLANEOUS

a. This Agreement shall be governed in all respects by the laws of the State of California, without regard to any provisions thereof relating to conflict of laws among different jurisdictions.

b. The parties agree that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement shall be settled by arbitration before a single neutral arbitrator to be held in San Diego County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (“AAA”). The arbitrator may grant injunctions or other relief in such dispute or controversy, and may award the prevailing party its counsel fees and expenses in accordance with applicable law. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court of competent jurisdiction. Notwithstanding the AAA’s rules, the parties may take discovery in accordance with Section 1283.05 of the California Code of Civil Procedure. Nothing in this paragraph shall prohibit or limit the parties from seeking provisional remedies (including injunctive relief) in lieu of or in addition to arbitration at any time directly from a court of competent jurisdiction, pursuant to California Code of Civil Procedure Section 1281.8 or any similar statute of an applicable jurisdiction.

c. This Agreement is the entire agreement of the parties with respect to the Services to be provided by the Consultant and supersedes any prior agreements between the parties with respect to the subject matter of this Agreement. This Agreement may only be amended in writing by the Company and the Consultant and their respective permitted successors and assigns.

d. The Consultant may not assign, subcontract or otherwise delegate its, his or her obligations under this Agreement without the Company’s prior written consent. Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns.

e. Either party’s failure to enforce any right resulting from a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach by the other party.

f. All notices required or permitted to be given by one party to the other under this Agreement shall be sufficient if sent by either certified mail return receipt requested, nationally recognized courier, facsimile or hand delivery to the parties

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at the respective addresses set forth below or to such other address as the party to receive the notice has designated by notice to the other party. All notices shall be effective (i) when delivered personally, (ii) when transmitted by telecopy, electronic or digital transmission with receipt confirmed, (iii) the business day when delivered by a nationally recognized courier, or (iv) upon receipt if sent by certified or registered mail.

Company:	Zogenix, Inc.
	12671 High Bluff Drive, Suite 200
	San Diego, CA 92130
	Attn: Chief Financial Officer
Consultant:	David Nassif
	[***]
	[***]

g. If any of the provisions of this Agreement are found to be invalid under an applicable statute or rule of law, they are to be enforced to the maximum extent permitted by law and beyond such extent are to be deemed omitted from this Agreement, without affecting the validity of any other provision of this Agreement.

h. This Agreement may be executed in counterparts, each of which will be deemed an original and all of which together shall constitute one and the same instrument.

i. The covenants, representations and warranties in this Agreement shall survive the termination of this Agreement.

j. Consultant hereby acknowledges that Consultant has been encouraged to consult with legal counsel (at Consultant’s own expense) prior to executing this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Having understood and agreed to the foregoing, the Company and the Consultant have signed this Agreement as of the day and year written above.

CONSULTANT		ZOGENIX, INC.
By:	/s/ David W. Nassif	By:	/s/ Roger L. Hawley
Name:	David W. Nassif	Name:	Roger L. Hawley
Title:	Consultant	Title:	Chief Executive Officer
Dated:	March 1, 2010	Dated:	March 1, 2010

Social Security Number or Tax ID:

EXHIBIT A

DUTIES OF CONSULTANT

• Legally review documents as requested

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated September 3, 2010, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-169210) and related Prospectus of Zogenix, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

San Diego, California

October 7, 2010

COVER

	12636 High Bluff Drive, Suite 400 San Diego, California 92130-2071 Tel: +1.858.523.5400 Fax: +1.858.523.5450 www.lw.com FIRM /AFFILIATE OFFICES
	Abu Dhabi	Moscow
	Barcelona	Munich
	Beijing	New Jersey
	Brussels	New York
	Chicago	Orange County
	Doha	Paris
	Dubai	Riyadh
October 12, 2010	Frankfurt	Rome
	Hamburg	San Diego
	Hong Kong	San Francisco
	Houston	Shanghai
	London	Silicon Valley
	Los Angeles	Singapore
	Madrid	Tokyo
	Milan	Washington, D.C.
	File No. 042073-0009

VIA EDGAR

Jeffrey Riedler, Esq.

Assistant Director

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Re: Zogenix, Inc.

Registration Statement on Form S-1, filed September 3, 2010

File No. 333-169210

Dear Mr. Riedler:

We are in receipt of the Staff’s letter dated September 30, 2010 with respect to the above-referenced Registration Statement. We are responding to the Staff’s comments on behalf of Zogenix, Inc. (“Zogenix” or the “Company”) as set forth below. Simultaneously with the filing of this letter, Zogenix is submitting via EDGAR Amendment No. 1 to its Registration Statement on Form S-1 (the “Amendment”), responding to the Staff’s comments. Courtesy copies of this letter and the Amendment (marked to show the changes thereto) are being submitted to the Staff by hand delivery.

Zogenix’s responses set forth in this letter are numbered to correspond to the numbered comments in the Staff’s letter. All terms used but not defined herein have the meanings assigned to such terms in the Amendment. For ease of reference, we have set forth the Staff’s comments and Zogenix’s response for each item below.

October 12, 2010

Page 2

FORM S-1

General

1. Please note that when you file a pre-effective amendment containing pricing-related information, we may have additional comments. As you are likely aware, you must file this amendment prior to circulating the prospectus.

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and will include pricing-related information in a pre-effective amendment to the Registration Statement prior to circulating the preliminary prospectus for the offering.

2. Please note that when you file a pre-effective amendment that includes your price range, it must be bona fide. We interpret this to mean that your range may not exceed $2 if you price below $20 and 10% if your price above $20.

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and will include a bona fide price range in a pre-effective amendment to the Registration Statement prior to circulating the preliminary prospectus for the offering.

3. Please provide us proofs of all graphic, visual or photographic information you will provide in the printed prospectus prior to is use, for example in a preliminary prospectus. Please note that we may have comments regarding this material.

Zogenix’s Response: The Registration Statement previously filed includes a photographic representation of Zogenix’ DosePro technology and its application on the inside cover of the prospectus. The same photographic representation is contained in the Amendment. Zogenix does not intend to include any other graphic, visual or photographic information in the printed prospectus.

4. Please note that where we provide examples to illustrate what we mean by our comments, they are examples and not exhaustive lists. If our comments are applicable to portions of the filing that we have not cited as examples, make the appropriate changes in accordance with our comments.

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and has made changes throughout the Amendment accordingly.

Prospectus Summary

Overview, page 1

5. Please disclose on the bottom of page 2 that you acquired the DosePro technology and patents from Aradigm.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on page 3 of the Amendment.

October 12, 2010

Page 3

Risk Factors

“The development of a REMS for ZX002 could cause significant delays in the approval process for ZX002…” page 23

6. Since the risk factor relates to the risks surrounding the requirement of the development of a REMS, please explain the term REMS in this risk factor.

Zogenix’s Response: Zogenix has revised the Amendment to include an explanation of the term REMS in accordance with the Staff’s comment. Please refer to the revisions on page 24 of the Amendment

“If we are unable to attract and retain key personnel, we may not be able to manage our business effectively…” page 27

7. To the extent that you have experienced problems attracting or retaining key personnel, please expand your disclosure to describe these problems.

Zogenix’s Response: Zogenix supplementally advises the Staff that it has not, to date, experienced problems attracting and retaining key personnel. In the event that Zogenix experiences problems attracting and retaining key personnel in the future, Zogenix will update its disclosure accordingly.

“Sumavel DosePro, ZX002 and our other product candidates may cause undesirable side effects…” page 39

8. Please expand your disclosure in this risk factor to discuss the currently known side effects and adverse effects associated with Sumavel DosePro and ZX002. Please also disclose the frequency of each of the side effects and adverse effects.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose (i) the most common treatment-emergent (experienced by at least 5% of patients) side effects and adverse effects associated with Sumavel DosePro as described in the Sumavel DosePro Prescribing Information, including the frequency of each of the known adverse effects, and (ii) the adverse effects experienced by patients in completed Phase 2 clinical trials of ZX002. Zogenix respectfully submits to the Staff that it has not disclosed the specific frequency of the ZX002 adverse events because a placebo-controlled study in chronic pain has not yet been completed, and disclosing such frequencies on the basis of the Phase 2 studies that have been completed may be misleading since the safety profile for ZX002 has not been fully characterized in Phase 3 clinical trials. Zogenix respectfully submits to the Staff that the specific adverse effects of ZX002 already disclosed in the Registration Statement provide investors with sufficient information regarding potential negative side effects given its current stage of development. Please refer to the revisions on pages 39 and 40 of the Amendment.

Special Note Regarding Forwarding-Looking Statements and Market Data, page 59

9. Please delete the statements, “we have not independently verified market and industry data from third-party sources” and “neither our internal research nor these definitions have been verified by any independent source.” These statements appear to imply that you are not taking liability for the statistical and other industry and market data included in your registration statement. It is not appropriate to state or imply that you do not have liability for the statements in your registration statement. Alternatively, please expand your disclosure to include a statement specifically accepting liability for this information.

October 12, 2010

Page 4

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on page 61 of the Amendment.

Use of Proceeds, page 61

10. You disclose that you intend to use approximately $___ million of the net proceeds from this offering to fund Phase 3 clinical trials and related development activities for ZX002. Please expand your disclosure to disclose the state of development for ZX002 that you expect this portion of the offering proceeds will enable you to complete.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on page 62 of the Amendment.

11. You disclose that the remainder of the proceeds will be used to fund the ongoing commercialization of Sumavel DosePro and for working capital and other general corporate purposes. Please separately state the amount of proceeds that will be used to fund the ongoing commercialization of Sumavel DosePro and the amount of proceeds that will be used for working capital and other general corporate purposes.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to indicate the approximate dollar amount of the offering proceeds that it expects to use to fund the ongoing commercialization of Sumavel DosePro. Zogenix respectfully submits to the Staff that Zogenix will provide this approximate dollar amount, in addition to the amount referenced in comment no. 10 above, at the time Zogenix files a pre-effective amendment to the Registration Statement that includes pricing information. Please refer to the revisions on page 62 of the Amendment. Zogenix supplementally advises the Staff that the vast majority of the anticipated net proceeds from the offering will be used to fund ZX002 development activities and the ongoing commercialization of Sumavel DosePro. Because the residual proceeds to be used for working capital and other general corporate purposes are expected to represent a much smaller percentage of the anticipated net proceeds, Zogenix respectfully submits to the Staff that any additional detail on the approximate amount of such proceeds to be used for such general purposes should not be viewed as material to an investor’s understanding of the principal uses of proceeds from the offering. If the ultimate net proceeds realized from the offering are less than currently projected, the portion allocated to ZX002 and Sumavel DosePro will represent an even larger percentage of the total net proceeds. Furthermore, Zogenix already discloses to investors that its management will retain broad discretion over the use of proceeds from the offering in both the Use of Proceeds section and the risk factor entitled “We may invest or spend the proceeds of this offering in ways in which you may not agree or in ways which may not yield a significant return.”

October 12, 2010

Page 5

Management’s Discussion and Analysis of Financial Condition and Results of Operations Research and Development Expenses, page 71

12. With respect to the agreement with Elan, please expand your disclosure to clarify the nature of the development and commercial events that trigger future milestone payments including an estimate of the anticipated timing of such payments.

Zogenix’s Response: Zogenix respectfully submits to the Staff that it is seeking confidential treatment of the specific events triggering future milestone payments, and that a confidential treatment request has been separately submitted to the Staff. Zogenix looks forward to receiving any comments the Staff may have on the confidential treatment request.

Critical Accounting Policies and Estimates

Revenue Recognition

Product Sales Allowances, page 76

13. To the extent applicable, please revise your disclosure to enhance your discussion of the estimates of items that reduce gross revenue such as wholesaler and retail pharmacy discounts, prompt pay discounts, chargebacks and rebates, patient discount programs, stocking allowances, returns, and other allowances and discounts to include the following:

• Disclose the amount of each accrual at the balance sheet date and the effect that could result from using other reasonably likely assumptions than what you used to arrive at each accrual such as a range of reasonably likely amounts or other type of sensitivity analysis.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on pages 78 and 79 of the Amendment.

• If applicable, discuss any shipments made as a result of incentives and/or in excess of your customer’s ordinary course of business inventory level. Discuss your revenue recognition policy for such shipments.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on pages 78 and 79 of the Amendment.

• In your discussion of results of operations for the period to period revenue comparisons, discuss the amount of and reason for fluctuations for each type of reduction of gross revenue (i.e., product returns, chargebacks, customer rebates and other discounts and allowances) including the effect that changes in your estimates of these items had on your revenues and operations.

October 12, 2010

Page 6

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and will address such disclosure in future filings when period to period revenue comparisons are provided.

Stock Based Compensation

Common Stock Valuation, page 79

14. We have reviewed your disclosure with respect to the valuation of your common stock and have the following comments:

• You disclose that your board of directors considered a number of subjective and objective factors that include contemporaneous valuations performed by an independent valuation specialist. Please revise your disclosure to clarify the nature and extent of the independent valuation specialist’s involvement in estimating the fair value of your common stock and management’s reliance on the work of this specialist. Please refer to Question 141.02 of the Compliance and Disclosure Interpretations on Securities Act Sections, which can be found at: http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm.

Zogenix’s Response: Zogenix respectfully submits to the Staff that although Zogenix engaged a third party valuation expert to assist it in determining the fair value of Zogenix’s common stock and relied on the third party expert’s report, all methodologies and underlying assumptions are those of management and the board of directors of the Company, and since Zogenix did not request nor receive a consent from the valuation specialist, Zogenix has removed from the Amendment all references to the third party valuation specialist.

• Qualitatively and quantitatively discuss the significant factors, assumptions and methodologies used to determine enterprise value at each assessment date.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on pages 82 through 84 of the Amendment. Zogenix respectfully submits to the Staff that the valuations noted in Zogenix’s disclosure reflect a consistently increasing enterprise value on a quarterly basis. From September 2009 to December 2009, Zogenix experienced growth in its enterprise value within the Company’s market approach and income approach. These increases were driven by a significant change in Zogenix’s business as it prepared for the launch of Sumavel DosePro and updated its revenue forecast in connection with its new Astellas co-promotion agreement and improvement in the market values of Zogenix’s guideline companies. From December 2009 to June 2010, Zogenix experienced growth in its enterprise value within the Company’s IPO scenarios, which were weighted at a 70% probability, due to the significant impact on revenues and related discounted cash flows associated with the initiation of Zogenix’s Phase 3 clinical program for ZX002 in the first quarter of 2010 and the forecasted commercial launch in subsequent years.

• Disclose how each of the three valuation methods discussed on page 80 were weighted at each valuation date in 2009 and 2010, including each reassessment. Disclose, and explain to us, why a valuation that used the cost approach as factor to determine enterprise value was still appropriate after receiving FDA approval in 2009 and product revenue in 2010.

October 12, 2010

Page 7

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to add tabular information that summarizes the significant assumptions (including the weighting of each valuation method) used in the option pricing models in 2009 and the probability weighted expected return model at June 30, 2010 that were used to determine the re-assessed common stock valuations. The re-assessed fair value calculations did not use the cost approach as a factor to determine the fair value for any period subsequent to receipt of FDA approval of Sumavel DosePro in 2009. Please refer to the revisions on pages 83 and 84 of the Amendment.

• Qualitatively and quantitatively explain how each valuation considered the anticipated timing of a potential liquidity event, namely the probability of completing an initial public offering under the probability weighted expected return method.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to add tabular information that includes the estimated liquidity date and weighting of the market approach utilized in the re-assessed option pricing method during 2009 and the estimated liquidity date and weighting of the three IPO scenarios considered in the probability weighted expected return model at June 30, 2010. Zogenix supplementally advises the Staff that given the relative tight range of enterprise values between each valuation approach that a shifting in the weightings would not have resulted in a material change in the aggregate enterprise value in the valuation models at September 30, 2009, the quarter in which the majority of Zogenix’s 2009 options were granted. For 2009, of the 3.4 million options granted, 2.9 million were granted in the third quarter of 2009 where the maximum difference in the estimated enterprise value under each approach considered was no more than $11 million, or 8%. In June 2010, the various IPO scenarios are allocated a 70% probability of occurrence and the remaining 30% weighting against the additional scenarios, on a weighted average, falls within $20 million or a 9% change from the IPO enterprise value. Please refer to the revisions on pages 82 through 84 of the Amendment.

• Quantify the amount of the discount for lack of liquidity as a private company at each valuation assessment date. Explain why this discount is acceptable in terms of providing a reasonable and supportable determination of fair value.’

Zogenix’s Response: Zogenix supplementally advises the Staff that at each valuation date the Company utilized a protective put model to assess a discount for lack of marketability. In this model, a European put option is used to calculate the marketability discount. The model relies on a fixed strike price which is set at the value of the underlying share at the outset of the contract. In this model, the investor is protected from market drops in the value of the underlying share. Dividing the put option value by the freely traded price per share value gives an indication of an appropriate discount for lack of marketability. The inputs to the model include a risk-free rate based on the average yield of the U.S. Treasuries whose terms most closely matched the time to liquidity assumption under the various scenarios, the estimated time to expiration (or marketability) was based on management’s best estimate of the timing of various liquidity events, and the volatilities were based on the average historical volatilities of selected guideline public companies.

October 12, 2010

Page 8

The discount for lack of marketability reflects the lower value placed on securities that are not freely transferable as compared to those that trade frequently in an established market. Given the significant volatility in the equity markets during each valuation period, Zogenix believes the discount appropriately adjusts for both the risks of not attaining its operational milestones and the related risk that Zogenix does not complete its initial public offering. In addition, Zogenix believes the discount is consistent with other private companies at similar stages of development.

• Qualitatively and quantitatively disclose how you estimated the revenue and revenue growth dates used in preparing your discounted cash flows analysis.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on page 83 of the Amendment.

• Please explain to us if the “best economic outcome” model is similar to one the three methods commonly used in practice described in Chapter 10 of the AICPA Practice Aid. If it is not similar to the three methods, tell us why this model is appropriate.

Zogenix’s Response: Zogenix supplementally advises the Staff that the “best economic outcome” model is consistent with the probability weighted expected return method as described in Chapter 10 of the AICPA Practice Aid and it takes into account the fact that the holder of convertible preferred stock, warrants and options in the stay private and sale scenarios would only exercise or convert their equity instrument when they are in-the-money.

• When you have determined the IPO price, please disclose the intrinsic value of your stock options granted, as of the most recent balance sheet date presented. Discuss each significant factor contributing to the difference between the fair value as of the date of each grant and the estimated IPO price or if a contemporaneous valuation by an unrelated valuation specialist was obtained subsequent to the grants but prior to the IPO, the fair value as determined by that valuation. After reviewing this disclosure, we may raise additional comments.

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and will disclose the intrinsic value of the Company’s stock options granted as of the most recent balance sheet date presented once it has determined the IPO price.

• Please continue to update your disclosures for any grants or equity issuances up until the time of effectiveness of your registration statement and include grants to non-employees as appropriate.

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and intends to update the Company’s disclosure for any options granted during the quarter ended September 30, 2010 and beyond when it files an additional amendment to the Registration Statement which includes the September 30, 2010 balance sheet. Subsequent to June 30, 2010 through the date of this response, Zogenix has granted 280,000 options to purchase common stock.

October 12, 2010

Page 9

Business

Our Product and Product Candidates

Sumavel DosePro Pivotal Clinical Program, page 105

15. You disclose that adverse events seen in your clinical studies for Sumavel DosePro were consistent with previously reported adverse events for injectable sumatriptan and included flushing, tightness in chest, and injection site reactions, among others. Please revise to disclose all adverse events.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose the most common treatment-emergent adverse reactions (experienced by at least 5% of patients) associated with Sumavel DosePro as described in the Sumavel DosePro Prescribing Information, including the frequency of each of the known adverse effects. Please refer to the revisions on page 109 of the Amendment.

Sumavel DosePro Post-Approval Clinical Program, page 106

16. You disclose that you recently completed a Phase 4 open-label, multicenter study in the United States to evaluate treatment satisfaction, treatment confidence, and subject preference for Sumavel DosePro in adult subjects diagnosed with migraine and currently treated with triptans. Although the analysis of study results was recently completed, you state that you intend to disclose these results at relevant clinical symposia and via peer-review publications in 2011. Please provide us with a detailed analysis that supports your conclusion that the results of this study are not material information that is required to be disclosed in this registration statement.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose that the Phase 4 open-label study met its primary endpoint of demonstrating a significant and clinically relevant improvement in patient satisfaction after treatment with Sumavel DosePro as measured by the Patient Perception of Migraine Questionnaire-Revised (PPMQ-R). Please refer to the revisions on page 109 of the Amendment. Zogenix respectfully submits to the Staff that with this additional disclosure investors are provided sufficient information with respect to the success or failure of the study, which is the key information that an investor would deem material in the context of this study and its results.

ZX002 Phase 3 Clinical Development Program, page 109

17. On page 21, you disclose that you had discussions and responses with the FDA at your End of Phase 2 meeting. On page 109, you disclose that based upon feedback from the FDA at your End of Phase 2 meeting, and assuming positive outcomes from the studies described above, you do not believe that additional Phase 3 safety and efficacy trials will be required to support your proposed label. On page 122, you disclose information regarding a Special Protocol Assessment from the FDA. Please expand your disclosure on pages 21 and 109 to explain the nature of your discussions with the FDA and clarify whether you have a Special Protocol Assessment from the FDA for ZX002. If you have a Special Protocol Assessment, please disclose the material terms thereof and whether you believe your trials are compliant with those terms.

October 12, 2010

Page 10

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to clarify that it did not seek a Special Protocol Assessment for the ongoing clinical trial of ZX002. Please refer to the revisions on pages 21 and 112 of the Amendment. Zogenix respectfully submits to the Staff that its current disclosure with respect to the design of its Phase 3 clinical program and interactions with the FDA on pages 21 and 112 of the Amendment, in light of the new disclosure that a Special Protocol Assessment was not obtained, provides sufficient information to an investor with respect to such trial design and plans. Such existing disclosure includes, for example, that Zogenix “presented the trial design for our Phase 3 trials to the FDA at our End of Phase 2 meeting in June 2008” and that “[w]hile the FDA has provided us with a written record of our discussions and responses to our questions at our End of Phase 2 meeting, such records and responses do not guarantee that the FDA will deem our trial design to be sufficient for the purpose of obtaining marketing approval for ZX002.”

Prior Clinical Development of ZX002, page 109

18. You disclose that efficacy of the 40 mg does of ZX002 did not significantly differ from the hydrocodone bitartrate/acetaminophen active comparator in any of the efficacy outcome measures. Please expand your disclosure where appropriate to disclose the extent to which this result was discussed with the FDA and whether the FDA provided you with any input as to what type of study and/or results might be required for a successful NDA. Please also disclose the context or source of the FDA input (e.g., a Special Protocol Assessment, in discussions during the End of Phase 2 meeting, etc.).

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose that the data from the Phase 1 and Phase 2 studies of ZX002 were submitted to the FDA in Zogenix’s End of Phase 2 meeting briefing package in support of progressing ZX002 into pivotal Phase 3 clinical studies. Please refer to the revisions on page 113 of the Amendment. Zogenix respectfully submits to the Staff that the existing disclosure on page 112 of the Amendment already discloses to investors the specific discussions with the FDA in regard to the Phase 3 clinical program for ZX002 and what might be required for a successful NDA. For example, page 112 of the Amendment states that Zogenix “confirmed the FDA’s agreement on the trial design for Study 801 and the overall safety database requirements for an NDA submission at our End of Phase 2 meeting with the FDA conducted in June 2008,” and that “[c]oncurrent with our Phase 3 program, we will be conducting a small number of additional single-dose pharmacokinetic and clinical pharmacology trials and pre-clinical studies required for submission of the NDA and approval of this product candidate.”

October 12, 2010

Page 11

Our DosePro Technology and Pre-clinical Pipeline, page 110

19. Please expand your disclosure to identify the clinical trials and market research studies in which DosePro has been shown to be preferred by patients and physicians over conventional needle-based systems.

Zogenix’s Response: Zogenix has expanded the disclosure on page 114 of the Amendment to identify specific clinical trials and market research studies in accordance with the Staff’s comment.

Manufacturing

Patheon UK Limited, page 116

20. Please expand your disclosure regarding the terms of this agreement to disclose whether this manufacturer is the exclusive supplier of these components.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose that Patheon serves as the exclusive manufacturer for the specific services identified on page 119 of the Amendment. Please refer to the revisions on page 119 of the Amendment.

Collaborations, Commercial and License Agreements, page 117

21. Please expand your disclosure for each of the agreements in this section to disclose the payments made and/or received to date and a range of royalty payments (e.g., low single-digit or a range not to exceed ten percent) as we believe these are material terms of these agreements. For your agreement with Astellas, you should disclose a range of the percentage of net sales that represents the service fees.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose the upfront and aggregate milestone payments made and/or received to date and a range of the royalty rates payable under these agreements. In addition, Zogenix has revised the Amendment to indicate a range of the percentage of net sales that represents service fees payable to Astellas. Please refer to the revisions on pages 71, 74, 94, 95, 116, 121, 122, 123, F-20, F-21 and F-22 of the Amendment. Zogenix believes that the additional disclosures provided on the indicated pages, together with the financial statements included in the prospectus, provides investors with all of the material financial information pertaining to Zogenix’s key collaboration, commercial and license agreements.

Compensation Discussion and Analysis

Performance Bonuses, page 148

22. You disclose that in lieu of performance bonuses, your board of directors instituted a companywide retention bonus program, which paid one to three months of base salary to each full-time employee upon the FDA’s approval of Sumavel DosePro and the closing of your Series B preferred stock financing. You disclose that this bonus was based on the achievement of two performance objectives. Please provide us with a detailed analysis that supports your characterization of these bonuses as a retention bonus rather than a performance bonus. We also note that you suspended your executive performance bonus program. Please disclose the date that you suspended this plan. In addition, if when you suspended the plan, you believed that a number of performance objectives would not be met under the plan, please disclose the objectives and the fact that you did not believe they would be met under the plan.

October 12, 2010

Page 12

Zogenix’s Response: Zogenix has revised the Amendment in response to the Staff’s comment to recharacterize the 2009 bonuses as performance bonuses. Zogenix supplementally advises the Staff that the 2009 bonus program discussed in the Registration Statement was the only bonus program established by Zogenix for that year. Zogenix’s prior disclosure referenced the suspension of the executive performance bonus program during 2009. Historically, the board of directors of Zogenix would establish corporate performance objectives and target bonuses for Zogenix’s employees at the beginning of each year, as discussed in the Registration Statement. For 2009, in light of Zogenix’s cash position at the beginning of that year, the board of directors of Zogenix determined not to establish a bonus program in line with this historical practice. Instead, the board of directors established the bonus program that is disclosed in the Registration Statement, which was intended to incentivize Zogenix’s employees to achieve two key corporate milestones critical to the success of Zogenix – the FDA’s approval of Sumavel DosePro and the closing of a Series B preferred stock financing – and to encourage those employees to remain with Zogenix through those events. This bonus program represented a departure from past practice. No performance objectives were ever established for 2009 for any Zogenix bonus program other than the performance objectives referenced in the Registration Statement. Please refer to the revisions on page 152 of the Amendment.

Long-Term Equity Incentives, page 149

23. You disclose that in September 2009, the board of directors awarded the various options to your named executive officers that vest in monthly installments over two years. Please expand your disclosure to disclose why you did not use your typical vesting schedule for these options. In addition, please provide disclosure of why you choose to award the specific number of options to each named executive officer. Although you provide various general factors that you may take into account, it does not appear that you include disclosure of what was considered for each named executive officer and how the amount was determined. Please revise to provide this additional disclosure.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on page 153 of the Amendment.

Employment Agreements and Release Agreements, page 154

24. Please file a copy of your consulting agreement with Mr. Nassif as an exhibit to your registration statement.

Zogenix’s Response: Zogenix has filed Mr. Nassif’s consulting agreement as Exhibit 10.27 to the Amendment in accordance with the Staff’s comment.

October 12, 2010

Page 13

Principal Stockholders, page 174

25. It appears that information regarding Thomas, McNerney & Partners, L.P. is disclosed in footnote 5 and information regarding Chicago Growth Partners II, L.P. is disclosed in footnote 4. Please revise accordingly.

Zogenix’s Response: Zogenix has revised the pages 178 and 179 of the Amendment to accurately reflect the correct footnotes.

Consolidated Financial Statements

Consolidated Statement of Cash Flows, page F-7

26. Here you show net proceeds received form the issuance of convertible preferred stock of $54.9 million. This appears to contradict your disclosure on page 90, which states “In 2009 we received net proceeds of $69.7 million from our Series B preferred stock financing.” Please revise your disclosure to clarify this apparent discrepancy.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to clarify that the $69.7 million in proceeds consists of the aggregate proceeds raised from the Series B preferred stock financing inclusive of the bridge notes that converted into Series B convertible preferred stock at the time of such financing. Please refer to the revisions on page 92 of the Amendment.

Revenue Recognition

Product Revenue, page F-12

27. You state “units dispensed are generally not subject to return.” Please tell us, and disclose the circumstances under which such units would be subject to return.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to disclose the circumstances under which such units would be subject to return. Please refer to the revisions on page F-12 of the Amendment.

7. Convertible Preferred Stock and Stockholders’ Equity

Conversion Rights, page F-28

28. Please clarify for us, and in your disclosure, the nature of the anti-dilution adjustments. Also explain to us how you determined that the conversion feature was not an embedded derivative under ASC 815-15-25 which would require fair value accounting under ASC 470-20-25.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment to clarify the nature of the anti-dilution adjustments. Please refer to the revisions on pages F-28 and F-29 of the Amendment.

October 12, 2010

Page 14

In addition, Zogenix evaluated the terms of the Series A-1, Series A-2 and Series B convertible preferred stock instruments using the following authoritative accounting literature:

• ASC 815-15-25 (formerly FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities, paragraph 12(a)); and

• ASC 815-10-S99-3 (formerly EITF Topic D-109, Determining the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a Share under FASB Statement No. 133).

Based on such literature, Zogenix determined that each of the underlying instruments should be considered an “equity host” and not a “debt host.” This analysis was necessary to determine if any embedded features, such as the conversion option, require bifurcation and therefore, would be required to be accounted for separately as a derivative liability. Zogenix’s analysis followed the “whole instrument approach” which compares an individual feature against the entire preferred stock instrument which includes that feature. Our analysis was based on a consideration of the economic characteristics and risks and more specifically evaluated all the stated and implied substantive terms and features, including the following:

Voting rights – The holders of each series of preferred stock have the right to vote with common stockholders on an “as-converted” basis. Zogenix considers such voting rights to be an equity-like feature. Additionally, the preferred stockholders collectively control approximately 77% of the total votes on a fully diluted basis. We believe that the ability to exert such voting control over the Company is more consistent with an equity instrument than a debt instrument.

Conversion rights – Each share of convertible preferred stock is convertible at the option of the holder into an equal number of shares of common stock based on the original issue price, subject to certain anti-dilution adjustments. Each share of convertible preferred stock will automatically convert into shares of common stock at the effective conversion price for each such share immediately upon the earlier of (i) Zogenix’s sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, in which the per share price is at least $3.00 (as adjusted for stock splits, stock dividends, combinations or other recapitalizations), and the gross proceeds are at least $40,000,000 or (ii) upon receipt by Zogenix of a written request of such conversion from the holders of 67% of the then outstanding shares of convertible preferred stock. Zogenix considers such an automatic conversion to be an equity-like feature.

Dividend rights – The holders of Series A-1, Series A-2 and Series B convertible preferred stock are entitled to receive noncumulative dividends at a rate of 8.0%, 8.8% and 8.8%, respectively, per annum and are payable only when and if declared by the board of directors. Dividends may be paid to common stock holders subject to the prior dividend rights of the preferred stock holders. We did not consider the fixed rate stated dividend amount to be an indication of an equity- or debt-like instrument due to its noncumulative nature.

Redemption rights – There are no redemption rights for convertible preferred stock. However, in the event of liquidation, dissolution, or winding up of the Company, the holders of the Series A-1, Series A-2 and Series B convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of Zogenix to the holders of shares of common stock, an amount per share equal to $1.00, $1.10 and $1.10, respectively, for each outstanding share of convertible preferred stock (as adjusted for stock splits, stock dividends, combinations or other recapitalizations). Thereafter, if assets remain in the Company, the holders of common stock and convertible preferred stock shall receive all remaining assets pro rata based on the number of shares of common stock (calculated on an as-converted basis) held by each holder. If available assets are insufficient to pay the full liquidation preference, the available assets will be distributed ratably to the holders in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. The aggregate distributions made to the preferred shareholders in liquidation cannot exceed an amount equal to 2.5 times the liquidation preference plus any declared but unpaid dividends. Zogenix considers this redemption right, which is not at the holder’s option, to be more equity-like than debt-like.

October 12, 2010

Page 15

Zogenix has determined that the conversion option and the other substantive equity-like features makes each of the underlying instruments comprising the Series A-1, Series A-2 and Series B convertible preferred stock an “equity host”, and thus the embedded conversion option in each series would not require bifurcation as a derivative liability.

In addition, in evaluating whether a separate instrument with the same terms as the conversion feature embedded within the convertible preferred stock would be a derivative instrument, Zogenix analyzed the criteria of ASC 815-10-15-83. This paragraph contains three separate criteria, each of which must be met for an instrument to be considered a derivative. Specifically, an instrument must have (a) an underlying, notional amount and payment provision, (b) require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors, and (c) the contract can be settled net by any of the following means: (1) its terms implicitly or explicitly require or permit net settlement; (2) it can readily be settled net by a means outside the contract; or (3) it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. We note that because the convertible preferred stock is convertible to common stock which is currently an illiquid equity instrument and cannot be sold or settled, the conversion feature is not a derivative instrument that would require bifurcation and accounting.

9. Stock Option Plan

Stock Based Compensation, page F-31

29. Please tell us why the volatility range decreased between December 31, 2009 and June 30, 2010.

Zogenix’s Response: Zogenix supplementally advises the Staff that the decrease in the range of volatility rates from December 2009 to June 2010 relates to a change in the Zogenix’s public comparable companies used to arrive at these rates. The change in comparable companies was driven by the launch of Sumavel DosePro and the related revenue stream being generated.

30. Please disclose the accounting treatment of the warrants issued to Oxford and Silicon Valley Bank.

Zogenix’s Response: Zogenix has revised the Amendment in accordance with the Staff’s comment. Please refer to the revisions on pages F-35 and F-36 of the Amendment.

October 12, 2010

Page 16

Exhibit Index

31. We note that the exhibits in the below each refer to one or more exhibits, annexes or schedules which are attached to these agreements and which do not appear to have been provided.

Exhibit Number	Missing exhibit, annex or schedule
10.14	Office Lease by and between R.B. Income Properties and Verus Pharmaceuticals, Inc.
10.24	Exhibits A, B and C
10.27	Exhibits A, B and C

Please be aware that when you file an agreement pursuant to Item 601(b)(10) of Regulation S-K, you are required to file the entire agreement, including all exhibits, schedules, appendices and any document which is incorporated in the agreement. Please provide a copy of the above exhibits with the full and complete agreement, including any exhibits, schedules and appendices which are included in such agreement. Please note that if these agreements are otherwise filed as an exhibit to this registration statement you may insert a note in brackets on the page which the annex or schedule is to be located as to the exhibit number of the filed document.

Zogenix’s Response: Zogenix acknowledges the Staff’s comment and has re-filed Exhibits 10.14, 10.24 and 10.27 (which is now filed as Exhibit 10.26 to the Amendment) to include the above-referenced exhibits not previously filed.

* * * * *

Any comments or questions regarding the foregoing should be directed to the undersigned at 858-523-5435. Thank you in advance for your cooperation in connection with this matter.

Very truly yours,

/s/ Cheston J. Larson

Cheston J. Larson

of LATHAM & WATKINS LLP

cc: Roger L. Hawley, Zogenix, Inc.

Ann Rhoads, Zogenix, Inc. Trisha Millican, Zogenix, Inc.

Matthew T. Bush, Latham & Watkins LLP

Eric S. Hauter, Esq., Sidley Austin LLP

John Clift, Ernst & Young LLP

Esther Jeska, Ernst & Young LLP