S-1

QuickLinks -- Click here to rapidly navigate through this document

As filed with the Securities and Exchange Commission on March 20, 2008

Registration No. 333-          

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

ZOGENIX, INC.
(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	2834 (Primary Standard Industrial Classification Code Number)	20-5300780 (I.R.S. Employer Identification Number)
11682 El Camino Real, Suite 320 San Diego, CA 92130 (866) 964-3649 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Roger L. Hawley
Chief Executive Officer
Zogenix, Inc.
11682 El Camino Real, Suite 320
San Diego, CA 92130
(866) 964-3649
(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. Latham & Watkins LLP 12636 High Bluff Drive, Suite 400 San Diego, CA 92130 (858) 523-5400	Curtis L. Mo, Esq. Joseph K. Wyatt, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 1117 California Avenue Palo Alto, CA 94304 (650) 858-6000

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.    o

         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.    o

         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.    o

         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.    o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Common Stock, $0.001 par value	$86,250,000	$3,390

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes offering price of shares that the underwriters have the option to purchase to cover overallotments, if any.

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 contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MARCH 20, 2008

Prospectus

             Shares

Zogenix, Inc.

Common Stock

        Zogenix, Inc. is offering                        shares of common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $            and $            per share. After the offering, the market price for our shares may be outside this range.

        We have applied to list our common stock on the Nasdaq Global Market under the symbol "ZGNX."

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 8.

	Per Share	Total
Public offering price	$	$
Discounts and commissions to underwriters	$	$
Offering proceeds to Zogenix, before expenses	$	$

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

        We have granted the underwriters the right to purchase up to an additional            shares of common stock on the same terms and conditions set forth above if the underwriters sell more than                        shares of common stock in this offering. The underwriters can exercise this right at any time and from time to time, in whole or in part, within 30 days after the offering. The underwriters expect to the deliver the shares of common stock to investors on or about                        , 2008.

Sole Book-Running Manager

Banc of America Securities LLC
Leerink Swann
	Thomas Weisel Partners LLC
		Susquehanna Financial Group, LLLP

The date of this prospectus is                  , 2008.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	8
Special Note Regarding Forward-Looking Statements	45
Use of Proceeds	47
Dividend Policy	47
Capitalization	48
Dilution	50
Selected Financial Data	52
Management's Discussion and Analysis of Financial Condition and Results of Operations	54
Business	65
Management	92
Executive Compensation	99
Principal Stockholders	121
Certain Relationships and Related Party Transactions	124
Description of Capital Stock	127
Shares Eligible for Future Sale	131
Material U.S. Federal Tax Considerations to Non-U.S. Holders of Our Common Stock	134
Underwriting	137
Legal Matters	142
Experts	142
Where You Can Find Additional Information	143
Index to Financial Statements	F-1

i

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.

Our Company

        We are a specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. Our lead product candidate, sumatriptan DosePro™, enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. We submitted a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If sumatriptan DosePro is approved by the FDA, we intend to build our own focused sales force in the United States and launch the product in the first quarter of 2009. Our second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and we anticipate initiating the Phase 3 clinical program in the second half of 2008.

        Our DosePro technology is a novel drug delivery system that subcutaneously delivers a pre-filled, single dose injection of a drug through an easy-to-use, needle-free device that can be self-administered. Preliminary pre-clinical and clinical studies demonstrate that DosePro can be used with small molecules and biological products, including protein therapeutics and monoclonal antibodies. We plan to build our internal product pipeline by investigating proven drugs that can be paired with DosePro to enhance their benefits and commercial attractiveness. We also plan to seek opportunities to in-license or acquire products and product candidates in the areas of central nervous system, or CNS, disorders and/or pain, with a focus on products and product candidates that utilize novel technologies to improve the profile of existing compounds. In both cases, we plan to focus on marketed compounds whose commercial potential has been limited by safety concerns, relative efficacy or patient adherence. In addition, we may further seek to capitalize on our DosePro technology by out-licensing it to potential partners seeking to enhance, differentiate, or extend the life cycle of their own injectable products.

Our Product Candidates

Sumatriptan DosePro

Sumatriptan DosePro utilizes our proprietary DosePro needle-free drug delivery system to subcutaneously administer sumatriptan for the treatment of migraine and cluster headache. Sumatriptan DosePro is a fast acting therapy that patients can self-administer in three easy steps. Sumatriptan, the active ingredient in sumatriptan DosePro, is currently marketed under the brand name Imitrex by GlaxoSmithKline. Sumatriptan has been in clinical use for over 15 years for the safe and effective treatment of migraine and cluster headache and is currently available as a tablet, nasal spray and subcutaneous injection. Injectable sumatriptan provides the fastest onset and most complete migraine relief of any form of migraine therapeutic, including all oral and nasal triptans. The currently available injectable form of sumatriptan is delivered by a traditional needle injection primarily as the branded Imitrex STATdose System, or Imitrex STATdose. However, these needle-based forms of injectable sumatriptan have several use-limiting characteristics such as patient fear of needles, needlestick risk and complexity of use.

        Migraine is a syndrome that affects approximately 30 million people in the United States and is characterized by four major symptoms: pain, nausea and abnormal sensitivity to both sound and light. Triptans, the class of drugs most often prescribed for treating migraines, generated 2007 sales of

1

approximately $2.8 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Imitrex is the leading triptan brand, with 2007 sales of approximately $1.6 billion in the United States. Of that amount, the injectable forms of sumatriptan accounted for $274 million, of which Imitrex STATdose accounted for $242 million.

        In clinical bioequivalence studies comparing sumatriptan DosePro to Imitrex STATdose injection, sumatriptan DosePro, when administered to the thigh or abdomen, provided the same rapid peak in sumatriptan blood levels that correlates with speed of migraine relief and overall drug effectiveness. Due to its ease of use and lack of a needle, we believe that sumatriptan DosePro may address many of the fears and concerns that have limited needle-based administration. Given the unique attributes of sumatriptan DosePro, we believe it has the potential to be used not only as a replacement for other injectable forms of sumatriptan, but also as a faster acting, more efficacious alternative to oral and nasal triptans. Based on published clinical research, we believe sumatriptan DosePro also has the potential to be effective for the approximately 30% of patients who fail to respond to an oral or nasal triptan. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. We anticipate receiving tentative approval from the FDA in late 2008, and expect to receive final approval and launch this product candidate in the United States after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009. In Europe and other select countries, we have licensed commercialization rights to Desitin Arzneimittel GmbH, or Desitin, which will be responsible for obtaining regulatory approval and marketing sumatriptan DosePro if approved.

ZX002

        ZX002, our proprietary oral version of the opioid pain reliever hydrocodone, is designed to offer a controlled release profile that combines immediate release and extended release properties, using Elan Pharma International Ltd.'s proprietary Spheroidal Oral Drug Absorption System, or SODAS. We believe these attributes have the potential to provide similar onset, but longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. Presently, hydrocodone is only available in immediate release product forms that are commonly dosed four to six times per day to provide pain relief. Additionally, existing hydrocodone products, including the branded products Vicodin, Lortab and Vicoprofen, and their generic equivalents, contain analgesic combination ingredients such as acetaminophen or non-steroidal anti-inflammatory drugs, or NSAIDs, which if taken in high quantities over time can lead to serious side effects such as liver toxicity and gastrointestinal damage. ZX002, if successfully developed, may represent the first available "single entity" controlled release version of hydrocodone that is not combined with acetaminophen or an NSAID. By eliminating the combination analgesic ingredient and by having a controlled release profile, ZX002 removes the potential limitations of existing hydrocodone combination formulations and allows for less frequent dosing. We in-licensed exclusive U.S. rights to ZX002 from Elan Pharma International Ltd. in November 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 as prescription non-injectable codeine-based and extended release morphine-based pain products. This market generated 2007 U.S. sales of approximately $9.7 billion, based on average wholesale price, on approximately 185 million prescriptions, according to data published by Wolters Kluwer Health. During the same period, existing hydrocodone products, the most commonly prescribed opioid pain products, generated $2.5 billion in sales representing growth of 18.3% since 2006.

        As a result of its unique controlled release single entity profile, we believe ZX002 will generate sales from both the immediate release and extended release segments of the prescription opioid market. In single and multiple dose pharmacokinetic evaluations, ZX002 demonstrated detectable

2

plasma concentrations of hydrocodone within 15 minutes. ZX002 also demonstrated a sustained release effect significantly longer than currently available hydrocodone combination products such as Vicodin, dose proportional pharmacokinetics and an acceptable safety profile. In a Phase 2 chronic pain study, ZX002 demonstrated a reduction in pain intensity for chronic moderate to severe osteoarthritis pain patients across multiple dosage strengths and a clinically acceptable safety profile. We anticipate having an End of Phase 2 meeting with the FDA in June 2008, and pending the outcome of that meeting, plan to proceed with the Phase 3 clinical program in the United States in the second half of 2008. The program will be designed to evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

Our Technology

        Our proprietary DosePro technology is an easy-to-use drug delivery system designed to enable self-administration of pre-filled, single doses of liquid drug formulations, subcutaneously, without a needle. The results of our sumatriptan DosePro usability studies confirm its ease of use during self-administration, and we believe that it has the potential to become a preferred delivery option for patients and physicians for many injected medicines beyond sumatriptan. Several clinical trials and market research studies have shown DosePro to be preferred by patients and physicians over conventional needle-based delivery systems. There have also been three positive single-dose human pilot studies conducted with a combination of a protein pharmaceutical and DosePro, including testing with human growth hormone, erythropoietin, or EPO, and granulocyte colony-stimulating factor, or G-CSF. Pre-clinical work with monoclonal antibodies evaluating bioavailability, pharmacokinetics and a lack of immunogenicity has also been conducted. 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. Our needle-free delivery technology is the result of more than 10 years of development work and significant capital investment with 61 related issued U.S. and foreign patents and 31 related pending patent applications.

Our Commercialization Plan

        Prior to the launch of sumatriptan DosePro, which we anticipate will occur in the first quarter of 2009, we intend to build a commercial organization in the United States focused on promoting our products to physicians, nurses and other healthcare professionals. For the launch of sumatriptan DosePro in the United States, we intend to build a sales force of approximately 100 people to target top triptan prescribers. In order to expand the U.S. commercial opportunity of sumatriptan DosePro, we will also seek to establish partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience than can be reached by our sales force alone. For the commercialization of sumatriptan DosePro outside the United States, we entered into a licensing and distribution agreement in March 2008 with Desitin under which we granted to Desitin exclusive rights to develop, obtain regulatory approvals for and commercialize sumatriptan DosePro in the European Union and other select countries, and we may also enter into similar agreements in other countries.

Our Strategy

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

•

obtaining regulatory approval for our most advanced product candidate, sumatriptan DosePro for the treatment of migraine;



•

building a focused sales and marketing infrastructure to commercialize sumatriptan DosePro;

3

•

expanding the market opportunity for sumatriptan DosePro through commercial partnerships;



•

developing and commercializing ZX002 for the treatment of moderate to severe chronic pain;



•

expanding our product pipeline in CNS and/or pain; and



•

seeking to out-license our proprietary DosePro technology.

Our Risks

        In executing our business strategy, we face significant risks and uncertainties, as more fully described in the section entitled "Risk Factors." These risks include, among others, the incurrence of substantial and increasing net losses for the next several years because we have no products approved for commercial sale and because we have not generated any product revenue to date and the need to obtain substantial additional funding for our research, development and commercialization efforts. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If the FDA does not approve our NDA, our commercialization of sumatriptan DosePro will be delayed, which may reduce the overall size of the commercial opportunity. We expect to initiate a Phase 3 clinical program for ZX002 in the second half of 2008. If clinical trials of ZX002 or any of our future product candidates do not produce results necessary to support regulatory approval, we will be unable to commercialize these product candidates. If we are unable to commercialize our products or the commercialization of our products is delayed, we may never generate any revenue or achieve profitability.

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 11682 El Camino Real, Suite 320, San Diego, CA 92130, and our telephone number is 1-866-ZOGENIX (1-866-964-3649). Our website address is www.zogenix.com. The information on, or accessible through, our website is not part of this prospectus.

        DosePro™, Intraject® and Zogenix™ are our trademarks. This prospectus also contains trademarks of other companies including Amerge®, Axert®, Frova™, Imigran®, Imitrex®, Imitrex STATdose System®, Lortab®, Maxalt®, Neurontin®, Relpax®, SODAS®, Vicodin®, Vicoprofen® and Zomig™. References in this prospectus to data published by Wolters Kluwer Health refer to Wolters Kluwer Health, Pharmaceutical Audit Suite, 2007.

4

THE OFFERING

Common stock offered	shares
Common stock to be outstanding after this offering	shares
Use of proceeds	We expect to use the net proceeds from this offering to establish a sales and marketing infrastructure, to fund research and development activities of our product candidates 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 91,348,097 shares outstanding as of December 31, 2007, after giving effect to the conversion of all of our outstanding shares of preferred stock as of December 31, 2007 into shares of common stock, and excludes:

•

2,940,000 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2007 at a weighted average exercise price of $0.11 per share;



•

200,000 shares of common stock issuable upon the exercise of a warrant outstanding as of December 31, 2007 at an exercise price of $1.00 per share;



•

            shares of our common stock reserved for future issuance under our 2008 equity incentive award plan, which will become effective on the day prior to the day on which we become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (including 1,470,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares to be reserved under our 2008 equity incentive award plan upon the effectiveness of the 2008 equity incentive award plan); and



•

            shares of common stock reserved for issuance under our 2008 employee stock purchase plan, which will become effective upon the completion of this offering.

        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 overallotments;



•

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 preferred stock into 77,890,909 shares of common stock upon completion of this offering; and



•

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

5

SUMMARY FINANCIAL DATA

        The following table summarizes certain of our financial data. The summary financial data are derived from our audited financial statements included elsewhere in this prospectus for the period from August 25, 2006 (inception) through December 31, 2006, the year ended December 31, 2007 and the period from August 25, 2006 (inception) through December 31, 2007. The data 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.

        The pro forma as adjusted balance sheet data gives effect to the conversion of all outstanding shares of our preferred stock into 77,890,909 shares of our common stock and our sale of                     shares of our common stock in this offering at the assumed initial public offering price of $        per share (the mid-point of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

			Period from August 25, 2006 (Inception) through December 31, 2006			Year ended December 31, 2007			Period from August 25, 2006 (Inception) through December 31, 2007
			(in thousands, except per share amounts)
Statement of Operations Data
Operating expenses:
	Research and development		$	4,902		$	24,323		$	29,225
	Selling, general and administrative			1,474			4,702			6,176
		Total operating expenses		6,376			29,025			35,401
Loss from operations				(6,376	)		(29,025	)		(35,401	)
Other income (expense):
	Interest income			395			927			1,322
	Interest expense			—			(484	)		(484	)
	Other financing income			582			906			1,488
	Other expense			—			(4	)		(4	)
Total other income (expense)				977			1,345			2,322
Net loss				(5,399	)		(27,680	)		(33,079	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock				—			(18,360	)		(18,360	)
Net loss applicable to common stockholders			$	(5,399	)	$	(46,040	)	$	(51,439	)
Basic and diluted net loss applicable to common stockholders(1)			$	(1.34	)	$	(8.85	)
Shares used to calculate net loss applicable to common stockholders(1)				4,043			5,205
Pro forma net loss per share, basic and diluted(1)						$	(0.65	)
Shares used to calculate pro forma net loss per share(1)							42,331

(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.

6

		As of December 31, 2007
		Actual			Pro Forma As Adjusted(1)
		(in thousands)
Balance Sheet Data:
	Cash and cash equivalents and investment securities, available for sale	$	43,255		$
	Working capital		38,836
	Total assets		53,007
	Long-term debt, less current portion		2,870
	Convertible preferred stock		76,955
	Deficit accumulated during the development stage		(33,079	)
	Total stockholders' equity (deficit)		(32,926	)

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $        per share would increase or decrease, respectively, the amount of cash and cash equivalents and investment securities, 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 prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

7

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/or 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 have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the next several years.

        We are a development stage company with a limited operating history. We have focused primarily on developing our two most advanced product candidates, sumatriptan DosePro and ZX002, with the goal of supporting regulatory approval for these product candidates. We have financed our operations almost exclusively through private placements of preferred stock and debt and have incurred losses in each year since our formation in May 2006. Our net loss applicable to common stockholders was $5.4 million in 2006 and $46.0 million in 2007. As of December 31, 2007, we had an accumulated deficit of $33.1 million. These losses, combined with expected future losses, have had and will continue to have a material adverse effect on our stockholders' equity and working capital. We expect our development expenses to increase in connection with our planned Phase 3 clinical trials for ZX002. In addition, if we obtain regulatory approval for sumatriptan DosePro 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 expect to continue to incur significant and increasing operating losses for the next several years. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

We have not generated any revenue from our product candidates and may never be profitable.

        Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our product candidates, and we do not know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

•

obtain regulatory approval for sumatriptan DosePro;



•

successfully complete our planned clinical trials and obtain regulatory approval for ZX002;



•

successfully complete clinical trials and obtain regulatory approval for any other product candidates that we advance into clinical trials;



•

manufacture commercial quantities of our product candidates at acceptable cost levels if regulatory approvals are received;



•

build and maintain successful sales, distribution and marketing for our products; and



•

identify and enter into one or more strategic collaborations to effectively market and sell our products to a broader physician audience than we could reach with our planned sales force alone.

        Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product. Because of the numerous risks and uncertainties associated with our development efforts and other factors, we may not achieve profitability soon, or ever. If we are unable to generate revenues, we will not become

8

profitable and may be unable to continue operations without additional funding. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.

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

        We were incorporated on May 11, 2006 and commenced our operations on August 25, 2006. Our operations to date have been limited to organizing and staffing our company, scaling up manufacturing operations and conducting product development activities for our product candidates. We have not yet demonstrated an ability to obtain regulatory approval for or commercialize a product candidate. 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 are largely dependent on the success of our two most advanced product candidates, sumatriptan DosePro and ZX002, and we cannot give any assurance that either product candidate will receive regulatory approval or be successfully commercialized.

        We currently have a limited number of product candidates in clinical development, and our business depends on their successful development and commercialization. We currently have no drug products for sale and we may never be able to develop marketable drug products. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products, among other things, are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, the Drug Enforcement Administration, or DEA, and other regulatory authorities in the United States. We are not permitted to market our product candidates in the United States until we receive regulatory approval from the FDA. We are highly dependent on sumatriptan DosePro and ZX002, and we cannot provide any assurance that we will obtain regulatory approval for these product candidates or that these product candidates will be successfully commercialized.

        Based on the results of the pharmacokinetics study and bioequivalence clinical trial that we conducted for sumatriptan DosePro, we submitted a new drug application, or NDA, for sumatriptan DosePro to the FDA in December 2007, and it was accepted for filing in March 2008. While we anticipate receiving tentative approval of this NDA in late 2008 and final approval after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009, there can be no assurance that the FDA will issue tentative or final approvals within this timeframe, or at all. We also cannot be certain that we will be able to respond to any regulatory requests during the NDA review period in a timely manner without delaying potential regulatory approval. In addition, we have not yet completed all necessary studies, nor submitted an NDA or received marketing approval, for any of our other product candidates, including 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 preclinical studies and clinical trials sufficient to support approval;



•

the FDA may require additional preclinical or clinical studies;



•

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.

        For example, in our pre-NDA meeting with the FDA for sumatriptan DosePro in June 2007, the FDA requested that we conduct a usability study of sumatriptan DosePro to demonstrate the product candidate's correct use by patients during acute migraine attacks. The FDA also indicated that additional non-clinical toxicology testing of impurities would be necessary to support the extension of

9

the storage life of sumatriptan DosePro at room temperature from an estimated 12 months to 24 months. The FDA may require additional studies for sumatriptan DosePro as part of its NDA review process. Any such additional studies could delay approval of this product candidate. In addition, a prior owner of the DosePro technology failed in its efforts to develop a product based on this technology, highlighting the challenges of developing a needle-free, pre-filled drug delivery system. These challenges include the maintenance of sterility, the need for a drug container that ensures long-term drug stability, the need to achieve a commercially appropriate shelf life, the capital intensive nature of an aseptic assembly and reliability issues. While we believe the studies and trials we have conducted to date have shown that we have overcome these challenges, there can be no assurance that the FDA will approve our NDA or that we will not face future setbacks in any additional trials the FDA requires that we conduct before or after approval, if approved.

        ZX002 has undergone Phase 1 pharmacokinetics studies as well as Phase 2 clinical trials. However, we will also need to successfully complete pivotal clinical trials to establish its safety and efficacy prior to our submission of an NDA to the FDA for approval. ZX002 and any other product candidates we develop 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 sumatriptan DosePro or ZX002 and successfully commercialize these product candidates in the sequence and on the timeline we anticipate, we will not be able to execute our business strategy effectively and our ability to generate revenues will be limited, which would have a material adverse impact on our business.

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

        Our product candidates are prone to the risks of failure inherent in drug development. Before obtaining U.S. regulatory approval for the commercial sale of sumatriptan DosePro, 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.

        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 instance, restrict distribution of drug products after approval. In addition, the recently enacted Food and Drug Administration Amendments Act of 2007, or FDAAA, 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 new law 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 risk evaluation and mitigation strategies 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 FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties.

10

        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 sumatriptan DosePro, we believe the pharmacokinetics study and bioequivalence trial we have conducted, together with the clinical efficacy of injectable sumatriptan demonstrated to the FDA by others, supports the required safety and efficacy to lead to potential approval of an NDA for this product candidate. Although we submitted an NDA for sumatriptan DosePro to the FDA in December 2007 and it was accepted for filing by the FDA in March 2008, as part of the NDA review process, the FDA may require us to conduct additional clinical trials to establish the safety and efficacy of this product candidate or impose other requirements. Any additional requirements could require substantial time and the results of any additional studies and trials may not replicate the positive results observed in earlier trials.

        With regard to ZX002, data from a Phase 2 clinical trial has shown what we believe is a clinically acceptable safety profile and a reduction in moderate to severe pain in patients requiring around-the-clock opioid therapy. However, our licensor, Elan Pharma International Ltd., or Elan, conducted this trial and we have not independently verified the data or completed any of our own trials for this product candidate. In addition, these results may not be predictive of results obtained in planned 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.

If any product candidate for which we receive regulatory approval does not achieve broad market acceptance, the revenues that we generate will be limited.

        The commercial success of product candidates for which we obtain marketing approval from the 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 product candidates by third-party payors, including government payors, generally is also necessary for commercial success. The degree of market acceptance of any of our approved products 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;



•

the DEA scheduling classification;



•

availability and perceived advantages of alternative treatments;



•

any negative publicity related to our products;



•

the effectiveness of our or any future collaborators' sales, marketing and distribution strategies;



•

pricing and cost effectiveness;

11

•

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



•

the willingness of patients to pay out of pocket in the absence of third-party 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, which may include potential reactions at the site of injection and pain. 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 with respect to illegal use, overdoses, abuse, diversion, serious injury and death. ZX002 contains hydrocodone, 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 our products 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, health care payors and patients, we may not generate sufficient revenue from these products to become or remain profitable.

Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for any future 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 future product candidates could significantly affect our product development costs and business plan. We have never conducted a pivotal efficacy trial, including Phase 3 clinical trials for ZX002. Phase 3 clinical efficacy trials, in general, are significantly more complex and time-consuming and involve more patients than the clinical trials that we have conducted to date. We do not know whether planned 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 approvals to commence a clinical trial;



•

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;

12

•

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.

        Although we believe that we have planned and designed an adequate Phase 3 clinical trial program for ZX002, we plan to seek the FDA's agreement with this trial design at our End of Phase 2 meeting, which we anticipate will be held in June 2008. Any agreement obtained from the FDA regarding our trial design may not occur until after the meeting is held, if an agreement is obtained at all. The FDA could determine that it is not satisfied with our plan or the details of our pivotal clinical trial protocols and designs, or that we need to conduct additional Phase 2 trials prior to initiating our Phase 3 program. While the FDA will provide us with a written record of any agreements obtained from the End of Phase 2 meeting, such agreements may not be definitive on whether our trial design is sufficient for the purpose of obtaining marketing approval for ZX002. Any changes to the protocols, designs or scope of our Phase 3 clinical trials based on the outcome of our End of Phase 2 meeting, or delays in receiving the written record of any agreements, if any agreements are obtained, could delay the commencement or completion of clinical testing for ZX002.

        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 future clinical trials of ZX002 and such failure is not adequately accounted for in our trial design and 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;



•

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;



•

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.

13

        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 our product candidates may be harmed, and our ability to generate product revenues will be delayed.

If we do not produce our DosePro-based products cost effectively, our potential profits may suffer.

        Any DosePro-based product will contain physical components relating to the needle-free, pre-filled, disposable and compressed gas powered features, in addition to active pharmaceutical ingredients. For example, as a result of the cost of developing and producing these components, the cost to produce sumatriptan DosePro is expected to be higher per dose than the cost to produce tablet, nasal spray and traditional needle-based injection products for the same active pharmaceutical ingredient. In addition, we obtain all of the components of DosePro from multiple suppliers in Europe and the assembly and manufacture of the entire device is also conducted in Europe. This may subject us to financial risk from foreign currency exchange fluctuations as well as volatile fuel costs associated with shipping the product to and from different assembly sites in Europe and ultimately to our potential customers in the United States. This overall increased cost of goods may reduce any potential profits from the sale of sumatriptan DosePro or any future DosePro product. Any delay in or failure to develop and manufacture any future DosePro product in a cost effective way could negatively affect our potential profitability.

We have limited sales and marketing resources, and we may not be able to effectively market and sell our products.

        We do not currently have an organization for sales, marketing and distribution of pharmaceutical products, and we must build this organization or make arrangements with third parties to perform these functions in order to commercialize any products that we successfully develop and for which we obtain regulatory approvals. We currently intend to commercialize our product candidates by building an internal sales and marketing infrastructure as well as establishing partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience in the United States than can be reached by our planned sales force alone. Within the United States, we intend to initially build a focused sales force of approximately 100 people by early 2009 to market and sell sumatriptan DosePro, if approved, to top triptan prescribers such as neurologists, headache specialists and key primary care physicians. We will exclusively rely on Desitin Arzneimittel GmbH, or Desitin, to market and sell sumatriptan DosePro in the European Union and other select countries. We may also rely on other commercial partners to market and sell sumatriptan DosePro and any other products in other countries. We cannot assure you that this sales and marketing strategy will be effective for our company. Even if we are able to effectively build our sales force and marketing capabilities or establish U.S. or additional foreign partnership agreements, we or our partners may not be successful in commercializing our products.

We expect intense product competition, and if our competitors develop treatments for migraine or pain that are approved more quickly, marketed more effectively 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, 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 and experience in obtaining regulatory approvals for product candidates than us. These entities are actively engaged in research and

14

development of products which may target the same indications as our product candidates. We expect any future products we develop to compete on the basis of, among other things, product efficacy and safety, time to market, price, patient reimbursement rules of government and private health insurers, extent of adverse side effects and convenience of treatment procedures. One or more of our competitors may develop needle-free injectable products, 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 an effect on our product prices, market share, revenues and profitability. 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.

        The indications for which we are developing products have a number of established therapies and products already commercially available as well as a number under development by other companies with which our product candidates will compete. 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 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, including personnel and technology;



•

drug development, clinical trial and regulatory experience;



•

sales and marketing experience;



•

manufacturing and distribution experience;



•

name recognition; and



•

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 our ability to develop or commercialize 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 our competitors are successful in developing such drugs, our ability to generate revenues and profits may be adversely affected.

Our competitors could pursue regulatory and other strategies to combat competition from 505(b)(2) products, which may negatively affect the approval and commercialization of our 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 Federal Food, Drug, and Cosmetic Act, or 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. We have sought FDA marketing approval of sumatriptan DosePro under Section 505(b)(2) and may in the future seek approval of other product candidates under Section 505(b)(2). However, certain of our competitors have taken numerous steps to combat competition from 505(b)(2) products, including:

•

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;

15

•

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 our product candidates will be adversely affected.

The migraine market is extremely competitive. We will seek to compete with highly-prescribed branded products, products in development and potentially both oral and injectable generic sumatriptan products, all of which may negatively affect the commercial prospects for sumatriptan DosePro.

        If approved for the treatment of acute migraine attacks with or without aura, we anticipate that sumatriptan DosePro would compete against other currently marketed migraine therapeutics. These include six other branded triptans, the largest class of prescription products for treatment of acute migraine, which are available in oral and nasal spray forms. We also expect to compete against generic sumatriptan needle-based subcutaneous injection and tablets that will be available by the time we launch sumatriptan DosePro. There are also other classes of migraine therapeutics against which we will compete, including prescription migraine preventative therapies, which may affect the need for acute migraine products such as sumatriptan DosePro. All of these products are marketed by pharmaceutical companies with substantially greater resources than us. There are also several product candidates under development by large pharmaceutical companies, such as GlaxoSmithKline and Merck & Co., Inc., and other smaller companies, that could potentially be used to prevent and/or treat acute migraine and thereby compete with sumatriptan DosePro, if approved.

The pain market is characterized by intense competition among a variety of established pharmaceutical products, as well as potential new competition from a number of product candidates under development, which may negatively affect the commercialization of ZX002.

        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 and may compete with additional product candidates currently under development. Opioid therapeutics generally fall into two classes: codeines, which include oxycodones and hydrocodones, and morphines. ZX002 is a hydrocodone, the most commonly prescribed opioid, 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.

        Current competitors in the opioid pain therapeutics space include, but are not limited to, Abbott Laboratories, Alpharma Inc., Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, King Pharmaceuticals, Inc., Mallinckrodt Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc. There are at least fifteen 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 an extended release version of Vicodin being developed by Abbott Laboratories, and an extended-release hydrocodone product candidate being developed by Alpharma, Inc. ZX002 may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of NSAIDs. In addition to most of the previously named companies, a number of pharmaceutical companies are developing these new product candidates, including, but not limited to, Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Elite Pharmaceuticals, Inc., Javelin Pharmaceuticals, Inc., Neuromed Pharmaceuticals, Ltd., Pfizer, Inc., QRxPharma Ltd. and Shire, plc.

16

All of these existing and potential future products could negatively affect our ability to commercialize and gain market acceptance of ZX002, if approved.

Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.

        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 0.5mL. Currently approved injectable products for subcutaneous administration with formulation volumes greater than 0.5mL will require reformulation, if possible, to accommodate the approved doses in smaller volumes that are compatible with DosePro. This may increase the risk of failure during development, extend the development timelines and add additional complexity to the regulatory approval process. 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.

        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 and negotiate licensing or acquisition agreements with their current owners.

        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 and sales 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.

        In addition, any future acquisitions 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 to develop acquired products, product candidates or technologies;



•

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



•

higher than expected acquisition and integration costs;



•

increased amortization expenses;



•

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

17

•

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.

        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 provide assurance that any products that we develop or approved products that we acquire will be manufactured profitably or achieve market acceptance. If we are unable to license or acquire additional product candidates and successfully develop and commercialize them, we may not be able to grow our potential revenues and profits.

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

        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 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 delay or prevent the commercialization of our product candidates. 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 at will at any time with or without notice and, therefore, we may not be able to retain their services as expected. 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 may be adversely affected.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

        Our management, personnel, systems and facilities currently in place may not be adequate to support our business plan and future growth. As of February 29, 2008, we had 27 full-time employees. We will need to continue to expand our managerial, operational, sales and marketing, financial and

18

other resources in order to manage our operations and clinical trials, continue our development activities and commercialize our product candidates. Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

•

manage our internal development and commercialization efforts effectively while carrying out our contractual obligations to licensors, contractors, collaborators and other third parties;



•

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



•

manage our clinical trials effectively; and



•

attract and retain sufficient numbers of talented employees, including building a sales force of approximately 100 people to market sumatriptan DosePro.

        We have traditionally utilized the services of outside consultants and vendors to perform a wide range of tasks for us, including clinical trial management, statistics, regulatory affairs, pharmacokinetics and other drug development functions. Our growth strategy may also entail expanding our group of contractors to implement these tasks going forward. Because we may rely on a substantial number of consultants, effectively outsourcing many key functions of our business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. However, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and vendors, we may be unable to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

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.

We are subject to uncertainty relating to coverage and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our product candidates' commercial success.

        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 or pharmacy benefit managers to reimburse part of the costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental authorities, 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

19

new drug products when more established alternatives are already available. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate. Patients are unlikely to use our products, if approved, unless coverage is provided and purchasers receive reimbursement adequate to cover a significant portion of the cost of our products.

        In addition, the market for our future 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. Industry competition to be included in such formularies results in downward pricing pressures on pharmaceutical companies. Third-party payors may refuse to include a particular branded drug in their formularies when a less costly generic equivalent or related 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 medical technology exists among all these payors. Therefore, coverage of and reimbursement for medical products can differ significantly from payor to payor.

        Further, we believe that future coverage and reimbursement may be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products may not be available or adequate in either the United States or international markets, limiting our ability to sell our products on a profitable basis.

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 use of our product candidates in clinical trials and the sale and marketing of any products for which we obtain marketing approval expose us to the risk of product liability claims. Our product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in 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 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. 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 candidates;



•

decreased demand for our 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

20

•

loss of revenues.

        We have obtained product liability insurance coverage for our sumatriptan DosePro clinical trials with a $5 million per occurrence and a $5 million annual aggregate coverage limit. However, we will need to expand our insurance coverage for our planned Phase 3 trials for ZX002. Our insurance coverage may not be sufficient to reimburse 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 liability. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain this product liability insurance on commercially reasonable terms or with insurance coverage that will be adequate to satisfy any liability that may arise. 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 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 adversely affect our business.

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 potential 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 system failure, accident or security breach to date, if such an event was to occur and cause interruptions in our operations, it could result in a material disruption of our 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. To the extent that any disruption or security breach was 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 of our product candidates could be delayed.

Our business involves the use of hazardous materials and we and our third-party manufacturers 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' activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product candidates and other hazardous compounds. We and our manufacturers 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 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 comply with the standards prescribed by these laws and regulations, we cannot 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.

21

Risks Related to Regulatory Approval and Regulation of our Product Candidates

Our development and commercialization strategy for sumatriptan DosePro depends upon the FDA's prior findings of safety and effectiveness of injectable sumatriptan 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. In addition, even though we may be able to take advantage of Section 505(b)(2) to support potential U.S. approval for sumatriptan DosePro, the FDA may require us, and already has required us with respect to sumatriptan 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.

We will need to obtain FDA approval of our proposed trade names for sumatriptan DosePro and other products 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. We have submitted proposed trade names for sumatriptan DosePro to the FDA for approval. 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, 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 if our product candidates receive regulatory approvals, they will be subject to ongoing obligations of the FDA and DEA and continued regulatory review, which may result in significant expense and limit our ability to commercialize our product candidates.

        Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or marketing and distribution or impose ongoing requirements for potentially costly post-approval studies and surveillance to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review, such as continued safety testing, surveillance and reporting requirements, and we may also be subject to additional FDA post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize our product candidates. 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

22

other regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations and Quality System regulation, or QSR, requirements for medical device components. 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 withdrawal of the product from the market or suspension of manufacturing.

        If any of our product candidates receive U.S. regulatory approval, the FDA may impose significant restrictions or limitations on the indicated uses for which such drugs may be marketed. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

•

suspend or withdraw product approvals or revoke necessary licenses;



•

issue warning letters, show cause notices or untitled letters describing alleged violations, which would 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;



•

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. 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 might not be permitted to market our drugs, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

23

Our product candidates may cause undesirable side effects or have other unexpected properties that could result in post approval regulatory action.

        If any of our product candidates receives marketing approval and we or others later identify undesirable side effects, or other previously unknown problems, caused by the product or other products with the same or related active ingredients, 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.

        Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates.

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 currently and will continue 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, recordkeeping 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.

        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

24

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 product candidates 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.

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. The DEA's final revised aggregate production quotas for hydrocodone were 37,604 kg in 2005, 42,000 kg in 2006, 46,000 kg in 2007 and 45,200 kg in 2008. In 2007, our licensor was allocated a sufficient quantity of hydrocodone to meet our planned testing needs during 2008. However, we may need significantly greater amounts of hydrocodone in future years to implement our business plan.

        Moreover, we do not know what amounts of hydrocodone other companies developing product candidates containing hydrocodone may request for 2008 or 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. We are 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 our product candidate. 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 our product candidate or if approved, the product launch or commercial sale of our product or cause us to fail to achieve our expected operating results, which could have a material adverse effect on our

25

business, our ability to execute on our business plan, our financial position and results of operations and our ability to generate revenue to fund the development of other product candidates.

Even if our product candidates receive regulatory approval in the United States, we, Desitin, or any potential partner may never receive approval or commercialize our products outside of the United States.

        We have established an exclusive commercial partnership for sumatriptan DosePro with Desitin in the European Union and other select countries in order to seek to accelerate the development and regulatory approvals in those territories. We may also seek to establish commercial partnerships for sumatriptan DosePro in other foreign countries. In order to market sumatriptan 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 above 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. 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 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 above regarding FDA approval in the United States. As described above, such effects include the risks that our product candidates may not be approved for all indications requested, 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.

Recently enacted legislation may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute products after approval.

        The FDAAA, which was signed by the President on September 27, 2007, grants a variety of new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties. While we expect the FDAAA to have a substantial effect on the pharmaceutical industry, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute products after approval.

Health care reform measures and changes in policies, funding, staffing and leadership at the FDA and other agencies could hinder or prevent our product candidates' commercial success.

        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 revenues and profitability and the future revenues and profitability of our potential customers. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a new Part D prescription drug benefit,

26

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 our products are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could suffer.

        There also have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may adversely affect one or more of the following:

•

our ability to set a price we believe is fair or desire for our products;



•

our ability to generate revenues and achieve or maintain profitability;



•

the future revenues and profitability of our potential customers, suppliers and collaborators; and



•

the availability of capital.

        In certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement may, in some cases, be unavailable. In the United States, 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 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 profitability. 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.

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

        In addition to FDA and DEA restrictions on the marketing of pharmaceutical products and federal and state restrictions on prescribing these products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical and medical device industries in recent years. As a manufacturer of pharmaceuticals, 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

27

and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include:

•

the federal healthcare program Anti-Kickback Law, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;



•

federal false claims 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, which prohibits executing a scheme to 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 self-referral laws, such as STARK, which prohibits 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 prohibits submission of a claim for reimbursement pursuant to a prohibited referral;



•

the FFDCA, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; 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 safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. 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 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, the United Kingdom or any other country in the future. Any of these factors could adversely affect our potential profitability.

28

Risks Related to Our Dependence On Third Parties

We are dependent on numerous third parties for the manufacture of our product candidates and our supply chain, and if we experience problems with any of these suppliers, the manufacturing of our products could be delayed.

        We do not own or operate manufacturing facilities and currently lack the in-house capability to manufacture any of our product candidates on a clinical or commercial scale. We outsource all manufacturing and packaging of our clinical product candidates to third parties. However, we currently do not have long-term commercial supply agreements with any third-party manufacturers for our product candidates. We may be unable to enter into agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, the various manufacturers of each product candidate will likely be single source suppliers to us for a significant period of time. We may not be able to establish additional sources of supply for our products prior to commercialization. Such suppliers are subject to regulatory requirements covering, among other things, manufacturing, testing, quality control and record keeping relating to our product candidates, and are subject to ongoing inspections by regulatory agencies. Failure by any of our 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.

        Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the 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; 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.

        Any of these factors could cause the delay or suspension of initiation or completion of clinical trials, regulatory submissions, required approvals or commercialization of our products, cause us to incur higher costs and could prevent us from commercializing our product candidates successfully. Furthermore, if our contract manufacturers fail to deliver the required commercial quantities of our finished product on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers 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 we would lose potential revenue. It may take a significant period of time to establish an alternative source of supply for our product candidates and to have any such new source approved by the FDA.

We may encounter delays in the manufacturing of sumatriptan 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. The components of DosePro include the actuator subassembly, aseptic capsule, setting lever and outer shell. The actuator subassembly is comprised of nine individual components which are collectively supplied by six different third-party manufacturers. The aseptic capsule that houses the sterile drug formulation sumatriptan is comprised of six different components also supplied by multiple third-party manufacturers. If any of these third-party manufacturers is unable to supply its respective component for any reason, including due to violations of the FDA's QSR requirements, our ability to manufacture the finished DosePro device will be adversely affected and our ability to meet the distribution requirements for any potential product sales and the resulting revenue therefrom will be negatively affected. While we plan on obtaining from our

29

third-party manufacturers individual components in sufficient quantities to mitigate the risk associated with relying on single source manufacturers, there can be no assurance that any failure in any part of our supply chain will not materially and adversely affect our ability to generate revenue from sumatriptan DosePro, if approved.

Our failure to successfully establish partnerships with pharmaceutical companies or contract sales organizations would impair our ability to effectively market and sell our products.

        Traditional pharmaceutical companies employ groups of sales representatives numbering in the thousands to call on the large number of primary care physicians. In order to expand the market opportunity for our product candidates into the broader primary care physician audiences, we will need to establish partnerships with pharmaceutical companies or contract sales organizations. We do not currently employ any sales force personnel and may not be successful in establishing partnership arrangements on acceptable terms, if at all. Although we have established a commercial partnership for sumatriptan DosePro in the European Union and other select countries, we have not yet established a partnership to market and sell sumatriptan DosePro in the United States. We also face competition in our search for partners. Further, by entering into strategic partnerships or similar arrangements, we may rely in part on 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 product candidates. We cannot assure you that our sales and marketing strategy will work effectively for our company. Even if we are able to successfully establish partnership arrangements, the sales force and marketing teams of those partners may not be successful in commercializing our product candidates, which would adversely affect our ability to generate revenue.

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

        In March 2008, we entered into a licensing and distribution agreement with Desitin pursuant to which we have we granted Desitin the exclusive right under our intellectual property rights related to sumatriptan DosePro to develop, use, distribute, sell, offer for sale, and import sumatriptan DosePro in the European Union, Norway, Switzerland and Turkey. Since we will depend on Desitin to develop, obtain regulatory approval for and, if regulatory approval is granted, sell sumatriptan DosePro in these countries, we will have limited control over the success of Desitin's development, regulatory approval and commercialization efforts. For example, any additional clinical studies Desitin may conduct as part of the regulatory approval process may not corroborate the results of the clinical studies we have conducted or may have adverse results or effects on our ability to obtain regulatory approvals in the United States or other countries. In addition, Desitin may not develop sumatriptan 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 or obtain approval for sumatriptan DosePro in countries for which it has exclusive rights, other than in Germany, where Desitin is required to actively develop, seek approval for and commercialize sumatriptan DosePro. Any failure by Desitin to successfully commercialize sumatriptan DosePro or to successfully obtain applicable foreign regulatory approval for sumatriptan 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.

30

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 part on obtaining and maintaining patent, trademark and trade secret protection of our device and pharmaceutical product candidates, sumatriptan DosePro and 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 our products is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

        We license certain intellectual property from third parties related to our product candidates, and we rely on them 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 for certain of our patents or patent applications and other intellectual property rights. We cannot be certain that such activities by third parties 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. Enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents would also be subject to the control or cooperation of our licensors.

        Most of our patents were either acquired from another company who acquired those patents from yet another company, or are licensed from a third party. Thus, most of our patents, as well as many of our 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. This could possibly result in findings of invalidity or unenforceability of our patents, reduced claim scope, or in pending applications not issuing as patents.

        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 have 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. Those changes proposed by the PTO are currently being litigated in Federal Court. We cannot accurately determine the outcome of that proceeding or 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 our device and product candidates but that are not covered by the claims of our patents;

31

•

the active pharmaceutical agents in our device and product candidates are, or will soon become, available generically, and no patent protection will be available without regard to formulation or method of use;



•

we might not have been the first to make the inventions covered by our issued patents or pending patent applications;



•

we 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 our product candidates of which we are not aware;



•

it is possible that there are prior public disclosures that could invalidate our inventions or parts of our inventions of which we are not aware;



•

it is possible that others may circumvent our patents;



•

the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the Untied States;



•

the claims of our issued patents or patent applications when issued may not cover our device or product candidates;



•

our 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 that are patentable; or



•

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

        If any of our patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material impact on our business and our ability to commercialize or license our technology and products.

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 might not be able to develop or market ZX002. If we lose such license rights, our business 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 choose to go to court to stop a third party from using the inventions claimed in our owned or 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 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 do not have the right to stop others from using the inventions.

32

        There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other party's activities do not infringe our 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 re-examination 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 against 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, 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 we have the right to initiate proceedings after receiving their notice. 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 in which we and our collaborators are developing products. As the device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert our device and/or pharmaceutical products 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, 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 products, 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 device and/or 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 issued patents or our pending applications, or that we 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 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 ours, we 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 or patentability against any of our claims in our 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 other patent litigation and other proceedings in the European Patent Office. The costs of these proceedings could be substantial, and it is possible that

33

such efforts would be unsuccessful if the other party had independently arrived at the same or similar invention prior to our own 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 affect our results of operations and divert the attention of managerial and technical personnel. There is a 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 one of these 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 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.

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 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 issue. We have systems in place to remind us to pay these fees, and we

34

employ outside firms to remind us or our licensors 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 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 our products 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.

Risks Relating to this Offering and an Investment in Our 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 below the initial public offering price. The initial public offering price will be 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 are prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives of the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. See "Underwriting" for additional information. If

35

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.

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 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, based on an assumed initial public offering price of $        per share, the mid-point of our expected public offering price range; 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 our expected public offering price range, but will own only        % of the shares of common stock outstanding after the offering.

        To the extent outstanding stock options are exercised, there will be further dilution to new investors.

        Because we will need to raise additional capital to fund our clinical development programs, among other things, we may conduct substantial additional equity offerings. These future equity issuances, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, will 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.

        The net proceeds from this offering will be used to establish a sales and marketing infrastructure, to fund research and development activities of our product candidates and for working capital and other general corporate purposes. We may also use a portion of the net proceeds to in-license, acquire or invest in complementary businesses or products. We have no present understandings, commitments or agreements with respect to any such in-licenses, acquisitions or investments and no portion of the net proceeds from this offering has been allocated for any specific transaction. Our management will have considerable discretion in the application of the net proceeds, 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 corporate 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.

We will 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 and security agreement with General Electric Capital Corporation, or GE Capital. We expect to spend substantial amounts on commercialization activities for sumatriptan

36

DosePro, development activities for ZX002 and any future product candidates, including significant amounts on conducting clinical trials, manufacturing, clinical supplies and expanding our product development programs. Developing products for the pain-relief market, conducting clinical trials, establishing outsourced manufacturing relationships and successfully manufacturing and marketing drugs that we may develop is expensive and we expect that our monthly cash used by operations will increase substantially for the next several years. We may need to raise additional capital to:

•

commercialize sumatriptan DosePro;



•

scale-up capacity, and qualify secondary sources, for the manufacturing of sumatriptan DosePro;



•

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



•

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

        In addition, our estimates of cash 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 timing of regulatory approval of sumatriptan DosePro or our other product candidates, if at all;



•

the rate of progress and cost of our clinical trials and other product development programs for ZX002 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 our product candidates;



•

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



•

the costs of establishing or outsourcing sales, marketing and distribution capabilities, should we elect to do so;



•

the effect of competing technological and market developments; and



•

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

        Until we can generate a sufficient amount of product revenue and achieve profitability, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances. 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.

Our quarterly operating results may fluctuate significantly.

        We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

•

variations in the level of expenses related to our two existing product candidates or future development programs;



•

addition or termination of clinical trials or funding support;

37

•

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



•

regulatory developments affecting our product candidates or those of our competitors;



•

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



•

if either of our product candidates receives regulatory approval, the level of underlying demand for our product candidates and wholesalers' buying patterns.

        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 believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

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. 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:

•

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



•

the development status of our product candidates, including the results from our clinical trials;



•

variations in the level of expenses related to our 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;



•

our execution of our manufacturing, sales and marketing, and other aspects of our business plan;



•

failure of any of our product candidates, if approved, to achieve commercial success;



•

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



•

market conditions or trends in the pharmaceutical and biotechnology sectors or the economy as a whole;



•

changes in operating performance and stock market valuations of other pharmaceutical companies;



•

price and volume fluctuations in the overall stock market;



•

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



•

the public's response to press releases or other public announcements by us or third parties, including our filings with the SEC and announcements relating to litigation, intellectual property or our business;



•

litigation or public concern about the safety of our potential products;



•

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;

38

•

deviations in our operating results from the estimates of securities analysts or other analyst comments;



•

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



•

additions or departures of key personnel;



•

third-party coverage and reimbursement policies;



•

developments concerning current or future strategic collaborations including our execution of collaborative, co-promotion, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements;



•

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



•

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



•

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 could have a dramatic and material adverse impact on the market price of our common stock.

We may become involved in securities class action litigation that could divert management's attention and adversely affect our business.

        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 as the realization of any of the risks 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 biopharmaceutical companies have experienced significant stock price volatility in recent years. 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.

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 or publishes inaccurate or unfavorable research about our business, our stock

39

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 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 and directors and their affiliates will together control approximately        % of our outstanding common stock. Our five non-employee directors are, or are representatives designated by, significant stockholders and the remaining two directors are executive officers. As a result, these stockholders will collectively be able to significantly influence 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 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.

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 or corporate collaboration and licensing arrangements. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be diluted. Debt financing typically contains covenants that restrict operating activities. Our loan and security agreement with GE Capital is secured by a pledge of specific equipment assets and contains provisions which allow GE Capital to accelerate the debt if a material adverse change in our business occurs. Any future debt financing we enter into may involve more onerous covenants that restrict our operations. Our obligations under this loan and security agreement 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 candidates, potential products 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 development of one or more of our product candidates.

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

        Sales of a substantial number of shares of our common stock or securities convertible or exchangeable into our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have                outstanding shares of common stock based on the number of shares outstanding as of                             and after

40

giving effect to the conversion of all of the shares of our preferred stock outstanding as of                             into shares of common stock in connection with this offering. This also includes the shares that we are selling in this offering, which may be resold in the public market immediately. Of the remaining shares,                  shares are currently restricted as a result of securities laws or lock-up agreements but will be available for resale in the public market as described in the "Shares Eligible for Future Sale" section of this prospectus. As a result of the lock-up agreements between our underwriters and our security holders 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:

•

            shares will be eligible for sale under Rule 144 or Rule 701 upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus;



•

            shares will be eligible for sale under Rule 144 upon the expiration of the lock-up agreements, subject to volume limitations, manner of sale requirements and other restrictions, beginning 180 days after the date of this prospectus;



•

            shares will be eligible for sale, upon exercise of vested options, upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus; and



•

            shares will be eligible for sale, upon exercise of outstanding warrants, upon expiration of the lock-up agreements, beginning 180 days after the date of this prospectus.

        Moreover, we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described above and in the "Underwriting" section of this prospectus.

        After this offering, holders of approximately                  shares of common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. These 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 preferred stock are parties to this agreement. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the "Underwriting" section of this prospectus.

        If a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

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 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;

41

•

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;



•

a requirement of approval of not less than 66²/3% of all outstanding shares of our capital stock entitled to vote 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, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to 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 and 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 future earnings, if any, 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. 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 Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act and the Nasdaq Stock Market Rules, or Nasdaq rules. The requirements of these rules and regulations 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. The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial

42

condition. In addition, the Sarbanes-Oxley Act, as well as the Nasdaq rules and rules subsequently implemented by the SEC, has imposed various new requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, 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. 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 2009, 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. 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 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 will 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 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 the Nasdaq Stock Market, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.

        Compliance with these reporting, Sarbanes-Oxley Act and Nasdaq Stock Market requirements will require us to build out our accounting and finance staff. We currently employ a small number of accounting and finance employees. Our failure to adequately build out our accounting and financing staff would harm our ability to comply with the requirements listed above.

Rules established by the Financial Accounting Standards Board, or FASB, require us to expense equity compensation given to our employees and may impact our ability to effectively utilize equity compensation to attract and retain employees.

        The FASB has adopted changes that require companies to record a charge to earnings for employee stock option grants and other equity incentives effective January 1, 2006, which we have adopted. These accounting changes may cause us to reduce the availability and amount of equity incentives provided to employees, which may make it more difficult for us to attract, retain and motivate key personnel. Additionally, it may be difficult for us to estimate the impact of such

43

compensation charges on future operating results because they will be based upon the fair market value of our common stock and other assumptions at future dates.

Future interpretations of existing accounting standards could adversely affect our operating results.

        Generally accepted accounting principles in the United States are subject to interpretation by FASB, the American Institute of Certified Public Accountants, the SEC and various other bodies that promulgate and interpret appropriate accounting principles. 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.

        Certain payments to our suppliers are denominated in Euro and U.K. pounds sterling. Our reporting currency is the U.S. dollar. 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. We currently have not entered into any foreign currency hedging contracts to reduce the effect of adverse changes in foreign currencies.

44

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that involve substantial risks and uncertainties, including statements regarding 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, our ability to develop sales and marketing capabilities, 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." These statements relate to future events or our future financial performance 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 risks and uncertainties include, among others:

•

our short operating history, our lack of significant revenue and profitability, our significant historical operating losses 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 dependence on the success of sumatriptan DosePro and ZX002;



•

our ability to successfully complete clinical development of our product candidates, including ZX002, 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 timing of the FDA's approval, if at all, of our NDA for sumatriptan DosePro;



•

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 our product candidates to the satisfaction of the FDA and such other agencies;



•

our ability to develop sales, distribution and marketing capabilities or enter into agreements with third parties to sell, distribute and market any of our product candidates that may be approved for sale;



•

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 product candidates;



•

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



•

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



•

market acceptance of and future development and regulatory difficulties relating to any product candidates for which we receive regulatory approval;



•

our reliance on third parties for the manufacture and supply of our product candidates;



•

our compliance with the agreements under which we license certain patents and other rights related to our product candidates; and



•

our and our licensors' ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of our product candidates and the rights relating thereto.

45

        Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "intend," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential," or the negative of those terms, and similar expressions and comparable terminology intended to identify forward-looking statements. 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 future results may materially differ from what we expect. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus 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.

46

USE OF PROCEEDS

        We estimate that we will receive net proceeds of approximately $         million from the sale of the shares of common stock 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 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 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 prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        We currently expect to use our net proceeds from this offering as follows:

•

approximately $        million to establish a sales and marketing infrastructure;



•

approximately $        million to fund research and development activities of our product candidates; and



•

the remainder to fund working capital and other general corporate purposes.

        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 understandings, commitments or agreements to do so.

        The amounts and timing of our actual expenditures will depend on numerous factors, including the FDA's approval decision on our NDA for sumatriptan 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 all of 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 intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock. We expect to retain future earnings, if any, to finance ongoing operations and the 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 and contractual restrictions.

47

CAPITALIZATION

        The following table sets forth our cash and cash equivalents and investment securities, available for sale, and capitalization as of December 31, 2007:

•

on an actual basis; and



•

on a pro forma as adjusted basis to reflect (a) the conversion upon the consummation of this offering of all outstanding shares of our preferred stock into 77,890,909 shares of common stock and (b) our 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 prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based 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 December 31, 2007
		Actual			Pro Forma As Adjusted(1)
		(in thousands)
Cash and cash equivalents and investment securities, available-for-sale		$	43,255		$
Long-term debt, less current portion		$	2,870
Convertible preferred stock warrant			259
Series A-1, A-2 and A-3 convertible preferred stock, $0.001 par value; 83,000,000 shares authorized, 77,890,909 shares issued and outstanding; pro forma as adjusted—no shares authorized, issued or outstanding			76,955
Stockholders' equity (deficit)
	Preferred stock, $0.001 par value; actual—no shares authorized, issued or outstanding; pro forma as adjusted—10,000,000 shares authorized, no shares issued or outstanding		—
	Common stock, $0.001 par value; actual—111,000,000 shares authorized, 13,457,188 shares issued and outstanding; pro forma as adjusted—100,000,000 shares authorized,              shares issued and outstanding		13
	Additional paid-in capital		138
	Accumulated other comprehensive income		2
	Deficit accumulated during the development stage		(33,079	)
	Total stockholders' equity (deficit)		(32,926	)
	Total capitalization	$	47,158		$

(1)

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 prospectus) would increase or decrease, respectively, the amount of cash and cash equivalents and investment securities, additional paid-in capital and total capitalization by approximately $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

48

        The number of shares of common stock shown as issued and outstanding in the table excludes:

•

2,940,000 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2007 at a weighted average exercise price of $0.11 per share;



•

200,000 shares of common stock issuable upon the exercise of a warrant outstanding as of December 31, 2007 at an exercise price of $1.00 per share;



•

            shares of our common stock reserved for future issuance under our 2008 equity incentive award plan, which will become effective on the day prior to the day on which we become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (including 1,470,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares to be reserved under our 2008 equity incentive award plan upon the effectiveness of the 2008 equity incentive award plan); and



•

            shares of common stock reserved for issuance under our 2008 employee stock purchase plan, which will become effective upon the completion of this offering.

49

DILUTION

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

        As of December, 31, 2007, our historical net tangible book value was a deficit of $32.9 million, or $2.45 per share of common stock, based on 13,457,188 shares of our common stock outstanding at December, 31, 2007. Our historical net tangible book value 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 December, 31, 2007. Dilution in net tangible book value represents the difference between the amount per share that you pay in this offering and the net tangible book value per share immediately after this offering.

        After giving effect to the conversion upon consummation of this offering of all of our outstanding shares of preferred stock into 77,890,909 shares of our common stock, and after giving effect to our sale in this offering of                        shares of our common stock 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 prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering costs payable by us, our as adjusted net tangible book value as of December 31, 2007 would have been $      million, or $      per share of our common stock. This represents an immediate increase of net tangible book value of $      per share to our existing stockholders and an immediate dilution of $      per share to investors purchasing shares in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share					$
	Net tangible book value per share at December 31, 2007, before giving effect to this offering	$	(2.45	)
	Increase per share attributable to conversion of all outstanding shares of convertible preferred stock		2.93
	Increase per share attributable to investors purchasing shares in this offering
Net tangible book value per share, as adjusted to give effect to this offering
Dilution to investors in 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 prospectus) would increase or decrease our adjusted net tangible book value by approximately $      million, the adjusted net tangible book value per share after this offering by approximately $      per share and the dilution in pro forma net tangible book value per share 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 prospectus, remains the same and after 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, the pro forma net tangible book value per share after giving effect to this offering would be $      per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $      per share.

        The following table summarizes, as of December, 31, 2007, the differences between the number of shares of common stock purchased from us, after giving effect the conversion of our Series A-1 and Series A-2 convertible preferred stock into common stock, the total effective cash consideration paid

50

and the average price per share paid 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 prospectus) before deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us:

		Shares Purchased			Total Consideration
									Average Price Per Share
		Number	Percent		Amount		Percent
Existing stockholders before this offering		91,348,097		%	$	78,940,642		%	$	0.86
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 prospectus) would increase or decrease total consideration paid by new investors, 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 prospectus, remains the same and after 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, our existing stockholders would own        % and our new investors would own            % of the total number of shares of our common stock outstanding after this offering.

        The above information assumes no exercise of stock options or warrants outstanding as of December 31, 2007, and excludes:

•

2,940,000 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2007 at a weighted average exercise price of $0.11 per share;



•

200,000 shares of common stock issuable upon the exercise of a warrant outstanding as of December 31, 2007 at an exercise price of $1.00 per share;



•

            shares of our common stock reserved for future issuance under our 2008 equity incentive award plan, which will become effective on the day prior to the day on which we become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (including 1,470,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares to be reserved under our 2008 equity incentive award plan upon the effectiveness of the 2008 equity incentive award plan); and



•

            shares of common stock reserved for issuance under our 2008 employee stock purchase plan, which will become effective upon the completion of this offering.

51

SELECTED FINANCIAL DATA

        The selected statement of operations data for the period from August 25, 2006 (inception) through December 31, 2006, the year ended December 31, 2007 and the period from August 25, 2006 (inception) through December 31, 2007, and the balance sheet data as of December 31, 2006 and 2007 have been derived from our audited financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of future results. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

			Period from August 25, 2006 (Inception) through December 31, 2006			Year ended December 31, 2007			Period from August 25, 2006 (Inception) through December 31, 2007
			(in thousands, except per share amounts)
Statement of Operations Data
Operating expenses:
	Research and development		$	4,902		$	24,323		$	29,225
	Selling, general and administrative			1,474			4,702			6,176
		Total operating expenses		6,376			29,025			35,401
Loss from operations				(6,376	)		(29,025	)		(35,401	)
Other income (expense):
	Interest income			395			927			1,322
	Interest expense			—			(484	)		(484	)
	Other financing income			582			906			1,488
	Other expense			—			(4	)		(4	)
Total other income (expense)				977			1,345			2,322
Net loss				(5,399	)		(27,680	)		(33,079	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock				—			(18,360	)		(18,360	)
Net loss applicable to common stockholders			$	(5,399	)	$	(46,040	)	$	(51,439	)
Basic and diluted net loss applicable to common stockholders(1)			$	(1.34	)	$	(8.85	)
Shares used to calculate net loss applicable to common stockholders(1)				4,043			5,205
Pro forma net loss per share, basic and diluted(1)						$	(0.65	)
Shares used to calculate pro forma net loss per share(1)							42,331

(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.

52

		December 31,
		2006			2007
		(in thousands)
Balance Sheet Data:
	Cash and cash equivalents and investment securities, available for sale	$	22,103		$	43,255
	Working capital		20,035			38,836
	Total assets		26,942			53,007
	Long-term debt, less current portion		—			2,870
	Convertible preferred stock		27,110			76,955
	Deficit accumulated during the development stage		(5,399	)		(33,079	)
	Total stockholders' equity (deficit)		(5,385	)		(32,926	)

53

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 specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. Our lead product candidate, sumatriptan DosePro, enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. We submitted a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If sumatriptan DosePro is approved by the FDA, we intend to build our own focused sales force in the United States and launch the product in the first quarter of 2009. Our second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and we anticipate initiating the Phase 3 clinical program in the second half of 2008.

        Until sumatriptan DosePro is approved, we will be considered to be in the development stage. In addition, we have experienced losses since inception, and as of December 31, 2007, had an accumulated deficit of $33.1 million. We expect to continue to incur losses for the next several years, even if we obtain approval of sumatriptan DosePro and commercialize that product. Successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. Until that time, we will continue to need to raise additional capital through debt or equity financing. We believe that we have sufficient capital to fund operations through at least December 31, 2008.

        Our failure to obtain approval of sumatriptan DosePro by the FDA would have a material adverse effect on our business, results of operations, cash flows and financial condition.

Revenues

        We have not generated any revenues to date, and we do not expect to generate any revenues from product sales, licensing or achievement of milestones until we are able to commercialize our product candidates or execute a collaboration arrangement.

Research and Development Expenses

        The majority of our operating expenses to date have been incurred for research and development activities. Our research and development expenses consist primarily of costs associated with pre-clinical testing, clinical development and the manufacturing development of sumatriptan DosePro. These expenses include payments to vendors such as contract manufacturing organizations, or CMOs, investigators, suppliers of clinical drug materials and related consultants. Salaries and related employee benefits for certain personnel, and costs associated with certain non-clinical activities such as regulatory expenses, are also included in these expenses. We charge all research and development expenses to operations as incurred.

54

        The following table illustrates, for each period presented, our research and development costs broken down by major categories of the cost:

			Period from August 25, 2006 (Inception) through December 31, 2006		Year ended December 31, 2007		Period from August 25, 2006 (Inception) through December 31, 2007
			(in thousands)
Research and development expenses:
	Manufacturing development expenses		$	2,747	$	13,701	$	16,448
	Clinical/regulatory expenses			835		10,622		11,457
	Purchased in-process research and development			1,320		—		1,320
		Total	$	4,902	$	24,323	$	29,225

        While we are currently focused on advancing each of our product development programs, our future research and development expenses will depend on the design of our clinical trials, the results of these trials and ongoing assessments as to each product candidate's commercial potential. In addition, we cannot forecast with any degree of certainty which product candidates will be subject to future partnership arrangements, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and expenses.

Selling, General and Administrative Expenses

        To date, our selling expenses, which include sales and marketing costs, have consisted primarily of salaries, benefits, consulting fees and market research studies related to preparing strategically for the potential launch of our product candidates. In 2008, we intend to expand our commercial infrastructure, including sales and marketing management, and to hire a portion of our sales representatives. We anticipate increases in selling and marketing expenses as we add these personnel, develop our professional and patient advertising and promotional materials, continue market research, purchase market data and begin our outreach to the wholesale and retail distribution channels, in preparation for the potential launch of sumatriptan DosePro.

        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 professional fees for legal, consulting and accounting services. We anticipate increases in general and administrative expenses as we add personnel and continue to build our corporate infrastructure to support our continued development, prepare for the potential commercialization of our product candidates and comply with the reporting and other obligations applicable to public companies.

Interest Income

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

Interest Expense

        Interest expense consists of interest incurred in connection with our $10.0 million loan and security agreement with General Electric Capital Corporation, or GE Capital, and non-cash interest expense associated with the increase in the fair value of the common stock issuable upon the exercise of a warrant issued to GE Capital.

55

Other Financing Income

        Other financing income represents the changes in the estimated fair value of our obligation resulting from a right granted to the investors of Series A-1 convertible preferred stock. This right obligates us to deliver additional shares of Series A-1 convertible preferred stock at a specified price in the future, prior to the achievement of specified milestones, at the option of the investors holding at least 67% of the then-outstanding Series A-1 convertible preferred shares. At each reporting date, we determine the estimated fair value of this obligation using a valuation model which considers the probability of achieving the specified milestones, our cost of capital, the estimated time period the right will be outstanding, consideration received for the instrument with the right, the number and price of shares to be issued to satisfy the right and any changes in the fair value of the underlying instrument of the right.

Other Expense

        Other expense consists of foreign currency transaction gains and losses and state franchise taxes.

Net Operating Losses and Tax Credit Carryforwards

        As of December 31, 2007, we had federal and state net operating loss carryforwards of approximately $32.2 million. 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, 2007, we had federal and state research and development tax credit carryforwards of approximately $269,000 and $283,000, 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, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. Any such annual limitation may significantly reduce the utilization of the net operating losses before they expire. 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.

Beneficial Conversion Feature

        During December 2007, we completed the sale of 23,025,000 shares of Series A-1 convertible preferred stock and 9,090,909 shares of Series A-2 convertible preferred stock for net proceeds of approximately $23.0 million and $9.9 million, respectively. The Series A-1 and Series A-2 convertible preferred stock were sold at prices per share below the estimated fair value of our common stock. Accordingly, pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features, we recorded a deemed dividend on the Series A-1 and Series A-2 convertible preferred stock of $18.4 million which is equal to the number of shares of Series A-1 and Series A-2 convertible preferred stock sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series A-1 and Series A-2 issuance price per share.

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. 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.

56

        We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Stock-Based Compensation

        On January 1, 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the requisite service period, which is generally the vesting period. While we adopted SFAS No. 123(R) prospectively for new equity awards issued subsequent to January 1, 2006, we did not issue our first stock based awards until February 2007.

        Under SFAS No. 123(R), we calculate the fair value of stock option grants using the Black-Scholes option-pricing model which requires the use of certain assumptions. The weighted average assumptions used in the Black-Scholes model were 6.0 years for the expected term, 77% for the expected volatility, 4.6% for the risk free rate and 0% for dividend yield for the year ended December 31, 2007. Future expense amounts for any particular quarterly or annual period could be affected by changes in our assumptions.

        The weighted average expected option term for 2007 reflects the application of the simplified method set out in the SEC's Staff Accounting Bulletin, or SAB, No. 107 which was issued in March 2005. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option grants.

        Estimated volatility for fiscal year 2007 also reflects the application of SAB No. 107 interpretive guidance and, accordingly, incorporates historical volatility of a peer group of similar public entities.

        At December 31, 2007, total unrecognized share-based compensation costs related to non-vested option awards was $1.1 million and is expected to be recognized over a weighted average period of 3.5 years.

        As of December 31, 2007, there were outstanding options to purchase 2,940,000 shares of common stock. Of these, options to purchase 380,000 shares were vested and exercisable with a weighted-average exercise price of $0.07 per share and options to purchase 2,560,000 shares were unvested with a weighted-average exercise price of $0.11 per share. The intrinsic value of outstanding vested and unvested options based on an estimated initial public offering price of $1.91 per share was $5.3 million.

        We initiated preparation for our initial public offering on January 18, 2008. In connection with the preparation of our financial statements necessary for the initial public offering as contemplated by the filing of this prospectus and based on the preliminary valuation information presented by the underwriters of this offering, we retrospectively reassessed the estimated fair value of our common stock in light of the potential completion of this offering. This reassessment assumed that the completion of this offering would be contingent on the FDA accepting our NDA filing for sumatriptan DosePro and the same agency setting a Prescription Drug User Fee Act, or PDUFA, review date, which occurred in March 2008. The valuation methodology that most significantly impacted our reassessment of fair value at December 31, 2007 was our market-based assessment of the valuation of existing comparable small capitalization, recently public biopharmaceutical companies along with the valuation information presented by the underwriters. In determining the reassessed fair value of our common stock during 2007, we established $1.60 as the reassessed fair value at December 31, 2007, after we applied a 15% discount to the offering price management estimated for our common stock based on its discussion with underwriters and based on comparables. The discount represents our assessment of the market adjustment for the risk involved in not completing our initial public offering due to delays in, or

57

rejection of, the submission of our NDA for sumatriptan DosePro by the FDA. With the acceptance of the filing of the NDA for sumatriptan DosePro by the FDA, the discount will no longer be considered in determining the estimated fair value of our common stock.

        We also then reassessed our estimate of fair value for the period from February 13, 2007, the grant date of our first stock options, to December 31, 2007 based on the nature of our operations, our achievements in executing against our operating plan during 2007 and the impact that achievement of unique milestones had on our valuation during the various points in time before the reassessment, including:

•

during September 2007, we raised an additional $15.0 million in a second tranche of our Series A-1 convertible preferred stock, selling 15,000,000 shares at $1.00 per share;



•

as of September 30, 2007, management performed a valuation of our common stock following the completion of the financing discussed above;



•

during November 2007, we entered into an agreement with Elan to in-license the exclusive U.S. rights to ZX002, a product candidate for which we expect to initiate a Phase 3 clinical program in the second half of 2008;



•

during December 2007, we raised an additional $15.0 million in a third tranche of Series A-1 convertible preferred stock, selling 15,000,000 shares at $1.00 per share, and we also raised $18.0 million, selling $8.0 million of our Series A-1 convertible preferred stock to our existing investors at $1.00 per share and $10.0 million of Series A-2 convertible preferred stock to a new investor at $1.10 per share; and



•

on December 28, 2007, we submitted our NDA to the FDA for sumatriptan DosePro.

        Stock-based compensation expense for the period from February 1, 2007 to December 31, 2007 includes the difference between the reassessed fair value per share of our common stock on the date of grant and the exercise price per share and is amortized over the vesting period of the underlying option, generally four years, using the straight-line method. There are significant judgments and estimates inherent in the determination of the reassessed fair values. For this and other reasons, the reassessed fair value used to compute the stock-based compensation expense may not be reflective of the fair market value that would result from the application of other valuation methods, including accepted valuation methods for tax purposes.

        During the period from February 1, 2007 to August 31, 2007, we granted options to employees to purchase a total of 3,872,500 shares of common stock at an exercise price of $0.05 per share and in November 2007 we granted options to employees to purchase 1,215,000 shares of common stock at $0.21 per share.

        The exercise prices for stock options granted to employees were originally established by our board of directors based on their determination of the fair value of our common stock. In addition, prior to issuing any stock options, management performed a contemporaneous valuation of our common stock as of December 31, 2006. The valuation was prepared using the guidance in the American Institute of Certified Public Accounting's Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. This process valued our total equity and then allocated it between our common stock and our preferred stock. To arrive at total equity value, the cost approach, the market approach, and the income approach were evaluated. The cost approach, which establishes value based on the cost of reproducing or replacing property, was deemed the most appropriate methodology because our assets consisted primarily of cash, and our very early stage of development. The market and income approaches were not considered as the uncertainty of the FDA approval process impacts the ability to predict future cash flows.

58

        Our management then used two approaches for allocating value among our common stock and our preferred stock: the option pricing method and the current value method. Under the option pricing method, the shares were valued by creating a series of call options with exercises based on the liquidation preference of the Series A-1 convertible preferred stock and the conversion behavior under certain scenarios. The Series A-1 convertible preferred stock receives its liquidation preference first and the common stock receives the remainder of the value, if any. Under the current value method, the total equity value determined by the cost approach is reduced by the liquidation preference of the Series A-1 convertible preferred stock to arrive at the value of the common stock. Management applied these methods and then assigned a weight to the resulting values. The per share value determined by the current value method was assigned a 90% weight because of our stage of development and the difficulty at the time in predicting the results of the FDA approval process for sumatriptan DosePro. The per share value determined by the option pricing method was weighted 10%. As a result the weighted value of the common stock at December 31, 2006 was determined to be $0.05 per share.

        The initial investors originally committed to purchase a total of approximately $60.8 million of Series A-1 convertible preferred stock in two tranches: $30.8 million at closing, and the remainder upon receiving a PDUFA date for the NDA for sumatriptan DosePro. Of the initial $30.8 million invested, most of the money was spent by August 31, 2007, leaving us with approximately two months of cash at our then cash burn rate. The rights, preferences and privileges of the preferred stock include a liquidation preference, dividend provisions, antidilution protective provisions and voting preferences, among other rights, while the common stock has none of these features. These preferences were considered significant especially with the Company's weak financial position and because the likelihood of achieving a liquidity event could not be determined, our board of directors concurred with the contemporaneous valuation prepared by management that the common stock only had a nominal fair value of $0.05 until September 6, 2007. On September 6, 2007, we and the investors amended the terms of the Series A-1 convertible preferred stock, purchasing a second tranche of $15.0 million based upon the progress that we had made to date even though the NDA for sumatriptan DosePro had not been submitted.

        In connection with our investors' decision in September 2007 to continue investing in us, management prepared a contemporaneous valuation of the common stock taking into account our financial performance during the first nine months of 2007, the stage of development, the investment of an additional $15.0 million under the Series A-1 preferred stock round, additional equity infusions in 2007, the potential license of the rights to ZX002, changes in market conditions in the form of recent acquisition transactions and revenue multiples of comparable companies with publicly traded shares. In addition, the valuation assumed a liquidity event in the fourth quarter of 2008. The contemporaneous valuation utilized the same methodology as the previous one done as of December 31, 2006, except that in determining the enterprise value, the market approach (market value determined based on the average market values of invested capital of guideline companies) was determined to be the most appropriate versus the cost and income approach. The enterprise value was then allocated to the common and preferred stock using the option pricing method. Our board of directors determined that the fair value of our common stock was $0.21 per share at September 30, 2007. Our board of directors also determined that no event had occurred since September 30, 2007 that might affect significantly that value and used the price of $0.21 per share as the exercise price of stock options granted in November 2007.

        In reassessing the fair values of our common stock in connection with this offering, we concluded that the value of the preferences of our Series A-1 convertible preferred stock should not be given as much weight and that the reassessed fair value of our common stock for financial reporting purposes starting with options granted on November 1, 2007 was $0.91 per share, the price at which we sold our Series A-1 convertible preferred stock in September 2007, less a 10% discount for the preferred preferences. The reassessed fair value of our common stock was increased from $0.91 per share to

59

$1.60 per share on November 27, 2007 following the execution of the license to ZX002 with Elan. This was considered one of the two key events in making us a candidate for an initial public offering. $1.60 per share represents the estimated fair value in an initial public offering of $1.91, less a 15% discount for the risk of successfully filing the NDA for sumatriptan DosePro with the FDA and successfully having the NDA accepted by the FDA. This is the second key milestone in enabling us to potentially complete an initial public offering.

        Based upon the reassessment discussed above, we determined that the reassessed fair value of the options granted through August 2007 to purchase an aggregate of 3,872,500 shares of common stock was $0.05, or equal to the exercise price; that the options to purchase 985,000 shares of common stock granted to employees on November 1, 2007 was $0.91 per share and that the options granted on November 27, 2007 to purchase 230,000 shares of common stock was $1.60 per share. Prior to September 30, 2007, when we completed the sale of our second tranche of Series A-1 convertible preferred stock, we were thinly capitalized and had not yet achieved any major milestones. Accordingly, we believe that the estimated fair value as determined by our board of directors to price stock options granted to employees through August 2007 was appropriate.

        Equity instruments issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123(R) and Emerging Issues Task Force 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period.

Impairment of Long-Lived Assets

        Long-lived assets consist of property and equipment. In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We also periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of all of our long-lived assets. The determinants used for this evaluation include our estimate of the asset's ability to generate positive income from operations and positive cash flow in future periods.

Results of Operations

Comparison of year ended December 31, 2007 to the four month period from August 25, 2006 (inception) through December 31, 2006

        Research and Development Expenses.    Research and development expenses increased to $24.3 million for the year ended December 31, 2007 compared to $4.9 million for the period ended December 31, 2006. This increase of $19.4 million primarily was due to:

•

an increase of approximately $10.9 million resulting from manufacturing costs related to services and supplies in the testing and manufacturing development of sumatriptan DosePro, inclusive of related salaries and personnel costs;



•

an increase of approximately $9.8 million in expenses associated with consulting services and regulatory filing fees in connection with the clinical trials of sumatriptan DosePro, the filing of the NDA for that product candidate and related salaries and personnel costs; and



•

a decrease of $1.3 million related to purchased in-process research and development costs incurred in connection with our purchase of the DosePro technology and assets from Aradigm Corporation in August 2006.

60

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $4.7 million for the year ended December 31, 2007 compared to $1.5 million for the period ended December 31, 2006. Our sales and marketing expenses increased $1.2 million due primarily to an increase in market research, branding and sales and marketing personnel costs in 2007.

        General and administrative expenses increased to $2.0 million primarily due to an increase in salaries and related costs as we expanded our general and administrative functions to support our operations, as well as legal fees, other professional fees and consulting fees.

        Interest Income.    Interest income increased to $927,000 for the year ended December 31, 2007 compared to $395,000 for the period ended December 31, 2006. This increase of $532,000 was due primarily to the increase in average cash and investment balances as a result of investing the proceeds received from the sale of Series A-1 and Series A-2 convertible preferred stock in September and December 2007 at prevailing interest rates.

        Interest Expense.    Interest expense increased to $484,000 for the year ended December 31, 2007 compared to zero for the period ended December 31, 2006. This increase of $484,000 was primarily due to the amortization of debt issuance and debt discount costs in connection with the $10.0 million loan and security agreement with GE Capital, interest on the $4.4 million borrowed under the loan and security agreement during 2007 and the increase in fair market value of the warrant to purchase Series A-1 convertible preferred stock issued to GE Capital.

        Other Financing Income.    Other financing income increased to $906,000 for the year ended December 31, 2007 compared to $582,000 for the period ended December 31, 2006. This increase of $324,000 was due to the decrease in the estimated fair value of our investors' right to purchase additional shares of Series A-1 convertible preferred stock primarily as a result of a decrease in the time in which the shareholders may exercise this right.

        Other Expense.    Other expense increased to $4,000 for the year ended December 31, 2007 compared to zero for the period ended December 31, 2006. This net increase of $4,000 was due to $29,000 in state franchise taxes offset by foreign currency translation gain of $25,000.

Liquidity and Capital Resources

        Since inception, our operations have been financed primarily through the sale of equity securities. Through December 31, 2007, we received aggregate net cash proceeds of approximately $78.5 million from the sale of shares of our preferred and common stock as follows:

•

from August 25, 2006 (inception) to December 31, 2007, we issued and sold a total of 13,457,188 shares of common stock for aggregate net cash proceeds of $141,000;



•

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; and



•

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 March 2007, we entered into a $10.0 million loan and security agreement with GE Capital for the purpose of financing our working capital. Under the agreement, we may borrow up to $10.0 million based on purchases of property and equipment at a floating interest rate equal the current Treasury Index plus 5.43%. We borrowed approximately $4.4 million under two promissory notes during the year ended December 31, 2007. Monthly payments pursuant to borrowings advanced for capital additions are generally required to be made over a 47 month period beginning on the date of the advance. The

61

outstanding balance is collateralized by specific manufacturing equipment owned by us. There are no financial covenants in connection with the loan agreement.

        In March 2008, we entered into a non-binding term sheet regarding a loan proposal with Oxford Finance Corporation, or Oxford. Under the term sheet, we expect to be able to borrow $18.0 million upon the execution of a loan and security agreement with Oxford. However, there can be no assurance that we and Oxford will reach a mutually acceptable definitive agreement.

        Cash and Cash Equivalents.    As of December 31, 2007, we had $41.5 million in cash and cash equivalents and an additional $1.7 million in investment securities, available-for-sale. We have invested a substantial portion of our available cash in money market funds placed with reputable financial institutions for which credit loss is not anticipated, and also in corporate debt obligations. In addition, we have established guidelines relating to the diversification and maturities of our investments to preserve principal and maintain liquidity.

        Operating Activities.    Net cash used in operating activities was $4.1 million and $26.8 million for the period ended December 31, 2006 and for the year ended December 31, 2007, respectively. Net cash used in each of these periods 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 $11.1 million for the period ended December 31, 2006 compared to net cash provided by investing activities of $1.0 million for the year ended December 31, 2007. These amounts are the result of the purchase of property and equipment and the net purchases, sales and maturities of investment securities.

        Financing Activities.    Net cash provided by financing activities was $30.5 million and $52.0 million for the period ended December 31, 2006 and for the year ended December 31, 2007, respectively. Net cash provided in each of these periods were derived from the sale of Series A-1 convertible preferred stock for aggregate net proceeds of $30.5 million for the period ended December 31, 2006, and the sale of Series A-1 and Series A-2 convertible preferred stock for aggregate net proceeds of $47.9 million for the year ended December 31, 2007. In addition, we received $141,000 from the issuance of our common stock and drew down a total of $4.4 million under the loan and security agreement with GE Capital in March and December 2007. During 2007, we made repayments of $483,000 towards this loan.

        We cannot be certain if, when or to what extent we will receive cash inflows from the commercialization of our product candidates. We expect our development and commercialization expenses to be substantial and to increase over the next few years as we continue the advancement of our product candidates.

        To the extent that funds generated by this offering, together with existing cash and cash equivalents, cash from operations and funds available under our loan and security agreement, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. 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. Additional funds may not be available on terms favorable to us or at all. Although it is difficult to predict future liquidity requirements, we believe that the funds generated by this offering, together with existing cash and cash equivalents, cash from operations and funds available under our loan and security agreement, are sufficient to fund our activities for the next twelve months.

62

Contractual Obligations and Commitments

        The following table describes our long-term contractual obligations and commitments as of December 31, 2007:

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(in thousands)
Debt obligations(1)	$	4,063	$	1,007	$	3,030	$	26	$	—
Debt interest(2)		772		354		418		—		—
Operating lease obligations(3)		1,529		433		1,096		—		—
Purchase obligations(4)		5,817		5,817		—		—		—
Total	$	12,181	$	7,611	$	4,544	$	26	$	—

(1)

Represents principal payments due in each period on our loan and security agreement with GE Capital. Principal payments under the agreement are approximately: $1.0 million in 2008, $1.1 million in 2009, $1.3 million in 2010, $648,000 in 2011 and $26,000 million in 2012.

(2)

Includes the interest on regular scheduled debt payments to GE Capital at an annual rate of 10.08% on the first draw down of $3.5 million beginning in March 2007 and at an annual rate of 9.91% on the second draw down of $1.0 million beginning in December 2007.

(3)

Includes the minimum rental payments for our San Diego, California office pursuant to a sublease entered into in March 2007 and expiring in May 2010, which office houses our general and administrative, sales and marketing operations personnel. Also includes the minimum rental payments for our Emeryville, California, office pursuant to a lease entered into in July 2007 and expiring in November 2011, which office houses our research and product development operations personnel. The rent for each of our facilities also includes a 3.0% annual increase for the duration of the lease or sublease.

(4)

This amount represents open purchase orders related to contract manufacturing services and manufacturing equipment construction in progress.

        Under our asset purchase agreement with Aradigm Corporation and our license agreement with Elan Pharma International Ltd., we may be required to pay specified amounts upon the achievement of certain milestones. We also enter into agreements with third parties to manufacture our product candidates, conduct our clinical trials and perform data collection and analysis. Our payment obligations under these agreements depend upon the progress of our development programs. Therefore, we are unable at this time to estimate with certainty the future costs we will incur under these agreements.

Recent Accounting Pronouncements

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles ("GAAP"), and expands disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, which for us is fiscal year 2008. Because SFAS No. 157 does not require any new fair value measurements or re-measurements of previously computed fair values, we do not believe the impact of adopting SFAS No. 157 on our financial statements will be material.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"), which permits entities the option to measure certain financial assets and liabilities at fair value. SFAS No. 159 will be effective for fiscal years beginning after November 15, 2007, which is our fiscal year 2008. We are in the process of evaluating the potential impact of adopting SFAS No. 159 on our financial statements.

63

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 December 31, 2007 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. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of that security will probably decline. To minimize this risk, we intend to continue to maintain our portfolio of cash and money market funds. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

Foreign Exchange Risk

        We are exposed to a number of risks relating to fluctuations in foreign currencies. Certain payments to our suppliers are denominated in the Euro and U.K. pounds sterling. Fluctuations in the exchange ratio of the U.S. dollar and these foreign currencies will have the effect of increasing or decreasing our expenses even if there is a constant amount of expense in such foreign currencies. For example, if the U.S. dollar weakens against a foreign currency, then our expenses will increase given a constant payment amount in such foreign currency. We do not currently hedge our foreign currency exchange rate risk. Because most of our obligations to foreign vendors are denominated in U.S. dollars, we do not believe that a change in the value of the U.S. dollar against foreign currencies would have a material impact on our operating results and financial condition.

64

BUSINESS

Overview

        We are a specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. Our lead product candidate, sumatriptan DosePro™, enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. We submitted a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If sumatriptan DosePro is approved by the FDA, we intend to build our own focused sales force in the United States and launch the product in the first quarter of 2009. Our second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and we anticipate initiating the Phase 3 clinical program in the second half of 2008.

        Our DosePro technology is a novel drug delivery system that subcutaneously delivers a pre-filled, single dose injection of a drug through an easy-to-use, needle-free device that can be self-administered. Preliminary pre-clinical and clinical studies demonstrate that DosePro can be used with small molecules and biological products, including protein therapeutics and monoclonal antibodies. We plan to build our internal product pipeline by investigating proven drugs that can be paired with DosePro to enhance their benefits and commercial attractiveness. We also plan to seek opportunities to in-license or acquire products and product candidates in the areas of central nervous system, or CNS, disorders and/or pain, with a focus on products and product candidates that utilize novel technologies to improve the profile of existing compounds. In both cases, we plan to focus on marketed compounds whose commercial potential has been limited by safety concerns, relative efficacy or patient adherence. In addition, we may further seek to capitalize on our DosePro technology by out-licensing it to potential partners seeking to enhance, differentiate, or extend the life cycle of their own injectable products.

Sumatriptan DosePro

Sumatriptan DosePro utilizes our proprietary DosePro needle-free drug delivery system to subcutaneously administer sumatriptan for the treatment of migraine and cluster headache. Sumatriptan DosePro is a fast acting therapy that patients can self-administer in three easy steps. Sumatriptan, the active ingredient in sumatriptan DosePro, is currently marketed under the brand name Imitrex by GlaxoSmithKline. Sumatriptan has been in clinical use for over 15 years for the safe and effective treatment of migraine and cluster headache and is currently available as a tablet, nasal spray and subcutaneous injection. Injectable sumatriptan provides the fastest onset and most complete migraine relief of any form of migraine therapeutic, including all oral and nasal triptans. The currently available injectable form of sumatriptan is delivered by a traditional needle injection primarily as the branded Imitrex STATdose System, or Imitrex STATdose. However, the needle-based forms of injectable sumatriptan have several use-limiting characteristics such as patient fear of needles, needlestick risk and complexity of use.

        Migraine is a syndrome that affects approximately 30 million people in the United States and is characterized by four major symptoms: pain, nausea and abnormal sensitivity to both sound and light. Triptans, the class of drugs most often prescribed for treating migraines, generated 2007 sales of approximately $2.8 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Imitrex is the market leading triptan brand, with 2007 sales of approximately $1.6 billion in the United States. Of that amount, the injectable forms of sumatriptan accounted for $274 million, of which Imitrex STATdose accounted for $242 million.

        In clinical bioequivalence studies comparing sumatriptan DosePro to Imitrex STATdose injection, sumatriptan DosePro, when administered to the thigh or abdomen, provided the same rapid peak in sumatriptan blood levels that correlates with speed of migraine relief and overall drug effectiveness.

65

Due to its ease of use and lack of a needle, we believe that sumatriptan DosePro may address many of the fears and concerns that have limited needle-based administration. Given the unique attributes of sumatriptan DosePro, we believe it has the potential to be used not only as a replacement for other injectable forms of sumatriptan but also as a faster acting, more efficacious alternative to oral and nasal triptans. Based on published clinical research, we believe sumatriptan DosePro also has the potential to be effective for the approximately 30% of patients who fail to respond to an oral or nasal triptan. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. We anticipate receiving tentative approval from the FDA in late 2008, and expect to receive final approval and launch this product candidate in the United States after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009. In Europe and other select countries, we have licensed commercialization rights to Desitin Arzneimittel GmbH, or Desitin, which will be responsible for obtaining regulatory approval and marketing sumatriptan DosePro if approved.

ZX002

        ZX002, our proprietary oral version of the opioid pain reliever hydrocodone, is designed to offer a controlled release profile that combines immediate release and extended release properties, using Elan Pharma International Ltd.'s proprietary Spheroidal Oral Drug Absorption System, or SODAS. We believe these attributes have the potential to provide similar onset, but longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. Presently, hydrocodone is only available in immediate release product forms that are commonly dosed four to six times per day to provide pain relief. Additionally, existing hydrocodone products, including the branded products Vicodin, Lortab and Vicoprofen, and their generic equivalents, contain analgesic combination ingredients such as acetaminophen or non-steroidal anti-inflammatory drugs, or NSAIDs, which if taken in high quantities over time can lead to serious side effects such as liver toxicity and gastrointestinal damage. ZX002, if successfully developed, may represent the first available "single entity" controlled release version of hydrocodone that is not combined with acetaminophen or an NSAID. By eliminating the combination analgesic ingredient and by using a controlled release profile, ZX002 removes the potential limitations of existing hydrocodone combination formulations and allows for less frequent dosing. We in-licensed exclusive U.S. rights to ZX002 from Elan Pharma International Ltd. in November 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 as prescription non-injectable codeine-based and extended release morphine-based pain products. This market generated 2007 U.S. sales of approximately $9.7 billion, based on average wholesale price, on approximately 185 million prescriptions, according to data published by Wolters Kluwer Health. During the same period, existing hydrocodone products, the most commonly prescribed opioid pain products, generated $2.5 billion in sales representing growth of 18.3% since 2006.

        As a result of its unique controlled release single entity profile, we believe ZX002 will generate sales from both the immediate release and extended release segments of the prescription opioid market. In single and multiple dose pharmacokinetic evaluations, ZX002 demonstrated detectable plasma concentrations of hydrocodone within 15 minutes. ZX002 also demonstrated a sustained release effect significantly longer than currently available hydrocodone combination products such as Vicodin, dose proportional pharmacokinetics and an acceptable safety profile. In a Phase 2 chronic pain study, ZX002 demonstrated a reduction in pain intensity for chronic moderate to severe osteoarthritis pain patients across multiple dosage strengths and a clinically acceptable safety profile. We anticipate having an End of Phase 2 meeting with the FDA in June 2008, and pending the outcome of that meeting, plan to proceed with the Phase 3 clinical program in the United States in the second half of 2008. The

66

program will be designed to evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

Our Strategy

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

•

Obtain regulatory approval for our most advanced product candidate, sumatriptan DosePro for the treatment of migraine.    We submitted our NDA for sumatriptan DosePro in December 2007, and we anticipate receiving tentative approval from the FDA in late 2008. We expect to receive final approval and launch this product candidate after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009.



•

Build a focused sales and marketing infrastructure to commercialize sumatriptan DosePro.    We intend to establish our commercial infrastructure, including marketing and sales management, in 2008. We plan to build a targeted sales force of approximately 100 representatives in the United States to promote sumatriptan DosePro at its commercial launch. Our sales force will target the top triptan prescribers including neurologists, headache specialists and key primary care physicians. We intend to launch this product candidate as soon as possible after receiving final FDA approval.



•

Expand the market opportunity for sumatriptan DosePro through commercial partnerships.    In order to expand the U.S. commercial opportunity of sumatriptan DosePro, we will seek to establish partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience than can be reached by our planned sales force alone. Outside the United States, we have established a commercial partnership for sumatriptan DosePro with Desitin for the European Union and other select countries in order to accelerate development and regulatory approvals in those countries and further enhance the commercial potential of this product candidate.



•

Develop and commercialize ZX002 for the treatment of moderate to severe chronic pain.    Pending the outcome of our End of Phase 2 meeting with the FDA, we plan to initiate the Phase 3 clinical trial program for ZX002 in the second half of 2008. Our Phase 3 clinical program for ZX002 will focus 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 to support the commercialization of ZX002.



•

Expand our product pipeline in CNS and/or pain.    We intend to expand our pipeline by leveraging our proprietary DosePro technology and by in-licensing or acquiring products and product candidates. We are evaluating compounds that could be paired with DosePro to enhance their benefits and commercial attractiveness. We also continue to evaluate in-licensing or acquisition opportunities in the areas of CNS and/or pain, with a focus on product candidates that utilize novel technologies to improve the profile of existing compounds. In both cases, we plan to focus on marketed compounds whose commercial potential has been limited by safety concerns, relative efficacy or patient adherence.



•

Seek to out-license our proprietary DosePro technology.    We will seek 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 both currently marketed products and development stage product candidates. We believe the results of preliminary pre-clinical and clinical studies support the use of DosePro for the delivery of small

67

molecules and biological products including therapeutic proteins, monoclonal antibodies and growth factors. We believe DosePro may have significant market potential across a broad range of therapeutic areas, including those typically treated with injectable products, such as hepatitis, infertility, multiple sclerosis and rheumatoid arthritis.

Our Product Candidates

Sumatriptan DosePro for the Treatment of Migraine

Sumatriptan DosePro is a new drug-device combination that subcutaneously delivers sumatriptan utilizing our proprietary DosePro needle-free drug delivery system to treat migraine attacks with or without aura and cluster headache episodes. Sumatriptan DosePro is a fast acting, easy-to-use therapy that patients can self-administer. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. We anticipate receiving FDA tentative approval in late 2008, and expect to receive final approval and launch sumatriptan DosePro after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009. Given the unique attributes of sumatriptan DosePro, we believe it has the potential to be used as a replacement for other injectable forms of sumatriptan and also as a faster acting, more efficacious alternative to tablet and nasal triptans.

Migraine Market

        Migraine is a chronic and common neurovascular disorder characterized by episodic attacks. According to a 2004 report from the National Headache Foundation, approximately 30 million people in the United States suffer from migraines. Both men and women experience migraine, although women are three times more likely to suffer from it. Migraine attacks typically manifest themselves as moderate to severe headache pain, with symptoms that often include nausea and vomiting, abnormal sensitivity to light and sound, and visual disturbances or aura. Migraines limit the normal daily functioning of patients, who often seek dark, quiet surroundings until the episode has passed. According to the International Headache Society criteria for migraine without aura, the duration of untreated or unsuccessfully treated migraine episodes ranges from 4 to 72 hours. Published studies suggest the median duration of an untreated migraine is approximately 24 hours. The median frequency of attack is 1.5 times per month, although approximately 25% of migraine sufferers experience one or more attacks every week. Approximately 60% of migraine patients self-treat with over-the-counter medications and do not seek professional help to treat their migraines, according to the American Migraine Study II.

        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. 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, to maintain the patient's ability to function, to use the least amount of medication and to limit adverse side effects.

        Triptans, the class of drugs most often prescribed for treating migraine and cluster headaches, generated 2007 sales of approximately $2.8 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Approximately 94% of U.S. triptan doses are for oral formulations, with the remaining 6% split between injectable and nasal formulations. Of the approximate $2.8 billion triptan market in the United States, oral, nasal and injectable formulations accounted for approximately $2.5 billion, $114 million and $274 million of sales in 2007, respectively. Imitrex, launched in 1993, was the first triptan approved and remains the market leader of the seven

68

triptan brands, with 2007 sales of approximately $1.6 billion in the United States. Of that amount, the injectable forms of sumatriptan accounted for $274 million, of which Imitrex STATdose accounted for $242 million. In the five major countries of Europe—France, Germany, Italy, Spain and the United Kingdom—triptans generated total sales for the 12 month period ended June 30, 2007 of approximately $550 million, 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. Globally, sumatriptan is the only triptan available to patients in the injectable form.

        Injectable sumatriptan, currently marketed as Imitrex single dose vials and Imitrex STATdose, is a traditional needle-based injection for the subcutaneous administration of sumatriptan. It has been in clinical use for over 15 years for the safe and effective treatment of migraine. It is generally used for fast-onset migraine, migraine which has progressed to severe pain, migraine associated with extreme nausea, or early morning migraine.

Limitations of Current Prescription Migraine Therapies

        The type of migraine treatment pursued depends on the frequency and severity of the headache, 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 medication. The current treatment paradigm typically involves patients self-medicating with over-the-counter drugs when pain is mild and attacks are infrequent. 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 has diagnosed migraine, oral triptans are generally prescribed. Approved in December 1992 and launched in early 1993, Imitrex (injectable sumatriptan) was the first triptan introduced in the United States. Subsequently, a total of seven triptan drugs have been marketed in the United States. If a patient does not respond to one triptan product, the physician may switch to another since the response to various triptans varies from patient to patient.

        The following table includes data from the package inserts for the different formulations of marketed triptans:

Table 1: Triptan Package Insert Data

Form/Triptan		Tmax	Relief at 2 hrs
Injection
	Imitrex (sumatriptan)	12 minutes	82	%
Nasal
	Imitrex (sumatriptan)	Not provided	43-64	%
	Zomig (zolmitriptan)	3.0 hrs	69-70	%
Fastmelt
	Zomig (zolmitriptan)	3.0 hrs	63	%
	Maxalt (rizatriptan)	1.6-2.5 hrs	59-74	%
Tablets
	Imitrex (sumatriptan)	2.0-2.5 hrs	50-62	%
	Zomig (zolmitriptan)	1.5 hrs	59-67	%
	Maxalt (rizatriptan)	1.0-1.5 hrs	60-77	%
	Amerge (naratriptan)	2.0-3.0 hrs	50-66	%*
	Axert (almotriptan)	1.0-3.0 hrs	55-65	%
	Frova (frovatriptan)	2.0-4.0 hrs	37-46	%
	Relpax (eletriptan)	1.5-2.0 hrs	47-77	%

*

Amount represents relief at 4 hours.

69

        This table compares the Tmax and two-hour pain relief of oral forms, including fastmelt and tablets, and nasal forms of triptans to the injectable form. Tmax is the time to maximum concentration of the triptan in the patient's blood. Tmax is closely correlated to speed of onset of pain relief, and has also been shown to be correlated with completeness of pain relief over time. Relief at two hours is the standard endpoint used in migraine studies and represents the percentage of patients reporting a reduction of migraine symptoms from a classification of severe or moderate down to mild or none within two hours after taking the medication.

        Limitations of oral and nasal triptan formulations include:

•

Slower onset of pain relief.    As shown in Table 1, compared to Imitrex injection, each oral and nasal triptan has a longer Tmax, which studies show is correlated with a slower onset of action.



•

Lower degree of pain relief.    As shown in Table 1, oral and nasal triptans have a lower percentage of patients reporting pain relief at two hours as compared to Imitrex injection.



•

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, the nasal spray can be unpleasant in taste and sensation.

        Despite its faster onset and improved pain relief over oral and nasal triptans, Imitrex injection has been limited to less than 10% of the triptan market on a dollar basis and less than 3% on a total dose basis. We believe this is largely due to limitations related to its delivery system which include:

•

Needle-based.    According to multiple market research studies, approximately 50% of patients refuse to use a needle-based injectable product for migraine, specifically citing the issue of needle anxiety or fear, or a lack of confidence in their ability to administer an injection correctly.



•

Needlestick risk.    Needle-based systems may require special handling and needle disposal containers to avoid needlestick injuries.



•

Cumbersome to use.    Imitrex STATdose requires more than 15 steps 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. Further, market research finds that physicians report that the training required for Imitrex STATdose is a barrier to prescribing.

Our Solution: sumatriptan DosePro

Sumatriptan DosePro is a pre-filled, single-use disposable, needle-free drug delivery system designed to deliver 6 mg of sumatriptan in 0.5mL of sterile liquid. Sumatriptan is delivered subcutaneously from DosePro in three easy steps. To use, the patient snaps off a plastic tip, flips back a lever and presses the end of the device to the skin of the abdomen or thigh. Under the pressure of a small amount of compressed nitrogen gas, the liquid form of sumatriptan is expelled out of the device as a thin jet of the medication which pierces the skin and deposits into the subcutaneous tissue. This process occurs in less than 1/10th of a second.

        Due to the unique attributes of sumatriptan DosePro, we believe it has the potential to be used not only as a replacement for other injectable forms of sumatriptan but also as a faster acting, more efficacious alternative to oral and nasal triptans. Sumatriptan DosePro may provide patients with the following benefits when compared to existing oral and nasal triptan formulations:

•

Rapid onset of relief.    As shown in Table 1 above, Imitrex injection has the shortest Tmax, which studies show is correlated to the fastest onset of relief. The administration of sumatriptan via our DosePro needle-free subcutaneous delivery system has been shown to have a comparable

70

pharmacokinetic profile as Imitrex injection in a pivotal clinical trial. This pharmacokinetic profile has been correlated with onset of pain relief in as little as 10 minutes, which is substantially faster than onset of pain relief for oral and nasal triptans.

•

Degree of relief.    As shown in Table 1 above, Imitrex injection has the highest percent of patients reporting pain relief at 2 hours. In addition to 82% of patients showing pain relief at 2 hours, according to the approved labeling for Imitrex injection, 70% of Imitrex injection patients have pain relief at 1 hour and 65% report they are completely pain free at 2 hours.



•

Help for triptan tablet non-responders.    Independent published clinical data suggest 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 2 of their last 3 migraines were given Imitrex injection for their next migraine. Of these patients, 91% reported pain relief at 2 hours.



•

Palatable delivery system.    The unpleasant smell, taste and sensations resulting from the use of oral or nasal triptans may result in the discontinuation of their use. We believe sumatriptan DosePro provides the drug in a delivery system palatable to patients because it does not involve smell, taste or swallowing.

        We believe that sumatriptan DosePro also provides the following benefits when compared to existing injectable sumatriptan products:

•

Simplicity, through a new, convenient and easy-to-use option.Sumatriptan DosePro is based on our unique delivery system. The portable device is pre-filled with a single dose, can be quickly administered in three easy steps and is then disposable. Sumatriptan DosePro is intuitive and easy-to-use, which may result in increased patient acceptance and adherence to the prescribed regimen. We believe healthcare providers will also appreciate the simplicity of DosePro because it will be easy to train patients to use properly. Our usability study showed 98% of patients were able to self-administer sumatriptan 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 sumatriptan DosePro may eliminate the basis for needle phobia and fear. Additionally, it removes the risks of cross-contamination from needle-stick 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 versus the European branded version of Imitrex STATdose, a needle-based delivery system, 61% of migraine patients preferred using sumatriptan DosePro while only 18% preferred using the European branded version of Imitrex STATdose over sumatriptan DosePro, with the remaining patients expressing no preference.

Sumatriptan DosePro Clinical Development Program

        Since sumatriptan is well-characterized and has been previously approved, we have sought FDA marketing approval of sumatriptan 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 has expedited the development program for sumatriptan DosePro by decreasing the overall scope of clinical and pre-clinical work required to be completed by us.

71

        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, we have concluded that sumatriptan DosePro is bioequivalent to injectable sumatriptan administered in the thigh or abdomen using Imitrex STATdose and is well tolerated when compared to this reference listed product. We completed all clinical work that we believe was required for NDA submission and submitted our NDA in December 2007. Our NDA was subsequently accepted for filing by the FDA in March 2008.

        DosePro and sumatriptan DosePro Clinical Experience.    The DosePro drug delivery system has been in development for more than ten years. Over this time, multiple clinical studies have been conducted to assure the proper functioning of the system. Approximately 9,000 injections have been delivered in clinical trials in healthy volunteers using the DosePro needle-free drug delivery system. The majority of these were saline injections, but also included are approximately 470 injections containing proteins or small-molecule drugs. Using the final or near-final configuration of the DosePro system, a total of 1,318 injections in 485 subjects were given in eight clinical trials. Approximately 66%, or 866, of these were saline injections and 34%, or 452, were with the liquid formulation of sumatriptan.

        Sumatriptan 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 sumatriptan DosePro in studies solely for pharmacokinetics, bioequivalence, safety, local injection site signs and reactions, and clinical injection performance. We conducted a single pivotal pharmacokinetics and bioequivalence clinical trial for the purpose of providing evidence of bioequivalence and safety of sumatriptan DosePro as compared to Imitrex STATdose. This study, completed in April 2007, was a randomized, open-label, cross-over trial comparing safety and pharmacokinetics in 54 subjects. The primary endpoint of bioequivalence was demonstrated in the commonly used abdomen and thigh injection sites. A separate patient usability study was conducted in the second half of 2007 to evaluate the usability of sumatriptan DosePro in patients during acute migraine attacks in an outpatient setting. In this study of 52 patients, 98% were able to use sumatriptan DosePro correctly during a migraine attack on their first attempt, thus confirming the product candidate's ease of use. Further use of sumatriptan DosePro by the same patients in their treatment of subsequent migraine attacks provided consistent evidence of usability in the outpatient setting. In addition, we conducted a safety trial with sumatriptan DosePro in December 2007 to study the effect of repeat dosing and multiple injections. Adverse events seen in our pivotal clinical studies are consistent with previously reported adverse events for injectable sumatriptan and include injection site reactions, unusual sensations, such as tingling and warm/hot sensations, dizziness and flushing. Our commercialization partner in the European Union and other selected countries, Desitin, expects to use these clinical trial results in seeking regulatory approval in Europe in addition to any other clinical studies which may be required to support such approval.

ZX002 for the Treatment of Moderate to Severe Chronic Pain

        ZX002 is our proprietary oral version of the opioid pain reliever hydrocodone, designed to offer a controlled release profile that combines immediate release and extended release properties, using Elan's proprietary SODAS System. We believe these attributes have the potential to provide similar onset, but longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. We believe ZX002 will generate sales from both the immediate release and extended release segments of the prescription opioid market. We anticipate having an End of Phase 2 meeting with the FDA in June 2008, and pending the outcome of that meeting, plan to initiate the Phase 3 clinical program in the second half of 2008. The program will evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

72

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. The most common causes of chronic pain include lower back pain, arthritis, headache, and face and jaw pain. While mild pain does not typically stop an individual from their daily activities, moderate pain may stop an individual from participating in their daily activities and severe pain stops an individual from participating in their daily activities and induces a patient to pain avoidance behaviors.

        Chronic pain treatment depends on the individual patient, their diagnosis, and their pain severity. Chronic pain patients typically first attempt self-medication with over-the-counter drugs such as acetaminophen, aspirin or another 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 then, if necessary, are referred to a neurologist, physical medicine, or pain specialist. 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 assess the patient and, if appropriate, start treatment with a trial of opioid therapy to determine the optimal opioid regimen. 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 consistent pain relief. In theory, the more consistent opioid blood levels of extended release products may provide more consistent 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 very effective for pain treatment, are associated with numerous 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 an opioid trial because it is viewed by many physicians as a less strong opioid. Historically, hydrocodone preparations in the United States have been utilized 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 fairly innocuous when used at lower doses or for short periods of time. However, at higher doses or over extended periods of time, they significantly increase patient risk for gastrointestinal, liver and kidney damage.

        As the practice of pain management has broadened to include chronic therapy for more moderate to severe pain, physicians continue their practice of using hydrocodone/analgesic combinations for their opioid trial, and this use sometimes extends to chronic therapy. In the United States, market research 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 have found the analgesic component in combination hydrocodone products creates a ceiling effect when they wish to escalate doses. For example, the most commonly prescribed dose of Vicodin (5mg hydrocodone/500mg acetaminophen) given at a maximum dose of eight tablets per day delivers 4g of acetaminophen, which approaches or exceeds recommended dosing, while only delivering 40mg of hydrocodone. If a physician wishes to further increase the opioid dose, the physician is compelled to transition to an opioid not in combination, such as oxycodone, or stronger opioids such as fentanyl or oxymorphone.

73

        In 2007, our target market, which we define as prescription non-injectable codeine-based and extended release morphine-based pain products, generated sales of approximately $9.7 billion in the United States on approximately 185 million prescriptions, according to data published by Wolters Kluwer Health. Of the $9.7 billion, hydrocodone products, part of the codeine class and the most commonly prescribed opioid pain products, generated $2.5 billion in sales on approximately 117 million prescriptions representing growth of 18.3% and 5.6%, respectively, since 2006.

        The United States Drug Enforcement Administration, or DEA, regulates controlled substances, such as opioid analgesics, under the Controlled Substances Act of 1970, or CSA. Single entity hydrocodone, the active ingredient of ZX002, is listed by the DEA as a Schedule II controlled substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use, among other things, are subject to a high degree of regulation. For example, all Schedule II drug prescriptions must be in writing and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

Limitations of Current Opioid Pain Therapies

        Physicians generally prefer to start patients on less strong opioids where possible. While hydrocodone in combination products remains the most commonly prescribed opioid, currently available hydrocodone formulations have several major limitations, including:

•

Short-acting/immediate-release only.    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 inconsistent pain relief due to variable opioid blood levels, particularly at the end of dosing intervals.



•

Dose is limited by combination analgesics.    The overwhelming majority of current hydrocodone use includes acetaminophen in the formulation. Because of the potential side effects of constant and increasing acetaminophen doses, the acetaminophen component of these combination products can become a dose limiting factor. In these cases, 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 pure opioids, such as oxycodone. Hydrocodone combinations with NSAIDs have similar dose limitations due to the gastrointestinal side effects associated with NSAIDs.

        While other 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 dose, suggesting that not all of them provide true 12- or 24-hour dosing. For example, results from a published study of 437 patients indicated that patients taking extended release oxycodone on average took 4.6 tablets per day, at an average dosing interval of 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 published study 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.

74

Our Solution: ZX002

        We believe that ZX002, if approved, may provide patients with the following benefits when compared to existing opioid pain medications:

•

True around-the-clock relief.    ZX002, via its SODAS controlled release profile, is designed to provide consistent, around-the-clock relief of moderate to severe chronic pain. Clinical studies have shown a pharmacokinetic profile that supports the expected extended relief profile of ZX002.



•

Easier adherence/greater patient convenience.    ZX002 is designed to work with fewer daily doses than currently available hydrocodone formulations, thereby increasing the likelihood of patient adherence and convenience.



•

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 side effects.



•

Proven drug and drug delivery technology.    ZX002 incorporates both a known, efficacious opioid, hydrocodone, and a proven controlled release technology, SODAS. The SODAS technology is currently used in other marketed products including Avinza, Focalin XR and Ritalin LA. We believe patients and physicians who are familiar with this compound and/or technology may more readily adopt our product candidate.



•

Another opioid option for chronic medication rotation.    The unique profile of ZX002 provides another option for physicians looking for new alternatives to offer patients who require medication rotation due to tolerance, side effects, or poor pain control.

ZX002 Development Status

        Our licensor for ZX002, Elan, conducted pre-clinical and clinical studies of ZX002 under an Investigational New Drug Application, or IND, initiated in 2002. Based on this prior development, we believe the current pre-clinical and clinical data package for ZX002 is adequate to support initiation of a Phase 3 clinical program. We anticipate having an End of Phase 2 meeting with the FDA in June 2008, and pending the outcome of that meeting, we plan to initiate Phase 3 clinical trials in the second half of 2008. The purpose of our Phase 3 clinical trials is to provide evidence of safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

        Phase 1 and Phase 2 Clinical Development.    In both 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 in 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 distinct 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 ZX002 in opioid-naive adults immediately following bunion

75

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 ZX002, an active comparator Vicodin consisting of 10 mg hydrocodone 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. Results demonstrated that the highest dose of ZX002 was comparable to Vicodin in the primary analgesic efficacy analysis, and both were statistically significant compared to placebo. Although this trial was conducted in a model of acute pain, we believe the preliminary efficacy and safety information is useful in establishing proof of concept for ZX002.

        The second Phase 2 study was a 4-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 four 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 dizziness, sedation, nausea, vomiting and constipation, which are similar to the reported effects of currently prescribed chronic opioids.

        Planned Phase 3 Clinical Program.    We intend to initiate a pivotal Phase 3 trial in the second half of 2008 that will compare the safety and efficacy of ZX002 to placebo in the treatment of chronic lower back pain. Our trial will be based on a protocol design that has been used to demonstrate the efficacy of other opioid therapies for chronic pain. The study will be a randomized, 12-week double-blind, placebo-controlled trial in at least 300 opioid-experienced adults with moderate to severe chronic low back pain. The primary efficacy endpoint will be the mean change in average daily pain intensity scores between ZX002 and placebo. We plan to seek the FDA's agreement on our trial design at our End of Phase 2 meeting with the FDA.

        To further assess the safety and tolerability of ZX002 in chronic pain therapy, we also plan to perform an open-label Phase 3 trial in opioid-experienced adults with any indication appropriate for chronic opioid treatment. The goal of this study will be to evaluate the safety and tolerability of ZX002 through six and 12 months. Additional Phase 3 safety and efficacy trials in one or more additional chronic pain conditions, such as osteoarthritis, may be required to support our proposed label. Concurrent with the Phase 3 program, we also plan to conduct several pharmacokinetic and clinical pharmacology trials, as well as any remaining pre-clinical studies required to file an NDA and support the approval of this product candidate. Determinations about additional clinical trials and pre-clinical studies will be made based on the outcome of our End of Phase 2 meeting with the FDA.

Our Commercialization Strategy

        We intend to build a commercial organization in the United States focused on promoting our products to physicians, nurses and other healthcare professionals. We believe that we can achieve our strategic goals by deploying an experienced sales organization supported by an internal marketing infrastructure.

        For the launch of sumatriptan DosePro in the United States, we intend to build our own commercial organization, including a sales force of approximately 100 people to target top prescribers. We plan to support this field sales force with an internal commercial team which will include product management, commercial analytics, sales operations, managed care and key account management staff. We will also seek to establish partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience than can be reached by our planned

76

sales force alone. Sales calls will primarily target neurologists, headache specialists and key primary care physicians. Other targets will include targeted pain specialists, obstetrician/gynecologists providing primary care to female patients and nurse educators. Key factors in the successful adoption of sumatriptan DosePro will include expanding its use as an alternative to nasal and oral triptan therapy, switching current injectable users to DosePro and building patient awareness and trial. We will also target dissatisfied triptan oral tablet patients and triptan oral tablet non-responders.

        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 the exclusive development and commercialization rights to sumatriptan 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 sumatriptan DosePro in the territories in which Desitin elects to develop and market sumatriptan DosePro. We will manufacture and supply the product to Desitin for commercial sale. Desitin will pay us a specified transfer price for commercial product and a specified royalty on annual net sales. We retain full commercial rights to sumatriptan DosePro in all other countries not licensed under the Desitin agreement, including the United States, Canada, the countries in Asia and certain other countries.

        For the launch of ZX002, if approved, we intend to expand our sales force to approximately 250 people to allow us to reach the top opioid prescribers in our target market. Our primary target audiences will include anesthesiologists, pain specialists, physical medicine specialists and targeted primary care physicians.

Our Technology

        Our proprietary DosePro technology is an easy-to-use drug delivery system designed to enable self-administration of pre-filled, single doses of liquid drug formulations, subcutaneously, without a needle. The DosePro technology (formerly known as Intraject) has undergone more than ten years of design, 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 sumatriptan DosePro will validate this 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 will 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 needle disposal container, no risk of needle-stick injury or contamination, an easy-to-use three step process, no need to fill or manipulate the device, reliable performance, and discreet portability. In several clinical trials and market research studies, DosePro has been shown to be preferred by patients over conventional needle-based systems. In addition, patient ease of use means that 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.

        In addition to its multiple potential benefits to both patients and physicians, DosePro shows 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. While DosePro has already shown positive results 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

77

conventional needle injection for human growth hormone and erythropoietin, or EPO, and pharmacodynamic equivalence study using granulocyte colony-stimulating factor, or G-CSF. 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.

        Given its multiple benefits and therapeutic versatility, we believe the DosePro technology provides us with an opportunity to develop our own product candidates beyond sumatriptan DosePro by pairing DosePro with proven drugs to enhance their commercial attractiveness. 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. These opportunities include both currently marketed products as well as development stage product candidates.

Manufacturing

        Our DosePro technology and sumatriptan DosePro are manufactured by contract manufacturers, component fabricators and secondary service providers. Final aseptic fill, finish, assembly and packaging are performed at Patheon, Swindon, United Kingdom, a specialist in aseptic fill/finish of injectables and other sterile pharmaceutical products. Suppliers of components, subassemblies and other materials are located in the United Kingdom, Germany, France 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 materials be produced under cGMP or Quality System regulations, or QSR, as required for the respective unit operation within the manufacturing process. Throughout the supply chain, manufacturing equipment specific to the production of DosePro components or assemblies were developed and purchased by us or our predecessors and are currently owned by us.

        The supplier of the sumatriptan active pharmaceutical ingredient, or API, for sumatriptan DosePro is a well-established, global pharmaceutical company and supplier of bulk pharmaceutical ingredients located in India. We manage the supply chain for sumatriptan DosePro, consisting of the DosePro system and the API, internally with experienced operations professionals, including employees residing in the United Kingdom who oversee European contract operations.

        All DosePro manufacturing processes through aseptic filling have produced supplies for clinical trials and stability testing, and are designed to produce at commercial levels. In 2007, the aseptic assembly and filling processes were successfully validated in media fill simulations. We expect that the remaining non-critical, post-aseptic operations, such as final device assembly and final packaging, will be fully automated during 2008 upon completion of automation projects currently underway. We currently have no long-term supply agreements relating to sumatriptan DosePro. However, by the end of 2008, we plan to enter into agreements with our contract manufacturers, component fabricators and secondary service providers to secure long-term commercial supply for sumatriptan DosePro and expect manufacturing capacity to adequately support our projected sumatriptan DosePro demand through 2010.

        DosePro systems intended for clinical trials of DosePro-based products other than sumatriptan DosePro are provided for 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 planned ZX002 clinical program will be manufactured by Elan Drug Delivery, Inc.

78

Competition

        The pharmaceutical industry is highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies. Many of these companies have greater financial resources, sales and marketing capabilities and experience in obtaining regulatory approvals for product candidates than us. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of products which may target the same indications as our product candidates. We face competition not only in the commercialization of our most advanced product candidates, but also for the in-licensing or acquisition of additional product candidates, and the out-licensing of our DosePro drug delivery technology.

Sumatriptan DosePro

        If approved for the treatment of acute migraine, sumatriptan DosePro will compete 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 Imitrex from GlaxoSmithKline, and there are six other branded triptan therapies being sold by pharmaceutical companies including AstraZeneca PLC, Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, Merck & Co., Inc., and Pfizer Inc. In addition to marketed migraine therapeutics, there are several product candidates under development that could potentially be used to treat migraines and compete with sumatriptan DosePro, including several products under development by large pharmaceutical companies such as GlaxoSmithKline plc and Merck & Co., Inc., and other smaller companies such as Alexza Pharmaceuticals, Inc. and MAP Pharmaceuticals, Inc.

        In addition, we may face competition from generic sumatriptan, the active ingredient in Imitrex, including generic injectable sumatriptan in the form of vials and syringes, pre-filled syringes, and/or auto-injector systems. Although these products may not be directly substituted for sumatriptan DosePro, generic versions of injectable sumatriptan may reduce the adoption of our product candidate by health insurers and consumers, as financial pressure to use generic products may encourage the use of a generic product over sumatriptan DosePro.

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. Current competitors in the opioid pain therapeutics space include, but are not limited to, Abbott Laboratories, Alpharma Inc., Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, King Pharmaceuticals, Inc., Mallinckrodt Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc. There are at least fifteen 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 an extended release version of Vicodin being developed by Abbott Laboratories and an extended-release hydrocodone product candidate being developed by Alpharma, Inc. ZX002 may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of NSAIDs. In addition to most of the previously named companies, a number of pharmaceutical companies are developing these new product candidates including, but not limited to, Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Elite Pharmaceuticals, Inc., Javelin Pharmaceuticals, Inc., Neuromed Pharmaceuticals, Ltd., Pfizer Inc., QRxPharma Ltd., and Shire, plc.

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 auto injector devices. The majority of these devices, however, still employ a needle. We will compete with companies operating in the needle-based drug

79

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 Bioject Inc. and Antares Pharma 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, the large size and the complexities of their 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.

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 protection and operate without infringing the proprietary rights of other parties.

Needle-free Drug Delivery Technologies

Sumatriptan 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 needle-free drug delivery patent portfolio covers various aspects of our sumatriptan DosePro product. As of March 6, 2008, we had 15 issued United States patents, with 8 additional United States patent applications pending. In addition, we had 46 issued foreign patents and 23 additional foreign patent applications pending. The bulk of our patents and patent applications contain claims directed toward our proprietary needle-free drug delivery technologies, including:

•

methods for filling needle-free drug delivery capsules;



•

devices used for needle-free drug delivery;



•

drug formulations;



•

injector components such as cartridges and actuators;



•

component combinations;



•

method of injection formulations;



•

method of making components;



•

method of testing drug containers;



•

devices for filling containers; and



•

methods of preparing drug formulations.

        The bulk of our patents, including fundamental patents directed toward our proprietary needle-free drug delivery technology, expire between 2014 and 2023.

ZX002

        ZX002 is an oral version of an opioid pain reliever, which is designed to offer a controlled release profile using Elan's proprietary SODAS system. Our in-licensed intellectual property from Elan relating to ZX002 includes an issued U.S. patent and a pending U.S. application. The license agreement is described below in further detail. The issued U.S. patent contains claims directed towards the proprietary ZX002 formulation, including controlled release opiate compositions. The issued patent is expected to expire in November 2019. The pending U.S. patent application also contains claims directed towards the proprietary ZX002 formulation, including controlled release opiate compositions. The U.S. patent, if it issues from our licensed U.S. application, will also expire in 2019, but may be eligible for patent term adjustment or patent term restoration.

80

Collaborations, Commercial and License Agreements

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 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 are required to make a milestone payment to Aradigm upon the U.S. commercialization of sumatriptan DosePro. We are also required to pay a specified royalty based on global net sales of sumatriptan DosePro, by us or one of our future licensees, if any, for the longer of the ten year anniversary of first commercial sale of the product in the United States, but no more than 20 years after the closing date of the asset purchase, 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 specified royalty on net sales of each non-sumatriptan product commercialized, or a fixed percentage of the royalty revenues received by us from the licensee. 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.

Elan Pharma International Limited License Agreement

        In November 2007, we entered into a license agreement with Elan. 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. The Agreement grants us the exclusive right under certain Elan intellectual property to import, use, offer for sale and sell oral controlled release capsule or tablet formulations of a specific opiate, where the specific opiate 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. 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 under the license 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 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 technology competitors of Elan.

81

        Under the license agreement, we are required to make payments to Elan based upon achievement of certain development and sales milestones. As of December 31, 2007, 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 commercial events. We are also required to pay specified royalties based 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 such country. After the initial royalty term, the license agreement will continue automatically for three-year rolling periods where we will continue to pay royalties on product sales to Elan at reduced rates.

        Either party may terminate the agreement upon a material, uncured default 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 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.

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 sumatriptan DosePro to develop, use, distribute, sell, offer for sale, and import sumatriptan DosePro and any potential modified versions of sumatriptan 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 sumatriptan DosePro in these territories. In addition, Desitin has a right of first refusal on the commercialization of any potential line extensions of sumatriptan 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 specified royalty on annual net sales 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.

        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. 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.

82

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 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

83

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 a Special Protocol Assessment, or 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 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. 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

84

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 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 sumatriptan DosePro, 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 will 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 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 the manufacturing facilities, it may issue an approval letter, an approvable letter or a not-approvable letter. Both approvable and not-approvable letters 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.

85

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 recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. There also are extensive 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. Drugs may be promoted only 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.

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 file 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 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

86

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 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.

DEA Regulation

        One of our product candidates, ZX-002, 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 U.S. Drug Enforcement Administration, or 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, will 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.

87

        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 ZX-002, an oral, controlled release version of hydrocodone, will 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.

New Legislation

        On September 27, 2007, the President signed the Food and Drug Administration Amendments Act of 2007, or FDAAA. This law 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, it 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 REMS for certain drugs, including certain currently approved drugs. In addition, it significantly expands the federal government's clinical trial registry and results databank and creates new restrictions on the advertising and promotion of drug products. Under the FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties.

88

        While we expect these provisions of the FDAAA, among others, to have a substantial effect on the pharmaceutical industry, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute existing 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.

        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.

        To date, we have not initiated any discussions with the European Medicines Agency, or EMEA, or any other foreign regulatory authorities with respect to seeking regulatory approval for any of our product candidates in Europe or in any other country outside the United States.

Third-Party Payor Coverage and Reimbursement

        Although none of our product candidates has been commercialized for any indication, once they are approved for marketing, commercial success of our product candidates will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Government payor programs, including Medicare and Medicaid, private health care insurance companies, and managed-care plans have attempted to control costs by limiting coverage and the amount of reimbursement for particular procedures or drug treatments. The United States Congress and state legislatures from time to time propose and adopt initiatives aimed at cost-containment. Ongoing federal and state government initiatives directed at lowering the total cost of health care will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid payment systems. Examples of how limits on drug coverage and reimbursement in the United States may cause reduced payments for drugs in the future include:

•

changing Medicare reimbursement methodologies;

89

•

fluctuating decisions on which drugs to include in formularies;



•

revising drug rebate calculations under the Medicaid program; and



•

reforming drug importation laws that restrict imports of drugs available at lower prices outside of the United States.

        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 our product candidates and to operate 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

        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.

        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.

Legal Proceedings

        We are not currently a party to any legal proceeding.

Employees

        As of February 29, 2008, we employed 27 full-time employees. Of the full-time employees, two were engaged in sales and marketing, eight were engaged in manufacturing operations, ten were

90

engaged in product development, quality assurance and clinical and regulatory activities and seven were engaged in general and administrative activities (including business and corporate development). We plan to continue to expand our product development programs. To support this growth, we will need to expand managerial, operations, development, regulatory, sales, marketing, finance and other functions. 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 7,416 square feet of office space in Emeryville under a lease which expires in 2011. The lease gives us an option to expand into an additional 1,602 square feet of office space, provided the option is exercised by April 2008. We believe that the office 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 4,193 square feet of office space in San Diego under a lease which expires in 2010. We can extend the lease on the San Diego office for an additional 17 months upon six months' prior written notice. The lease gives us an option to expand into an adjacent 3,794 square feet of office space should our landlord decide to vacate it. Given the anticipated growth of our sales and marketing department, we may need additional office space in San Diego. 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 approximately 21,665 square feet of space that is used to manufacture sumatriptan DosePro.

91

MANAGEMENT

Executive Officers and Directors

        The following table sets forth certain information about our executive officers and directors:

Name	Age	Position
Roger L. Hawley	55	Chief Executive Officer and Director
Stephen J. Farr, Ph.D.	49	President, Chief Operating Officer and Director
David W. Nassif	53	Executive Vice President, Chief Financial Officer, Secretary and Treasurer
Stephen J. Peroutka, M.D., Ph.D.	54	Chief Medical Officer
Jennifer D. ("J.D.") Haldeman	43	Vice President, Commercial Strategy and Corporate Communications
Bret E. Megargel	39	Vice President, Corporate Development
Jonathan M. Rigby	40	Vice President, Business Development
John J. Turanin	50	Vice President, Operations
Cam L. Garner(1)	59	Chairman of the Board of Directors
James C. Blair, Ph.D.(1)	68	Director
Louis C. Bock(2)	43	Director
Kurt C. Wheeler(1)	55	Director
Alex Zisson(2)	38	Director

(1)

Member of the Compensation Committee.

(2)

Member of the Audit Committee.

(3)

Member of the Nominating/Corporate Governance 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 us and to our predecessor company, which was originally known as 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, Targeted Genetics Corporation, a publicly-traded clinical-stage biotechnology company, and Alios BioPharma Inc., a privately-held biotechnology company. Mr. Hawley holds a B.Sc. in Accounting from Eastern Illinois University.

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 formation in May 2006. From May 2006 to October 2006, Dr. Farr

92

also served as our Chief Executive Officer and since October 2006, Dr. Farr has served as our Chief Operating Officer. From 1995 to June 2006, Dr. Farr held positions of increasing responsibility within pharmaceutical sciences and research and development at Aradigm Corporation, and serving 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.

David W. Nassif, J.D. has served as our Executive Vice President, Chief Financial Officer, Secretary and Treasurer since May 2007 after consulting for us from October 2006 to May 2007. From May 2006 to October 2006, as well as earlier from 2001 to 2002, Mr. Nassif served as a principal at Strategic Consulting Services providing capital raising, mergers and acquisitions, licensing and investor relations services to various public and private life science and technology companies, including Amphastar. From 2002 to May 2006, Mr. Nassif was the Chief Financial Officer and Senior Vice President of Global Licensing at Amphastar Pharmaceuticals, Inc., a privately-held, generic and specialty pharmaceutical company. From 2000 to 2001, he was the Senior Vice President and Chief Financial Officer of RealAge, Inc., a privately-held health care database information marketing company. From 1993 to 1999, Mr. Nassif held various positions with Cypros Pharmaceutical Corporation, an American Stock Exchange listed specialty pharmaceutical company, culminating in the position of Senior Vice President and Chief Financial Officer. Mr. Nassif received a B.Sc. in Finance and Management Information Systems from the University of Virginia and a J.D. from the University of Virginia School of Law.

Stephen J. Peroutka, M.D., Ph.D. has served as our Chief Medical Officer since November 2007. From August 2005 to October 2007, Dr. Peroutka held positions of increasing responsibility at Johnson & Johnson, serving most recently as a Medical and Business Strategy Leader. From January 2003 to August 2005, he was the President and Chief Executive Officer of Synergia Pharma, Inc., a private biopharmaceutical company focusing on neurological disorders. From 2001 to 2002, Dr. Peroutka was the Vice President of Clinical Research at Deltagen. From 2000 to 2001, Dr. Peroutka was the Chief Medical Officer at Collabra Pharma. From 1993 to 1997, Dr. Peroutka was the President and Chief Executive Officer of Spectra Biomedical, Inc., an association genetics company focused on migraine, which he founded. In 1997, Spectra Biomedical, Inc. was acquired by Glaxo Wellcome Inc. after which time he continued to serve as President to the company until 1999. From 1990 to 1993, Dr. Peroutka worked at Genentech, Inc. where he established the Department of Neuroscience and became its first Director in 1991. From 1988 to 1990, Dr. Peroutka was Chief, Neurology Service, at the Palo Alto Veterans Administration Hospital. From 1984 to 1990, he was an Assistant Professor of Neurology and Pharmacology at Stanford University. Dr. Peroutka received his M.D. and Ph.D. degrees from the Johns Hopkins University School of Medicine. Dr. Peroutka earned his A.B. degree from Cornell University.

J.D. Haldeman has served as our Vice President, Commercial Strategy and Corporate Communications since October 2006. From March 2006 to October 2006, Ms. Haldeman served as a consultant to us and to our predecessor company, which was originally known as CG Pharma, Inc. From January 2006 to March 2006, Ms. Haldeman served as a consultant to Valeant Pharmaceuticals International. From June 2004 to December 2005, Ms. Haldeman was Vice President, Marketing at InterMune, Inc. where she managed the full scope of marketing activities for its hepatology, pulmonology, and oncology businesses. From 2003 to March 2004, Ms. Haldeman served as Vice

93

President, Marketing & Commercial Analytics at Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostics company. From 2000 to 2003, Ms. Haldeman led commercial operations and business development as a Vice President at Tandem Medical, a private drug delivery company. From 1997 to 1999, Ms. Haldeman served as Vice President, Commercial Development & Corporate Communications at Shaman Pharmaceuticals, Inc. From 1988 to 1997, Ms. Haldeman served in a broad range of positions in commercial operations including product management, global product planning, and sales at Parke-Davis, a division of Warner-Lambert (now Pfizer). She co-led the launch of Neurontin, a CNS product, and rose to the level of Senior Director, Cardiovascular Disease Team. Ms. Haldeman holds an M.B.A. from Northwestern University and a B.A. of Philosophy from Brigham Young 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 our predecessor company, which was originally known as CG Pharma, Inc. From January 2005 to August 2007, Mr. Megargel served as Vice President of Planet Technologies, Inc. From 2002 to December 2004, Mr. Megargel served as Vice President of Business Development for Avera Pharmaceuticals, Inc., a private, CNS 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 his 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 Rigby is one of our co-founders and has served as our Vice President of Business Development since our formation in May 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 Business 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 Vice 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.

John J. Turanin is one of our co-founders and has served as our Vice President, Operations since our formation 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 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.

94

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, Verus Pharmaceuticals, Inc., Somaxon Pharmaceuticals, Inc., Cadence Pharmaceuticals, Inc., Evoke Pharma, Elevation Pharmaceuticals, DJ Pharma and Xcel Pharmaceuticals, Inc. He serves as Executive Chairman of Verus and Chairman of Cadence, Evoke and Elevation. 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 Somaxon Pharmaceuticals, Inc., Favrille, Inc., SkinMedica, Inc. and Aegis Therapeutics, LLC. Mr. Garner earned his M.B.A. from Baldwin-Wallace College and his B.A. in Biology from Virginia Wesleyan College.

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, where he has been a Partner since its founding in 1985, and has over 35 years of experience with venture and emerging growth companies. In the course of this experience, Dr. Blair has been involved in the creation and development of over 50 life sciences companies, including Amgen, Aurora Biosciences, Amylin Pharmaceuticals, Applied Biosystems, Dura Pharmaceuticals (acquired by Elan), GeneOhm Sciences (acquired by Becton Dickinson), Molecular Dynamics (acquired by GE Amersham), Nuvasive, Inc., Pharmion Corporation (acquired by Celgene) and Volcano. He is currently a Director of Cadence Pharmaceuticals, and a Director of eight private companies. Dr. Blair also serves on the board of directors of the Prostate Cancer Foundation and is on the Advisory Boards of the Department of Molecular Biology at Princeton University and the Department of Bioengineering of the University of Pennsylvania. He is also a member of the Board of Councilors for the USC Stevens Institute for Innovation. Dr. Blair received a B.S.E. from Princeton University and an M.S.E and Ph.D. from the University of Pennsylvania.

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., diaDexus Inc., SGX Pharmaceuticals, Inc., Horizon Therapeutics, Inc., Orexigen Therapeutics, Inc. and Sonexa Therapeutics, Inc. and is responsible for Scale Venture Partners' investments in 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.

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 Somaxon Pharmaceuticals, Inc., CryoCor, Inc. and Alsius, Inc., as well as a number of 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.

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

95

three other private companies including 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 after the merger of Chase H&Q and JPMorgan became the firm's Health Care Strategist. Mr. Zisson graduated magna cum laude from Brown University, where he was elected to Phi Beta Kappa.

Board Composition and Election of Directors

        Our board of directors is currently authorized to have seven members and is currently composed of five non-employee members, our current Chief Executive Officer, Roger L. Hawley, and our current President and Chief Operating Officer, Stephen J. Farr, Ph.D. 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. To implement the classified structure, prior to the consummation of this offering, two of the nominees to the board will be appointed to one-year terms, two will be appointed to two-year terms and three will be appointed to three-year terms. Thereafter, directors will be elected for three-year terms. Our Class I directors, whose terms will expire at the 2009 annual meeting of stockholders, will be                        and                                     . Our Class II directors, whose terms will expire at the 2010 annual meeting of stockholders, will be                                    and                         . Our Class III directors, whose terms will expire at the 2011 annual meeting of stockholders, 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 for cause by the affirmative vote of the holders of at least 66²/3% of our outstanding voting stock.

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. Bock (chairman and audit committee financial expert), Zisson and                        , each of whom our board of directors has determined is independent within the meaning of the independent director standards of the Securities and Exchange Commission, or SEC, and the Nasdaq Stock Market.

        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;

96

•

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 Dr. Blair and Messrs. Garner (chairman) and Wheeler, each of whom our board of directors has determined is independent within the meaning of the independent director standards of the Nasdaq Stock Market. This committee's purpose is 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 and recommending compensation and benefit plans for our executive officers and compensation policies for members of our board of directors and board committees;



•

reviewing the terms of offer letters and employment agreements and arrangements with our officers;



•

setting performance goals for our officers and reviewing their performance against these goals and setting compensation based on such review;



•

evaluating the competitiveness of our executive compensation plans and periodically reviewing executive succession plans;



•

administering our benefit plans and the issuance of stock options and other awards under our equity incentive plans;



•

preparing 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                                    (chairman),                         and                         , each of whom our board of directors has determined is independent within the meaning of the independent director standards of the Nasdaq Stock Market. This committee's purpose is to assist our board of directors by identifying individuals qualified to become

97

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.

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.

98

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

        In this section we summarize our plans and programs for compensating our executive officers who are named in the Summary Compensation Table that appears below. These "named executive officers" consist of our Chief Executive Officer; our President and Chief Operating Officer; our Executive Vice President, Chief Financial Officer, Secretary and Treasurer; and our two other most highly paid executive officers as determined by total compensation for the year ended December 31, 2007. These individuals are: Roger L. Hawley, Chief Executive Officer; Stephen J. Farr, Ph.D., President and Chief Operating Officer; David W. Nassif, J.D., Executive Vice President, Chief Financial Officer, Secretary and Treasurer; J.D. Haldeman, Vice President, Commercial Strategy and Corporate Communications; and John J. Turanin, Vice President, Operations.

Overview

        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. 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 determine each element individually and then review the resulting total compensation and determines 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

        Our compensation committee was formed in October 2006. Prior to that date, all compensation decisions were made by the full board of directors.

99

        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 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 then presents 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, but such objectives are usually 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. The compensation committee discusses our chief executive officer's compensation package with him, but makes decisions with respect to his compensation without him present. The compensation committee has the ultimate authority to make decisions with respect to the compensation of our named executive officers, but may, if it chooses, delegate any of its responsibilities to subcommittees.

        The board of directors and our compensation committee have not historically reviewed relevant market compensation data in setting named executive officer compensation. Instead, our board of directors and our compensation committee rely 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 us, current compensation arrangements and long-term potential to enhance stockholder value.

100

        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 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.

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 the 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 each 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.

        In August 2006, in connection with the inception of our company, the board of directors set annual base salaries for Mr. Hawley, Dr. Farr and Mr. Turanin, each of whom is a founder of our company. These base salaries were set based on the board of director's analysis of the foregoing factors. In October 2006, we hired Ms. Haldeman as our Vice President, Commercial Strategy and Corporate Communications. Her initial base salary was set based on the compensation committee's analysis of the foregoing factors.

        In May 2007, we hired Mr. Nassif as our Executive Vice President, Chief Financial Officer, Secretary and Treasurer. His initial base salary was also set based on the compensation committee's analysis of the foregoing factors.

101

        In May 2007, the board of directors approved increases to Mr. Hawley's and Dr. Farr's base salaries. Mr. Hawley's salary was increased from $250,000 to $300,000 effective June 1, 2007, and Dr. Farr's salary was increased from $240,000 to $270,000 effective June 1, 2007. These adjustments were made at the recommendation of the compensation committee, which had reviewed Mr. Hawley's and Dr. Farr's compensation packages using the foregoing factors. The board of directors and the compensation committee further determined that our performance since its inception warranted higher base salaries for our most senior executive officers.

        The actual base salaries paid to all of our named executive officers for 2007 are set forth in the "Summary Compensation Table" below.

Performance Bonuses

        Each named executive officer is also 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. The compensation committee, in its discretion, may also award amounts either below or in excess of bonus targets based on the named executive officer's performance outside of the stated goals and objectives. 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.

        With respect to each year, the corporate performance goals are generally designed to be achievable given effective performance of the executive officers and our company. For 2007, the corporate performance objectives applicable to our named executive officers' performance bonus opportunities included: (1) NDA for sumatriptan DosePro (25% weighting), (2) supply chain readiness for sumatriptan DosePro (20% weighting), (3) commercialize sumatriptan DosePro (20% weighting), (4) technology out-license (15% weighting), (5) development of follow-on products (10% weighting) and (6) financial and strategic planning (10% weighting). Other than the performance objective related to our submission of an NDA for sumatriptan DosePro and our objective related to the development of follow-on products, which we achieved due to the licensing transaction with Elan, each of these performance objectives was subjective in nature and not quantifiable. In addition, in determining the corporate achievement level for purposes of the 2007 annual bonuses, the compensation committee and the board of directors considered other achievements by the company during 2007 not originally contemplated in the pre-established corporate goals, such as the Elan licensing transaction, the completion of equity and debt financing transactions and the company's progress towards an initial public offering. In December 2007, the compensation committee and the board of directors reviewed and evaluated the achievement of these performance objectives and the company's overall performance and progress during 2007 and approved a corporate performance achievement level of 95.2%.

        For 2007, the compensation committee also determined the portion of each named executive officer's bonus related to individual performance (other than Mr. Hawley, whose bonus was based solely on corporate performance) based upon their achievement of individual performance goals established at the beginning of the year, as well as their subjective assessment of their performance. The 2007 individual performance objectives were designed to achieve Zogenix's strategic business plan and were designed to be achievable, but to require a substantial effort and initiative on the part of the named executive officers. For those named executive officers other than Mr. Hawley, the compensation committee determines the portion of the annual bonus attributable to individual performance based, in part, upon a rating assigned to such individuals by Mr. Hawley based upon his assessment of their achievement of performance goals as well as his subjective assessment of their performance.

102

        Our named executive officers' target bonuses for 2007 and actual bonuses as a percentage of target are set forth in the table below. Mr. Hawley's bonus was based solely on our attainment of the pre-established corporate goals. With respect to our other named executive officers, a portion of their bonuses are based on our attainment of the pre-established corporate goals and a portion is based on individual performance, as set forth below.

	Performance Weighting (% Total)
Name	2007 Target Bonus (as a % of Base Salary)		Corporate		Individual		2007 Actual Bonus (as a % of Base Salary)
Roger L. Hawley Chief Executive Officer	40	%	100	%	0	%	41.6	%
Stephen J. Farr, Ph.D. President and Chief Operating Officer	35		80		20		35.3
David W. Nassif, J.D. Executive Vice President, Chief Financial Officer, Secretary and Treasurer	30		60		40		31.6	(1)
J.D. Haldeman Vice President, Commercial Strategy and Corporate Communications	25		50		50		24.8
John Turanin Vice President, Operations	25		50		50		23.7

(1)

Mr. Nassif's bonus was prorated for 2007 based on the number of days he was employed by the company. Mr. Nassif commenced employment in May 2007 and the percentage reflected above was calculated based on Mr. Nassif's prorated base salary for 2007.

Long-Term Equity Incentives

        The goals of our long-term, equity-based incentive awards are to align the interests of our named executive officers 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.

        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.

103

        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. For 2007, the determination of the appropriate fair market value was made by the board of directors after considering a contemporaneous valuation of our common stock as of December 31, 2006 and September 30, 2007 prepared by management. 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. For a description of certain accelerated vesting provisions applicable to such options, see "—Equity Incentive Plans Plans—2008 Equity Incentive Award Plan" and "—2006 Equity Incentive Plan" below. We do not have any security ownership requirements for our named executive officers.

        In February 2007, following the adoption of our 2006 Equity Incentive Plan, our board of directors awarded Ms. Haldeman options to purchase 650,000 shares of our common stock that vest over four years as described above and have an exercise price of $0.05 per share, which the board of directors determined was the fair value per share of our common stock on the date of grant. The size of Ms. Haldeman's grant was determined based on the factors described above.

        In May 2007, the board of directors awarded the following options to our named executive officers: Mr. Hawley, options to purchase 900,000 shares; Mr. Nassif, options to purchase 1,250,000 shares; and Ms. Haldeman, 150,000 shares. Each of these option awards vest over four years as described above and have an exercise price of $0.05 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 and were determined based on the compensation committee's and the board of director's consideration of the factors described above. Such awards were also intended to reward the performance of our executive management team as compared to our business plan since the company's inception.

        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 $15,500 in 2007 and to have the amount of this reduction contributed to our 401(k) plan. While we may elect to make matching contributions, no contributions have been made.

Perquisites, Health and Welfare Benefits and Other Compensation

        The establishment of competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel.

104

        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 maintaining 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 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 Agreements" below.

        As described above, we routinely grant our named executive officers stock options under our equity incentive plans. For a description of the change in control provisions in such equity incentive plans applicable to these stock options, see "—Employee Equity Incentive Plans—2008 Equity Incentive Plan" and "—2006 Equity Incentive Plan" below.

Tax Deductibility of Executive Compensation

        The compensation committee and our board of directors have considered the potential future applicability of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, to 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 any of the executive officers named in the proxy statement, unless compensation is performance based. We have 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 applicability of Section 162(m) to the compensation.

Accounting for Stock-Based Compensation

        We account for stock-based payments in accordance with the requirements of SFAS No. 123(R).

105

Summary Compensation Table

        The following table shows information regarding the compensation earned by our named executive officers for the fiscal year ended December 31, 2007.

	Annual Compensation(1)			Long Term Compensation
						Non-Equity Incentive Plan Compensation ($)(3)
Name and Principal Position	Salary ($)	Bonus ($)		Stock Awards ($)	Option Awards ($)(2)		All Other Compensation ($)(4)	Total ($)
Roger L. Hawley Chief Executive Officer	279,167	—		—	4,019	125,000		408,186
Stephen J. Farr, Ph.D. President and Chief Operating Officer	257,500	75,559	(5)	—	—	93,543		426,602
David W. Nassif, J.D.(6) Executive Vice President, Chief Financial Officer, Secretary and Treasurer	150,000	—		—	6,065	47,504	94,482	298,051
J.D. Haldeman Vice President, Commercial Strategy and Corporate Communications	210,000	—		—	5,944	52,085		268,029
John J. Turanin Vice President, Operations	220,000	53,956	(5)	—	—	52,284		326,240

(1)

In accordance with the rules of the Securities and Exchange Commission, the compensation described in this table does not include medical or other benefits which are generally available to all of our salaried employees and certain perquisites and other personal benefits received by the named executive officer which do not exceed the lesser of $50,000 or 10% of any named executive officer's salary and bonus disclosed in the table.

(2)

Represents compensation expense for stock option grants awarded in and prior to December 31, 2007, recognized for financial reporting purposes (assuming no forfeitures) under SFAS No. 123(R), for the year ended December 31, 2007. For a discussion of the valuation assumptions, see Note 8 to our consolidated financial statements for the year ended December 31, 2007 included elsewhere in this prospectus.

(3)

These amounts represent 2007 performance bonuses which are described above under "—Compensation Discussion and Analysis—Performance Bonuses."

(4)

The amounts shown for Mr. Nassif also include consulting fees of $94,482 paid to him by the company during the period from January 2007 through May 2007, when he commenced employment a our Executive Vice President, Chief Financial Officer, Secretary and Treasurer.

(5)

The amounts shown for Dr. Farr and Mr. Turanin represent bonuses paid to such named executive officers pursuant to their employment agreements in consideration of foregone severance otherwise payable by Aradigm, their former employer, following their termination of employment with Aradigm in connection with our acquisition of DosePro (formerly known as Intraject) needle-free drug delivery system.

(6)

Reflects a pro-rated salary and bonus for Mr. Nassif due to the fact that Mr. Nassif was appointed Executive Vice Present and Chief Financial Officer in May 2007.

106

2007 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, 2007.

		Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(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 ($/Sh)(3)	Grant Date Fair Value of Stock and Option Awards(4)
Name	Grant Date(1)
		Target ($)
Roger L. Hawley	5/30/07 —	— 120,000		— —	900,000 —	0.05 —	32,000 —
Stephen J. Farr, Ph.D.	—	94,500		—	—	—	—
David W. Nassif, J.D.	5/30/07 —	— 48,240	(5)	— —	1,250,000 —	0.05 —	44,000 —
J.D. Haldeman	2/13/07 5/30/07 —	— — 52,500		— — —	650,000 150,000 —	0.05 0.05 —	23,000 5,000 —
John J. Turanin	—	55,000		—	—	—	—

(1)

All of the stock option awards have a ten year term and vest over four years, with 25% vesting on the first anniversary of the vesting commencement date and the remainder vesting in 36 monthly installments thereafter based on the named executive officer's continued employment by or service to the company on each such vesting date. The vesting commencement dates for the stock option awards are as follows: Mr. Hawley's stock option award, May 31, 2007; Mr. Nassif's stock option award, May 16, 2007; Ms. Haldeman's February 13, 2007 stock option award, October 9, 2006; and Ms. Haldeman's May 30, 2007 stock option award, May 31, 2007.

(2)

Represents estimated possible payouts of non-equity incentive plan awards for 2007 under the executive bonus program. Actual amounts paid to the named executive officers for 2007 are disclosed in the Summary Compensation Table above under the heading "—Non-Equity Incentive Plan Compensation."

(3)

Reflects the fair market value per share of our common stock on the grant date as determined by our board of directors.

(4)

Reflects the grant date estimated fair value of stock options as calculated in accordance with SFAS No. 123(R), using a Black-Scholes option-pricing model (assuming no forfeitures). For a discussion of relevant assumptions, see Note 8 to our financial statements for the year ended December 31, 2007, included elsewhere in this prospectus.

(5)

Reflects a pro-rated target bonus for Mr. Nassif due to the fact that Mr. Nassif was appointed Executive Vice Present and Chief Financial Officer in May 2007.

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 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 Agreements

        We have entered into employment agreements with each of our named executive officers. Pursuant to the employment agreements, each of our named executive officers is entitled to cash severance payments in the event his or her employment is terminated by us without cause or if he or she resigns for good reason. The cash severance payments will be equal to six months' base salary for Mr. Hawley, Dr. Farr and Mr. Nassif and four months' base salary for Ms. Haldeman and Mr. Turanin. The

107

severance payments will be paid over the applicable severance period in accordance with our regular payroll schedule.

Employee Equity Incentive Plans

2008 Equity Incentive Award Plan

        In                        2008, our board of directors adopted our 2008 Equity Incentive Award Plan, or the 2008 Plan, which was approved by our stockholders in                              2008. The 2008 Plan will become effective on the day prior to the effective date of this offering.

        We have initially reserved                shares of our common stock for issuance under the 2008 Plan. In addition, the number of shares initially reserved under the 2008 Plan will be increased by (1) the number of shares of common stock available for issuance and not subject to options granted under the 2006 Plan as of the effective date of the 2008 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 2008 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 2008 Plan contains an "evergreen provision" that allows for an annual increase in the number of shares available for issuance under the 2008 Plan on January 1 of each year during the ten-year term of the 2008 Plan, beginning on January 1, 2009. 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^st of the applicable year;



•

                shares; and



•

a lesser number of shares as determined by our board of directors.

        The 2008 Plan also provides for an aggregate limit of                shares of common stock that may be issued under the 2008 Plan over the course of its ten-year term. All of the foregoing share reserve numbers reflect the reverse stock split to be implemented by us prior to the offering and will not be adjusted as a result of such reverse stock split. The material terms of the 2008 Plan are summarized below. The 2008 Plan is filed as an exhibit to the registration statement of which this prospectus is a part.

        Administration.    The compensation committee of our board of directors will administer the 2008 Plan (except with respect to any award granted to non-employee directors, which must be administered by our full board of directors). To administer the 2008 Plan, our compensation committee must consist 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 an "outside director" for purposes of Section 162(m) of the Internal Revenue Code. Subject to the terms and conditions of the 2008 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, determine the number of awards to grant, determine the number of shares to be subject to such awards, and determine 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 2008 Plan. Our compensation committee is also authorized to establish, adopt, amend or revise rules relating to administration of the 2008 Plan, subject to certain restrictions. Our board of directors may at any time revert to itself the authority to administer the 2008 Plan. Our full board of directors will administer the 2008 Plan with respect to awards to non-employee directors.

108

        Eligibility.    Awards under the 2008 Plan may be granted to individuals who are our employees or are the employees of any of our parent companies' subsidiaries on the date of grant. 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                        , 2008, if the 2008 Plan had been in effect there were                non-employee directors,                consultants and                 employees who would have been eligible for awards under the 2008 Plan. The maximum number of shares that may be subject to awards granted under the 2008 Plan to any individual in any calendar year cannot exceed                and the maximum performance bonus that may be awarded to any individual in any calendar year cannot exceed $                .

        Awards.    The 2008 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, stock payments, performance bonus awards and other stock-based awards, or any combination thereof. The 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 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.



•

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 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 2008 Plan provides that the exercise price must be more than 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 our compensation committee (or the board of directors, in the case of awards to non-employee directors). 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

109

employment or on performance criteria established by our compensation committee (or the 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 the 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.

•

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. 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 2008 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 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.



•

Performance awards (i.e., performance share awards, performance stock units, performance bonus awards, performance-based awards and deferred stock) may be granted by our compensation committee (or the Board of directors, in the case of awards to non-employee directors) on an individual or group basis. Generally, these awards will be based upon specific performance targets and may be paid in cash or in common stock or in a combination of both. Performance awards may include "phantom" stock awards that provide for payments based upon increases in the price of our common stock over a predetermined period. Performance awards may also include bonuses that may be granted by our compensation committee (or the Board of directors, in the case of awards to non- employee directors) on an individual or group basis, which may be paid on a current or deferred basis and may be payable in cash or in common stock or in a combination of both. The maximum amount of any such bonuses to a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code must not exceed $1,000,000 for any fiscal year during the term of the 2008 Plan.



•

Stock payments may be authorized by our compensation committee (or the 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.

        Corporate Transactions.    In the event of a change of control where the acquirer does not assume awards granted under the 2008 Plan, awards issued under the 2008 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 a change of control. Under the 2008 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;

110

•

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 (x) a merger, consolidation, reorganization, or business combination, (y) the sale or other disposition of all or substantially all of our assets in any single transaction or series of related transactions or (z) 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.

        Amendment and Termination of the 2008 Plan.    Our board of directors or our compensation committee may terminate, amend or modify the 2008 Plan. However, stockholder approval of any amendment to the 2008 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 2008 Plan that increases the number of shares available under the 2008 Plan. If not terminated earlier by the compensation committee or the board of directors, the 2008 Plan will terminate on the tenth anniversary of the date of its initial approval by our board of directors.

Securities Laws and Federal Income Taxes

        The 2008 Plan is designed to comply with applicable securities and federal tax laws as follows:

        Securities Laws.    The 2008 Plan is intended to conform to the 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 2008 Plan will be administered, and awards will be granted and may be exercised, in such a manner as to conform to such laws, rules and regulations.

        General Federal Tax Consequences.    Under current federal laws, in general, recipients of awards and grants of NQSOs, SARs, restricted stock, restricted stock units, dividend equivalents, performance awards and stock payments under the 2008 Plan are taxable under Section 83 of the Internal Revenue Code and, subject to Section 162(m) of the Internal Revenue Code, we will be entitled to an income tax deduction with respect to the amounts taxable to such recipients. However, Section 409A of the Internal Revenue Code provides certain requirements for non-qualified deferred compensation arrangements. Certain awards under the 2008 Plan may be subject to the requirements of Section 409A in form and in operation. We intend that all 2008 Plan awards that are subject to Section 409A will satisfy the requirements of Section 409A. However, if a 2008 Plan award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.

        Under Sections 421 and 422 of the Internal Revenue Code, recipients of ISOs are generally not taxed on their receipt of common stock upon their exercises of ISOs if the ISOs and option stock are held for specified minimum holding periods and, in such event, we are not entitled to income tax

111

deductions with respect to such exercises. Participants in the 2008 Plan will be provided with detailed information regarding the tax consequences relating to the various types of awards and grants under the 2008 Plan.

        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 2008 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 2008 Plan, (2) the issuance of all employer stock and other compensation that has been allocated under the 2008 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 2008 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 2008 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.

        We initially reserved 1,000,000 shares of our common stock for issuance under the 2006 Plan. In May 2007, the board of directors amended the 2006 Plan to increase the number of authorized plan shares to 6,540,000 shares of our common stock. This increase was approved by our stockholders in June 2007. After the effective date of the 2008 Plan, no additional awards will be granted under the 2006 Plan.

        The material terms of the 2006 Plan are summarized below. The 2006 Plan will be filed as an exhibit to the registration statement of which this prospectus is a part.

        Administration.    Our board of directors (or a committee of the 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. Following the completion of this offering, for a committee of the board of directors to administer the 2006 Plan, such committee must consist 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 Exchange Act, and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code. Subject to the terms and conditions of the 2006 Plan,

112

the administrator 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, 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 more than 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

113

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.

•

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 a 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 (x) a merger, consolidation, reorganization, or business combination, (y) the sale or other disposition of all or substantially all of our assets or (z) 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

114

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 on the tenth anniversary of the date of its initial approval by our board of directors.

        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 2008 Plan under the heading "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 2008 Plan under the heading "Securities Laws and Federal Income Taxes—General Federal Tax Consequences."

2008 Employee Stock Purchase Plan

        In                        2008, our board of directors approved our 2008 Employee Stock Purchase Plan, or the Purchase Plan, which was approved by our stockholders in                              2008. 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                . 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 on January 1 of each year during the ten-year term of the Purchase Plan, beginning on January 1, 2009. The annual increase shall be equal to the least of:

•

                % of our outstanding common stock on January 1^st of the applicable year;



•

                shares; and



•

a lesser number of shares determined by our board of directors.

        All of the foregoing share reserve numbers reflect the reverse stock split to be implemented by us prior to the offering and will not be adjusted as a result of such reverse stock split.

        The Purchase Plan shall also provide for an aggregate limit on the number of shares of common stock which 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 shall be 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 on the first                occurring following the completion of this offering. 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 December 31, 2007,                of our employees would have been eligible to participate in the Purchase Plan if it were in effect.

115

        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 more than $25,000 worth of shares at the fair market value determined as of the first day of the offering period.

        In the event of a proposed sale of all or substantially all of our assets, or our merger with or into another company, the outstanding rights under the Purchase Plan will be assumed or an equivalent right substituted by the successor company or its parent. If the successor company or its parent refuses to assume the outstanding rights or substitute an equivalent right, then all outstanding purchase rights will automatically be exercised prior to the effective date of the transaction. The purchase price will be equal to                % of the market value per share on the first day of the offering period in which an acquisition occurs or, if lower,                % of the fair market value per share on the date the purchase rights are exercised.

        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 and Federal Income Taxes.    The Purchase Plan shall be designed to comply with various securities and federal income tax laws in the same manner as described above in the description of the Purchase Plan under the heading "Securities Laws and Federal Income Taxes."

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 $15,500 in 2008 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 2008 may be up to an additional $5,000 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.

116

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, 2007.

	Option Awards(1)					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)
Roger L. Hawley	—	—		—	—	—	—
Stephen J. Farr, Ph.D.	—	—		—	—	—	—
David W. Nassif, J.D.	—	750,000	$	0.05	5/30/2017	—	—
J.D. Haldeman	94,792	230,208		0.05	2/13/2017	—	—
	—	150,000		0.05	5/30/2017	—	—
John Turanin	—	—		—	—	—	—

(1)

All of the stock option awards have a ten year term and vest over four years, with 25% vesting on the first anniversary of the vesting commencement date and the remainder vesting in 36 monthly installments thereafter based on the named executive officer's continued employment by or service to the company on each such vesting date. The vesting commencement dates for the stock option awards are as follows: Mr. Nassif's stock option award, May 16, 2007; Ms. Haldeman's February 13, 2007 stock option award, October 9, 2006; and Ms. Haldeman's May 30, 2007 stock option award, May 31, 2007.

Option Exercises and Stock Vested

        The following table summarizes information regarding each exercise of stock options and vesting of stock awards during 2007 for each of the named executive officers.

	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	900,000	—	—	—
Stephen J. Farr, Ph.D.	—	—	—	—
David W. Nassif, J.D.	500,000	—	—	—
J.D. Haldeman	325,000	—	—	—
John Turanin	—	—	—	—

(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. All of the stock options listed in the table were exercised at a time when the fair market value per share of our common stock was equal to the exercise price of such stock options.

Potential Benefits Upon Termination or Change in Control

        The following table summarizes the potential payments to our named executive officers upon termination by us without cause. The table assumes that the termination of employment occurred on December 31, 2007. The definitions of "cause" and "good reason" are contained in the applicable

117

employment agreement for each of our named executive officers, which are described above under the heading "—Employment Agreements."

Potential Change in Control and Severance Payments

Name and Position	Benefit Type	Payment in the Case of a Termination by the Company Without Cause or by Executive for Good Reason ($)(1)
Roger L. Hawley Chief Executive Officer	Cash Severance	$	150,000
Stephen J. Farr, Ph.D. President and Chief Operating Officer	Cash Severance		135,000
David W. Nassif, J.D. Executive Vice President, Chief Financial Officer, Secretary and Treasurer	Cash Severance		120,000
J.D. Haldeman Vice President, Commercial Strategy and Corporate Communications	Cash Severance		70,000
John J. Turanin Vice President, Operations	Cash Severance		73,333

(1)

Represents six months base salary (in the case of Mr. Hawley, Dr. Farr and Mr. Nassif) and four months base salary (in the case of Ms. Haldeman and Mr. Turanin). Severance will be paid over the relevant severance period in accordance with the company's regular payroll practices.

Director Compensation

        We compensate certain 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 May 2007, our board of directors approved a director compensation program that provides for equity awards to our non-employee directors. 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. 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, each year on May 30, 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 board also approved initial option grants to purchase 75,000 shares of our common stock on the terms set forth above to each of James C. Blair, Louis C.

118

Bock, Kurt C. Wheeler, and Alex Zisson, the existing non-employee directors (other than Mr. Garner as of May 30, 2007). These stock options have an exercise price of $0.05 per share, the fair market value per share of our common stock on the date of grant as determined by our board of directors, and were fully vested on the date of grant. For a complete description of our director compensation program, see "—2006 Equity Incentive Plan" above.

        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. 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 shall 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—2008 Equity Incentive Award Plan."

        The following table summarizes cash and stock compensation received by our non-employee directors during the year ended December 31, 2007.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)	Option Awards ($)(1)		All Other Compensation ($)	Total ($)
Cam L. Garner	$	50,000	—		—	—	$	50,000
Kurt C. Wheeler		—	—	$	2,500	—		2,500
James C. Blair, Ph.D.		—	—		2,500	—		2,500
Louis C. Bock		—	—		2,500	—		2,500
Alex Zisson		—	—		2,500	—		2,500

(1)

Represents the compensation expense for stock option grants awarded in and prior to December 31, 2007, recognized for financial reporting purposes (assuming no forfeitures) under SFAS No. 123(R), for the year ended December 31, 2007. For a discussion of the valuation assumptions, see Note 8 to our consolidated financial statements for the year ended December 31, 2007 included elsewhere in this prospectus.

(2)

Messrs. Wheeler, Bock and Zisson and Dr. Blair were the only non-employee directors to receive stock option awards during 2007. Each of them received a stock option to purchase 75,000 shares of our common stock in May 2007. The aggregate

119

number of shares subject to stock options outstanding at the end of fiscal 2007 for each director and the grant date fair value of these option awards granted to our non-employee directors in fiscal 2007 are as follows:

Name	Shares Underlying Options Outstanding At December 31, 2007 (#)	Grant Date Fair Value for Options Awarded in 2007 ($)
Cam L. Garner	—	—
Kurt C. Wheeler	75,000	2,500
James C. Blair, Ph.D.	—	—
Louis C. Bock	75,000	2,500
Alex Zisson	75,000	2,500

The grant date fair value reflects the grant date estimated fair value of stock options as calculated in accordance with SFAS No. 123(R), using a Black-Scholes option-pricing model (assuming no forfeitures). For a discussion of relevant assumptions, see Note 8 to our financial statements for the year ended December 31, 2007, included elsewhere in this prospectus.

Limitations of Liability and Indemnification Matters

        Our amended and restated certificate of incorporation, which will become effective upon the completion of this offering, will limit the liability of our directors for monetary damages for breach of their fiduciary duties, except for liability that cannot be eliminated under the Delaware General Corporation Law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for any of the following:

•

any breach of their duty of loyalty to the corporation or its stockholders;



•

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;



•

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or



•

any transaction from which the director derived an improper personal benefit.

        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 indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our amended and restated bylaws covers at least negligence and gross negligence on the part of indemnified parties. 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 and agreements are necessary to attract and retain qualified persons as directors and executive officers.

        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.

120

PRINCIPAL STOCKHOLDERS

        The following table sets forth information about the beneficial ownership of our common stock at February 29, 2008, 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 named executive officer;



•

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., 11682 El Camino Real, Suite 320, 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 by the stockholders, 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. We have based our calculation of the percentage of beneficial ownership on 91,348,097 shares of common stock outstanding on February 29, 2008, which assumes the conversion of all outstanding shares of preferred stock into common stock and                        shares of common stock outstanding upon completion of this offering.

        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 February 29, 2008. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

		Percentage of Common Stock Beneficially Owned
	Number of Shares Beneficially Owned
Beneficial Owner		Prior to Offering		After Offering
5% or Greater Stockholders:
Funds affiliated with Domain Associates, L.L.C.(1) One Palmer Square Princeton, NJ 08542	21,175,000	23.2	%		%
Clarus Lifesciences I, LP(2) One Memorial Drive, Suite 1230 Cambridge, MA 92142	21,075,000	23.1
Scale Venture Partners II, LP(3) 950 Tower Lane, Suite 700 Foster City, CA 94404	14,075,000	15.4
Funds affiliated with Thomas, McNerney & Partners, L.P.(4) 60 South 6th Street, Suite 3620 Minneapolis, MN 55402	12,075,000	13.2

121

Funds affiliated with Abingworth Bioventures(5) 3000 Sand Hill Road Bldg. 4, Suite 135 Menlo Park, CA 94025	9,090,909	10.0	%
Directors and Executive Officers:
Roger L. Hawley(6)	3,100,000	3.4
Stephen J. Farr, Ph.D.	3,000,000	3.3
David W. Nassif(7)	1,250,000	1.4
J.D. Haldeman(8)	800,000	*
John J. Turanin(9)	1,500,000	1.6
Cam L. Garner	1,950,000	2.1
Kurt C. Wheeler(2)	21,075,000	23.1
James C. Blair, Ph.D.(1)	21,175,000	23.2
Louis C. Bock(3)	14,075,000	15.4
Alex Zisson(4)	12,075,000	13.2
Executive officers and directors as a group (13 persons)(10)	83,170,000	88.8

*

Represents beneficial ownership of less than one percent of our outstanding common stock.

(1)

Includes 75,000 shares of common stock held by Domain Associates, L.L.C., 98,940 shares of common stock held by Domain Partners VI, L.P., 1,060 shares of common stock held by DP VI Associates, L.P., 20,647,825 shares of common stock held by Domain Partners VII, L.P. and 352,175 shares of common stock held by DP VII Associates, L.P. 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, a member of our board of directors, 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 21,000,000 shares held by Clarus Lifesciences I, L.P. Includes 75,000 shares Mr. Wheeler has the right to acquire pursuant to outstanding options which are immediately exercisable. Mr. Wheeler is a managing director of Clarus Ventures, LLC, the General Partner to Clarus Ventures I GP, LP, the General Partner to Clarus Lifesciences I, LP and has shared voting and disposition power related to all shares. All shares are held for the benefit of Clarus Lifesciences I, LP. Mr. Wheeler disclaims all beneficial ownership to these shares.

(3)

Includes 75,000 shares Mr. Bock has the right to acquire pursuant to outstanding options which are immediately exercisable. The voting and disposition of the shares held by Scale Venture Partners II, LP is determined by a majority in interest of the six 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 the shares held by Scale Venture Partners II, LP, except to the extent of his proportionate pecuniary interest therein.

(4)

Includes 11,527,800 shares of common stock held by Thomas, McNerney & Partners, L.P., 428,400 shares of common stock held by TMP Nominee, LLC and 43,800 shares of common stock held by TMP Associates, LP. Includes 75,000 shares Mr. Zisson has the right to acquire pursuant to outstanding options which are immediately exercisable. Mr. Zisson, a

122

member of our board of directors, holds shared voting and/or dispositive power over the shares held by Thomas, McNerney & Partners, L.P., TMP Nominee, LLC, and TMP Associates, L.P. Mr. Zisson disclaims beneficial ownership of these shares owned except to the extent of his proportionate pecuniary interest therein.

(5)

Includes 9,013,631 shares of common stock held by Abingworth Bioventures IV LP and 77,278 shares of common stock held by Abingworth Bioventures IV Executives LP.

(6)

Includes 900,000 shares Mr. Hawley acquired upon the early exercise of options, all of which are subject to our right of repurchase within 60 days of February 29, 2008.

(7)

Includes 750,000 shares Mr. Nassif has the right to acquire pursuant to outstanding options which are or will be immediately exercisable within 60 days of February 29, 2008, all of which are subject to our right of repurchase within 60 days of February 29, 2008. Includes 500,000 shares Mr. Nassif acquired upon the early exercise of options, all of which are subject to our right of repurchase within 60 days of February 29, 2008.

(8)

Includes 475,000 shares Ms. Haldeman has the right to acquire pursuant to outstanding options which are or will be immediately exercisable within 60 days of February 29, 2008, 353,125 of which would be subject to our right of repurchase within 60 days of February 29, 2008. Includes 325,000 shares Ms. Haldeman acquired upon the early exercise of options, 203,125 of which are subject to our right of repurchase within 60 days of February 29, 2008.

(9)

Includes 1,500,000 shares which are held by a trust for the benefit of Mr. Turanin's family.

(10)

Includes 2,320,000 shares of common stock subject to outstanding options which are or will be immediately exercisable within 60 days of February 29, 2008, 1,692,656 of which would be subject to our right of repurchase within 60 days of February 29, 2008. Includes 1,725,000 shares acquired upon the exercise of options, 1,603,125 of which will be subject to our right of repurchase within 60 days of February 29, 2008.

123

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 amounts involved exceeded or will exceed $120,000; and



•

a director, executive officer, holder of more than 5% of our common 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.

Preferred Stock Issuances

        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 $68,800,000. 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 $10,000,000.

        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 common stock, or their affiliates:

	Shares of Preferred Stock
Investor	Series A-1	Series A-2
Funds affiliated with Domain Associates, L.L.C.(1)	21,100,000	—
Clarus Lifesciences I, LP(2)	21,000,000	—
Scale Venture Partners II, LP(3)	14,000,000	—
Funds affiliated with Thomas, McNerney & Partners, L.P.(4)	12,000,000	—
Funds affiliated with Abingworth Bioventures(5)	—	9,090,909
Roger L. Hawley	100,000	—
Cam L. Garner	100,000	—

(1)

Includes 98,940 shares of Series A-1 preferred stock held by Domain Partners VI, L.P., 1,060 shares of Series A-1 preferred stock held by DP VI Associates, L.P., 20,647,825 shares of Series A-1 preferred stock held by Domain Partners VII, L.P. and 352,175 shares of Series A-1 preferred stock held by DP VII Associates, L.P. 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, a member of our board of directors, is a managing member of 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)

Mr. Wheeler is a managing director of Clarus Ventures, LLC, the General Partner to Clarus Ventures I GP, LP, the General Partner to Clarus Lifesciences I, LP and has shared voting and disposition power related to all shares. All shares are held for the benefit of Clarus Lifesciences I, LP. Mr. Wheeler disclaims all beneficial ownership to these shares.

(3)

The voting and disposition of the shares held by Scale Venture Partners II, LP is determined by a majority in interest of the six managers of Scale Venture Management II, LLC, the ultimate general partner of Scale Venture Partners II, LP. Mr. Bock, a member of our board of directors, 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 the shares held by Scale Venture Partners II, LP, except to the extent of his proportionate pecuniary interest therein.

124

(4)

Includes 11,527,800 shares of Series A-1 preferred stock held by Thomas, McNerney & Partners, L.P., 428,400 shares of Series A-1 preferred stock held by TMP Nominee, LLC and 43,800 shares of Series A-1 preferred stock held by TMP Associates, LP. Mr. Zisson, a member of our board of directors, holds shared voting and/or dispositive power over the shares held by Thomas, McNerney & Partners, L.P., TMP Nominee, LLC, and TMP Associates, L.P. Mr. Zisson disclaims beneficial ownership of these shares owned except to the extent of his proportionate pecuniary interest therein.

(5)

Includes 9,013,631 shares of Series A-2 preferred stock held by Abingworth Bioventures IV LP and 77,278 shares of Series A-2 preferred stock held by Abingworth Bioventures IV Executives LP.

Common Stock Issuances

        In May 2006, we issued to three of our co-founders a total of 2,520,000 shares of common stock for total aggregate consideration of $2,520. In August 2006, we issued in private placements a total of 9,220,000 shares of common stock for aggregate consideration of $4,900 to directors and executive officers. The following table sets forth these issuances:

Investor	Common Stock
Stephen J. Farr, Ph.D.(1)	3,000,000
Roger L. Hawley	2,100,000
Cam L. Garner(2)	2,000,000
Jonathan M. Rigby(3)	1,920,000
John J. Turanin(4)	1,920,000
Bret E. Megargel	800,000

(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.

(3)

Includes 420,000 shares that were issued to Mr. Rigby on May 29, 2006, but were contributed back to us pursuant to a capital contribution agreement on August 15, 2006 for no consideration. Includes 1,080,000 shares that were issued to Mr. Rigby on August 16, 2006 as the result of a 1 for 3.571429 forward stock split.

(4)

All shares were issued to a trust for the benefit of Mr. Turanin's family. Includes 420,000 shares that were issued to the trust, but were contributed back to us pursuant to a capital contribution agreement on August 15, 2006 for no consideration. Includes 1,080,000 shares that were issued to the trust on August 16, 2006 as the result of a 1 for 3.571429 forward stock split.

Investors' Rights Agreement

        We have entered into an amended and restated investors' rights agreement with purchasers of our preferred stock. This agreement provides for certain rights relating to the registration of their shares of common stock issuable upon conversion of their preferred stock, a right of first refusal to purchase future securities sold by us and certain additional covenants made by us. Except for the registration rights, 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 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 2007 by and among us and certain of our stockholders, the following directors were each

125

elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: Drs. Blair and Farr and Messrs. Bock, Garner, Hawley, 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. Dr. Blair and Messrs. Bock, Wheeler and Zisson were initially selected to serve on our board of directors as representatives of our preferred stock, as designated by Domain Partners VII, L.P., Scale Venture Partners II, LP, Clarus Lifesciences I, LP and Thomas, McNerney & Partners, L.P., respectively.

        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 Compensation and Election of Directors."

Employment Agreements

        We have entered into employment agreements with the following employees: Roger L. Hawley, our Chief Executive Officer; Stephen J. Farr, Ph.D., our President and Chief Operating Officer; David W. Nassif, our Executive Vice President, Chief Financial Officer, Secretary and Treasurer; Stephen J. Peroutka, M.D., our Chief Medical Officer; J.D. Haldeman, our Vice President, Commercial Strategy and Corporate Communications; Bret E. Megargel, our Vice President, Corporate Development; Jonathan Rigby, our Vice President, Business Development; and John J. Turanin, our Vice President, Operations. For further information, see "Management—Employment 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 "Management—Limitations of Liability and Indemnification Matters."

Consulting Agreements

        In May 2006, we entered into a consulting agreement with Mr. Rigby, under which he agreed to provide services as our Vice President, Business Development. As compensation for his services, we paid him a total of $53,228 in 2006. This agreement terminated in November 2006, at which time he became our employee. In connection with our hiring of Mr. Rigby, we paid to Mr. Rigby's former employer, Aradigm Corporation, $120,609 to repay the balance on a loan he had outstanding with Aradigm and $53,956 to reimburse Aradigm for severance payments it made to Mr. Rigby.

Other Transactions

        We have granted stock options to our executive officers and certain of our directors. For further information, see "Executive Compensation."

126

DESCRIPTION OF CAPITAL STOCK

        Upon completion of this offering and filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of 100,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share. The following description summarizes some of the terms of our capital stock that will be effective upon the completion of this offering. 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 and amended and restated bylaws, copies of which have been filed as exhibits to the registration statement of which the prospectus is a part.

Common Stock

        On December 31, 2007, there were 13,457,188 shares of common stock outstanding, held of record by 24 stockholders. This amount excludes our outstanding shares of preferred stock as of December 31, 2007 which will convert into 77,890,909 shares of common stock upon completion of the offering. After this offering, there will be             shares of our common stock outstanding, or            shares if the underwriters fully exercise their option to purchase additional shares.

        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 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. 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. Upon our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities of our company, 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, fully paid and nonassessable.

Preferred Stock

        On December 31, 2007, there were 77,890,909 shares of preferred stock outstanding, held of record by 25 stockholders. Our stockholders have agreed to convert their shares of preferred stock to common stock immediately prior to the completion of this offering. Accordingly, upon the completion of this offering, all outstanding shares of preferred stock as of December 31, 2007 will automatically convert into 77,890,909 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 10,000,000 shares of undesignated 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 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

127

the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

Warrants

        In March 2007, in connection with our loan and security agreement, we issued a warrant to purchase up to an aggregate of 200,000 shares of our Series A-1 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, 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.

        This warrant has a net exercise provision under which its holder 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. This warrant for common stock also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations.

Registration Rights

        After this offering, the holders of approximately 77,415,909 shares of common stock and the holder of a warrant to purchase 200,000 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 twelve 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 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 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 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

128

their best interest or in our best interests, including transactions that might result in 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 to issue up to 10,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board 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 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.

Election and Removal of Directors

        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 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.

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

129

provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.

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 our then outstanding common 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 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."

130

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 in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such 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 in the future.

Sales of Restricted Shares

        Based on the number of shares of our common stock outstanding as of                        , 2008, upon the closing of this offering and assuming no exercise of the underwriters' option to purchase additional shares and no exercise of outstanding options or warrants, we will have outstanding an aggregate of approximately            shares of common stock. Of these shares, the            shares of common stock to be sold in this offering will be freely tradable without restriction or further registration under 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 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 Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.

        As a result of the lock-up agreements described 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:

•

            shares will be eligible for sale on the date of this prospectus;



•

            shares will be eligible for sale upon the expiration of the lock-up agreements, as more particularly and except as described below, beginning 180 days after the date of this prospectus;



•

            shares will be eligible for sale, upon exercise of vested options, upon the expiration of the lock-up agreements, as more particularly and except as described below, beginning 180 days after the date of the final prospectus; and



•

the remaining            restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective six-month holding periods under Rule 144, but certain of these shares could be sold earlier if the holders exercise any available registration rights.

Lock-up Agreements

        We, each of our directors and executive officers, and all of the holders of our common stock and holders of securities exercisable for or convertible into shares of our common stock have each agreed not to sell or otherwise dispose of, directly or indirectly any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period without the prior written consent of Banc of America Securities LLC for a period of 180 days from the date of the final prospectus for the offering.

        The 180-day restricted period described above will be extended if:

•

during the last 17 days of the 180-day restricted period we issue an earnings release or material news, or a material event relating to us occurs; or



•

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period.

131

        Banc of America Securities LLC, in its 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. The lock-up restrictions will not apply to transactions relating to common shares acquired in open market transactions after the closing of this offering provided that no filing by the transferor under Rule 144 of the Securities Act or Section 16 of the Exchange Act is required or will be voluntarily made in connection with such transactions. The lock-up restrictions also will not apply to certain transfers not involving a disposition for value, provided that the recipient agrees to be bound by these lock-up restrictions and provided that no filing by the transferor under Rule 144 of the Securities Act or Section 16 of the Exchange Act is required or will be voluntarily made in connection with such transfers.

Rule 144

        In general, under Rule 144, as amended effective February 15, 2008, a person (or persons whose shares are required to be aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities 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, subject only to the availability of current public information about us.

        A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•

1% of the number of common shares then outstanding, which will equal approximately            shares immediately after this offering (assuming no exercise of the underwriter's option to purchase additional shares and no outstanding options or warrants); or



•

the average weekly trading volume of our common shares 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 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

Rule 701

        In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquires common stock from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering (to the extent such common stock is not subject to a lock-up agreement) is entitled to resell such shares beginning 90 days after the effective date of this offering in reliance on Rule 701 and Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the lock-up agreements described above, may be sold by persons other than affiliates, as defined in Rule 144, beginning 90 days after the date of this prospectus, and by affiliates under Rule 144 without compliance with its six month holding period requirement.

Stock Options and Stock Plans

        As of December 31, 2007, options to purchase a total of 2,940,000 shares of our common stock were outstanding, of which 380,000 were vested and exercisable. All of the shares subject to options are subject to the terms of the lock-up agreements with the underwriters. An additional 1,470,000 shares of common stock were available for future option grants under our 2006 equity incentive plan.

132

        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 "Executive Compensation—Equity Compensation Plans and Other Benefit Plans" for additional information regarding these plans. The first such registration statement is expected to be filed soon after the closing of this offering and will automatically become effective upon filing with the Securities and Exchange Commission. Accordingly, subject to the lock-up and restrictions described above and the vesting and other restrictions imposed under the plans, an aggregate of             shares will be registered under such registration statement and will be available for sale in the open market subject to the volume limitations under Rule 144 applicable to affiliates.

Warrants

        As of December 31, 2007, a warrant to purchase a total of 200,000 shares of our Series A-1 preferred stock at a price of $1.00 per share was outstanding. Upon completion of this offering, this warrant will become exercisable for a total of 200,000 shares of our common stock at a price of $1.00 per share. Any shares purchased pursuant to the cashless exercise feature of the shares acquired upon the net exercise of the warrant will be tradeable under 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.

133

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF OUR COMMON STOCK

        The following is a general discussion of the material U.S. federal income and estate tax consequences relating to the ownership and disposition of our common stock by a non-U.S. holder, but is not a complete analysis of all the potential tax consequences relating thereto. For the purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that for U.S. federal income tax purposes is not a "United States person." For purposes of this discussion, the term "United States person" means:

•

an individual citizen or resident of the United States;



•

a corporation (or other entity taxable as a corporation) created or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia;



•

an estate whose income is subject to U.S. federal income tax regardless of its source; or



•

a trust (x) if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a United States person under applicable U.S. Treasury regulations.

        If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships which hold our common stock and partners in such partnerships should consult their own tax advisors.

        This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant in light of a non-U.S. holder's special tax status or special circumstances. Former citizens or residents of the United States, insurance companies, tax-exempt organizations, partnerships or other pass-through entities for U.S. federal income tax purposes, dealers in securities, banks or other financial institutions, "controlled foreign corporations," "passive foreign investment companies," corporations that accumulate earnings to avoid U.S. federal income tax and investors that hold our common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not address the tax consequences to non-U.S. holders that do not hold our common stock as a capital asset for U.S. federal income tax purposes (generally, property held for investment). This discussion also does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. No ruling has been or will be sought from the Internal Revenue Service, or 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 our common stock, or that any such contrary position would not be sustained by a court. Accordingly, each non-U.S. holder should consult its own tax advisors regarding the U.S. federal, state, local and non-United States income and other tax consequences of owning and disposing 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 OWNING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS.

134

Dividends

        Distributions on our common stock, if any, generally 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 will first be applied against and reduce a holder's adjusted tax basis in the common stock, but not below zero, and then the excess, if any, will be treated as gain from the sale of the common stock.

        Amounts treated as dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax either at a rate of 30% of the gross amount of the dividends or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide a valid IRS Form W-8BEN or other successor form certifying qualification for the reduced rate.

        Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder are exempt from such withholding tax. In order to obtain this exemption, a non-U.S. holder must provide a valid IRS Form W-8ECI or other successor form properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are generally taxed at the same graduated rates applicable to United States persons, net of allowable deductions and credits, subject to an applicable income tax treaty providing otherwise.

        In addition to the graduated tax described above, dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of such holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

        A non-U.S. holder may obtain a refund of any excess amounts withheld if an appropriate claim for refund is filed timely with the IRS.

Gain on Disposition of Common Stock

        A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

•

the gain is effectively connected with a U.S. trade or business of the non-U.S. holder or, if a tax treaty applies, is attributable to a U.S. permanent establishment maintained by such non-U.S. holder;



•

the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or other disposition occurs and other conditions are met; or



•

our common stock constitutes a U.S. real property interest by reason of our status as a "United States real property holding corporation," or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock.

        We believe that we are not currently and do not anticipate becoming a USRPHC. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as a U.S. real property interest only if the non-U.S. holder actually or constructively held more than 5% of such regularly traded common stock during the applicable period.

        Unless an applicable tax treaty provides otherwise, gain described in the first bullet point above will be subject to the U.S. federal income tax imposed on net income on the same basis that applies to

135

United States persons generally and, for corporate holders under certain circumstances, the branch profits tax, but will generally not be subject to withholding tax. Gain described in the second bullet point above (which may be offset by U.S. source capital losses) will be subject to a flat 30% U.S. federal income tax. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.

Federal Estate Tax

        Common stock held by an individual non-U.S. holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Backup Withholding and Information Reporting

        Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld, together with other information. A similar report is sent to the holder. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable tax treaty. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.

        Backup withholding (currently at a rate of 28%) will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S. holder if the holder has provided certification that it is not a United States person (on the forms described above) or has otherwise established an exemption, provided we or the paying agent have no actual knowledge or reason to know that the beneficial owner is a United States person.

        Payments of the proceeds from a disposition effected outside the United States by a non-U.S. holder made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but generally not backup withholding) will apply to such a payment if the broker is a United States person, a controlled foreign corporation for U.S. federal income tax purposes, a foreign person 50% or more of whose gross income is effectively connected with a U.S. trade or business for a specified three year period, or a foreign partnership if (i) at any time during its tax year, one or more of its partners are United States persons who, in the aggregate, hold more than 50% of the income or capital interest in such partnership or (ii) at any time during its tax year, it is engaged in the conduct of a trade or business in the United States, unless an exemption is otherwise established, provided that the broker has no knowledge or reason to know that the beneficial owner is a United States person.

        Payment of the proceeds from a disposition by a non-U.S. holder of common stock made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless the non-U.S. holder certifies as to its non-U.S. holder status under penalties of perjury or otherwise establishes an exemption from information reporting and backup withholding, provided that the broker has no knowledge or reason to know that the beneficial owner is a United States person.

        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 the required information is furnished timely to the IRS.

136

UNDERWRITING

        We are offering the shares of common stock described in this prospectus through a number of underwriters. Banc of America Securities LLC, Leerink Swann LLC, Thomas Weisel Partners LLC and Susquehanna Financial Group, LLLP are the representatives of the underwriters. We have entered into a firm commitment underwriting agreement with the representatives. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has agreed to purchase, the number of shares of common stock listed next to its name in the following table:

Underwriter		Number of Shares
Banc of America Securities LLC
Leerink Swann LLC
Thomas Weisel Partners LLC
Susquehanna Financial Group, LLLP
	Total

        The underwriting agreement is subject to a number of terms and conditions and provides that the underwriters must buy all of the shares if they buy any of them. The underwriters will sell the shares to the public when and if the underwriters buy the shares from us.

        The underwriters initially will offer the shares to the public at the price specified on the cover page of this prospectus. The underwriters may allow a concession of not more than $         per share to selected dealers. The underwriters may also allow, and those dealers may re-allow, a concession of not more than $         per share to some other dealers. If all the shares are not sold at the public offering price, the underwriters may change the public offering price and the other selling terms. The common stock is offered subject to a number of conditions, including:

•

receipt and acceptance of the common stock by the underwriters; and



•

the underwriters' right to reject orders in whole or in part.

        Option to Purchase Additional Shares.    We have granted the underwriters an option to purchase up to              additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. These additional shares would cover sales by the underwriters which exceed the total number of shares shown in the table above. The underwriters may exercise this option at any time and from time to time, in whole or in part, within 30 days after the date of this prospectus. To the extent that the underwriters exercise this option, each underwriter will purchase additional shares from us in approximately the same proportion as it purchased the shares shown in the table above. We will pay the expenses associated with the exercise of the option.

        Discounts and Commissions.    The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. These amounts are shown assuming no exercise and full exercise of the underwriters' option to purchase additional shares.

        We estimate that the expenses of the offering to be paid by us, not including underwriting discounts and commissions, will be approximately $                .

		Paid by Us
		No Exercise	Full Exercise
Per Share		$	$
	Total	$	$

137

        Listing.    We expect our common stock to be approved for listing on the Nasdaq Global Market under the symbol "ZGNX".

        Stabilization.    In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:

•

stabilizing transactions;



•

short sales;



•

syndicate covering transactions;



•

imposition of penalty bids; and



•

purchases to cover positions created by short sales.

        Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. Stabilizing transactions may include making short sales of our common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock from us or on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked" shorts, which are short positions in excess of that amount. Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

        The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares as referred to above.

        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 that could adversely affect investors who purchased in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

        The representatives also may impose a penalty bid on underwriters and dealers participating in the offering. This means that the representatives may reclaim from any syndicate members or other dealers participating in the offering the underwriting discount, commissions or selling concession on shares sold by them and purchased by the representatives in stabilizing or short covering transactions.

        These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence the activities, they may discontinue them at any time. The underwriters may carry out these transactions on the Nasdaq Global Market, in the over-the-counter market or otherwise.

        Discretionary Accounts.    The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of common stock being offered.

138

        IPO Pricing.    Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between us and the representatives of the underwriters. Among the factors to be considered in these negotiations are:

•

the history of, and prospects for, our company and the industry in which we compete;



•

our past and present financial performance;



•

an assessment of our management;



•

the present state of our development;



•

the prospects for our future earnings;



•

the prevailing conditions of the applicable United States securities market at the time of this offering;



•

market valuations of publicly traded companies that we and the representatives of the underwriters believe to be comparable to us; and



•

other factors deemed relevant.

        The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors.

        Lock-up Agreements.    We, our directors and executive officers, all of our existing stockholders and all of our option holders have entered into lock-up agreements with the underwriters. Under these agreements, subject to exceptions, we may not issue any new shares of common stock, and those holders of stock and options may not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of or hedge any common stock or securities convertible into or exchangeable for shares of common stock, or publicly announce the intention to do any of the foregoing, without the prior written consent of Banc of America Securities LLC, for a period of 180 days from the date of the final prospectus for the offering. This consent may be given at any time without public notice. In addition, during this lock-up period, we have also agreed not to file any registration statement for, and each of our officers and stockholders has agreed not to make any demand for, or exercise any right of, the registration of, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or the filing of a prospectus with any Canadian securities regulatory authority without the prior written consent of Banc of America Securities LLC.

        The 180-day restricted period described above will be extended if:

•

during the last 17 days of the 180-day restricted period we issue an earnings release or material news, or a material event relating to us occurs; or



•

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period.

        Indemnification.    We will indemnify the underwriters against some liabilities, including liabilities under the Securities Act and Canadian provincial securities legislation. If we are unable to provide this indemnification, we will contribute to payments the underwriters may be required to make in respect of those liabilities.

        Each underwriter intends to comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers the shares or has in its possession or distributes the prospectus.

        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), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the

139

Relevant Implementation Date) an offer of the shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, 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 the Relevant Member State:

        (a)   to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised 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; or

        (c)   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 of Securities 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 the shares to be offered so as to enable an investor to decide to purchase or subscribe the 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.

        No prospectus (including any amendment, supplement or replacement thereto) has been prepared in connection with the offering of the shares that has been approved 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 shares have been offered or sold and will be offered or sold, directly or indirectly, to the public in France except to permitted investors ("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 investors belonging to 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. 734-1, D. 744-1, D. 754-1 and D. 764-1 of the French Code Monétaire et Financier and applicable regulations thereunder; none of this prospectus or any other materials related to the offering or information contained therein relating to the shares 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 shares 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.

        In addition:

•

an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 20000) has only been communicated or caused to be communicated and will only be communicated or caused to be communicated) in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and

140

•

all applicable provisions of the FSMA have been complied with and will be complied with, with respect to anything done in relation to the shares in, from or otherwise involving the United Kingdom.

        This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

        The offering of the shares has not been cleared by the Italian Securities Exchange Commission (Commissione Nazionale per le Società e la Borsa, the "CONSOB") pursuant to Italian securities legislation and, accordingly, the shares may not and will not be offered, sold or delivered, nor may or will copies of the prospectus or any other documents relating to the shares be distributed in Italy, except (i) to professional investors (operatori qualificati), as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of July 1, 1998, as amended, (the "Regulation No. 11522"), or (ii) in other circumstances which are exempted from the rules on solicitation of investments pursuant to Article 100 of Legislative Decree No. 58 of February 24, 1998 (the "Financial Service Act") and Article 33, first paragraph, of CONSOB Regulation No. 11971 of May 14, 1999, as amended.

        Any offer, sale or delivery of the shares or distribution of copies of the prospectus or any other document relating to the shares in Italy may and will be effected in accordance with all Italian securities, tax, exchange control and other applicable laws and regulations, and, in particular, will be: (i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Financial Services Act, Legislative Decree No. 385 of September 1, 1993, as amended (the "Italian Banking Law"), Regulation No. 11522, and any other applicable laws and regulations; (ii) in compliance with Article 129 of the Italian Banking Law and the implementing guidelines of the Bank of Italy; and (iii) in compliance with any other applicable notification requirement or limitation which may be imposed by CONSOB or the Bank of Italy.

        Any investor purchasing the shares in the offering is solely responsible for ensuring that any offer or resale of the shares it purchased in the offering occurs in compliance with applicable laws and regulations.

        The prospectus and the information contained therein are intended only for the use of its recipient and, unless in circumstances which are exempted from the rules on solicitation of investments pursuant to Article 100 of the "Financial Service Act" and Article 33, first paragraph, of CONSOB Regulation No. 11971 of May 14, 1999, as amended, is not to be distributed, for any reason, to any third-party resident or located in Italy. No person resident or located in Italy other than the original recipients of this document may rely on it or its content.

        Italy has only partially implemented the Prospectus Directive, the provisions under the heading "European Economic Area" above shall apply with respect to Italy only to the extent that the relevant provisions of the Prospectus Directive have already been implemented in Italy.

        Insofar as the requirements above are based on laws which are superseded at any time pursuant to the implementation of the Prospectus Directive, such requirements shall be replaced by the applicable requirements under the Prospectus Directive.

        Online Offering.    A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters participating in this offering. Other than the prospectus in electronic format, the information on any such web site, or accessible through any such web site, is not

141

part of the prospectus. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

        Conflicts/Affiliates.    The underwriters and their affiliates have provided, and may in the future provide various investment banking, commercial banking and other financial services for us for which services they may in the future receive customary fees.

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 preferred stock, which will convert into an aggregate of 25,000 shares of our common stock upon the completion of this offering. Wilmer Cutler Pickering Hale and Dorr LLP, Palo Alto, California, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.

EXPERTS

        Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2006 and 2007, and for the period from August 25, 2006 (inception) to December 31, 2006, the year ended December 31, 2007 and for the period from August 25, 2006 (inception) to December 31, 2007, as set forth in their report. We have included our financial statements in this 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.

142

WHERE YOU CAN FIND ADDITIONAL INFORMATION

        We have filed with the SEC a registration statement on Form S-1 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. 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 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.

        This prospectus includes statistical data that were obtained from industry publications. These industry publications generally indicate that the authors of these publications have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data.

143

Zogenix, Inc.

INDEX TO FINANCIAL STATEMENTS SELECTED FINANCIAL DATA

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

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. (a development stage enterprise) as of December 31, 2006 and 2007, and the related statements of operations, convertible preferred stock and stockholders' equity (deficit), and cash flows for the period from August 25, 2006 (inception) to December 31, 2006, the year ended December 31, 2007 and for the period from August 25, 2006 (inception) to December 31, 2007. 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, 2006 and 2007, and the results of its operations and its cash flows for the period from August 25, 2006 (inception) to December 31, 2006, the year ended December 31, 2007 and for the period from August 25, 2006 (inception) to December 31, 2007, in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

San Diego, California
March 3, 2008

F-2

ZOGENIX, INC.
(a development stage enterprise)

BALANCE SHEETS

(in thousands, except par value)

								Pro forma Stockholders' equity as of December 31, 2007
		December 31,
		2006			2007
								Unaudited (Note 2)
ASSETS
Current assets:
	Cash and cash equivalents	$	15,331		$	41,508
	Investment securities, available for sale		6,772			1,747
	Prepaid expenses and other current assets		340			1,410
	Total current assets		22,443			44,665
Property and equipment, net			4,320			7,931
Other assets			179			411
Total assets		$	26,942		$	53,007
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Accounts payable	$	2,216		$	3,867
	Accrued expenses		192			1,041
	Long-term debt, current portion		—			921
	Total current liabilities		2,408			5,829
Long-term debt, less current portion			—			2,870
Deferred rent			—			20
Preferred stock call right			2,809			—
Convertible preferred stock warrant			—			259		$	—
Commitments and contingencies
Series A-1, A-2 and A-3 convertible preferred stock, $0.001 par value; 62,000 and 83,000 authorized at December 31, 2006 and 2007, respectively; 30,775 and 77,891 shares issued and outstanding at December 31, 2006 and 2007, respectively; aggregate liquidation preference of $30,775 and $78,800 at December 31, 2006 and 2007, respectively			27,110			76,955			—
Stockholders' equity (deficit):
	Common stock, $0.001 par value; 90,000 and 111,000 shares authorized at December 31, 2006 and 2007, respectively; 11,385 and 13,457 shares issued and outstanding at December 31, 2006 and 2007, respectively; and 91,348 pro forma		11			13			91
	Additional paid-in capital		—			138			77,274
	Accumulated other comprehensive income		3			2			2
	Deficit accumulated during the development stage		(5,399	)		(33,079	)		(33,079	)
	Total stockholders' equity (deficit)		(5,385	)		(32,926	)	$	44,288
Total liabilities and stockholders' equity (deficit)		$	26,942		$	53,007

See accompanying notes

F-3

ZOGENIX, INC.
(a development stage enterprise)

BALANCE SHEETS

(in thousands, except par value)

ZOGENIX, INC.

(a development stage enterprise)

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

			Period from August 25, 2006 (Inception) to December 31, 2006			Year ended December 31, 2007			Period from August 25, 2006 (Inception) to December 31, 2007
Operating expenses:
	Research and development		$	4,902		$	24,323		$	29,225
	Selling, general and administrative			1,474			4,702			6,176
		Total operating expenses		6,376			29,025			35,401
Loss from operations				(6,376	)		(29,025	)		(35,401	)
Other income (expense):
	Interest income			395			927			1,322
	Interest expense			—			(484	)		(484	)
	Other financing income			582			906			1,488
	Other expense			—			(4	)		(4	)
Total other income (expense)				977			1,345			2,322
Net loss				(5,399	)		(27,680	)		(33,079	)
Deemed dividend for the beneficial conversion feature on the issuance of Series A-1 and Series A-2 convertible preferred stock				—			(18,360	)		(18,360	)
Net loss attributable to common stockholders			$	(5,399	)	$	(46,040	)	$	(51,439	)
Basic and diluted net loss attributable to common stockholders			$	(1.34	)	$	(8.85	)
Shares used to calculate net loss attributable to common stockholders				4,043			5,205

See accompanying notes

F-4

ZOGENIX, INC.
(a development stage enterprise)

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

Period from August 25, 2006 (inception) to December 31, 2007
(in thousands, except per share amounts)

			Series A convertible preferred stock													Deficit accumulated during the development stage
						Common stock							Accumulated other comprehensive income
										Additional paid-in capital									Total stockholders' equity (deficit)
			Shares	Amount		Shares		Amount
Balance at August 25, 2006 (inception)			—	$	—	—		$	—	$	—		$	—		$	—		$	—
	Issuance of common stock to founders for cash at inception		—		—	11,385			11		—			—			—			11
	Issuance of Series A-1 convertible preferred stock for cash at $0.89 per share, net of issuance costs of $274 and estimated fair value of call right of $0.11 per share in August 2006		30,775		27,110	—			—		—			—			—			—
	Comprehensive loss:
		Unrealized gain (loss) on investments	—		—	—			—		—			3			—			3
		Net loss	—		—	—			—		—			—			(5,399	)		(5,399	)
	Comprehensive loss		—		—	—			—		—			—			—			(5,396	)
Balance at December 31, 2006			30,775		27,110	11,385			11		—			3			(5,399	)		(5,385	)
	Issuance of Series A-1 convertible preferred stock for cash at $1.00 per share, net of issuance costs of $20 in September 2007		15,000		14,980	—			—		—			—			—			—
	Issuance of Series A-1 convertible preferred stock for cash at $1.00 per share in December 2007		23,025		23,025	—			—		—			—			—			—
	Issuance of Series A-2 convertible preferred stock for cash at $1.10 per share, net of issuance costs of $63 in December 2007		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 in February, May, August and November 2007		—		—	2,130			2		7			—			—			9
	Repurchase of founder's common stock		—		—	(58	)		—		—			—			—			—
	Employee stock-based compensation expense recognized under SFAS No. 123(R)		—		—	—			—		130			—			—			130
	Stock-based compensation expense from vesting of consultant service award		—		—	—			—		1			—			—			1
	Comprehensive loss:
		Unrealized gain (loss) on investments	—		—	—			—		—			(1	)		—			(1	)
		Net loss	—		—	—			—		—			—			(27,680	)		(27,680	)
	Comprehensive loss		—		—	—			—		—			—			—			(27,681	)
Balance at December 31, 2007			77,891	$	76,955	13,457		$	13	$	138		$	2		$	(33,079	)	$	(32,926	)

See accompanying notes

F-5

ZOGENIX, INC.
(a development stage enterprise)

STATEMENTS OF CASH FLOWS

(in thousands)

			Period from August 25, 2006 (Inception) to December 31, 2006			Year ended December 31, 2007			Period from August 25, 2006 (Inception) to December 31, 2007
Operating activities:
Net loss			$	(5,399	)	$	(27,680	)	$	(33,079	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			15			407			422
	Amortization of debt issuance costs			—			98			98
	Preferred stock warrant liability			—			107			107
	Stock-based compensation			—			131			131
	Other financing income			(582	)		(906	)		(1,488	)
	Changes in operating assets and liabilities:
		Prepaid expenses and other current assets		(340	)		(1,045	)		(1,385	)
		Accounts payable and accrued expenses		2,407			2,380			4,787
		Other assets		(179	)		(312	)		(491	)
		Deferred rent		—			20			20
Net cash used in operating activities				(4,078	)		(26,800	)		(30,878	)
Investing activities:
	Purchase of property and equipment			(4,335	)		(4,018	)		(8,353	)
	Purchases of short-term investments			(6,768	)		(9,798	)		(16,566	)
	Sales and maturities of short-term investments			—			14,821			14,821
Net cash provided by (used in) investing activities				(11,103	)		1,005			(10,098	)
Financing activities:
	Proceeds from the issuance of convertible preferred stock for cash, net of issuance costs			30,501			47,942			78,443
	Proceeds from borrowings of long-term debt			—			4,383			4,383
	Payments on borrowings of long-term debt			—			(483	)		(483	)
	Proceeds from the issuance of common stock			11			130			141
Net cash provided by financing activities				30,512			51,972			82,484
Net increase in cash and cash equivalents				15,331			26,177			41,508
Cash and cash equivalents at beginning of period				—			15,331			—
Cash and cash equivalents at end of period			$	15,331		$	41,508		$	41,508
Supplemental disclosure of cash flow information:
	Cash paid for interest		$	—		$	251		$	251
Non cash investing and financing activities:
	Warrants issued in connection with debt		$	—		$	259		$	259
	Deemed dividend for the beneficial conversion feature on the issuance of Series A-1 and Series A-2 convertible preferred stock		$	—		$	(18,360	)	$	(18,360	)

See accompanying notes

F-6

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

        Zogenix, Inc. (the "Company"), was incorporated in the state of Delaware on May 11, 2006 as SJ2 Therapeutics, Inc. The Company commenced operations on August 25, 2006 and changed its name to Zogenix, Inc. on August 28, 2006. The Company is a specialty pharmaceutical company dedicated to the development and commercialization of medicines for the treatment of central nervous system disorders and pain. The Company's primary activities since incorporation have been organizational activities, the acquisition of a drug delivery technology (DosePro), completing the development of sumatriptan DosePro, acquiring from Elan PLC the rights to an oral product in development for the treatment of chronic pain, recruiting personnel and raising capital.

        In December 2007, the Company submitted a New Drug Application ("NDA") to the U.S. Food and Drug Administration (the "FDA") for the approval of sumatriptan DosePro. Until sumatriptan DosePro is approved and the Company begins commercial operations, the Company will be considered to be in the development stage. In addition, the Company has experienced losses since its inception, and as of December 31, 2007, had an accumulated deficit of $33.1 million. The Company expects to continue to incur losses for the next several years, even if it obtains approval of sumatriptan DosePro and commercializes that product. Successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company's cost structure. Until that time, the Company will continue to need to raise additional debt or equity financing. Management believes that it has sufficient capital to fund operations through at least December 31, 2008.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Pro Forma Stockholders' Equity

        The unaudited pro forma stockholders' equity information in the accompanying balance sheet assumes the conversion of the outstanding shares of convertible preferred stock at December 31, 2007 into 77,890,909 shares of common stock as though the completion of the initial public offering contemplated by this prospectus had occurred on December 31, 2007. Common stock issued in such initial public offering and any related estimated net proceeds are excluded from such pro forma information.

Use of Estimates

        The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

F-7

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment Securities, Available-for Sale

        The Company classifies all investment securities as available-for-sale, as the sale of such securities may be required prior to maturity to implement management strategies. These investment securities are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are also included in interest income.

        Investments in marketable securities were $6.8 million and $1.7 million at December 31, 2006 and 2007, respectively. The estimated fair value approximates the amortized cost as of December 31, 2006 and 2007. There were no realized gains or losses for the period August 25, 2006 (inception) to December 31, 2006 and for the year ended December 31, 2007.

Fair Value of Financial Instruments

        The carrying amount of financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued liabilities 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 borrowing rates currently available to the Company for loans with similar terms, the carrying value of the notes approximate fair value. Estimated fair values for marketable securities, which are separately disclosed elsewhere, are based on quoted market prices for the same or similar instruments. 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.

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and investment securities, available-for-sale. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. 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. Additionally, the Company has established guidelines regarding the diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

Property and Equipment, Net

        Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three years for computer equipment and software, seven years for furniture and fixtures and 10 to 15 years for manufacturing equipment. Leasehold improvements are recorded at cost and amortized over the term of the lease or their estimated useful life, whichever is shorter.

F-8

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of Long-Lived Assets

        In accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal 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. The Company also periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of all of its long-lived assets, including property and equipment. The determinants used for this evaluation include management's estimate of the asset's ability to generate positive income from operations and positive cash flow in future periods.

Research and Development Expenses

        Research and development expenses are expensed as incurred. These expenses include pre-clinical and clinical testing of the Company's products, the cost of supplies for testing and related services for manufacturing the supplies. Further, commercial inventory that is manufactured in advance of a product's approval by the FDA will also be expensed as research and development.

Income Taxes

        The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). Under SFAS No. 109, 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.

Stock-Based Compensation

        The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ("SFAS No. 123(R)"). SFAS No. 123(R) requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments, including stock options. SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants are expensed on a straight-line basis.

        The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123(R) and Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest.

Comprehensive Income

        The Company has applied Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, which requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income represents all changes in stockholders' equity except those resulting from

F-9

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

investments or contributions by stockholders. The Company's unrealized gains and losses on available-for-sale securities represent the component of comprehensive income excluded from the Company's net loss.

Net Loss Per Share

        Basic net loss per share is computed by dividing the net loss attributed to common stockholders by the weighted average number of common shares outstanding during the period less the weighted average number of shares subject to repurchase. The Company's potential dilutive shares, which include outstanding common stock options, unvested common shares subject to repurchase, convertible preferred stock and warrants, have not been included in the computation of diluted net loss per share for all of the periods as the result would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be anti-dilutive.

        A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows (in thousands, except for per share amounts):

		Period from August 25, 2006 (Inception) to December 31, 2006			Year ended December 31, 2007
Historical
Numerator:
	Net loss attributable to common stockholders	$	(5,399	)	$	(46,040	)
Denominator:
	Weighted average common shares		11,385			12,284
	Weighted average unvested common shares subject to repurchase		(7,342	)		(7,079	)
	Denominator for basic and diluted net loss per share		4,043			5,205
Basic and diluted net loss per share attributable to common stockholders		$	(1.34	)	$	(8.85	)

        The following outstanding options, common stock subject to repurchase, convertible preferred stock and warrants to purchase convertible preferred stock were excluded from the computation of

F-10

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

	Period from August 25, 2006 (Inception) to December 31, 2006	Year ended December 31, 2007
Common stock options outstanding	—	2,940
Convertible preferred stock (on an as if converted basis)	30,775	77,891
Warrant to purchase convertible preferred stock	—	200
Unvested common shares subject to repurchase	—	1,950
Total anti-dilutive securities not included in diluted net loss per share	30,775	82,981

Pro Forma Net Loss Per Share

        Upon completion of the Company's planned initial public offering, all outstanding convertible preferred stock will be converted, at the applicable conversion ratio, into shares of common stock. The unaudited pro forma basic and diluted net loss per share for the year ended December 31, 2007 reflects the conversion of all outstanding shares of convertible preferred stock. The unaudited pro forma stockholders' equity and pro forma basic and diluted net loss per share do not give effect to the issuance of shares in the planned initial public offering.

F-11

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        A reconciliation of the numerator and denominator used in the calculation of pro forma basic and diluted net loss per share follows (in thousands, except for per share amounts):

		Year ended December 31, 2007
Numerator:
	Net loss attributable to common stockholders	$	(46,040	)
	Adjustment to eliminate the beneficial conversion feature related to the convertible preferred stock		18,360
	Pro forma net loss	$	(27,680	)
Denominator:
	Weighted average common shares		5,205
	Pro forma adjustment to reflect assumed conversion of all outstanding shares of convertible preferred stock (unaudited)		37,126
	Denominator for pro forma basic and diluted net loss per share (unaudited)		42,331
	Pro forma basic and diluted net loss per share (unaudited)	$	(0.65	)

Recent Accounting Pronouncements

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles ("GAAP"), and expands disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, which is the Company's fiscal year 2008. Because SFAS No. 157 does not require any new fair value measurements or re-measurements of previously computed fair values, the Company does not believe the impact of adopting SFAS No. 157 on its financial statements will be material.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"), which permits entities the option to measure certain financial assets and liabilities at fair value. SFAS No. 159 will be effective for fiscal years beginning after November 15, 2007, which is the Company's fiscal year 2008. The Company is in the process of evaluating the potential impact of adopting SFAS No. 159 on its financial statements.

F-12

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 3. BALANCE SHEET COMPONENTS

Prepaid Expenses and Other Current Assets (in thousands)		December 31,
		2006		2007
Prepaid services		$	—	$	490
Value Added Tax receivable			—		550
Investment interest receivable			35		109
Prepaid insurance			138		119
Other current assets			167		142
	Total prepaid expenses and other current assets	$	340	$	1,410

Property and Equipment, net (in thousands)		December 31,
		2006			2007
Furniture and fixtures		$	20		$	119
Computer equipment and software			234			368
Machinery and equipment			3,978			4,800
Construction in progress			—			2,925
Leasehold improvements			103			141
Property and equipment, at cost			4,335			8,353
Less: accumulated depreciation and amortization			(15	)		(422	)
	Total property and equipment, net	$	4,320		$	7,931

        Depreciation and amortization expense for the year ended December 31, 2007, the period August 25, 2006 (inception) to December 31, 2006 and for the cumulative period from August 25, 2006 (inception) to December 31, 2007 was $407,000, $15,000, and $422,000, respectively.

Accrued Expenses (in thousands)		December 31,
		2006		2007
Accrued compensation and benefits		$	192	$	895
Other accrued liabilities			—		146
	Total accrued expenses	$	192	$	1,041

NOTE 4. COLLABORATIONS, LICENSE, SERVICE AND PURCHASE AGREEMENTS

Aradigm Corporation Asset Purchase Agreement

        On August 25, 2006, the Company completed the acquisition 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

F-13

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4. COLLABORATIONS, LICENSE, SERVICE AND PURCHASE AGREEMENTS (Continued)

all other intellectual property of Aradigm 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 the Company granted Aradigm a license under other intellectual property rights solely for use in the pulmonary field.

        The Company paid Aradigm $4.0 million as consideration at the closing of the asset purchase and is required to make an additional milestone payment to Aradigm upon the U.S. commercialization of sumatriptan DosePro. The Company is also required to pay a specified royalty based on global net sales of sumatriptan DosePro, by us or one of our future licensees, if any, for the longer of the ten year anniversary of the first commercial sale of the product in the United States, but no more than 20 years after the closing date of the asset purchase, or the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product.

        The Company submitted the NDA for sumatriptan DosePro to the FDA in 2007 but does not expect to receive final approval from the FDA prior to the first quarter of 2009.

        The purchase price was allocated to the tangible and intangible assets acquired based on their fair values which exceeded the total acquisition cost. The acquisition cost was then allocated proportionately based on their fair values as follows (in thousands):

Machinery and equipment		$	3,709
Purchased in-process research and development			1,320
	Total	$	5,029

        The value allocated to purchased in-process research and development was $1.3 million and expensed as purchased in-process research and development in the statement of operations. It represents the value of purchased in-process research and development projects that had not reached technological feasibility at the date of acquisition.

        In addition, in the event the Company or one of its licensees, if any, commercializes a non-sumatriptan product in the DosePro delivery system, the Company will be required to pay Aradigm, at its election, either a specified royalty on net sales of each non-sumatriptan product commercialized, or a fixed percentage of the royalty revenues received by the Company from the licensee. 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.

Elan Pharma International Limited License Agreement

        In November 2007, the Company entered into a license agreement with Elan Pharma International Ltd. ("Elan"). Under the terms of this license agreement, Elan granted to 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. The Agreement grants the Company the exclusive right under certain Elan patents and

F-14

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4. COLLABORATIONS, LICENSE, SERVICE AND PURCHASE AGREEMENTS (Continued)

patent applications to import, use, offer for sale and sell oral controlled release capsule or tablet formulations of a specific opiate, where the specific opiate 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. Elan has the exclusive right to take action in the event of infringement or threatened infringement by a third party of Elan's intellectual property rights. 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 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 to the Company under agreed upon financial terms.

        Elan also granted to 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 is required to make payments to Elan based upon achievement of certain development and sales milestones. As of December 31, 2007, the Company 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 commercial events. The Company is also required to pay specified royalties based 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 such country. After the initial royalty term, the license agreement will continue automatically for three-year rolling periods where the Company will continue to pay royalties on product sales to Elan at reduced rates.

        Either party may terminate the agreement upon a material, uncured default 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, 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.

F-15

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 5. COMMITMENTS AND CONTINGENCIES

Operating Leases

        In March 2007, the Company entered into a non-cancelable operating lease that expires on May 31, 2010 for its San Diego, California office which houses the general and administrative and sales and marketing operations and personnel. In addition, the Company leases office space for its research and product development operations in Emeryville, California, under a non-cancelable operating lease that expires November 2011. Both the San Diego and Emeryville facility base rents are subject to a 3.0% increase each year for the duration of the lease. In addition, the San Diego office lease gives 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.

        The Company recognizes rent expense on a straight-line basis over the non-cancelable term of its operating leases. Rent expense was $38,000, $316,000 and $354,000 for the period from August 25, 2006 (inception) to December 31, 2006, for the year ended December 31, 2007 and for the cumulative period from August 25, 2006 (inception) to December 31, 2007, respectively.

        The aggregate future minimum lease facility payments as of December 31, 2007 are as follows (in thousands):

2008		$	433
2009			465
2010			368
2011			263
	Total	$	1,529

Contingencies

        The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company's management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company's business, financial condition or results of operation.

Indemnification

        In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company's exposure under these agreements is unknown because it involves future claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

        In accordance with its amended and restated certificate of incorporation and bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company's request in such capacity. Further, the Company has entered into indemnification agreements with each of its directors and officers, and it has purchased a policy of directors' and officers' liability insurance that insures its directors and officers

F-16

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 5. COMMITMENTS AND CONTINGENCIES (Continued)

against the cost of defense, settlement or payment of a judgment under certain circumstances. There have been no claims to date and the Company has a director and officer insurance policy that enables it to recover a portion of any amounts paid for future potential claims.

NOTE 6. DEBT

Long-term Debt

        In March 2007, the Company entered into a $10.0 million master loan and security agreement ("GE Agreement") with GE Capital Corporation ("GE Capital") for the purpose of financing capital equipment purchases. The first drawdown of $3.5 million was made on March 5, 2007. Each drawdown is under a note with the note for the first drawdown repayable in 47 equal monthly installments based on a monthly repayment schedule bearing interest at an annual rate of 10.08% maturing on April 1, 2011. In December 2007, the Company made a second drawdown of $1.0 million repayable in 47 equal installments bearing interest at an annual rate of 9.91%. The Company's ability to make further draw downs under the GE Agreement expired on December 31, 2007. The loan amounts are collateralized by specific manufacturing equipment owned by the Company.

        The future minimum payments as of December 31, 2007 are as follows (in thousands):

2008		$	1,360
2009			1,387
2010			1,387
2011			675
2012			26
	Sub total		4,835
	Less amount representing interest		(772	)
	Less unamortized discount		(272	)
	Less current portion		(921	)
Long-term portion		$	2,870

        Included in other assets at December 31, 2007 is $156,000 representing unamortized debt issuance costs incurred in connection with the GE Agreement. This amount includes $50,000 earned by GE Capital at the closing of the GE Agreement and can be used to offset principal and interest payments ratably during the period under which the loan is available along with $159,000 of legal fees paid to the Company's corporate counsel. The legal fees are being amortized to interest expense over the term of the GE Agreement and such amortization totaled $30,000 for the year ended December 31, 2007. For the year ended December 31, 2007, principal and interest payments in the amount of $23,000 were applied against the $50,000 lender fee.

Convertible Preferred Stock Warrant

        In connection with the execution of the GE Agreement, the Company issued a warrant to GE Capital in March 2007 to purchase 200,000 shares of Series A-1 convertible preferred stock. The warrant has an exercise price of $1.00 per share and expires in March 2014. In the event of the

F-17

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 6. DEBT (Continued)

completion of an initial public offering, the warrant, if not previously exercised, will be converted into a warrant to purchase 200,000 shares of common stock. The fair value of the warrant was estimated at an aggregate of $151,000 using the Black-Scholes valuation model with the following assumptions at the date of issuance: expected volatility of 80.72%, risk-free interest rate of 4.46%, contractual life of seven years and no dividends. The warrant was recorded as debt issuance costs and is being amortized to interest expense over the term of the loan. A total of $68,000 was recorded as interest expense during the year ended December 31, 2007.

        In June 2005, a FASB Staff Position was issued, Issuer's Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable ("FSP No. 150-5"), addressing the application of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS No. 150"). FSP No. 150-5 was effective for all periods presented after July 1, 2005 and concluded that warrants for shares in redeemable instruments should be accounted for as liabilities under SFAS No. 150. In accordance with FSP No. 150-5, the Company adjusts the carrying value of such redeemable warrants to their estimated fair value at each reporting date. Pursuant to SFAS No. 150, increases or decreases in the fair value of such warrants are recorded as interest expense in the statement of operations. At December 31, 2007, the estimated fair value of the warrant was calculated using the Black-Scholes valuation model resulting in a carrying value of $259,000 and was based on the estimated fair value of the preferred stock. The estimated fair value of preferred stock was based on the estimated fair value of the underlying common stock, which was $1.60 per share, as of December 31, 2007. For the year ended December 31, 2007, interest expense in the amount of $107,000 was recorded in connection with the increase in fair value of the warrant.

NOTE 7. 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.

        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 $30.0 million in cash 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 $38.0 million. 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 $9.9 million. The new investor also entered into an agreement whereby the investor would be required to purchase up to 4,000,000 shares of Series A-3 convertible preferred stock ("Series A-3") at $1.25 per share. The Company is only able to require the investors to purchase the Series A-3 shares under certain conditions, principally the Company's receipt of tentative approval from the FDA for the NDA of sumatriptan DosePro.

        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, pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features, the Company recorded a deemed dividend on the Series A-1 and Series A-2 of $18.4 million which is equal to the number of

F-18

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7. STOCKHOLDERS' EQUITY (Continued)

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.

Right Issued with Series A Convertible Preferred Stock

        Included in the terms of the Series A-1 and Series A-2 shares are certain rights granted to the holders which obligate 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"). In addition, the convertible preferred stock, based on its liquidation terms, is classified outside of stockholders' equity (deficit) in accordance with EITF Topic No. D-98: Classification and Measurement of Redeemable Securities. Accordingly, the rights to purchase additional shares are recorded as a liability in accordance with FSP 150-5 at the estimated fair value of the obligation on the date of issuance and the carrying value is adjusted at each reporting date for any changes in its estimated fair value. The change in carrying value is recorded as other financing income or loss in the statement of operations. The estimated fair value is determined using a valuation model which considers the probability of achieving a milestone, if any, the entity's cost of capital, the estimated time period the Right will be outstanding, consideration received for the instrument with the Right, the number of shares to be issued to satisfy the Right and at what price and any changes in the fair value of the underlying instrument to the Right.

        In connection with the issuance of the Series A-1, the following summarizes the terms of the Rights granted and the impact on the accompanying financial statements.

		Series A-1
Date of issuance			8/24/2006
Number of shares originally purchased			30,775,000
Additional number of shares which can be purchased			30,000,000
Price at which the additional shares can be purchased		$	1.00
Estimated fair value per share at:
	Date of issuance	$	0.11
	December 31, 2006	$	0.09
	December 31, 2007		N/A
Other financing income in:
	2006	$	582,000
	2007	$	906,000

        As of December 31, 2007, the Right related to the Series A-1 has been exercised. As of December 31, 2007, the Right related to the Series A-2 has not been exercised.

        The Company can require the Series A-2 investor to acquire up to 4,000,000 shares of Series A-3 at $1.25 per share. The Right can be exercised at any time after the Company has received a PDUFA response which to the reasonable satisfaction of the Series A-2 investor, indicates tentative FDA approval for sumatriptan DosePro. This Right related to Series A-2 terminates upon the earliest of (i) the closing of an effective initial public offering, (ii) a Material Adverse Change (as defined), or (iii) February 1, 2009. The Company believes that the Right related to A-2 has minimal value as it

F-19

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7. STOCKHOLDERS' EQUITY (Continued)

terminates upon the closing of an initial public offering which the Company considers highly probable to occur prior to receiving FDA approval for sumatriptan DosePro.

        The rights, preferences and privileges of Series A-1, Series A-2 and Series A-3 (collectively referred to as "convertible preferred stock") are as follows:

Dividends

        The holders of Series A-1, Series A-2 and Series A-3 are entitled to receive noncumulative dividends at a rate of 8.0%, 8.8% and 10.0%, respectively, per annum and are payable only when and if declared by the board of directors. Through December 31, 2007, 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 A-3 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 $1.25, 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-dilutive 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 $40.0 million 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

F-20

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7. STOCKHOLDERS' EQUITY (Continued)

vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

        The Company initially recorded the Series A-1 and Series A-2 at their fair values on the date 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 preferred stock have been presented outside of permanent equity in accordance with EITF Topic D-98, Classification and Measurement of Redeemable Securities. Further, the Company has also elected not to adjust the carrying values of the Series A-1 and Series A-2 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 probably that such redemption will occur.

Common Stock

        Under the Company's amended and restated certificate of incorporation, the Company is authorized to issue 111,000,000 shares of common stock as of December 31, 2007 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 $11,385. A portion of the Founder's Stock vests 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 7,094,000, and 4,601,000 shares of unvested Founder's Stock at December 31, 2006 and 2007, respectively.

        Common stock reserved for future issuance consists of the following at December 31, 2007 (in thousands):

Conversion of convertible preferred stock	77,891
Stock options outstanding	2,940
Warrant to purchase Series A-1 (as if converted)	200
Shares authorized for future issuance under the 2006 Plan	1,470
	82,501

NOTE 8. STOCK OPTION PLAN

        During 2006, the Company adopted the 2006 Stock Plan (as amended, the "2006 Plan") under which 1,000,000 shares of common stock were reserved for issuance to employees, directors and consultants of the Company at December 31, 2006. In May 2007 and June 2007, the board of directors and the stockholders, respectively, approved an increase to the number of common shares available for issuance under the 2006 Plan by 5,540,000, resulting in the total number of shares available under the 2006 Plan of 6,540,000 at December 31, 2007. The 2006 Plan provides for the grant of incentive stock options, non-statutory stock options and rights to purchase restricted stock to eligible recipients.

F-21

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

Recipients of incentive 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. The options generally vest over four years, and some are immediately exercisable. At December 31, 2007, 2,940,000 shares of common stock were reserved for future issuance upon the exercise of outstanding options under the 2006 Plan.

        The 2006 Plan is intended to encourage ownership of stock by employees and consultants 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 option grants, the number of options each individual will receive, the option 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. No stock options were granted during the year ended December 31, 2006.

        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 per Share
Outstanding at December 31, 2006		—		$	—
	Granted	5,087			0.09
	Exercised	(2,130	)		0.06
	Forfeited	(17	)		0.05
Outstanding at December 31, 2007		2,940		$	0.11

        The weighted average grant date fair value of options granted during 2007 was $0.25 per share.

        The following table summarizes information about stock options outstanding and vested segregated by exercise price ranges at December 31, 2007 (number of shares in thousands):

Options outstanding							Options exercisable
Range of Exercise Prices	Number of Shares Outstanding	Weighted Average Remaining Life (in years)	Weighted Average Exercise Price		Intrinsic Value of Shares Outstanding		Number of Shares Vested	Weighted Average Remaining Life (in years)	Weighted Average Exercise Price		Intrinsic Value of Shares Exercisable
$0.05	1,870	9.4	$	0.05			330	9.3	$	0.05
$0.21	1,070	9.9		0.21			50	9.9		0.21
	2,940	9.5	$	0.11	$	4,386,000	380	9.4	$	0.07	$	580,000

F-22

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

        The intrinsic values above represent the aggregate value of the total pre-tax intrinsic value, based upon a common stock price of $1.60 at December 31, 2007, and the contractual exercise prices.

        The following table summarizes information concerning unvested options during the year ended December 31, 2007 (number of shares in thousands):

		Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2006		—		$	—
	Granted	5,087			0.25
	Vested	(455	)		0.18
	Exercised	(2,055	)		0.09
	Forfeited	(17	)		0.04
Unvested at December 31, 2007		2,560		$	0.39

Stock-based Compensation

        Upon adoption of SFAS No. 123(R), the Company selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value and stock-based compensation for stock-based awards to employees and to the board of directors. The assumptions used in the Black-Scholes option-pricing model are as follows:

	2007
Risk free interest rate	4.62%
Expected term	5.96 years
Expected volatility	77.04%
Expected dividend yield	0%
Fair value of underlying stock	$0.05 - $1.60

        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 life of options was calculated using the simplified method as prescribed by the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 107 ("SAB No. 107"). 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 also reflects the application of SAB No. 107, incorporating the historical volatility of comparable companies whose share prices are publicly available.

        The stock-based compensation expense recognized during the year ended December 31, 2007 for employees and directors was $130,000, of which $85,000 was included in general and administrative expense and $45,000 was included in research and development expense.

F-23

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

        The Company received cash from the exercise of stock options of $130,000 for the year ended December 31, 2007 and did not recognize any related tax benefits in the period. The aggregate intrinsic value of options exercised during the year ended December 31, 2007 was approximately $3.3 million. As of December 31, 2007, there was approximately $1.1 million of total unrecognized compensation costs related to outstanding options granted after the adoption of SFAS No. 123(R), which is expected to be recognized over a weighted average period of 3.5 years.

        At December 31, 2007, all of the 10,000 consultant stock options outstanding were vested. In accordance with EITF Issue No. 96-18 Accounting for Equity Investments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services, the Company periodically re-measures the fair value of stock option grants to non-employees and recognizes the related income or expense during their vesting period. Expense recognized for consultant stock options granted was $1,000 for the year ended December 31, 2007. Consultant stock option expense is included within research and development expense. There were no grants, exercises, or forfeitures of stock options for consultants during the year ended December 31, 2006.

        In connection with the preparation of the Company's financial statements necessary for the planned initial public offering and based on the preliminary valuation information presented by the underwriters of the initial public offering, the Company retrospectively reassessed the estimated fair value of its common stock in light of the potential completion of the initial public offering.

        The exercise prices for stock options granted to employees to purchase the Company's common stock were originally established by the board of directors based on their estimate of fair value. In addition, prior to issuing any stock options, management performed a contemporaneous valuation of the Company's common stock as of December 31, 2006. The valuation was prepared using the guidance in the American Institute Certified Public Accountants (AICPA's) Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation.

        Based upon the reassessment discussed above, the Company determined that the reassessed fair value of the options granted through August 2007 to purchase an aggregate of 3,872,500 shares of common stock was $0.05, or equal to the exercise price; that the reassessed fair value of options to purchase 985,000 shares of common stock granted to employees on November 1, 2007 was $0.91 per share and that the reassessed fair value of options granted on November 27, 2007 to purchase 230,000 shares of common stock was $1.60 per share. Prior to September 2007, when the Company completed the sale of its second tranche of Series A-1 convertible preferred stock, the Company was thinly capitalized and had not yet achieved any major milestones. Accordingly, the Company believes that the estimated fair value as determined by the board of directors to price stock options granted to employees through August 2007 was appropriate.

F-24

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

        Information on employee stock options granted during 2007 is summarized as follows (number of shares in thousands):

	Number of Options Granted	Exercise Price		Reassessed Fair Value		Intrinsic Value per Option Share
February 2007	827	$	0.05	$	0.05	$	—
May 2007	2,785		0.05		0.05		—
August 2007	260		0.05		0.05		—
November 1, 2007	985		0.21		0.91		0.70
November 27, 2007	230		0.21		1.60		1.39
Total	5,087

NOTE 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 date of hire. Under the terms of the Plan, employees may make voluntary contributions as a percent of compensation. The Company's contributions to the Plan are discretionary and no contributions have been made by the Company to date.

NOTE 11. INCOME TAXES

        On July 13, 2006, the FASB issued Financial Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, 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, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.

        The Company adopted the provisions of FIN No. 48 on January 1, 2007. There were no unrecognized tax benefits as of the date of adoption and there are no unrecognized tax benefits included in the balance sheet at December 31, 2007, that would, if recognized, affect the effective tax rate.

        The Company's practice 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 December 31, 2006 and 2007 and has recognized no interest and/or penalties in the statements of operations through the year ended December 31, 2007.

F-25

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 11. INCOME TAXES (Continued)

        The Company is subject to taxation in the U.S. and California jurisdictions. The Company's tax years for 2006 and forward are subject to examination by the Federal and California tax authorities.

        The Company has not yet completed an analysis to determine whether or not ownership changes within the meaning of Internal Revenue Code Sections 382 and 383 have occurred in the current or prior years. Therefore, until this analysis is completed the Company has removed the deferred tax assets for net operating losses of $12.8 million and research and development credits of $455,800 generated through 2007 from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance. Once such an analysis is completed, the Company plans to update its deferred tax assets, valuation allowance and unrecognized tax benefits under FIN 48. At this time, management cannot estimate how much the unrecognized tax benefits may change, if any, within 12 months of the reporting date. Due to the existence of the valuation allowance, future changes in unrecognized tax benefits will not impact the Company's effective tax rate.

        At December 31, 2007, the Company had Federal and California income tax net operating loss carryforwards of approximately $32.2 million. 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 credit carryforwards of $269,000 and $283,000, respectively. The Federal research and development credit carryforwards will begin to expire in 2026 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized.

        Significant components of the Company's deferred tax assets as of December 31, 2006 and 2007 are listed below. A valuation allowance of $2.4 million and $828,000 at December 31, 2006 and 2007, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. Amounts are shown as of December 31, of the respective years:

		December 31,
		2006			2007
Deferred Tax Assets:
	Net operating loss carryforwards	$	1,663		$	—
	Research and development credits		30			—
	Depreciation and amortization		507			561
	Start-up/organization costs		196			182
	Accrued vacation		14			71
	Deferred rent		—			8
	Stock based compensation		—			6
Total deferred tax assets			2,410			828
Valuation allowance			(2,410	)		(828	)
Net deferred tax assets		$	—		$	—

F-26

             Shares

Zogenix, Inc.

Common Stock

Prospectus
                        , 2008

Banc of America Securities LLC
Leerink Swann
Thomas Weisel Partners LLC
Susquehanna Financial Group, LLLP

        Until                        , 2008, all dealers that buy, sell or trade the common stock may be required to deliver a prospectus, regardless of whether they participated in this offering. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters 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		$	3,390
FINRA Filing Fee			9,125
Nasdaq Global Market Listing Fee			100,000
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 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 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, our executive officers and 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.

        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

        Since inception, we have issued and sold the following unregistered securities:

1.

In May and August 2006, we issued and sold 12,225,000 shares of common stock to our co-founders and individual investors for aggregate consideration of $7,905.



2.

In August and September 2006 and September and December 2007, we issued and sold an aggregate of 68,800,000 shares of Series A-1 preferred stock to certain venture capital funds, one of our co-founders and individual investors at a per share price of $1.00, for aggregate consideration of $68,800,000. Upon completion of this offering, these shares of Series A-1 preferred will convert into 68,800,000 shares of our common stock.



3.

In March 2007, in connection with a loan and security agreement, we issued a warrant to a lender to purchase 200,000 shares of Series A-1 preferred stock, at an initial exercise price of $1.00 per share, subject to adjustment. The warrant is exercisable through the March 2014. This warrant will be exercisable for 200,000 shares of common stock at an exercise price of $1.00 per share upon the completion of this offering.



4.

In December 2007, we issued and sold an aggregate of 9,090,909 shares of Series A-2 preferred stock to certain venture capital funds and individual investors at a per share price of $1.10, for aggregate consideration of approximately $10,000,000. Upon completion of this offering, these shares of Series A-2 preferred will convert into 9,090,909 shares of our common stock.



5.

Since our inception through December 31, 2007, we granted stock options to purchase 5,087,000 shares of our common stock at a weighted average exercise price of $0.09 per share to our employees, consultants and directors under our 2006 equity incentive plan. Since our inception through December 31, 2007, we issued and sold an aggregate of 2,130,000 shares of our common stock to our employees, consultants, and directors at a weighted average exercise price of $0.06 per share pursuant to exercises of options granted under our 2006 equity incentive plan.

        The issuance of securities described above in paragraphs (1) through (4) 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 (5) 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-2

Item 16.    Exhibits and Financial Statement Schedules

(a)

Exhibits

Exhibit Number	Description
1.1*	Form of Underwriting Agreement
3.1	Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
3.2*	Form of Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering
3.3	Bylaws of the Registrant, as currently in effect
3.4*	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	Amended and Restated Investors' Rights Agreement dated December 13, 2007
4.3	Warrant dated March 5, 2007 issued by Registrant to General Electric Capital Corporation
5.1*	Opinion of Latham & Watkins LLP
10.1*	Form of Director and Executive Officer Indemnification Agreement
10.2*	Form of Executive Officer Employment Agreement
10.3#*	2006 Equity Incentive Plan and forms of option agreements thereunder
10.4#*	Independent Director Compensation Policy
10.5#*	2008 Equity Incentive Award Plan and forms of option and restricted stock agreements thereunder
10.6#*	2008 Employee Stock Purchase Plan and form of Offering document thereunder
10.7†	Asset Purchase Agreement dated August 25, 2006 by and between the Registrant and Aradigm Corporation
10.8	Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.9	First Amendment to Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.10	Master Lease Agreement dated March 20, 2007 by and between Registrant and TBA Entertainment Corporation
10.11†	Master Loan and Security Agreement dated March 5, 2007 by and between the Registrant and General Electric Capital Corporation
10.12†	License Agreement dated November 27, 2007 by and between the Registrant and Elan Pharma International Limited

II-3

10.13†	Supply Agreement dated September 29, 2004 by and between the Registrant and Dr. Reddy's Laboratories, Inc.
10.14†	Licensing and Distribution Agreement dated March 14, 2008 by and between the Registrant and Desitin Arzneimittel GmbH
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	Power of Attorney (See page II-5)

*

To be filed by amendment.

†

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-4

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, Zogenix, Inc. has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in San Diego, California on the 20th day of March, 2008.

ZOGENIX, INC.
By:	/s/  ROGER L. HAWLEY Roger L. Hawley Chief Executive Officer

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roger L. Hawley and David W. Nassif, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, as amended, this 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)	March 20, 2008
/s/  DAVID W. NASSIF David W. Nassif	Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)	March 20, 2008
/s/  CAM L. GARNER Cam L. Garner	Chairman of the Board	March 20, 2008

II-5

/s/  JAMES C. BLAIR, PH.D. James C. Blair, Ph.D.	Director	March 20, 2008
/s/  LOUIS C. BOCK Louis C. Bock	Director	March 20, 2008
/s/  STEPHEN J. FARR, PH.D. Stephen J. Farr, Ph.D.	President, Chief Operating Officer and Director	March 20, 2008
/s/  KURT C. WHEELER Kurt C. Wheeler	Director	March 20, 2008
/s/  ALEX ZISSON Alex Zisson	Director	March 20, 2008

II-6

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement
3.1	Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
3.2*	Form of Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering
3.3	Bylaws of the Registrant, as currently in effect
3.4*	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	Amended and Restated Investors' Rights Agreement dated December 13, 2007
4.3	Warrant dated March 5, 2007 issued by Registrant to General Electric Capital Corporation
5.1*	Opinion of Latham & Watkins LLP
10.1*	Form of Director and Executive Officer Indemnification Agreement
10.2*	Form of Executive Officer Employment Agreement
10.3#*	2006 Equity Incentive Plan and forms of option agreements thereunder
10.4#*	Independent Director Compensation Policy
10.5#*	2008 Equity Incentive Award Plan and forms of option and restricted stock agreements thereunder
10.6#*	2008 Employee Stock Purchase Plan and form of Offering document thereunder
10.7†	Asset Purchase Agreement dated August 25, 2006 by and between the Registrant and Aradigm Corporation
10.8	Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.9	First Amendment to Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.10	Master Lease Agreement dated March 20, 2007 by and between Registrant and TBA Entertainment Corporation
10.11†	Master Loan and Security Agreement dated March 5, 2007 by and between the Registrant and General Electric Capital Corporation
10.12†	License Agreement dated November 27, 2007 by and between the Registrant and Elan Pharma International Limited
10.13†	Supply Agreement dated September 29, 2004 by and between the Registrant and Dr. Reddy's Laboratories, Inc.
10.14†	Licensing and Distribution Agreement dated March 14, 2008 by and between the Registrant and Desitin Arzneimittel GmbH
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	Power of Attorney (See page II-5)

*

To be filed by amendment.

†

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.

QuickLinks

TABLE OF CONTENTS
SUMMARY
THE OFFERING
SUMMARY FINANCIAL DATA
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
EXECUTIVE COMPENSATION
PRINCIPAL STOCKHOLDERS
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Zogenix, Inc. INDEX TO FINANCIAL STATEMENTS SELECTED FINANCIAL DATA
Report of Independent Registered Public Accounting Firm
ZOGENIX, INC. (a development stage enterprise) BALANCE SHEETS (in thousands, except par value)
ZOGENIX, INC. (a development stage enterprise) STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
ZOGENIX, INC. (a development stage enterprise) STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Period from August 25, 2006 (inception) to December 31, 2007 (in thousands, except per share amounts)
ZOGENIX, INC. (a development stage enterprise) STATEMENTS OF CASH FLOWS (in thousands)
ZOGENIX, INC. (a development stage enterprise) NOTES TO FINANCIAL STATEMENTS
PART II INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution
Item 14. Indemnification of Directors and Officers
Item 15. Recent Sales of Unregistered Securities
Item 16. Exhibits and Financial Statement Schedules
Item 17. Undertakings

SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX

EX-3.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 3.1

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

ZOGENIX, INC.

        Zogenix, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows:

        A.    That the name of the Corporation is Zogenix, Inc. The Corporation, which was originally known as SJ2 Therapeutics, Inc., originally filed its Certificate of Incorporation with the Secretary of State of the State of Delaware on May 11, 2006.

        B.    This Third Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, and restates, integrates and further amends the provisions of the Corporation's Amended and Restated Certificate of Incorporation, as amended by that certain Certificate of Amendment to Amended and Restated Certificate of Incorporation dated as of September 6, 2007 (the "Amended and Restated Certificate of Incorporation").

        C.    This Third Amended and Restated Certificate of Incorporation was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware.

        D.    The text of the Amended and Restated Certificate of Incorporation is amended and restated to read as set forth in EXHIBIT A attached hereto.

        IN WITNESS WHEREOF, Zogenix, Inc. has caused this Third Amended and Restated Certificate of Incorporation to be signed by David W. Nassif, a duly authorized officer of the Corporation, on December 13, 2007.

/s/  DAVID W. NASSIF David W. Nassif
Executive Vice President, Chief Financial Officer and Secretary

EXHIBIT A

ARTICLE I

        The name of the Corporation is Zogenix, Inc.

ARTICLE II

        The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE III

        The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, 19801. The name of the registered agent at such address is The Corporation Trust Company.

ARTICLE IV

        Effective immediately upon the filing of this Third Amended and Restated Certificate of Incorporation, each issued and outstanding share of Series A Preferred Stock of the Corporation shall automatically and without any further action on the part of the holder thereof be reclassified into one (1) share of Series A-1 Preferred Stock (as defined below). After such reclassification, the Company shall no longer be authorized to issue shares of Series A Preferred Stock. All references to "shares" or to "Series A-1 Preferred" in this Third Amended and Restated Certificate of Incorporation reflect the Company's capital stock as existing after such reclassification.

        The Corporation is authorized to issue two classes of stock designated "Common Stock" and "Preferred Stock." The Preferred Stock shall consist of three series designated "Series A-1 Preferred Stock," "Series A-2 Preferred Stock" and "Series A-3 Preferred Stock."

        The number of shares of Common Stock which this Corporation is authorized to issue is One Hundred Eleven Million (111,000,000). The number of shares of Preferred Stock which this Corporation is authorized to issue is Eighty Three Million (83,000,000), of which Sixty Nine Million (69,000,000) shares shall be designated Series A-1 Preferred Stock, Ten Million (10,000,000) shares shall be designated Series A-2 Preferred Stock and Four Million (4,000,000) shares shall be designated Series A-3 Preferred Stock.

        All shares of Common Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock shall have a par value of $0.001 per share.

        The rights, preferences, privileges and restrictions granted to or imposed upon the respective classes and series of shares of capital or the holders thereof are set forth below in Article V.

ARTICLE V

        The terms and provisions of the Common Stock and Preferred Stock are as follows:

        1.    Definitions.    For purposes of this ARTICLE V, the following definitions shall apply:

        (a)   "Conversion Price" shall mean $1.00 per share for the Series A-1 Preferred Stock, $1.10 per share for the Series A-2 Preferred Stock and $1.25 per share for the Series A-3 Preferred Stock (each such amount subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

        (b)   "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock.

        (c)   "Corporation" shall mean Zogenix, Inc.

2

        (d)   "Distribution" shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, other than dividends on Common Stock payable in Common Stock, or the purchase or redemption of shares of the Corporation by the Corporation for cash or property other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchase of capital stock of the Corporation in connection with the settlement of disputes with any stockholder, and (iv) any other repurchase or redemption of capital stock of the Corporation approved by the holders of Preferred Stock of the Corporation.

        (e)   "Dividend Rate" shall mean an annual rate of $0.08 per share for the Series A-1 Preferred Stock, $0.088 per share for the Series A-2 Preferred Stock and $0.10 per share for the Series A-3 Preferred Stock (each such amount subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

        (f)    "Liquidation Preference" shall mean $1.00 per share for the Series A-1 Preferred Stock, $1.10 per share for the Series A-2 Preferred Stock and $1.25 per share for the Series A-3 Preferred Stock (each such amount subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

        (g)   "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

        (h)   "Original Issue Price" shall mean $1.00 per share for the Series A-1 Preferred Stock, $1.10 per share for the Series A-2 Preferred Stock and $1.25 per share for the Series A-3 Preferred Stock (each such amount subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

        (i)    "Preferred Stock" shall mean the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series A-3 Preferred Stock.

        (j)    "Qualifying IPO" shall mean a firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), covering the offer and sale of the Corporation's Common Stock, provided that the offering price per share is not less than $3.00 (as adjusted for Recapitalizations) and the aggregate gross proceeds to the Corporation are not less than $40,000,000.

        (k)   "Recapitalization" shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

        2.    Dividends.

        (a)    Preferred Stock.    In any calendar year, the holders of outstanding shares of Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Board of Directors, out of any assets at the time legally available therefor, at the Dividend Rate specified for such shares of Preferred Stock payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with respect to the Common Stock unless dividends on the Preferred Stock have been declared in accordance with the preferences stated herein and all declared dividends on the Preferred Stock have been paid or set aside for payment to the Preferred Stock holders. The right to receive dividends on shares of Preferred Stock shall not be cumulative, and no right to dividends shall accrue to holders of Preferred Stock by reason of the fact that dividends on said shares are not declared or paid.

3

Payment of any dividends to the holders of Preferred Stock shall be on a pro rata, pari passu basis in proportion to the Dividend Rates for each series of Preferred Stock.

        (b)    Common Stock.    Dividends may be paid on the Common Stock when, as and if declared by the Board of Directors, subject to the prior dividend rights of the Preferred Stock and to Section 6 below.

        (c)    Non-Cash Distributions.    Whenever a Distribution provided for in this Section 2 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

        (d)    Consent to Certain Distributions.    As authorized by Section 402.5(c) of the California Corporations Code, if Section 502 or Section 503 of the California Corporations Code is applicable to a payment made by the Corporation then such applicable section or sections shall not apply if such payment is a payment made by the Corporation in connection with (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchases of Common Stock or Preferred Stock in connection with the settlement of disputes with any stockholder, (iv) any other repurchase or redemption of Common Stock or Preferred Stock approved by the holders of Preferred Stock of the Corporation.

        3.    Liquidation Rights.

        (a)    Liquidation Preference.    In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of each share of Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock shall be entitled to receive on a pari passu basis, prior and in preference to any Distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Preferred Stock and (ii) all declared but unpaid dividends (if any) on such share of Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 3(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

        (b)    Remaining Assets.    After the payment to the holders of Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro rata among the holders of the Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate.

        Notwithstanding the foregoing, the aggregate distributions made pursuant to one or more subsections of this Section 3 with respect to any share of Preferred Stock shall not exceed an amount

4

equal to two and one half (2.5) times the applicable Liquidation Preference for that share of Preferred Stock plus any declared but unpaid dividends.

        Notwithstanding the above subsections (3)(a) and (3)(b), for purposes of determining the amount each holder of shares of Preferred Stock is entitled to receive with respect to a Distribution, each such holder of shares of a series of Preferred Stock shall be deemed to have converted (regardless of whether such holder actually converted) such holder's shares of such series into shares of Common Stock immediately prior to the Distribution if, as a result of an actual conversion, such holder would receive, in the aggregate, an amount greater than the amount that would be distributed to such holder if such holder did not convert such series of Preferred Stock into shares of Common Stock. If any such holder shall be deemed to have converted shares of Preferred Stock into Common Stock pursuant to this paragraph, then such holder shall not be entitled to receive any distribution that would otherwise be made to holders of Preferred Stock that have not converted (or have not been deemed to have converted) into shares of Common Stock.

        (c)    Shares not Treated as Both Preferred Stock and Common Stock in any Distribution.    Shares of Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any Distribution, or series of Distributions, as shares of Common Stock, without first foregoing participation in the Distribution, or series of Distributions, as shares of Preferred Stock.

        (d)    Reorganization.    For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction retain, immediately after such transaction or series of transactions, as a result of shares in the Corporation held by such holders prior to such transaction, at least a majority of the total voting power represented by the outstanding voting securities of the Corporation or such other surviving or resulting entity (or if the Corporation or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent); a sale, lease or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Corporation; or any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

        (e)    Valuation of Non-Cash Consideration.    If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any publicly-traded securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

        (i)    If the securities are then traded on a national securities exchange or a national quotation system, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange or system over the ten (10) trading day period ending five (5) trading days prior to the Distribution; and

        (ii)   if the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the Distribution.

5

        The foregoing methods for valuing non-cash consideration to be distributed in connection with a Distribution shall, upon approval by the stockholders of the definitive agreements governing a Distribution, be superseded by any determination of such value set forth in the definitive agreements governing such Distribution.

        In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

        For the purposes of this subsection 3(e), "trading day" shall mean any day which the exchange or system on which the securities to be distributed are traded is open and "closing prices" or "closing bid prices" shall be deemed to be: (i) for securities traded primarily on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Global Market, the last reported sale price at 4:00 p.m., New York time, on that day and (ii) for securities listed or traded on other exchanges, markets and systems, the market price as of the end of the regular hours trading period that is generally accepted as such for such exchange, market or system. If, after the date hereof, the benchmark times generally accepted in the securities industry for determining the market price of a stock as of a given trading day shall change from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times.

        4.    Conversion.    The holders of the Preferred Stock shall have conversion rights as follows:

        (a)    Right to Convert.    Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the relevant series by the Conversion Price for such series. (The number of shares of Common Stock into which each share of Preferred Stock of a series may be converted is hereinafter referred to as the "Conversion Rate" for each such series.) Upon any decrease or increase in the Conversion Price for any series of Preferred Stock, as described in this Section 4, the Conversion Rate for such series shall be appropriately increased or decreased.

        (b)    Automatic Conversion.    Each share of Preferred Stock shall automatically be converted into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share (i) immediately prior to the closing of a Qualifying IPO or (ii) upon the receipt by the Corporation of a written request for such conversion from the holders of 67% of the Preferred Stock then outstanding, or, if later, the effective date for conversion specified in such request (each of the events referred to in (i) and (ii) are referred to herein as an "Automatic Conversion Event").

        (c)    Special Mandatory Conversion.    In the event that a holder of Series A-1 Preferred Stock (a "Series A-1 Non Participating Holder") does not purchase (or cause an affiliate to purchase), to the extent bound by the Series A Preferred Stock Purchase Agreement entered into between the Corporation and the investors named therein on August 25, 2006 (as amended from time to time, the "Series A Purchase Agreement") to purchase in the Third Closing, as such term is defined in the Series A Purchase Agreement, all and not less than all of the number of shares of Series A Preferred Stock required to be purchased at the Third Closing, then effective upon such Third Closing, all of such holder's shares of Series A-1 Preferred Stock shall automatically and without further action on the part of such holder be converted on a two-for-one basis into shares of Common Stock, whereby each one share of Series A-1 Preferred Stock held by such Series A-1 Non Participating Holder shall be converted into one-half of one share of Common Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein) (a "Series A-1 Mandatory Conversion Event"). In the event that a holder of Series A-2 Preferred Stock (a "Series A-2 Non Participating Holder") does not purchase (or cause an affiliate to purchase),

6

to the extent bound by the Series A-2 and Series A-3 Preferred Stock Purchase Agreement entered into between the Corporation and the investors named therein on December 13, 2007 (as amended from time to time, the "Series A-2/A-3 Purchase Agreement") to purchase in the Drawdown Closing, as such term is defined in the Series A-2/A-3 Purchase Agreement, all and not less than all of the number of shares of Series A-3 Preferred Stock required to be purchased in the Drawdown Closing, then effective upon such Drawdown Closing, all of such holder's shares of Series A-2 Preferred Stock shall automatically and without further action on the part of such holder be converted on a two-for-one basis into shares of Common Stock, whereby each one share of Series A-2 Preferred Stock held by such Series A-2 Non Participating Holder shall be converted into one-half of one share of Common Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein) (together with the Series A-1 Mandatory Conversion Event, a "Mandatory Conversion Event").

        (d)    Mechanics of Conversion.    No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Preferred Stock held by each holder of Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, he shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock or (B) notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however, that on the date of an Automatic Conversion Event or a Mandatory Conversion Event, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversion Event or Mandatory Conversion Event unless either the certificates evidencing such shares of Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of an Automatic Conversion Event or a Mandatory Conversion Event, each holder of record of shares of Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

7

        The Corporation shall, as soon as practicable after such delivery, or after such agreement and indemnification, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, plus any declared and unpaid dividends on the converted Preferred Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date; provided, however, that if the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act or a merger, sale, financing, or liquidation of the Corporation or other event, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing of such transaction or upon the occurrence of such event, in which case the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such transaction or the occurrence of such event.

        (e)    Adjustments to Conversion Price for Diluting Issues.

        (i)    Special Definition.    For purposes of this paragraph 4(e), "Additional Shares of Common" shall mean all shares of Common Stock issued (or, pursuant to paragraph 4(e)(iii), deemed to be issued) by the Corporation after the filing of this Third Amended and Restated Certificate of Incorporation, other than issuances or deemed issuances of:

        (1)   shares of Common Stock issued or issuable to officers, directors and employees of, or consultants to, the Corporation pursuant to stock grants, option plans, purchase plans or other employee stock incentive programs or arrangements approved by the Board of Directors, or upon exercise of options or warrants granted to such parties pursuant to any such plan or arrangement;

        (2)   shares of Common Stock issued upon the exercise or conversion of Options or Convertible Securities outstanding as of the date of the filing of this Third Amended and Restated Certificate of Incorporation;

        (3)   shares of Common Stock issued or issuable as a dividend or distribution on Preferred Stock or pursuant to any event for which adjustment is made pursuant to paragraph 4(f), 4(g) or 4(h) hereof;

        (4)   shares of Common Stock issued in a registered public offering under the Securities Act;

        (5)   shares of Common Stock issued or issuable pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided, that such issuances are approved by the Board of Directors;

        (6)   shares of Common Stock issued or issuable to banks, equipment lessors or other financial institutions pursuant to a credit agreement, debt financing, or commercial leasing transaction approved by the Board of Directors; and

        (7)   shares of Common Stock issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, marketing, supply agreements or other similar agreements approved by the Board of Directors.

8

        (ii)    No Adjustment of Conversion Price.    No adjustment in the Conversion Price of a particular series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share (as determined pursuant to paragraph 4(e)(v)) for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such series of Preferred Stock.

        (iii)    Deemed Issue of Additional Shares of Common.    In the event the Corporation at any time or from time to time after the date of the filing of this Third Amended and Restated Certificate of Incorporation shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities, the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of the underlying securities, shall be deemed to have been issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which shares are deemed to be issued:

        (1)   no further adjustment in the Conversion Price of any series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock in connection with the exercise of such Options or conversion or exchange of such Convertible Securities;

        (2)   if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof (other than a change pursuant to the anti-dilution provisions of such Options or Convertible Securities such as this Section 4(e) or pursuant to Recapitalization provisions of such Options or Convertible Securities such as Sections 4(f), 4(g) and 4(h) hereof), the Conversion Price of each series of Preferred Stock and any subsequent adjustments based thereon shall be recomputed to reflect such change as if such change had been in effect as of the original issue thereof (or upon the occurrence of the record date with respect thereto);

        (3)   no readjustment pursuant to clause (2) above shall have the effect of increasing the Conversion Price of a series of Preferred Stock to an amount above the Conversion Price that would have resulted from any other issuances of Additional Shares of Common and any other adjustments provided for herein between the original adjustment date and such readjustment date;

        (4)   upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price of each Series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if:

        (a)   in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or

9

exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of such exercised Options plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and

        (b)   in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of such exercised Options, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4(e)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and

        (5)   if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this paragraph 4(e)(iii) as of the actual date of their issuance.

        (iv)    Adjustment of Conversion Price Upon Issuance of Additional Shares of Common.    In the event this Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to paragraph 4(e)(iii)) without consideration or for a consideration per share less than the applicable Conversion Price of a series of Preferred Stock in effect on the date of and immediately prior to such issue, then, the Conversion Price of the affected series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest tenth of a cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued. Notwithstanding the foregoing, the Conversion Price shall not be reduced at such time if the amount of such reduction would be less than $0.001, but any such amount shall be carried forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal $0.001 or more in the aggregate. For the purposes of this Subsection 4(e)(iv), all shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock and the exercise and/or conversion of any other outstanding Convertible Securities and all outstanding Options shall be deemed to be outstanding.

10

        (v)    Determination of Consideration.    For purposes of this subsection 4(e), the consideration received by the Corporation for the issue (or deemed issue) of any Additional Shares of Common shall be computed as follows:

        (1)   Cash and Property.    Such consideration shall:

        (a)   insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with such issuance;

        (b)   insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

        (c)   in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (a) and (b) above, as reasonably determined in good faith by the Board of Directors.

        (2)   Options and Convertible Securities.    The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to paragraph 4(e)(iii) shall be determined by dividing

        (x)   the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

        (y)   the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

        (f)    Adjustments for Subdivisions o Combinations of Common Stock.    In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price of each series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Prices in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

        (g)    Adjustments for Subdivisions or Combinations of Preferred Stock.    In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such subdivision shall,

11

concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

        (h)    Adjustments for Reclassification, Exchange and Substitution.    Subject to Section 3 above ("Liquidation Rights"), if the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Preferred Stock shall have the right thereafter to convert such shares of Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such series of Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

        (i)    Certificate as to Adjustments.    Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock.

        (j)    Waiver of Adjustment of Conversion Price.    Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of Preferred Stock may be waived by the consent or vote of the holders of the majority of the outstanding shares of such series either before or after the issuance causing the adjustment.

        (k)    Reservation of Stock Issuable Upon Conversion.    The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

        (l)    Notices of Record Date.    In the event of any taking by this corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, this corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for

12

the purpose of such dividend or distribution, and the amount and character of such dividend or distribution.

        5.    Voting.

        (a)    Restricted Class Voting.    Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes.

        (b)    No Series Voting.    Other than as provided herein or required by law, there shall be no series voting.

        (c)    Preferred Stock.    Each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted as of the record date. The holders of shares of the Preferred Stock shall be entitled to vote on all matters on which the Common Stock shall be entitled to vote. Holders of Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted), shall be disregarded.

        (d)    Election of Directors.    The Board of Directors shall consist of seven (7) members. So long as at least 6,000,000 shares (as adjusted for Recapitalizations) of Preferred Stock remain outstanding, the holders of Preferred Stock, with the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series A-3 Preferred Stock voting together as a single class, shall be entitled to elect four (4) members of the Corporation's Board of Directors at each meeting or pursuant to each consent of the Corporation's stockholders for the election of directors. The holders of Common Stock, voting as a separate class, shall be entitled to elect one (1) member of the Corporation's Board of Directors at each meeting or pursuant to each consent of the Corporation's stockholders for the election of directors. Any additional members of the Corporation's Board of Directors shall be elected by the holders of Common Stock and Preferred Stock, voting together as a single class. Notwithstanding the provisions of Section 223(a)(1) and 223(a)(2) of the General Corporation Law, any vacancy, including newly created directorships resulting from any increase in the authorized number of directors or amendment of this Third Amended and Restated Certificate of Incorporation, and vacancies created by removal or resignation of a director, may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced; provided, however, that where such vacancy occurs among the directors elected by the holders of a class or series of stock, the holders of shares of such class or series may override the Board's action to fill such vacancy by (i) voting for their own designee to fill such vacancy at a meeting of the Corporation's stockholders or (ii) written consent, if the consenting stockholders hold a sufficient number of shares to elect their designee at a meeting of the stockholders. Any director may be removed during his or her term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by a unanimous vote of the holders of that class or series of stock represented at the meeting or pursuant to written consent.

        (e)    Common Stock.    Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held. The number of authorized shares of Common Stock may be

13

increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of this corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law

        6.    Amendments and Changes.    As long as 6,000,000 shares of the Preferred Stock shall be issued and outstanding (as adjusted for Recapitalizations), the Corporation shall not (by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent as provided by law) of the holders of more than 67% of the outstanding shares of the Preferred Stock, with the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series A-3 Preferred Stock voting together as a single class:

        (a)   amend, alter or repeal any provision of the Certificate of Incorporation or bylaws of the Corporation if such action would adversely alter the rights, preferences, privileges or powers of, or restrictions provided for the benefit of, the Preferred Stock or any series thereof;

        (b)   increase or decrease (other than for decreases resulting from conversion of the Preferred Stock) the authorized number of shares of Common Stock or Preferred Stock or any series thereof;

        (c)   authorize or create (by reclassification or otherwise) any new class or series of equity security having rights, preferences, privileges or powers senior to or on a parity with any series of Preferred Stock;

        (d)   consummate a merger, acquisition or sale of substantially all of the assets of the Corporation or any of its subsidiaries (other than a merger exclusively to effect a change of domicile of the Corporation);

        (e)   enter into any transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Corporation pursuant to Section 3(d) above;

        (f)    declare or pay any Distribution with respect to the Common Stock or Preferred Stock of the Corporation;

        (g)   increase or decrease the number of authorized directors constituting the Board of Directors;

        (h)   increase the number of shares authorized for issuance under any existing or hereinafter created stock or option plan;

        (i)    take any action which would result in the taxation of the holders of Preferred Stock under Section 305 of the Internal Revenue Code; or

        (j)    amend this Section 6.

        7.    Reissuance of Preferred Stock.    In the event that any shares of Preferred Stock shall be converted pursuant to Section 4, or otherwise repurchased by the Corporation, the shares so converted or repurchased shall be cancelled and shall not be issuable by this Corporation.

ARTICLE VI

        The Corporation is to have perpetual existence.

ARTICLE VII

        Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

14

ARTICLE VIII

        Unless otherwise set forth herein, the number of directors which constitute the Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation.

ARTICLE IX

        In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation.

ARTICLE X

        1.     To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

        2.     The Corporation shall have the power to indemnify, to the extent permitted by the Delaware General Corporation Law, as it presently exists or may hereafter be amended from time to time, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding") by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred by such person in connection with any such Proceeding.

        3.     Neither any amendment nor repeal of this ARTICLE X, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this ARTICLE X, shall eliminate or reduce the effect of this ARTICLE X, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this ARTICLE X, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE XI

        Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

ARTICLE XII

        This corporation reserves the right to amend, alter, change or repeal any provision contained in this Third Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

15

QuickLinks

Exhibit 3.1

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ZOGENIX, INC.
EXHIBIT A

EX-3.3

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 3.3

BYLAWS OF
ZOGENIX, INC.

Adopted May 11, 2006

TABLE OF CONTENTS

			Page
ARTICLE I—MEETINGS OF STOCKHOLDERS			1
	1.1	Place of Meetings	1
	1.2	Annual Meeting	1
	1.3	Special Meeting	1
	1.4	Notice of Stockholders' Meetings	1
	1.5	Quorum	1
	1.6	Adjourned Meeting; Notice	2
	1.7	Conduct of Business	2
	1.8	Voting	2
	1.9	Stockholder Action by Written Consent Without a Meeting	2
	1.10	Record Date for Stockholder Notice; Voting; Giving Consents	3
	1.11	Proxies	4
	1.12	List of Stockholders Entitled to Vote	4
ARTICLE II—DIRECTORS			4
	2.1	Powers	4
	2.2	Number of Directors	4
	2.3	Election, Qualification and Term of Office of Directors	5
	2.4	Resignation and Vacancies	5
	2.5	Place of Meetings; Meetings by Telephone	5
	2.6	Conduct of Business	5
	2.7	Regular Meetings	6
	2.8	Special Meetings; Notice	6
	2.9	Quorum	6
	2.10	Board Action by Written Consent Without a Meeting	6
	2.11	Fees and Compensation of Directors	6
	2.12	Removal of Directors	6
ARTICLE III—COMMITTEES			7
	3.1	Committees of Directors	7
	3.2	Committee Minutes	7
	3.3	Meetings and Actions of Committees	7
	3.4	Subcommittees	7
ARTICLE IV—OFFICERS			8
	4.1	Officers	8
	4.2	Appointment of Officers	8
	4.3	Subordinate Officers	8
	4.4	Removal and Resignation of Officers	8
	4.5	Vacancies in Offices	8
	4.6	Representation of Shares of Other Corporations	8
	4.7	Authority and Duties of Officers	8
ARTICLE V—INDEMNIFICATION			8
	5.1	Indemnification of Directors and Officers in Third Party Proceedings	8
	5.2	Indemnification of Directors and Officers in Actions by or in the Right of the Company	9

i

	5.3	Successful Defense	9
	5.4	Indemnification of Others	9
	5.5	Advanced Payment of Expenses	9
	5.6	Limitation on Indemnification and Advancement of Expenses	10
	5.7	Determination; Claim	10
	5.8	Non-Exclusivity of Rights	10
	5.9	Insurance	10
	5.10	Survival	10
	5.11	Effect of Repeal or Modification	10
	5.12	Certain Definitions	10
ARTICLE VI—STOCK			11
	6.1	Stock Certificates; Partly Paid Shares	11
	6.2	Special Designation on Certificates	11
	6.3	Lost Certificates	12
	6.4	Dividends	12
	6.5	Stock Transfer Agreements	12
	6.6	Registered Stockholders	12
	6.7	Transfers	12
ARTICLE VII—MANNER OF GIVING NOTICE AND WAIVER			12
	7.1	Notice of Stockholder Meetings	12
	7.2	Notice by Electronic Transmission	12
	7.3	Notice to Stockholders Sharing an Address	13
	7.4	Notice to Person with Whom Communication is Unlawful	13
	7.5	Waiver of Notice	14
ARTICLE VIII—GENERAL MATTERS			14
	8.1	Fiscal Year	14
	8.2	Seal	14
	8.3	Annual Report	14
	8.4	Construction; Definitions	14
ARTICLE IX—AMENDMENTS			14

ii

BYLAWS

ARTICLE I—MEETINGS OF STOCKHOLDERS

        1.1    Place of Meetings.    Meetings of stockholders of Zogenix, Inc., (the "Company") shall be held at any place, within or outside the State of Delaware, determined by the Company's board of directors (the "Board"). The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the "DGCL"). In the absence of any such designation or determination, stockholders' meetings shall be held at the Company's principal executive office.

        1.2    Annual Meeting.    An annual meeting of stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board from time to time. Any other proper business may be transacted at the annual meeting. The Company shall not be required to hold an annual meeting of stockholders, provided that (i) the stockholders are permitted to act by written consent under the Company's certificate of incorporation and these bylaws, (ii) the stockholders take action by written consent to elect directors and (iii) the stockholders unanimously consent to such action or, if such consent is less than unanimous, all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.

        1.3    Special Meeting.    A special meeting of the stockholders may be called at any time by the Board, Chairperson of the Board, Chief Executive Officer or President (in the absence of a Chief Executive Officer) or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting.

        If any person(s) other than the Board calls a special meeting, the request shall:

          (i)  be in writing;

         (ii)  specify the time of such meeting and the general nature of the business proposed to be transacted; and

        (iii)  be delivered personally or sent by registered mail or by facsimile transmission to the Chairperson of the Board, the Chief Executive Officer, the President (in the absence of a Chief Executive Officer) or the Secretary of the Company.

        The officer(s) receiving the request shall cause notice to be promptly given to the stockholders entitled to vote at such meeting, in accordance with these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting. No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this section 1.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

        1.4    Notice of Stockholders' Meetings.    Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting.

        1.5    Quorum.    Except as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. If, however, such quorum is not present or represented at any meeting of the stockholders, then either

(i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, in the manner provided in section 1.6, until a quorum is present or represented.

        1.6    Adjourned Meeting; Notice.    Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

        1.7    Conduct of Business.    Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by the Chief Executive Officer, or in the absence of the foregoing persons by the President, or in the absence of the foregoing persons by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.

        1.8    Voting.    The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of section 1.10 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

        Except as may be otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. If authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission (as defined in section 7.2 of these bylaws), provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.

        Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

        1.9    Stockholder Action by Written Consent Without a Meeting.    Unless otherwise provided in the certificate of incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a

2

vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

        An electronic transmission (as defined in section 7.2) consenting to an action to be taken and transmitted by a stockholder or proxy holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and dated for purposes of this section, provided that any such electronic transmission sets forth or is delivered with information from which the Company can determine (i) that the electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and (ii) the date on which such stockholder or proxy holder or authorized person or persons transmitted such electronic transmission.

        In the event that the Board shall have instructed the officers of the Company to solicit the vote or written consent of the stockholders of the Company, an electronic transmission of a stockholder written consent given pursuant to such solicitation may be delivered to the Secretary or the President of the Company or to a person designated by the Secretary or the President. The Secretary or the President of the Company or a designee of the Secretary or the President shall cause any such written consent by electronic transmission to be reproduced in paper form and inserted into the corporate records.

        Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Company as provided in Section 228 of the DGCL. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the DGCL, if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.

        1.10    Record Date for Stockholder Notice; Voting; Giving Consents.    In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which record date:

          (i)  in the case of determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting;

         (ii)  in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board; and

        (iii)  in the case of determination of stockholders for any other action, shall not be more than 60 days prior to such other action.

        If no record date is fixed by the Board:

          (i)  the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice

3

is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held;

         (ii)  the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance with applicable law, or, if prior action by the Board is required by law, shall be at the close of business on the day on which the Board adopts the resolution taking such prior action; and

        (iii)  the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

        A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided that the Board may fix a new record date for the adjourned meeting.

        1.11    Proxies.    Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

        1.12    List of Stockholders Entitled to Vote.    The officer who has charge of the stock ledger of the Company shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Company shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Company's principal place of business. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

ARTICLE II—DIRECTORS

        2.1    Powers.    The business and affairs of the Company shall be managed by or under the direction of the Board, except as may be otherwise provided in the DGCL or the certificate of incorporation.

        2.2    Number of Directors.    The Board shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.

4

        2.3    Election, Qualification and Term of Office of Directors.    Except as provided in section 2.4 of these bylaws, and subject to sections 1.2 and 1.9 of these bylaws, directors shall be elected at each annual meeting of stockholders. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors. Each director shall hold office until such director's successor is elected and qualified or until such director's earlier death, resignation or removal.

        2.4    Resignation and Vacancies.    Any director may resign at any time upon notice given in writing or by electronic transmission to the Company. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

        Unless otherwise provided in the certificate of incorporation or these bylaws:

          (i)  Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

         (ii)  Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

        If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

        If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

        A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office and until such director's successor is elected and qualified, or until such director's earlier death, resignation or removal.

        2.5    Place of Meetings; Meetings by Telephone.    The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

        Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

        2.6    Conduct of Business.    Meetings of the Board shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence

5

of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

        2.7    Regular Meetings.    Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

        2.8    Special Meetings; Notice.    Special meetings of the Board for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the Secretary or any two directors.

        Notice of the time and place of special meetings shall be:

          (i)  delivered personally by hand, by courier or by telephone;

         (ii)  sent by United States first-class mail, postage prepaid;

        (iii)  sent by facsimile; or

        (iv)  sent by electronic mail,

directed to each director at that director's address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the Company's records.

        If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Company's principal executive office) nor the purpose of the meeting.

        2.9    Quorum.    At all meetings of the Board, a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

        A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

        2.10    Board Action by Written Consent Without a Meeting.    Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

        2.11    Fees and Compensation of Directors.    Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

        2.12    Removal of Directors.    Unless otherwise restricted by statute, the certificate of incorporation or these bylaws, any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

6

        No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.

ARTICLE III—COMMITTEES

        3.1    Committees of Directors.    The Board may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Company.

        3.2    Committee Minutes.    Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

        3.3    Meetings and Actions of Committees.    Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

          (i)  section 2.5 (Place of Meetings; Meetings by Telephone);

         (ii)  section 2.7 (Regular Meetings);

        (iii)  section 2.8 (Special Meetings; Notice);

        (iv)  section 2.9 (Quorum);

         (v)  section 2.10 (Board Action by Written Consent Without a Meeting); and

        (vi)  section 7.5 (Waiver of Notice)

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However:

          (i)  the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

         (ii)  special meetings of committees may also be called by resolution of the Board; and

        (iii)  notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

        3.4    Subcommittees.    Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the Board designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.

7

ARTICLE IV—OFFICERS

        4.1    Officers.    The officers of the Company shall be a President and a Secretary. The Company may also have, at the discretion of the Board, a Chairperson of the Board, a Vice Chairperson of the Board, a Chief Executive Officer, one or more Vice Presidents, a Chief Financial Officer, a Treasurer, one or more Assistant Treasurers, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

        4.2    Appointment of Officers.    The Board shall appoint the officers of the Company, except such officers as may be appointed in accordance with the provisions of section 4.3 of these bylaws.

        4.3    Subordinate Officers.    The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers and agents as the business of the Company may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

        4.4    Removal and Resignation of Officers.    Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

        Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.

        4.5    Vacancies in Offices.    Any vacancy occurring in any office of the Company shall be filled by the Board or as provided in section 4.3.

        4.6    Representation of Shares of Other Corporations.    Unless otherwise directed by the Board, the President or any other person authorized by the Board or the President is authorized to vote, represent and exercise on behalf of the Company all rights incident to any and all shares of any other corporation or corporations standing in the name of the Company. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

        4.7    Authority and Duties of Officers.    Except as otherwise provided in these bylaws, the officers of the Company shall have such powers and duties in the management of the Company as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

ARTICLE V—INDEMNIFICATION

        5.1    Indemnification of Directors and Officers in Third Party Proceedings.    Subject to the other provisions of this Article V, the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding") (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by

8

such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful.

        5.2    Indemnification of Directors and Officers in Actions by or in the Right of the Company.    Subject to the other provisions of this Article V, the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

        5.3    Successful Defense.    To the extent that a present or former director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding described in section 5.1 or section 5.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith.

        5.4    Indemnification of Others.    Subject to the other provisions of this Article V, the Company shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The Board shall have the power to delegate to such person or persons the determination of whether employees or agents shall be indemnified.

        5.5    Advanced Payment of Expenses.    Expenses (including attorneys' fees) incurred by an officer or director of the Company in defending any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article V or the DGCL. Such expenses (including attorneys' fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Company deems appropriate.

        [Notwithstanding the foregoing, unless otherwise determined pursuant to section 5.8, no advance shall be made by the Company to an officer of the Company (except by reason of the fact that such officer is or was a director of the Company, in which event this paragraph shall not apply) in any Proceeding if a determination is reasonably and promptly made (i) by a majority vote of the directors who are not parties to such Proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, that facts known to the decision-making party at the time such determination is made demonstrate

9

clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Company.]

        5.6    Limitation on Indemnification and Advancement of Expenses.    Subject to the requirements in section 5.3 and the DGCL, the Company shall not be required to provide indemnification or, with respect to clauses (i), (iii) and (iv) below, advance expenses to any person pursuant to this Article V:

          (i)  in connection with any Proceeding (or part thereof) initiated by such person except (i) as otherwise required by law, (ii) in specific cases if the Proceeding was authorized by the Board, or (iii) as is required to be made under section 5.7;

         (ii)  in connection with any Proceeding (or part thereof) against such person providing for an accounting or disgorgement of profits pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state or local statutory law or common law;

        (iii)  for amounts for which payment has actually been made to or on behalf of such person under any statute, insurance policy or indemnity provision, except with respect to any excess beyond the amount paid; or

        (iv)  if prohibited by applicable law.

        5.7    Determination; Claim.    If a claim for indemnification or advancement of expenses under this Article V is not paid in full within 60 days after a written claim therefor has been received by the Company, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such suit, the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or advancement of expenses under applicable law.

        5.8    Non-Exclusivity of Rights.    The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. The Company is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.

        5.9    Insurance.    The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of the DGCL.

        5.10    Survival.    The rights to indemnification and advancement of expenses conferred by this Article V 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.

        5.11    Effect of Repeal or Modification.    Any repeal or modification of this Article V shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

        5.12    Certain Definitions.    For purposes of this Article V, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent

10

of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and 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 such person reasonably believed to be in the interest 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 Article V.

ARTICLE VI—STOCK

        6.1    Stock Certificates; Partly Paid Shares.    The shares of the Company shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Company by the Chairperson of the Board or Vice Chairperson of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The Company shall not have power to issue a certificate in bearer form.

        The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

        6.2    Special Designation on Certificates.    If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock a statement that the Company will furnish without charge to each stockholder who so requests the powers, the designations, the

11

preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

        6.3    Lost Certificates.    Except as provided in this section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

        6.4    Dividends.    The Board, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the Company's capital stock. Dividends may be paid in cash, in property, or in shares of the Company's capital stock, subject to the provisions of the certificate of incorporation.

        The Board may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

        6.5    Stock Transfer Agreements.    The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

        6.6    Registered Stockholders.    The Company:

          (i)  shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

         (ii)  shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

        (iii)  shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

        6.7    Transfers.    Transfers of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.

ARTICLE VII—MANNER OF GIVING NOTICE AND WAIVER

        7.1    Notice of Stockholder Meetings.    Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the Company's records. An affidavit of the Secretary or an Assistant Secretary of the Company or of the transfer agent or other agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

        7.2    Notice by Electronic Transmission.    Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be

12

revocable by the stockholder by written notice to the Company. Any such consent shall be deemed revoked if:

          (i)  the Company is unable to deliver by electronic transmission two consecutive notices given by the Company in accordance with such consent; and

         (ii)  such inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

        Any notice given pursuant to the preceding paragraph shall be deemed given:

          (i)  if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

         (ii)  if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

        (iii)  if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

        (iv)  if by any other form of electronic transmission, when directed to the stockholder.

        An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Company that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

        An "electronic transmission" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

        Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.

        7.3    Notice to Stockholders Sharing an Address.    Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any stockholder who fails to object in writing to the Company, within 60 days of having been given written notice by the Company of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.

        7.4    Notice to Person with Whom Communication is Unlawful.    Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Company is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that

13

notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

        7.5    Waiver of Notice.    Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

ARTICLE VIII—GENERAL MATTERS

        8.1    Fiscal Year.    The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by the Board.

        8.2    Seal.    The Company may adopt a corporate seal, which shall be in such form as may be approved from time to time by the Board. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

        8.3    Annual Report.    The Company shall cause an annual report to be sent to the stockholders of the Company to the extent required by applicable law. If and so long as there are fewer than 100 holders of record of the Company's shares, the requirement of sending an annual report to the stockholders of the Company is expressly waived (to the extent permitted under applicable law)

        8.4    Construction; Definitions.    Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws.

Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.

ARTICLE IX—AMENDMENTS

        These bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the Company may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

14

QuickLinks

Exhibit 3.3

EX-4.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 4.2

ZOGENIX, INC.

AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

December 13, 2007

TABLE OF CONTENTS

		Page
Section 1	Definitions	1
1.1	Certain Definitions	1
Section 2	Registration Rights	3
2.1	Requested Registration	3
2.2	Company Registration	5
2.3	Registration on Form S-3	6
2.4	Expenses of Registration	7
2.5	Registration Procedure	7
2.6	Indemnification	8
2.7	Information by Holder	10
2.8	Restrictions on Transfer	10
2.9	Rule 144 Reporting	12
2.10	Market Stand-Off Agreement	12
2.11	Delay of Registration	13
2.12	Transfer or Assignment of Registration Rights	13
2.13	Limitations on Subsequent Registration Rights	13
2.14	Termination of Registration Rights	13
Section 3	Covenants of the Company	14
3.1	Basic Financial Information and Inspection Rights	14
3.2	Confidentiality	15
3.3	Proprietary Information and Inventions Agreements	15
3.4	Employee Agreements	15
3.5	Board of Directors Reimbursement	15
3.6	Board of Directors Compensation	15
3.7	Board Observer Rights	15
3.8	D&O Insurance	15
3.9	Section 1202(c) Compliance	15
3.10	Termination of Covenants	16
Section 4	Right of First Refusal	16
4.1	Right of First Refusal to Significant Holders	16
Section 5	Miscellaneous	17
5.1	Amendment	17
5.2	Amendment and Termination of Prior Rights Agreement	18
5.3	Notices	18
5.4	Governing Law	19
5.5	Successors and Assigns	19
5.6	Entire Agreement	19
5.7	Delays or Omissions	19
5.8	Severability	19
5.9	Titles and Subtitles	19
5.10	Counterparts	19
5.11	Telecopy Execution and Delivery	19
5.12	Jurisdiction; Venue	19
5.13	Further Assurances	20
5.14	Termination Upon Change of Control	20
5.15	Attorneys' Fees	20
5.16	Aggregation of Stock	20

i

ZOGENIX, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

        This Amended and Restated Investors' Rights Agreement (this "Agreement") is made as of December 13, 2007, by and among Zogenix, Inc., a Delaware corporation (the "Company"), and the persons and entities (each, an "Investor" and collectively, the "Investors") listed on Exhibit A hereto. Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in Section 1.

RECITALS

        WHEREAS:    The Company and certain of the Investors are parties to that certain Investors' Rights Agreement dated as of August 25, 2006 (the "Prior Rights Agreement").

        WHEREAS:    Certain of the Investors are purchasing shares of the Company's Series A-2 Preferred Stock, par value $0.001 per share (the "Series A-2 Preferred") pursuant to the Series A-2 and Series A-3 Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement"), certain Investors may be obligated to purchase shares of the Company's Series A-3 Preferred Stock, par value $0.001 per share (the "Series A-3 Preferred"), pursuant to an equity line of credit set forth in the Purchase Agreement and certain other Investors have previously purchased shares of the Company's Series A Preferred Stock, which pursuant to the Company's Third Amended and Restated Certificate of Incorporation were automatically reclassified into shares of the Company's Series A-1 Preferred Stock, par value $0.001 per share (the "Series A-1 Preferred", and together with the Series A-2 Preferred and the Series A-3 Preferred, the "Preferred Stock").

        WHEREAS:    It is a condition to the closing of the sale of the Series A-2 Preferred to the Investors listed on the Schedule of Investors to the Purchase Agreement that the Investors and the Company execute and deliver this Agreement.

        WHEREAS:    The parties to the Prior Rights Agreement desire to hereby amend and restate the Prior Rights Agreement in its entirety.

        NOW, THEREFORE:    In consideration of the mutual promises and covenants set forth herein, and other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

Section 1
Definitions

        1.1    Certain Definitions.    As used in this Agreement, the following terms shall have the meanings set forth below:

(a)

"Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.



(b)

"Common Stock" means the Company's common stock, par value $0.001 per share.



(c)

"Conversion Stock" shall mean shares of Common Stock issued upon conversion of the Series A-1 Preferred, the Series A-2 Preferred and the Series A-3 Preferred.



(d)

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.



(e)

"GE Shares" shall mean the shares of the Company's Series A Preferred Stock issuable upon exercise or conversion of the GECC Warrant.



(f)

"GECC" shall mean General Electric Capital Corporation.



(g)

"GECC Warrant" shall mean that certain warrant dated March 5, 2007, issued to GECC.

(h)

"Holder" shall mean (i) any Investor holding Registrable Securities, (ii) solely for purposes of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 and 5 of this Agreement, GECC to the extent that it holds Registrable Securities and (iii) any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section 2.12 of this Agreement.



(i)

"Indemnified Party" shall have the meaning set forth in Section 2.6(c) hereto.



(j)

"Indemnifying Party" shall have the meaning set forth in Section 2.6(c) hereto.



(k)

"Initial Public Offering" shall mean the closing of the Company's first firm commitment underwritten public offering of the Company's Common Stock registered under the Securities Act.



(l)

"Initiating Holders" shall mean any Holder or Holders who in the aggregate hold at least thirty percent (30%) of the outstanding Registrable Securities.



(m)

"Investors" shall mean the persons and entities listed on Exhibit A hereto.



(n)

"New Securities" shall have the meaning set forth in Section 4.1(a) hereto.



(o)

"Other Selling Stockholders" shall mean persons other than Holders who, by virtue of agreements with the Company, are entitled to include their Other Shares in certain registrations hereunder.



(p)

"Other Shares" shall mean shares of Common Stock, other than Registrable Securities (as defined below), with respect to which registration rights have been granted.



(q)

"Registrable Securities" shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares and, solely for purposes of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 and 5 of this Agreement, shares of Common Stock issuable pursuant to the conversion of the GE Shares and (ii) any Common Stock of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of the Shares referenced in clause (i) above (or the shares of Common Stock referenced in clause (i) above); provided, however, that Registrable Securities shall not include any shares of Common Stock described in clause (i) or (ii) above which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor's rights under this Agreement are not validly assigned in accordance with this Agreement.



(r)

The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.



(s)

"Registration Expenses" shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the Holders, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of other counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company.



(t)

"Restricted Securities" shall mean any Registrable Securities required to bear the first legend set forth in Section 2.8(c) hereof.

2

(u)

"Rule 144" shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.



(v)

"Rule 145" shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission



(w)

"Rule 415" shall mean Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.



(x)

"Securities Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.



(y)

"Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of one special counsel to the Holders included in Registration Expenses).



(z)

"Shares" shall mean the Preferred Stock.



(aa)

"Significant Holders" shall have the meaning set forth in Section 4.1 hereof.



(bb)

"Withdrawn Registration" shall mean a forfeited demand registration under Section 2.1 in accordance with the terms and conditions of Section 2.4.

Section 2
Registration Rights

        2.1    Requested Registration.    

        (a)    Request for Registration.    Subject to the conditions set forth in this Section 2.1, if the Company shall receive from Initiating Holders a written request signed by such Initiating Holders that the Company effect any registration with respect to all or a part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Initiating Holders), the Company will:

(i)

promptly give written notice of the proposed registration to all other Holders; and



(ii)

as soon as practicable, file and use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered.

3

        (b)    Limitations on Requested Registration.    The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2.1:

(i)

Prior to the earlier of (A) the five (5) year anniversary of the date of this Agreement or (B) one hundred eighty (180) days following the effective date of the Initial Public Offering;



(ii)

If the Initiating Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration statement, propose to sell Registrable Securities and such other securities (if any) and the aggregate proceeds of which (after deduction for underwriter's discounts and expenses related to the issuance) are less than $10,000,000;



(iii)

In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;



(iv)

After the Company has initiated three such registrations pursuant to this Section 2.1;



(v)

During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration (or ending on the subsequent date on which all market stand-off agreements applicable to the offering have terminated); provided that the Company is actively employing in good faith best efforts to cause such registration statement to become effective; or



(vi)

If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 2.3 hereof.

        (c)    Deferral.    If (i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable Securities would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to the limitations set forth in Section 2.1(b)(v) above) the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders, and, provided further, that the Company shall not defer its obligation in this manner more than once in any twelve-month period.

        (d)    Other Shares.    The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 2.1(e), include Other Shares, and may include securities of the Company being sold for the account of the Company.

        (e)    Underwriting.    If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.1 and the Company shall include such information in the written notice given pursuant to Section 2.1(a)(i). In such event, the right of any Holder to include all or any portion of its Registrable Securities in such registration

4

pursuant to this Section 2.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities to the extent provided herein. If the Company shall request inclusion in any registration pursuant to Section 2.1 of securities being sold for its own account, or if other persons shall request inclusion in any registration pursuant to Section 2.1, the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such other persons in such underwriting and the inclusion of the Company's and such person's other securities of the Company and their acceptance of the further applicable provisions of this Section 2 (including Section 2.10). The Company shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriters are reasonably acceptable to the Company.

        Notwithstanding any other provision of this Section 2.1, if the underwriters advise the Initiating Holders in writing that market factors require a limitation on the number of shares to be underwritten, the number of Registrable Securities and Other Shares that may be so included shall be allocated as follows: (i) first, among all the Holders (excluding GECC) requesting to include Registrable Securities held by such Holders, assuming conversion; (ii) second, to GECC; (iii) third, to the Other Selling Stockholders; and (iv) fourth, to the Company, which the Company may allocate, at its discretion, for its own account, or for the account of other holders or employees of the Company.

        If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be withdrawn from registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2.1(e), then the Company shall then offer to all Holders and Other Selling Stockholders who have retained rights to include securities in the registration the right to include additional Registrable Securities or Other Shares in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders and Other Selling Stockholders requesting additional inclusion, as set forth above.

        2.2    Company Registration.    

        (a)    Company Registration.    If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders, other than a registration pursuant to Section 2.1 or 2.3, a registration relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating to a corporate reorganization or other Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will:

(i)

promptly give written notice of the proposed registration to all Holders; and



(ii)

use its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 2.2(b) below, and in any underwriting involved therein, all of such Registrable Securities as are specified in a written request or requests made by any Holder or Holders received by the Company within ten (10) days after such written notice from the Company is mailed or delivered. Such written request may specify all or a part of a Holder's Registrable Securities.

5

        (b)    Underwriting.    If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.2(a)(i). In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the Other Selling Stockholders other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company.

        Notwithstanding any other provision of this Section 2.2, if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) exclude all Registrable Securities from, or limit the number of Registrable Securities to be included in, the registration and underwriting; provided that the number of Registrable Securities included in such registration and underwriting shall not be reduced below 30% of the securities included in such registration unless such offering is the Company's Initial Public Offering in which case the Holders may be excluded entirely if the underwriters make the determination described above and no securities other than those of the Company are included in such registration. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows: (i) first, to the Company for securities being sold for its own account, (ii) second, to the Holders requesting to include Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming conversion and (iii) third, to the Other Selling Stockholders requesting to include Other Shares in such registration statement based on the pro rata percentage of Other Shares held by such Other Selling Stockholders, assuming conversion.

        If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall also be excluded therefrom by written notice from the Company or the underwriter. The Registrable Securities or other securities so excluded shall also be withdrawn from such registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

        (c)    Right to Terminate Registration.    The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company.

        2.3    Registration on Form S-3.

        (a)    Request for Form S-3 Registration.    After its Initial Public Offering, the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 2 and subject to the conditions set forth in this Section 2.3, if the Company shall receive from a Holder or Holders of Registrable Securities a written request that the Company effect any registration on Form S-3 or any similar short form registration statement with respect to all or part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), the Company will take all such action with respect to such Registrable Securities as required by Section 2.1(a)(i) and (ii).

6

        (b)    Limitations on Form S-3 Registration.    The Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2.3:

(i)

In the circumstances described in either Sections 2.1(b)(i), 2.1(b)(iii) or 2.1(b)(v);



(ii)

If the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than $5,000,000; or



(iii)

If, in a given twelve-month period, the Company has effected two (2) such registrations in such period.

        (c)    Deferral.    The provisions of Section 2.1(c) shall apply to any registration pursuant to this Section 2.3.

        (d)    Underwriting.    If the Holders of Registrable Securities requesting registration under this Section 2.3 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Sections 2.1(e) shall apply to such registration. Notwithstanding anything contained herein to the contrary, registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration or registrations effected pursuant to Section 2.1.

        2.4    Expenses of Registration.    All Registration Expenses incurred in connection with registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Sections 2.1 and 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered or because a sufficient number of Holders shall have withdrawn so that the minimum offering conditions set forth in Sections 2.1 and 2.3 are no longer satisfied (in which case all participating Holders shall bear such expenses pro rata among each other based on the number of Registrable Securities requested to be so registered), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 2.1. Notwithstanding the foregoing, if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Sections 2.1 and 2.3. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered.

        2.5    Registration Procedures.    In the case of each registration effected by the Company pursuant to Section 2, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will use its best efforts to:

(a)

Keep such registration effective for a period of ending on the earlier of the date which is one hundred twenty (120) days from the effective date of the registration statement or such time as the Holder or Holders have completed the distribution described in the registration statement relating thereto;



(b)

Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in subsection (a) above;

7

(c)

Furnish such number of prospectuses, including any preliminary prospectuses, and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;



(d)

Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdiction as shall be reasonably requested by the Holders; provided, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;



(e)

Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing, and following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing;



(f)

Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;



(g)

Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and



(h)

In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2.1 hereof, enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains reasonable and customary provisions, and provided further, that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

        2.6    Indemnification.

(a)

To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners, legal counsel and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 2, and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state securities laws or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any offering covered by

8

such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers, directors, partners, legal counsel and accountants and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder, any of such Holder's officers, directors, partners, legal counsel or accountants, any person controlling such Holder, such underwriter or any person who controls any such underwriter, and stated to be specifically for use therein; and provided, further that, the indemnity agreement contained in this Section 2.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld).

(b)

To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, partners, legal counsel and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their officers, directors and partners, and each person controlling each other such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 2.6 exceed the net proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.



(c)

Each party entitled to indemnification under this Section 2.6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be

9

unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.6, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

(d)

If the indemnification provided for in this Section 2.6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. No Holder will be required under this Section 2.6(d) to contribute any amount, when combined with any amounts paid by such Holder pursuant to Section 2.6(b), in excess of the net proceeds from the offering received by such person or entity, except in the case of fraud or willful misconduct by such person or entity. No person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.



(e)

Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

        2.7    Information by Holder.    Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification, or compliance referred to in this Section 2.

        2.8    Restrictions on Transfer.

(a)

The holder of each certificate representing Registrable Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.8. Each Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Restricted Securities, or any beneficial interest therein, unless and until (x) the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Restricted Securities subject to, and to be bound by, the terms and

10

conditions set forth in this Agreement, including, without limitation, this Section 2.8 and Section 2.10, except for transfers permitted under Section 2.8(b), and (y):

(i)

There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or



(ii)

Such Holder shall have given prior written notice to the Company of such Holder's intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, and, if requested by the Company, such Holder shall have furnished the Company, at its expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Restricted Securities under the Securities Act or (ii) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.



(b)

Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) in transactions involving the distribution without consideration of Restricted Securities by any Holder to (x) a parent, subsidiary or other affiliate of Holder that is a corporation, (y) any of its partners, members or other equity owners, or retired partners, retired members or other equity owners, or to the estate of any of its partners, members or other equity owners or retired partners, retired members or other equity owners, or (z) a venture capital fund that is controlled by or under common control with one or more general partners or managing members of, or shares the same management company with, such Holder, or (iii) transfers in compliance with Rule 144(k), as long as the Company is furnished with satisfactory evidence of compliance with such Rule; provided, in each case, that the Holder thereof shall give written notice to the Company of such Holder's intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.



(c)

Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

11

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (1) RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN AN INVESTOR RIGHTS AGREEMENT, AND (2) VOTING RESTRICTIONS AS SET FORTH IN A VOTING AGREEMENT AMONG THE COMPANY AND THE ORIGINAL HOLDERS OF THESE SHARES, COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.

The Holders consent to the Company making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer established in this Section 2.8.

(d)

The first legend referring to federal and state securities laws identified in Section 2.8(c) hereof stamped on a certificate evidencing the Restricted Securities and the stock transfer instructions and record notations with respect to such Restricted Securities shall be removed and the Company shall issue a certificate without such legend to the holder of such Restricted Securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a public sale or transfer of such securities may be made without registration under the Securities Act, or (iii) such holder provides the Company with reasonable assurances, which may, at the option of the Company, include an opinion of counsel satisfactory to the Company, that such securities can be sold pursuant to Section (k) of Rule 144 under the Securities Act.

        2.9    Rule 144 Reporting.    With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its best efforts to:

(a)

Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;



(b)

File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and



(c)

So long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.

        2.10    Market Stand-Off Agreement.    Each Holder hereby agrees that such Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the Company's Initial Public Offering filed under the Securities Act (or such other period as may be requested by an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and

12

(ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto). The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions and may stamp each such certificate with the second legend set forth in Section 2.8(c) hereof with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day (or other) period. Each Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 2.10. The foregoing provisions of this Section 2.10 shall only be applicable to the Holders if all officers, directors and greater than two percent (2%) stockholders of the Company enter into similar agreements. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

        2.11    Delay of Registration.    No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

        2.12    Transfer or Assignment of Registration Rights.    The rights to cause the Company to register securities granted to a Holder by the Company under this Section 2 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 1,000,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like) or an acceptable Transferee in accordance with Section 2.8(b); provided that (i) such transfer or assignment of Registrable Securities is effected in accordance with the terms of Section 2.8 hereof, the Right of First Refusal and Co-Sale Agreement, and applicable securities laws, (ii) the Company is given written notice prior to said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are intended to be transferred or assigned and (iii) the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Agreement, including without limitation the obligations set forth in Section 2.10.

        2.13    Limitations on Subsequent Registration Rights.    From and after the date of this Agreement, the Company shall not, without the prior written consent of sixty seven percent (67%) in interest of the Holders, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are senior to the registration rights granted to the Holders hereunder or can be included in a demand registration.

        2.14    Termination of Registration Rights.    The right of any Holder to request registration or inclusion in any registration pursuant to Section 2.1, 2.2 or 2.3 shall terminate on the earlier of (i) such date, on or after the closing of the Company's first registered public offering of Common Stock, on which all shares of Registrable Securities held or entitled to be held upon conversion by such Holder (together with its affiliates) may immediately be sold under Rule 144 during any ninety (90)-day period, and (ii) five (5) years after the closing of the Company's Qualifying IPO (as defined in the Third Amended and Restated Certificate of Incorporation, as may be amended from time to time).

13

Section 3
Covenants of the Company

        The Company hereby covenants and agrees, as follows:

        3.1    Basic Financial Information and Inspection Rights.

        (a)    Basic Financial Information.    The Company will furnish the following reports to each Holder who owns at least 3,000,000 Shares and/or Conversion Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like):

(i)

As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, audited and certified by independent public accountants of recognized national standing selected by the Company.



(ii)

As soon as practicable after the end of each calendar month, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such monthly period, and unaudited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments.



(iii)

As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company commencing after the first full quarterly period ending on March 31, 2007, and in any event within forty-five (45) days after the end of the first, second, and third quarterly accounting periods in each fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and unaudited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments.



(iv)

As soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company.

        (b)    Inspection Rights.    The Company shall permit each Significant Holder, at such Significant Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Significant Holder; provided, however, that the Company shall not be obligated pursuant to this Section 3.1(b) to provide access to any information that it reasonably considers to be a trade secret or similar confidential information.

14

        3.2    Confidentiality.    Anything in this Agreement to the contrary notwithstanding, no Holder by reason of this Agreement shall have access to any trade secrets or classified information of the Company. The Company shall not be required to comply with any information rights of Section 3 in respect of any Holder whom the Board of Directors of the Company reasonably determines to be a competitor or an officer, employee, director or holder of more than ten percent (10%) of a competitor.

        3.3    Proprietary Information and Inventions Agreements.    The Company shall require all employees and consultants with access to confidential information to execute and deliver a Proprietary Information and Inventions Agreement in substantially the form approved by the Company's Board of Directors.

        3.4    Employee Agreements.    Unless approved by the Board of Directors of the Company, all future employees of the Company who shall purchase, or receive options to purchase, shares of the Company's Common Stock following the date hereof shall be required to execute stock purchase or option agreements providing for (i) vesting of shares over a four-year period with the first 25% of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following 36 months thereafter and (ii) a 180-day lockup period in connection with the Company's Initial Public Offering. The Company shall retain a right of first refusal on transfers until the Company's Initial Public Offering and the right to repurchase unvested shares at cost.

        3.5    Board of Directors Reimbursement.    The Company shall reimburse reasonable documented costs incurred by non-employee directors in attending meetings of the Board of Directors or otherwise supporting Company activities.

        3.6    Board of Directors Compensation.    Except in the case of Cam Garner and except for reimbursement of expenses pursuant to Section 3.5, each non-employee director shall be compensated, if at all, in the same manner and in the same amounts as all other non-employee directors.

        3.7    Board Observer Rights.    For so long as an affiliate of Abingworth LLP ("Abingworth") holds at least 3,000,000 Shares and/or Conversion Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), the Company shall allow one representative designated by Abingworth (the "Observer") to attend meetings of the Board of Directors in a non-voting capacity. The Company shall provide the Observer with copies of all materials that are provided by the Company to its directors; provided, however, that a majority of the members of the Board of Directors shall be entitled to recuse the Observer from portions of any meeting of the Board of Directors and to redact portions of any materials of the Board of Directors or a committee thereof delivered to the Observer where and to the extent that such majority determines, in good faith that (i) such recusal is reasonably necessary, in the opinion of counsel to the Company, to preserve attorney-client privilege with respect to a material matter, or (ii) there exists, with respect to any deliberation or materials, an actual or potential conflict of interest between Abingworth and the Company. Any Observer will be subject to the confidentiality provisions set forth in Section 3.2. The Observer shall receive no compensation from the Company for service as an Observer and shall not be reimbursed for any expenses incurred by the Observer in connection with attendance of any meeting of the Board of Directors, except as may otherwise be agreed to by the Company in writing.

        3.8    D&O Insurance.    The Company shall obtain (within one hundred twenty (120) days of this Agreement) and maintain a D&O insurance policy on the Board of Directors and officers of the Company in an amount reasonably equivalent to similarly situated companies.

        3.9    Section 1202(c) Compliance.    The Company shall make reasonable efforts to comply with Section 1202(c) of the Internal Revenue Code ("IRC") and shall make all filings required under Section 1202(D)(1)(c) of the IRC and any related treasury regulations.

15

        3.10    Termination of Covenants.    The covenants set forth in this Section 3 shall terminate and be of no further force and effect after the earlier of (i) closing of the Company's Initial Public Offering or (ii) the date when none of the Shares and Conversion Stock remains outstanding.

Section 4
Right of First Refusal

        4.1    Right of First Refusal to Significant Holders.    The Company hereby grants to each Holder who, together with its affiliates, owns at least 1,000,000 Shares or Conversion Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and the like) (the "Significant Holders"), the right of first refusal to purchase its pro rata share of New Securities (as defined in this Section 4.1(a)) which the Company may, from time to time, propose to sell and issue after the date of this Agreement. A Significant Holder's pro rata share, for purposes of this right of first refusal, is equal to the ratio of (a) the number of shares of Common Stock owned by such Significant Holder immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly, into Common Stock held by said Significant Holder) to (b) the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly).

(a)

"New Securities" shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, convertible securities, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, exercisable or convertible into capital stock; provided that the term "New Securities" does not include:



(i)

the Shares and the Conversion Stock;



(ii)

securities issued or issuable to officers, employees, directors, consultants, placement agents, and other service providers of the Company (or any subsidiary) pursuant to stock grants, option plans, purchase plans, agreements or other employee stock incentive programs or arrangements approved by the Board of Directors of the Company;



(iii)

securities issued pursuant to the conversion or exercise of any other outstanding convertible or exercisable securities as of this date of this Agreement;



(iv)

securities issued or issuable as a dividend or distribution on Preferred Stock of the Company or pursuant to any event for which adjustment is made pursuant to paragraph 4(e), 4(f) or 4(g) of the Third Amended and Restated Certificate of Incorporation of the Company, as may be amended from time to time;



(v)

securities offered pursuant to a bona fide, firmly underwritten public offering pursuant to a registration statement filed under the Securities Act;



(vi)

securities issued or issuable pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided, that such issuances are approved by the Board of Directors of the Company, including a majority of the directors representing the holders of Preferred Stock;



(vii)

securities issued or issuable to banks, equipment lessors or other financial institutions pursuant to a commercial leasing or debt financing transaction approved by the

16

Board of Directors of the Company, including a majority of the directors representing the holders of Preferred Stock;

(viii)

securities issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, supply, marketing or other similar agreements approved by the Board of Directors of the Company, including a majority of the directors representing the holders of Preferred Stock;



(ix)

securities of the Company which are otherwise excluded by the vote or consent of the holders of at least sixty seven percent (67%) of the shares of Preferred Stock of the Company then outstanding; and



(x)

any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (i) through (ix) above.



(b)

In the event the Company proposes to undertake an issuance of New Securities, it shall give each Significant Holder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Significant Holder shall have twenty (20) days after any such notice is mailed or delivered to agree to purchase such Holder's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company, in substantially the form attached hereto as Schedule 1, and stating therein the quantity of New Securities to be purchased.



(c)

In the event the Holders fail to exercise fully the right of first refusal within said twenty (20) day period (the "Election Period"), the Company shall have thirty (30) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) days from the date of said agreement) to sell that portion of the New Securities with respect to which the Significant Holders' right of first refusal option set forth in this Section 4.1 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Significant Holders delivered pursuant to Section 4.1(b). In the event the Company has not sold within such thirty (30) day period following the Election Period, or such sixty (60) day period following the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Significant Holders in the manner provided in this Section 4.1.



(d)

The right of first refusal granted under this Agreement shall expire upon a Qualified IPO (as defined in the Company's Third Amended and Restated Certificate of Incorporation, as may be amended from time to time).

Section 5
Miscellaneous

        5.1    Amendment.    Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and the Holders holding sixty seven percent (67%) of the Registrable Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144) then entitled to registration under Section 2; provided, however, that additional purchasers of Preferred Stock may become parties to this Agreement by executing a counterpart of this Agreement without any amendment of this Agreement pursuant to this paragraph or any consent or approval of any other Holder and such purchasers shall be deemed an "Investor" hereunder and

17

Exhibit A shall be amended accordingly; provided further that no term of this Agreement may be amended, waived, discharged or terminated in a manner that uniquely and materially adversely affects the rights of a series of Preferred Stock, but does not so affect the entire class of Preferred Stock, other than by a written instrument referencing this Agreement and signed by the Company and the Holders holding a majority of such affected series of Preferred Stock; and provided further that no provision of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 or this Section 5 of this Agreement may be amended, waived, discharged or terminated in a manner that uniquely and adversely affects the rights of the Holder holding the GECC Warrant or, if the GECC Warrant has been exercised or converted, the GECC Shares, but does not so affect the entire class of Preferred Stock in which the GECC Shares are (or would be upon exercise of the GECC Warrant) included, other than by a written instrument referencing this Agreement and signed by the Company and the Holder holding the GECC Warrant or, if the GECC Warrant has been exercised or converted, holding a majority of the GECC Shares. Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each Holder and each future holder of all such securities of Holder. Each Holder acknowledges that by the operation of this paragraph, the holders of sixty seven percent (67%) of the Registrable Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144) then entitled to registration under Section 2 will have the right and power to diminish or eliminate all rights of such Holder under this Agreement.

        5.2    Amendment and Termination of Prior Rights Agreement.    The Prior Rights Agreement is hereby amended in its entirety and restated herein. Such amendment and restatement is effective upon the execution of this Agreement by the Company and Holders holding at least sixty seven percent (67%) of the Registrable Securities under the Prior Rights Agreement. Upon such execution, all provisions of, rights granted and covenants made in the Prior Rights Agreement (including, without limitation, the rights of first refusal set forth in Section 4 of the Prior Rights Agreement) are hereby waived, released and terminated in their entirety and shall have no further force and effect (including, without limitation, with respect to the Series A-2 Preferred issued pursuant to the Purchase Agreement and the shares issued upon conversion or exercise thereof).

        5.3    Notices.    All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (only if specifically indicated below), or otherwise delivered by hand or by messenger addressed:

(a)

if to an Investor, at the Investor's address as shown in the Company's records, as may be updated in accordance with the provisions hereof;



(b)

if to any Holder, at such address, facsimile number or electronic mail address as shown in the Company's records, or, until any such holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address of the last holder of such shares for which the Company has contact information in its records; or



(c)

if to the Company, one copy should be sent to 11682 El Camino Real, Suite 320, San Diego, California 92130, Attn: Chief Financial Officer, or at such other address as the Company shall have furnished to the Investors, with a copy to Cheston J. Larson, Latham & Watkins LLP, 12636 High Bluff Drive, Suite 400, San Diego, California 92130.

        Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, when directed to the electronic mail address set forth on the Schedule of Investors.

18

        5.4    Governing Law.    This Agreement shall be governed in all respects by the internal laws of the State of California as applied to agreements entered into among California residents to be performed entirely within California, without regard to principles of conflicts of law.

        5.5    Successors and Assigns.    This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any Investor without the prior written consent of the Company. Any attempt by an Investor without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

        5.6    Entire Agreement.    This Agreement and the exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein.

        5.7    Delays or Omissions.    Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative.

        5.8    Severability.    If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.

        5.9    Titles and Subtitles.    The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

        5.10    Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument.

        5.11    Telecopy Execution and Delivery.    A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

        5.12    Jurisdiction; Venue.    With respect to any disputes arising out of or related to this Agreement, the parties consent to the exclusive jurisdiction of, and venue in, the state courts in San Diego County

19

in the State of California (or in the event of exclusive federal jurisdiction, the courts of the Southern District of California located in San Diego County).

        5.13    Further Assurances.    Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.

        5.14    Termination Upon Change of Control.    Notwithstanding anything to the contrary herein, this Agreement (excluding any then-existing obligations) shall terminate upon (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders prior to such transaction, at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; or (b) a sale, lease or other conveyance of all or substantially all of the assets of the Company.

        5.15    Attorneys' Fees.    In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

        5.16    Aggregation of Stock.    All securities held or acquired by affiliated entities (including affiliated venture capital funds) or persons shall be aggregated together for purposes of determining the availability of any rights under this Agreement.

(Remainder of Page Intentionally Left Blank)

20

        IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors' Rights Agreement effective as of the day and year first above written.

ZOGENIX, INC.
a Delaware corporation

/s/  ROGER L. HAWLEY Roger L. Hawley
Chief Executive Officer

[Signature Page to Investors' Rights Agreement]

INVESTORS:
CLARUS LIFESCIENCES I, L.P.
By:	Clarus Ventures I GP, L.P. its general partner
/s/  KURT C. WHEELER
By:	Clarus Ventures I, LLC its general partner
/s/  KURT C. WHEELER

[Signature Page to Investors' Rights Agreement]

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 Investors' Rights Agreement]

DOMAIN PARTNERS VI, L.P.
By:	One Palmer Square Associates VI, L.L.C., its General Partner
By:	/s/  KATHLEEN K. SCHOEMAKER Kathleen K. Schoemaker Managing Member
DP VI ASSOCIATES, L.P.
By:	One Palmer Square Associates VI, L.L.C., its General Partner
By:	/s/  KATHLEEN K. SCHOEMAKER Kathleen K. Schoemaker Managing Member
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 Investors' Rights Agreement]

THOMAS, MCNERNEY & PARTNERS, L.P.
By:	/s/  JAMES E. THOMAS
Print Name: James E. Thomas Title: Manager
TMP NOMINEE, LLC
By:	/s/  JAMES E. THOMAS
Print Name: James E. Thomas Title: Manager
TMP ASSOCIATES, L.P.
By:	/s/  JAMES E. THOMAS
Print Name: James E. Thomas Title: Manager

[Signature Page to Investors' Rights Agreement]

/s/  ROGER L. HAWLEYROGER L. HAWLEY

[Signature Page to Investors' Rights Agreement]

GARNER INVESTMENTS, LLC
By:	/s/  CAM L. GARNER Cam L. Garner President

[Signature Page to Investors' Rights Agreement]

Solely for the purposes of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 and 5 of this Agreement:
GENERAL ELECTRIC CAPITAL CORPORATION
By:	/s/  DANIJELA GJENERO
Print Name: Danijela Gjenero Title: Duly Authorized Signatory

[Signature Page to Investors' Rights Agreement]

ABINGWORTH BIOVENTURES IV EXECUTIVES LP acting by:
	Its manager Abingworth Management Ltd
By:	/s/  JAMES ABELL
Print Name: James Abell Title: Director
ABINGWORTH BIOVENTURES IV LP acting by:
	Its manager Abingworth Management Ltd
By:	/s/  JAMES ABELL
Print Name: James Abell Title: Director

[Signature Page to Investors' Rights Agreement]

INVESTORS:

/s/  SCOTT N. WOLFESCOTT N. WOLFE

[Signature Page to Investors' Rights Agreement]

INVESTORS:
FAYE HUNTER RUSSELL TRUST UTD 7/11/88
By:	/s/  FAYE H. RUSSELL
Name:	Faye H. Russell
Title:	Trustee

[Signature Page to Investors' Rights Agreement]

INVESTORS:

/s/  CHESTON J. LARSONCHESTON J. LARSON

[Signature Page to Investors' Rights Agreement]

INVESTORS:
VP COMPANY INVESTMENTS 2004, LLC
By:	/s/  ALAN C. MENDELSON
	Name:	Alan C. Mendelson
	Title:	Managing Member

[Signature Page to Investors' Rights Agreement]

EXHIBIT A

INVESTORS

Clarus Lifesciences I, LP

Scale Venture Partners II, LP

Domain Partners VI, L.P.

DP VI Associates, L.P.

Domain Partners VII, L.P.

DP VII Associates, L.P.

Thomas, McNerney & Partners, L.P.

TMP Nominee, LLC

TMP Associates, L.P.

Life Science Angel Investors II, L.L.C.

Hale BioPharma Ventures LLC

Roger L. Hawley

Garner Investments, LLC

Windamere III, LLC

Ian Edvalson

Casey McGlynn

Peter Munson

Vicki Norton

Guise Management Corporation

Abingworth Bioventures IV LP

Abingworth Bioventures IV Executives LP

Solely for purposes of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 and 5 of the Agreement, General Electric Capital Corporation

Scott N. Wolfe

Faye Hunter Russell Trust Utd 7/11/88

Cheston J. Larson

VP Company Investments 2004, LLC

SCHEDULE 1

NOTICE AND WAIVER/ELECTION OF
RIGHT OF FIRST REFUSAL

I do hereby waive or exercise, as indicated below, my rights of first refusal under the Amended and Restated Investors Rights Agreement dated as of                                    (the "Agreement") :

1.

Waiver of 10 Days' Notice Period in Which to Exercise Right of First Offer: (please check only one)

o

WAIVE in full, on behalf of all Holders, the 10-day notice period provided to exercise my right of first refusal granted under the Agreement.



o

DO NOT WAIVE the notice period described above.



2.

Issuance and Sale of New Securities: (please check only one)

o

WAIVE in full the right of first refusal granted under the Agreement with respect to the issuance of the New Securities.



o

ELECT TO PARTICIPATE in $                                    [PLEASE PROVIDE AMOUNT] in New Securities proposed to be issued by Zogenix, Inc., representing less than my pro rata portion of the aggregate of $                                    in New Securities being offered in the financing.



o

ELECT TO PARTICIPATE in $                                    in New Securities proposed to be issued by Company X, representing my full pro rata portion of the aggregate of $                                    in New Securities being offered in the financing.



o

ELECT TO PARTICIPATE in my full pro rata portion of the aggregate of $                                    in New Securities being made available in the financing and, to the extent available, the greater of (x) an additional $                                    [PLEASE PROVIDE AMOUNT] or (y) my pro rata portion of any remaining investment amount available in the event other Significant Holders do not exercise their full rights of first refusal with respect to the $                                    in New Securities being offered in the financing.

Date:                                    , 20    

Signature of Stockholder or Authorized Signatory

Title, if applicable

This is neither a commitment to purchase nor a commitment to issue the New Securities described above. Such issuance can only be made by way of definitive documentation related to such issuance. Zogenix, Inc. will supply you with such definitive documentation upon request or if you indicate that you would like to exercise your first offer rights in whole or in part.

QuickLinks

Exhibit 4.2

ZOGENIX, INC. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT December 13, 2007
TABLE OF CONTENTS
ZOGENIX, INC. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
RECITALS
Section 1 Definitions
Section 2 Registration Rights
Section 3 Covenants of the Company
Section 4 Right of First Refusal
Section 5 Miscellaneous
EXHIBIT A INVESTORS
SCHEDULE 1
NOTICE AND WAIVER/ELECTION OF RIGHT OF FIRST REFUSAL

EX-4.3

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 4.3

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE AFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

WARRANT TO PURCHASE 200,000 SHARES OF SERIES A PREFERRED STOCK

March 5, 2007

THIS CERTIFIES THAT, for value received, General Electric Capital Corporation ("Holder") is entitled to subscribe for and purchase Two Hundred Thousand (200,000) shares of fully paid and nonassessable Series A Preferred Stock of Zogenix, Inc., a Delaware corporation (the "Company"), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Preferred Stock" shall mean Company's presently authorized Series A Preferred Stock and any stock into which such Preferred Stock may hereafter be converted or exchanged and the term "Warrant Shares" shall mean the shares of Preferred Stock which Holder may acquire pursuant to this Warrant and any other shares of stock into which such shares of Preferred Stock may hereafter be converted or exchanged.

1.    Warrant Price.    The "Warrant Price" shall initially be One and no/100 dollars ($1.00) per share, subject to adjustment as provided in Section 7 below.

2.    Conditions to Exercise.    The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending at 5:00 P.M. Pacific time on the seventh anniversary of the date of this Warrant (the "Expiration Date").

3.    Method of Exercise or Conversion; Payment; Issuance of Shares; Issuance of New Warrant.

(a)    Cash Exercise.    Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by Holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed Notice of Exercise in the form attached hereto) at the principal office of Company (as set forth in Section 18 below) and by payment to Company, by check or wire transfer (to an account designated by the Company), of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, Holder hereof, or as such Holder may direct (subject to the terms of transfer contained herein and upon payment by such Holder hereof of any applicable transfer taxes). Such delivery shall be made within 30 days after exercise of this Warrant and at Company's expense and, unless this Warrant has been fully exercised or expired, a new Warrant having terms and conditions substantially identical to this Warrant and representing the portion of the Shares, if any, with respect to which this Warrant shall not have been exercised, shall also be issued to Holder hereof within 30 days after exercise and surrender for cancellation of this Warrant.

(b)    Conversion.    In lieu of exercising this Warrant as specified in Section 3(a), Holder may from time to time convert this Warrant, in whole or in part, into Warrant Shares by surrender of this Warrant (with a duly executed Notice of Exercise in the form attached hereto) at the principal office of Company, in which event Company shall issue to Holder the number of Warrant Shares computed using the following formula:

X = Y (A-B) A

Where:

X = the number of Warrant Shares to be issued to Holder.

Y = the number of Warrant Shares purchasable under this Warrant (at the date of such calculation).

A = the Fair Market Value of one share of Company's Preferred Stock (at the date of such calculation).

B = Warrant Price (as adjusted to the date of such calculation).

(c)    Fair Market Value.    For purposes of this Section 3, Fair Market Value of one share of Company's Preferred Stock shall mean:

(i)    In the event of an exercise in connection with an Initial Public Offering, the per share Fair Market Value for the Preferred Stock shall be the offering price at which the underwriters initially sell common stock of the Company ("Common Stock") to the public multiplied by the number of shares of Common Stock into which each share of Preferred Stock is then convertible; or

(ii)    The average of the closing bid and asked prices of Common Stock quoted in the Over-The-Counter Market Summary, the last reported sale price quoted on the Nasdaq Global Market or on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of the Wall Street Journal for the three (3) trading days prior to the date of determination of Fair Market Value, multiplied by the number of shares of Common Stock into which each share of Preferred Stock is then convertible; or

(iii)    In the event of an exercise in connection with a merger, acquisition or other consolidation in which Company is not the surviving entity, the per share Fair Market Value for the Preferred Stock shall be the value to be received per share of Preferred Stock by all holders of the Preferred Stock in such transaction as determined by the Board of Directors; or

(iv)    In any other instance, the per share Fair Market Value for the Preferred Stock shall be as determined in the reasonable good faith judgment of Company's Board of Directors.

In the event of 3(c)(iii) or 3(c)(iv), above, Company's Board of Directors shall prepare a certificate, to be signed by an authorized officer of Company, setting forth in reasonable detail the basis for and method of determination of the per share Fair Market Value of the Preferred Stock. The Board of Directors will also certify to Holder that this per share Fair Market Value will be applicable to all holders of Company's Preferred Stock. Such certification must be made to Holder at least thirty (30) business days prior to the proposed effective date of the merger, consolidation, sale, or other triggering event as defined in 3(c)(iii) or 3(c)(iv).

(d)    Automatic Exercise.    To the extent (a) this Warrant is not previously exercised and (b) the Fair Market Value of one share of Preferred Stock exceeds the Warrant Price, this Warrant shall be automatically exercised in accordance with Sections 3(b) and 3(c) hereof (even if not surrendered) immediately before its expiration, involuntary termination or cancellation unless Holder notifies Company in writing to the contrary prior to such automatic exercise.

(e)    Treatment of Warrant Upon Acquisition of Company.

(i)    Certain Definitions.    For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of Company, or any reorganization, consolidation, or merger of Company, or sale of Company securities, where the holders of Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction, and "Affiliate" shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person's or entity's officers, directors, joint venturers or partners, as applicable.

(ii)    Cash Acquisition.    In the event of an Acquisition in which the sole consideration is cash, (a) Holder may exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) subject to Section 3(d) above, this Warrant shall expire upon the consummation of such Acquisition. Company shall provide Holder with written notice of any proposed Acquisition together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice, which is to be delivered to Holder not less than ten (10) business days prior to the closing of the proposed Acquisition.

(iii)    Asset Sale.    In the event of an Acquisition that is an arms length sale of all or substantially all of Company's assets (and only its assets) to a third party that is not an Affiliate of Company (a "True Asset Sale"), Holder may either (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) permit the Warrant to continue until the Expiration Date if Company continues as a going concern following the closing of any such True Asset Sale. Company shall provide Holder with written notice of any proposed asset sale together with such reasonable information as Holder may request in connection with such asset sale giving rise to such notice, which is to be delivered to Holder not less than ten (10) business days prior to the closing of the proposed asset sale.

(iv)    Assumption of Warrant.    Upon the closing of any Acquisition other than those particularly described in subsections (ii) and (iii) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Warrant Shares issuable upon exercise of the unexercised portion of this Warrant as if such Warrant Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Warrant Shares shall be adjusted accordingly.

4.    Representations and Warranties of Holder and Company.

(a)    Representations and Warranties by Holder.    The Holder represents and warrants to Company with respect to this purchase as follows:

(i)    Evaluation.    The Holder has substantial experience in evaluating and investing in private placement transactions of securities of companies similar to Company so that Holder is capable of evaluating the merits and risks of its investment in Company and has the capacity to protect its interests.

(ii)    Resale.    Except for transfers to an affiliate of Holder, Holder is acquiring this Warrant and the Warrant Shares issuable upon exercise of this Warrant (collectively the "Securities") for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. The Holder understands that the Securities have not been registered under the Securities Act of 1933, as amended (the "Act") by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein.

(iii)    Rule 144.    The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Act.

(iv)    Accredited Investor.    The Holder is an "accredited investor" within the meaning of Regulation D promulgated under the Act.

(v)    Opportunity To Discuss.    The Holder has had an opportunity to discuss Company's business, management and financial affairs with its management and an opportunity to review Company's facilities. The Holder understands that such discussions, as well as the written information issued by Company, were intended to describe the aspects of Company's business and prospects which Company believes to be material but were not necessarily a thorough or exhaustive description.

(b)    Representations and Warranties by Company.    Company hereby represents and warrants to Holder that the statements in the following paragraphs of this Section 4(b) are true and correct (a) as of the date hereof and (b) except where any such representation and warranty relates specifically to an earlier date, as of the date of any exercise of this Warrant.

(i)    Corporate Organization and Authority.    Company (a) is a corporation duly organized, validly existing, and in good standing in its jurisdiction of incorporation, (b) has the corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted; and (c) is qualified as a foreign corporation in all jurisdictions where such qualification is required.

(ii)    Corporate Power.    Company has all requisite legal and corporate power and authority to execute, issue and deliver this Warrant, to issue the Warrant Shares issuable upon exercise or conversion of this Warrant, and to carry out and perform its obligations under this Warrant and any related agreements.

(iii)    Authorization; Enforceability.    All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of its obligations under this Warrant and for the authorization, issuance and delivery of this Warrant and the Warrant Shares issuable upon exercise of this Warrant has been taken and this Warrant constitutes the legally binding and valid obligation of Company enforceable in accordance with its terms.

(iv)    Valid Issuance of Warrant and Warrant Shares.    This Warrant has been validly issued and is free of restrictions on transfer other than restrictions on transfer set forth herein and under applicable state and federal securities laws. The Warrant Shares issuable upon conversion of this Warrant, when issued, sold and delivered in accordance with the terms of this Warrant for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Warrant and under applicable state and federal securities laws. Subject to applicable restrictions on transfer, the issuance and delivery of this Warrant and the Warrant Shares issuable upon exercise or conversion of this Warrant are not subject to any preemptive or other similar rights or any liens or encumbrances except as specifically set forth in Company's Certificate of Incorporation or this Warrant. The offer, sale and issuance of the Warrant Shares, as contemplated by this Warrant, are exempt from the prospectus and registration requirements of applicable United States federal and state security laws, and neither Company nor any authorized agent acting on its behalf has or will take any action hereafter that would cause the loss of such exemption.

(v)    No Conflict.    The execution, delivery, and performance of this Warrant will not result in (a) any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice (1) any provision of Company's Certificate of Incorporation or by-laws; (2) any provision of any judgment, decree, or order to which Company is a party, by which it is bound, or to which any of its material assets are subject;

(3) any contract, obligation, or commitment to which Company is a party or by which it is bound; or (4) any statute, rule, or governmental regulation applicable to Company, or (b) the creation of any lien, charge or encumbrance upon any assets of Company.

(vi)    Capitalization.    The capitalization table of Company delivered to Holder is complete and accurate as of the date hereof and reflects (a) all outstanding capital stock of Company and (b) all outstanding warrants, options, conversion privileges, preemptive rights or other rights or agreements to purchase or otherwise acquire or issue any equity securities or convertible securities of Company (other than the right of first refusal set forth in Section 4 of the Company's Investor Rights Agreement dated August 25, 2006 (the "Rights Agreement")). Company has reserved 200,000 shares of Common Stock for issuance upon conversion of the Preferred Stock.

(vii)    Warrant Price.    The Warrant Price is no greater than the lowest price at which Company has issued Series A Convertible Preferred Stock to an unrelated third party in an arm's length transaction.

5.    Legends.

(a)    Legend.    Each certificate representing the Warrant Shares shall be endorsed with the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR (IF REASONABLY REQUIRED BY THE COMPANY) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

The Company need not enter into its stock records a transfer of Warrant Shares unless the conditions specified in the foregoing legend are satisfied. The Company may also instruct its transfer agent not to allow the transfer of any of the Warrant Shares unless the conditions specified in the foregoing legend are satisfied.

(b)    Removal of Legend and Transfer Restrictions.    The legend relating to the Act endorsed on a certificate pursuant to paragraph 5(a) of this Warrant shall be removed and Company shall issue a certificate without such legend to Holder if (i) the Securities are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is available or (ii) Holder provides to Company an opinion of counsel for Holder reasonably satisfactory to Company, a no-action letter or interpretive opinion of the staff of the Securities and Exchange Commission reasonably satisfactory to Company, or other evidence reasonably satisfactory to Company, to the effect that public sale, transfer or assignment of the Securities may be made without registration and without compliance with any restriction such as Rule 144.

6.    Condition of Transfer or Exercise of Warrant.    It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, Holder shall provide Company with a representation in writing that Holder or transferee is acquiring this Warrant and the shares of Preferred Stock to be issued upon exercise for investment purposes only and not with a view to any sale or distribution, or will provide Company with a statement of pertinent facts covering any proposed distribution. As a further condition to any transfer of this Warrant or any or all of the shares of Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, Company may request a legal opinion, in form and substance satisfactory to Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder. Each

certificate evidencing the Warrant Shares issued upon exercise of this Warrant or upon any transfer of the Warrant Shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at Company's option, if the Warrant Shares are not freely saleable under Rule 144(k) under the Act, contain a legend in form and substance satisfactory to Company and its counsel, restricting the transfer of the Warrant Shares to sales or other dispositions exempt from the requirements of the Act. As further condition to each transfer, at the request of Company, Holder shall surrender this Warrant to Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by Company.

7.    Adjustment for Certain Events.    The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a)    Reclassification or Merger.    In case of (i) any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any merger of Company with or into another corporation (other than a merger with another corporation in which Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or (iii) any sale of all or substantially all of the assets of Company, Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to Holder a new Warrant (in form and substance satisfactory to Holder of this Warrant), or Company shall make appropriate provision without the issuance of a new Warrant, so that Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the Warrant Shares theretofore issuable upon exercise or conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Preferred Stock then purchasable under this Warrant, or in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of Holder, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Warrant Shares purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers.

(b)    Subdivision or Combination of Shares.    If Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Preferred Stock, the Warrant Price shall be proportionately decreased and the number of Warrant Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Warrant Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c)    Stock Dividends and Other Distributions.    If Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Preferred Stock payable in Preferred Stock, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Preferred Stock (except any distribution specifically provided for in Sections 7(a) and 7(b)), then, in each such case, provision shall be made by Company such that Holder shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it

were Holder of the Warrant Shares as of the record date fixed for the determination of the shareholders of Company entitled to receive such dividend or distribution.

(d)    Adjustment of Number of Shares.    Upon each adjustment in the Warrant Price, the number of Warrant Shares purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Warrant Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e)    Adjustment for Dilutive Issuance.    The Warrant Price and the number of Warrant Shares issuable upon exercise of this Warrant or, if the Warrant Shares are Preferred Stock, the number of shares of Common Stock issuable upon conversion of the Warrant Shares, shall be subject to adjustment, from time to time in the manner set forth in Company's Certificate of Incorporation as if the Warrant Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Warrant Shares in Company's Certificate of Incorporation relating to the above in effect as of the date hereof may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Warrant Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Warrant Shares.

8.    Notice of Adjustments.    Whenever any Warrant Price or the kind or number of securities issuable under this Warrant shall be adjusted pursuant to Section 7 hereof, Company shall prepare a certificate signed by an officer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number or kind of shares issuable upon exercise of this Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to Holder as set forth in Section 18 hereof.

9.    Transferability of Warrant.    This Warrant is transferable on the books of Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 6 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, Company will issue and deliver to Holder a new Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of Company.

10.    Registration Rights.    The Company agrees to use commercially reasonable efforts to (i) cause the Warrant Shares to have certain incidental, or "Piggyback" and "Form S-3," registration rights and other rights and obligations pursuant to and as set forth in Sections 2.2, 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 and 5 of the Rights Agreement (the "Designated Sections of the Rights Agreement") and (ii) as soon as reasonably practicable after execution and delivery of the this Warrant, have Holder become a party to the Rights Agreement. The provisions set forth in the Designated Sections of the Rights Agreement in effect as of the date of this Warrant may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Warrant Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Warrant Shares subject to this Warrant.

Holder hereby agrees that it shall not sell or otherwise transfer, make any short sale or, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any Common Stock (or other securities) of the Company held by Holder (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the Company's initial public offering filed under the Act (or such other shorter period as may be requested by an underwriter to accommodate regulatory restrictions on (i) the publication or

other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472 (f)(4), or any successor provisions or amendments thereto). Each Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 10. The market standoff provisions of Section 2.10 of the Rights Agreement shall supersede this paragraph at such time as Holder becomes party to the Rights Agreement. Notwithstanding anything to the foregoing herein, the duration of any market standoff requirement applicable to Holder shall not exceed the duration of the shortest market standoff requirements applicable to any holder of at least the number of shares which may be acquired to this Warrant.

11.    No Fractional Shares.    No fractional share of Preferred Stock will be issued in connection with any exercise or conversion hereunder, but in lieu of such fractional share Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect.

12.    Charges, Taxes and Expenses.    Issuance of certificates for shares of Preferred Stock upon the exercise or conversion of this Warrant shall be made without charge to Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by Company, and such certificates shall be issued in the name of Holder.

13.    No Shareholder Rights Until Exercise.    Except as expressly provided herein, this Warrant does not entitle Holder to any voting rights or other rights as a shareholder of Company prior to the exercise hereof.

14.    Registry of Warrant.    Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of Company, and Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

15.    Loss, Theft, Destruction or Mutilation of Warrant.    Upon receipt by Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof.

16.    Miscellaneous.

(a)    Issue Date.    The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by Company on the date hereof.

(b)    Successors.    This Warrant shall be binding upon any successors or assigns of Company.

(c)    Headings.    The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

(d)    Saturdays, Sundays, Holidays.    If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the State of Connecticut, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

(e)    Attorney's Fees.    In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorney's fees.

17.    No Impairment.    Company will not, by amendment of its Certificate of Incorporation or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder hereof against impairment. Without limiting the breadth of the foregoing, Company will not cause the Series A Convertible Preferred Stock into which this Warrant is exercisable or convertible to be

converted into Common Stock unless such conversion is effected as part of the conversion of all Company's outstanding series of preferred stock and other senior securities into Common Stock.

18.    Addresses.    Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt requested, and postage prepaid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as Company or Holder hereof shall have furnished to the other party in accordance with the delivery instructions set forth in this Section 18.

If to Company:	Zogenix, Inc. 12760 High Bluff Drive, Suite 130 San Diego, CA 92130 Attn: Chief Financial Officer
If to Holder:	General Electric Capital Corporation 83 Wooster Heights Road Danbury, CT 06810 Attn: Credit Manager-Life Science Finance
With a copy to:	General Electric Capital Corporation Two Bethesda Metro Center Bethesda, Maryland 20814 Attn: General Counsel

If mailed by registered or certified mail, return receipt requested, and postage prepaid, notice shall be deemed to be given five (5) days after being sent, and if sent by overnight courier, by hand or by messenger, notice shall be deemed to be given when delivered (if on a business day, and if not, on the next business day).

19.    WAIVER OF JURY TRIAL.    EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT OR THE WARRANT SHARES.

20.    GOVERNING LAW.    THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

        IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its officer thereunto duly authorized.

ZOGENIX, INC.
By:	Roger L. Hawley
	Name:	Roger L. Hawley
	Title:	CEO

Dated as of March 5, 2007.

NOTICE OF EXERCISE

To:

[Name of Company]

1.

The undersigned Warrantholder ("Holder") elects to acquire shares of the Series            Convertible Preferred Stock (the "Preferred Stock") of                                    (the "Company"), pursuant to the terms of the Stock Purchase Warrant dated                                                             , 200            (the "Warrant").

2.

The Holder exercises its rights under the Warrant as set forth below:

o

Holder elects to purchase                                    shares of Preferred Stock as provided in Section 3(a) and tenders herewith a check in the amount of $                                    as payment of the purchase price.

o

Holder elects to convert the purchase rights into shares of Preferred Stock as provided in Section 3(b) of the Warrant.

3.

Holder surrenders the Warrant with this Notice of Exercise.

Holder represents that it is acquiring the aforesaid shares of Preferred Stock for investment and not with a view to or for resale in connection with distribution and that Holder has no present intention of distributing or reselling the shares.

Please issue a certificate representing the shares of the Preferred Stock in the name of Holder or in such other name as is specified below:

Name:

Address:

Taxpayer I.D.:

[NAME OF HOLDER]
By:
	Name:
	Title:
Date:	, 200

QuickLinks

Exhibit 4.3

EX-10.7

Exhibit 10.7

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.

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

ARADIGM CORPORATION.

AND

SJ2 THERAPEUTICS, INC.

Dated as of August 25, 2006

TABLE OF CONTENTS

			Page
ARTICLE I	DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
Section 1.01		Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Section 1.02		Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
ARTICLE II	ASSIGNMENT TRANSFER AND LICENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
Section 2.01		Assignment of Assigned Assets to Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Section 2.02		Asset Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Section 2.03		Coordination Leads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Section 2.04		Transitional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Section 2.05		Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Section 2.06		Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Section 2.07		Closing, Closing Place, Time and Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		9
Section 2.08		Nontransferable Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10
Section 2.09		FTO Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
Section 2.10		Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF ARADIGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			11
Section 3.01		Organization, Qualification, and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.02		Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.03		Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.04		Transferred Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.05		Transferred Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.06		Transferred Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		13
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			15
Section 4.01		Organization, Qualification, and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 4.02		Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
ARTICLE V	OTHER AGREEMENTS AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			15
Section 5.01		Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.02		Reasonable Cooperation of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.03		Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.04		Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.05		Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		16
ARTICLE VI	MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			17
Section 6.01		Press Releases and Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17
Section 6.02		No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17

Section 6.03	Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Section 6.04	Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Section 6.05	Entire Agreement and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.06	Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.07	Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.08	Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.09	Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.10	Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.11	Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Section 6.12	Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.13	Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.14	Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.15	Attorneys’ Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.16	Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20

EXHIBITS

EXHIBIT A	Transferred Assets (including Transferred Technology)
EXHIBIT B	Transferred Books and Records
EXHIBIT C	Transferred Contracts
EXHIBIT D	Transferred Intellectual Property
EXHIBIT E	General Assignment and Bill of Sale
EXHIBIT F	Assumed Liabilities
EXHIBIT G	Transfer Plan
EXHIBIT H	Transitional Services Agreement
EXHIBIT I	Intraject Delivery System
EXHIBIT J	Nontransferable Assets

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of August 25, 2006 by and between Aradigm Corporation, a California corporation (“Aradigm”), and SJ2 Therapeutics, Inc., a Delaware corporation (“Purchaser”). Aradigm and Purchaser are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

A.Aradigm desires to assign and transfer to Purchaser, and Purchaser desires to accept assignment and transfer from Aradigm, on the terms and subject to the conditions set forth herein, those certain assets of Aradigm related to the Intraject Delivery System.

B.Furthermore, Aradigm and Purchaser desire to make certain representations, warranties, covenants and other agreements in connection with the transactions contemplated hereby.

NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01Certain Definitions.  As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa). Certain other terms are defined in the text of this Agreement.

(a)“Affiliate” means a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated Party, but only for so long as such control exists. As used in this definition only, “control” shall mean ownership of shares of stock having at least 50% of the voting power entitled to vote for the election of directors in the case of a corporation (or, in the case of an entity that is not a corporation, in the election of the corresponding managing authority), or otherwise having the power to directly or indirectly control the management of such entity.

(b)“Assigned Assets” shall mean any and all of Aradigm’s right, title and interest in and to the following:

(i)any and all tangible assets owned or otherwise transferable by Aradigm as of the Closing Date, in each case to the extent exclusively used or held for use in the Business, including those assets listed on Exhibit A (collectively, “Transferred Assets”);

(ii)the Books and Records listed on Exhibit B (collectively, “Transferred Books and Records”);

1

(iii)all agreements listed on Exhibit C (collectively, “Transferred Contracts”);

(iv)all Patents (including in each case all rights to Prosecute and Enforce the same) listed on Exhibit D (collectively, “Transferred Patents”);

(v)all Trademarks (including in each case all rights to Prosecute and Enforce the same) listed on Exhibit D (collectively, “Transferred Trademarks”);

(vi)any and all Technology owned or otherwise transferable by Aradigm as of the Closing Date, other than the Transferred Patents and Transferred Trademarks, in each case to the extent exclusively used or held for use in the Business, including that Technology listed on Exhibit A (collectively, “Transferred Technology”); and

(vii)any and all right to recover past, present and future damages for the breach, infringement or misappropriation, as the case may be, of any of the foregoing.

(c)“Books and Records” shall mean all papers and records (in any format including paper or electronic) kept or maintained including any and all laboratory notebooks, invention disclosures, purchasing and sales records, all data and communications relating to ongoing business development activities, preclinical and clinical data, all Regulatory Documents, vendor lists, accounting and financial records, product documentation, product specifications, marketing documents and the like, in each case pertaining to the Business or the Assigned Assets.

(d)“Business” shall mean the research, development, commercialization, manufacture, marketing, distribution, sale, support and other use and commercial exploitation of the Intraject Delivery System.

(e)“Business Intellectual Property” shall mean any and all Technology and any and all Intellectual Property Rights, including Registered Intellectual Property Rights, that is or are owned (in whole or in part) by or exclusively licensed to Aradigm, as of the Closing Date, in each case that are used in or necessary to the Business.

(f)“Dollars” shall refer to United States currency unless expressly specified otherwise.

(g)“Governmental Body” shall mean any: (i) nation, province, state, county, city, town, village, district, or other jurisdiction of any nature; (ii) federal, provincial, state, local, municipal, foreign, or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (iv) multi-national organization or body; or (v) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

(h)“Intraject Delivery System” shall mean Aradigm’s Intraject® needle-free injection delivery system as more fully described in Exhibit I (the “Existing Delivery System”)

2

or any modified, improved or derivative version thereof, in each case that includes one or more material elements of the Existing Delivery System.

(i)“Intellectual Property Rights” shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States and foreign patents and utility models and applications therefor and all reissues, divisionals, re examinations, renewals, extensions, provisionals, supplementary protection certificates, continuations and continuations in-part thereof, and equivalent or similar registered rights anywhere in the world (“Patents”); (ii) all trade secrets and other rights in know-how and confidential or proprietary information, inventions and discoveries, including without limitation invention disclosures; (iii) all copyrights, works of authorship, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world (“Copyrights”); (iv) all rights in Uniform Resource Locators, World Wide Web addresses and domain names and applications and registrations therefor (“Internet Property Rights”); (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world (“Trademarks”); and (vi) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world, including, without limitation, moral rights.

(j)“Licensee” shall mean a Person other than an Affiliate to whom Purchaser or its Affiliate has granted the right, or to whom such a Person has sublicensed the right, to (i) make and sell any Product or (ii) sell any Product, provided that distributors, wholesalers and resellers as to which Purchaser does not receive compensation on resales of Products by such entity shall not be considered Licensees.

(k)“Lien” shall mean any mortgage, pledge, lien, charge, claim, security interest, adverse claims of ownership or use, restrictions on transfer, defect of title or other encumbrance of any sort, other than (i) mechanic’s, materialmen’s, and similar liens with respect to any amounts not yet due and payable, and (ii) liens for taxes not yet due and payable.

(l)“Net Sales” shall mean the amounts actually received by Purchaser, its Affiliates, or Licensees, in consideration of their sales of Product to Third Party customers, less: (i) normal and customary trade, cash and other discounts; (ii) credits or allowances for damaged goods, returns, rejections or recalls of Product; (iii) sales taxes, value added taxes, withholding, import/export taxes or other similar taxes (excluding taxes on the income of the selling entity) actually paid; (iv) normal and customary charge back payments or rebates; and (v) packaging, handling fees, prepaid freight, insurance and the like to the extent separately identified on the invoice. Sales between or among Purchaser, its Affiliates or Licensees for resale shall be excluded from the computation of Net Sales, but the subsequent re sale of such Products by Purchaser, its Affiliates or Licensees to an end user shall be included within the computation of Net Sales. Net Sales shall not include amounts in respect of Product sold or used for development applications (including for clinical trials) or commercial samples (i.e., items provided for free or at or below cost plus a nominal profit for promotional purposes).

(m)“Nontransferable Asset” shall have the meaning ascribed to the term in Section 9.

3

(n)“Non-Sumatriptan Product” shall mean any Product comprising the Intraject Delivery System combined with an applicable drug formulation, other than Sumatriptan.

(o)“Person” shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, Governmental Body or other entity.

(p)“Product” shall mean any pharmaceutical product comprising the Intraject Delivery System combined with Sumatriptan or other applicable drug formulation.

(q)“Prosecution and Enforcement” shall mean (i) the preparation, filing for, prosecution, maintenance of registrations thereof and applications for any such registration (ii) the conduct of interferences, re examinations, reissues, oppositions or requests for term extensions with respect thereto and (iii) the conduct of any enforcement proceeding with respect thereto (whether infringement, misuse, misappropriation or otherwise) or any declaratory judgment proceeding with respect thereto; and “Prosecute and Enforce” shall have the correlative meaning.

(r)“Pulmonary Field” shall mean the delivery of one or more aerosolized active pharmaceutical ingredients directly into the bronchia or lungs.

(s)“Registered Intellectual Property Rights” shall mean all United States, international and foreign: (i) Patents, including applications therefor (each a “Registered Patent”); (ii) registered Trademarks, applications to register Trademarks, including intent-to use applications, or other registrations or applications related to Trademarks; (iii) Copyright registrations and applications to register Copyrights; and (iv) any other Technology or Intellectual Property Rights that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time.

(t)“Regulatory Documents” shall mean any and all regulatory submissions (whether completed or in process) to any Governmental Body anywhere in the world submitted by or on behalf of Aradigm relating to the Business (including any product developed in connection therewith), including all annual reports, adverse event reports, and other adverse event submission tracking information, and amendments and supplements to any of the foregoing. For purposes of clarity, “Regulatory Documents” shall not include any filing or other submission made to the United States Securities and Exchange Commission, the National Association of Securities Dealers, the Nasdaq Stock Exchange or any similar entity.

(u)“Representatives” shall mean, with respect to a Person, that Person’s officers, directors, employees, accountants, counsel, investment bankers, financial advisors, agents and other representatives.

(v)“Royalty Revenue” shall mean running royalties actually received by Purchaser from a Licensee for sales of Non-Sumatriptan Products by or under authority of such Licensee, plus any license fees or milestone or other payments receive by Purchaser from a Licensee to the extent not allocable to recovery of development or other costs incurred by Purchaser specific to

4

the applicable Product. For clarity, Royalty Revenue shall exclude: (i) payments in consideration of goods (including Products) or services at Purchaser’s fully-burdened cost therefor (any amounts in excess of the fully-burdened cost shall be included in Royalty Revenue), (ii) payments in consideration for equity at the fair market value therefor (any amounts in excess of the fair market value shall be included in Royalty Revenue) and (iii) amounts received by Purchaser in consideration for a sale of all, or substantially all, of the business or assets of Purchaser (whether by way of merger, sale of stock, sale of assets or otherwise), if the successor to such business or assets has assumed the obligations under Section 2.06(a) of this Agreement.

(w)“Royalty Term” shall mean, for a given Product, the period commencing on the Closing Date and continuing until the later of (i) the ten-year anniversary of the first commercial sale of such Product in the United States, but no more than twenty years after the Closing Date cand (ii) the later of expiration or abandonment of the last Valid Claim of the Transferred Patents covering the manufacture, use or sale of such Product.

(x)“Sumatriptan Product” shall mean any Product comprising the Intraject Delivery System combined with Sumatriptan.

(y)“Technology” shall mean any or all of the following: (i) works of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records, data and mask works; (ii) inventions (whether or not patentable), improvements, and technology; (iii) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (iv) databases, data compilations and collections and technical data; (v) logos, trade names, trade dress, trademarks, service marks; (vi) World Wide Web addresses, domain names and sites; (vii) protocols, methods and processes; and (viii) all instantiations of the foregoing in any form and embodied in any media.

(z)“Territory” shall mean the entire world.

(aa)“Third Party” shall mean any Person other than Purchaser or Aradigm, or their respective Affiliates.

(bb)“Transfer Plan” shall mean the plan for the transfer of the Assigned Assets attached hereto as Exhibit G.

(cc)“Valid Claim” shall mean (i) a claim of an issued and unexpired patent, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (ii) a claim in a pending patent application being prosecuted in good faith that has not been abandoned or finally rejected and that has been pending for fewer than five years after the earliest priority date to which it is entitled.

Section 1.02Additional Definitions.  Each of the following definitions shall have the meanings defined in the corresponding sections of this Agreement indicated below:

5

Definition	Section
Agreement	Preamble
Aradigm Indemnities	Section 6.04(b)
Assumed Liabilities	Section 2.05(b)
Claim	Section 6.04(a)
Closing Date	Section 2.07
Coordination Lead	Section 2.03
Excluded Liabilities	Section 2.05(c)
Indemnitee	Section 6.04(c)
Indemnitor	Section 6.04(c)
Party	Preamble
PTO	Section 4.06(a)
Purchaser Indemnities	Section 6.04(a)

ARTICLE II

ASSIGNMENT, TRANSFER AND LICENSE

Section 2.01Assignment of Assigned Assets to Purchaser.  Upon the terms and subject to the conditions set forth herein, Aradigm hereby assigns, conveys and transfers to Purchaser, at the Closing, all of Aradigm’s right, title and interest in and to the Assigned Assets, subject to the reservation on behalf of Aradigm of a perpetual, worldwide, royalty-free, non-exclusive license, under the Transferred Patents and Transferred Technology solely for purposes of the Pulmonary Field, which retained license shall include the right to grant sublicenses to Persons solely within the scope of such retained license in connection with the grant to such Persons of licenses under other Patents owned or controlled by Aradigm.

Section 2.02Asset Transfer.  Subject to the terms and conditions set forth in this Agreement, on the Closing Date, Aradigm shall transfer all Assigned Assets, in the shape, manner and form of their existence as of the date such Assigned Assets are transferred to Purchaser, in accordance with the Transfer Plan. Without limiting the specifics of the Transfer Plan, Aradigm shall promptly transfer those assets (to the extent not previously transferred to the Transferee hereunder) to Purchaser as required in the Transfer Plan and this Section 2.02. Unless otherwise specified in the Transfer Plan, the mode of such transfer shall be determined by the Coordination Leads with the goal of efficiency and cost-effectiveness. Without limiting the foregoing and in connection with such transfers of assets pursuant to this Section 2.02, Aradigm shall make available such personnel reasonably familiar with the Assigned Assets to consult with and assist Purchaser in implementing such assets at mutually agreeable times.

Section 2.03Coordination Leads.  In order to facilitate the transfer of assets pursuant to Section 2.02, each Party shall appoint, from time to time, by written notice to the other Party, one of its personnel as its coordination lead (each, a “Coordination Lead”). The Coordination Leads shall be responsible for oversight and coordination of the transfer of assets in accordance with Section 2.02 and the Transfer Plan. The Coordination Leads shall carry out their responsibilities by any reasonable means or practices as the Parties may mutually agree.

6

Section 2.04           Transitional Services.  Aradigm shall provide all reasonable transitional services to Purchaser, including facilities, furnishings, access to systems, document control, quality systems, IT support, accounting, payroll, administration and other such services as the Parties may mutually agree, until December 31, 2006 or until such later date as mutually agreed to by the Parties, as more fully described in Exhibit H, and Purchaser shall pay the fees therefor set forth in Exhibit H in accordance with the schedule set forth therein.

Section 2.05           Assumption of Liabilities.

(a)           Assumption.  Upon the terms and subject to the conditions set forth herein, at the Closing, Purchaser shall assume from Aradigm, and Aradigm shall irrevocably convey, transfer and assign to Purchaser, all of the Assumed Liabilities (as defined in Section 2.05(b) hereof).  Purchaser shall not assume any liabilities of Aradigm pursuant hereto, other than the Assumed Liabilities.

(b)           Definition of Assumed Liabilities.  For all purposes of and under this Agreement, the term “Assumed Liabilities” shall mean, refer to and include only those liabilities listed on Exhibit F.

(c)           Definition of Excluded Liabilities.  Except for the Assumed Liabilities, Purchaser does not assume and is not assuming any debt, liability, duty or other obligation (of any kind) of Aradigm, whether known or unknown, fixed or contingent, and regardless of when such liabilities or obligations may arise or may have arisen or when asserted, including any liabilities, or obligations related to the Assigned Assets which are outstanding or unpaid as of the Closing (the “Excluded Liabilities”), and Aradigm shall remain responsible for the Excluded Liabilities.

Section 2.06           Consideration.  On the terms and subject to the conditions set forth in this Agreement, in addition to the payments contemplated by Section 2.07(a), the consideration for the Assigned Assets shall be the following:

(a)           Royalties.

(i)            In consideration for the assignment and transfer of the Assigned Assets, with respect to Net Sales Purchaser shall pay to Aradigm, during the Royalty Term:

(1)           For each Non-Sumatriptan Product, [***] percent ([***]%) of Net Sales of such Non-Sumatriptan Product, provided that in the event and to the extent such Non-Sumatriptan Product is commercialized by a Licensee Purchaser may at its election pay to Aradigm either [***] percent ([***]%) of such Licensee’s Net Sales of such Non-Sumatriptan Product or [***] percent ([***]%) of Purchaser’s Royalty Revenues from such Licensee in respect of such Non-Sumatriptan Product.  Purchaser shall make its election with respect to each such Non-Sumatriptan Product by written notice to Aradigm of its election on or before the date its first payment would be due under Section 2.06(a)(vi) in respect of such Non-Sumatriptan Product under either of the foregoing alternatives.

(2)           For Sumatriptan Products, [***] percent ([***]%) of Net Sales of Sumatriptan Products.

*** 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.

7

(ii)           Combination Products.  In the event that a Product is sold in the form of a combination product (a “Combination Product”) containing both (1) such Product and (2) another product or service for which no royalty would be due hereunder if sold separately, the Net Sales from such combination sales for purposes of calculating the amounts due under this Section 2.06(a) shall be calculated by multiplying Net Sales of the Combination Product by a fraction that reasonably reflects the fair value of the contribution of the Product in the Combination Product to the total market value of such Combination Product, which fraction shall be established by the Purchaser and Aradigm through good faith negotiations and mutual agreement, on a Combination Product-by-Combination Product basis.

(iii)          Single Royalty.  Only one royalty shall be paid with respect to each unit of Product that is subject to royalties under this Section 2.06(a), without regard to the number of transfers or otherwise.  In no event shall more than one royalty be due under this Section 2.06(a) with respect to any Product unit.

(iv)          Milestone Payment.  Purchaser shall pay Aradigm $[***] within 30 days of the first U.S. commercial sale of the Sumatriptan Product.

(v)           Records.  During the term of this Agreement and for a period of three years thereafter, Purchaser and its Affiliates shall keep, and shall cause its licensees and sublicensees to keep, complete and accurate records of their Net Sales in sufficient detail to enable the amounts payable under this Section 2.06(a) to be determined.  Upon Aradigm’s written request, but not more frequently than once per calendar year, Purchaser shall permit representatives or agents of Aradigm, at Aradigm’s expense, to examine such records during Purchaser’s regular business hours for the purpose of and to the extent necessary to verify any report required under this Agreement with respect to Net Sales received not more than three years prior to the date of Aradigm’s request.  In the event that the amounts due to Aradigm are determined to have been underpaid, Purchaser shall promptly pay to Aradigm any amount due and unpaid.  In the event that it is determined, as a result of such examination, that the amount underpaid with respect to a given payment is in excess of 5% of the total amount of such payment, then Purchaser shall reimburse Aradigm for all costs incurred by Aradigm in conducting such examination.

(vi)          Reports.  Beginning with the first accrual of royalties or other payments due hereunder, Purchaser shall provide to Aradigm a quarterly royalty report as follows: Within 60 days after the end of each quarterly period, Purchaser shall deliver to Aradigm a true and accurate report, giving such particulars of the business conducted by Purchaser, its Affiliates and Licensees, during such quarterly period as are pertinent to account for payments due under this Section 2.06(a).  Such report shall include, as applicable, at least (A) the total of Net Sales during such quarterly period; (B) the calculation of royalties; (C) the calculation of Royalty Revenue for each applicable Non-Sumatriptan Product and (D) the total royalties and other payments due Aradigm.  Simultaneously with the delivery of each such report, Purchaser shall pay to Aradigm the total amount, if any, due to Aradigm for the period of such report.  If no payment is due, Purchaser shall so report.  Aradigm shall not provide to Third Parties any information contained

*** 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.

8

in reports provided to Aradigm under this Section 2.06(a)(v), or learned by Aradigm under Section 2.06(a)(iii) above.

(vii)         Payments.  All amounts payable hereunder by Purchaser shall be payable in Dollars to Aradigm.  If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rates reported in the Wall Street Journal on the last business day of the quarter in respect of which such payment is made.

(viii)        Taxes.  Any withholding or other tax that is required by law to be withheld on behalf of Aradigm with respect to payments owed by Purchaser pursuant to this Agreement shall be deducted by Purchaser from such payment prior to remittance.  Purchaser shall promptly furnish Aradigm evidence of any such taxes withheld.

(ix)           Without limiting Section 2.06(a)(v) above, Purchaser shall take reasonable measures to keep Aradigm informed as to the progress of the development and commercialization of the Intraject Delivery System and Products arising therefrom until such time as Purchaser has fulfilled its royalty obligations to Aradigm pursuant to Section 2.06(a).

Section 2.07           Closing, Closing Place, Time and Date.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Cooley Godward llp, 3175 Hanover Street, Palo Alto, California, at 10:00 a.m. on the date of the Agreement (the actual date on which the Closing shall occur being referred to herein as the “Closing Date”).

(a)           Closing Deliveries.

(i)            At the Closing, Purchaser shall deliver, or cause to be delivered, to Aradigm the following, dated as of the date of this Agreement and, where relevant, executed for and on behalf of Purchaser by a duly authorized officer thereof:

(1)           any and all instruments, certificates and agreements as Aradigm may reasonably request in order to effectively make Purchaser responsible for all Assumed Liabilities pursuant hereto to the fullest extent permitted by applicable law;

(2)           Purchaser shall have provided Aradigm with evidence demonstrating that Purchaser has obtained at least $15 million in equity financing;

(3)           Purchaser shall have paid to Aradigm, by wire transfer, $4,000,000 in cash;

(4)           Purchaser shall have reimbursed Aradigm for all documented expenses actually incurred by Aradigm from July 1, 2006 through the Closing Date, that were pre-approved in writing by Purchaser, up to $515,036;

(5)           Each of Steve Farr and John Turanin shall have provided Aradigm with a release of all claims over or rights to any severance payments relating to their cessation of services to Aradigm, in a form that is reasonably acceptable to Aradigm and including mutually agreed consideration for such releases; and

9

(6)           the Transitional Services Agreement.

(ii)           At the Closing, Aradigm shall deliver, or cause to be delivered, to Purchaser the following, dated as of the date of this Agreement and executed for and on behalf of Aradigm by a duly authorized officer thereof:

(1)           a general assignment and bill of sale with respect to the Assigned Assets in the form attached hereto as Exhibit F;

(2)           one or more instruments of assignment and assumption, in customary form and substance reasonably satisfactory to Purchaser and Aradigm and their respective counsel;

(3)           an instrument of assignment of the Transferred Patents, the Transferred Trademarks, and any other Registered Intellectual Property Rights included in the Assigned Assets, in customary form and substance reasonably satisfactory to Purchaser and Aradigm and their respective counsel;

(4)           any and all required third party consents including those consents necessary for the valid assignment and transfer of the Transferred Contracts;

(5)           any and all other instruments, certificates and agreements as Purchaser may reasonably request in order to effectively transfer to Purchaser all of the Assigned Assets pursuant hereto and to the Transfer Plan to the fullest extent permitted by applicable law; and

(6)           the Transitional Services Agreement.

(b)           Closing.  From and after the Closing, the Assigned Assets shall be held for the account and benefit, and at the risk, of Purchaser.

Section 2.08           Nontransferable Assets.  To the extent that any Assigned Asset or Assumed Liability to be sold, conveyed, assigned, transferred, delivered or assumed to or by Purchaser pursuant hereto, or any claim, right or benefit arising thereunder or resulting therefrom, is not capable of being sold, conveyed, assigned, transferred or delivered without the approval, consent or waiver of the issuer thereof or the other Party thereto, or any third Person (including a Governmental Body), or if such sale, conveyance, assignment, transfer or delivery or attempted sale, conveyance, assignment, transfer or delivery would constitute a breach (or give rise to a termination right) thereof or a violation of any law, decree, order, regulation or other governmental edict (collectively, with respect to such Assigned Assets, as set forth on Exhibit J, the “Nontransferable Assets”), except as expressly otherwise provided herein, this Agreement shall not constitute a sale, conveyance, assignment, transfer or delivery thereof, or an attempted sale, conveyance, assignment, transfer or delivery thereof absent such approvals, consents or waivers.  If any such approval, consent or waiver shall not be obtained, or if an attempted assignment of any such Assigned Asset or the assumption of any Assumed Liability by Purchaser would be ineffective so that Purchaser would not in fact receive all the Nontransferable Assets or assume all such Assumed Liabilities pursuant hereto, Aradigm and

10

Purchaser shall cooperate in a mutually agreeable arrangement under which Purchaser would obtain the benefits and assume the obligations of such Assigned Assets and Assumed Liabilities, respectively, in accordance with this Agreement, including subcontracting, sub-licensing, or sub-leasing to Purchaser, or under which Aradigm, at Purchaser’s expense, would enforce for the benefit of Purchaser, with Purchaser assuming all of Aradigm’s obligations thereunder, any and all rights of Aradigm against a Third Party thereto.

Section 2.09           FTO Licenses.

(a)           To Purchaser. Aradigm hereby grants to Purchaser a non-exclusive, fully-paid, world-wide, perpetual, irrevocable, transferable, sublicensable license to fully exercise any Intellectual Property Rights that are (i) owned, controlled or employed by Aradigm at any time prior to the Closing (or that arises thereafter to the extent covering Technology created, owned, controlled or employed by Aradigm prior to the Closing), (ii) necessary or useful for the operation of the Business and (iii) not included in the Assigned Assets that are actually assigned to Purchaser.

(b)           To Aradigm. Purchaser hereby grants to Aradigm a non-exclusive, fully-paid, world-wide, perpetual, irrevocable, transferable, sublicensable license to fully exercise any Intellectual Property Rights that are (i) owned, controlled or employed by Purchaser as of the Closing (or that arises thereafter to the extent covering Technology created, owned, controlled or employed by Aradigm as of the Closing) and (ii) solely for use in the Pulmonary Field.

Section 2.10           Taking of Necessary Action; Further Action.  From time to time after the Closing, at the request of either Party, the Parties hereto shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the Parties may reasonably determine is necessary to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to or interest in the Assigned Assets, to put Purchaser in actual possession and operating control thereof and to assist Purchaser in exercising all rights with respect thereto.  Aradigm hereby constitutes and appoints Purchaser and its successors and assigns as its true and lawful attorney in fact in connection with the transactions contemplated by this Agreement, with full power of substitution, in the name and stead of Aradigm but on behalf of and for the benefit of Purchaser and its successors and assigns, to demand and receive any and all of the Assigned Assets and to give receipt and releases for and in respect of the same and any part thereof, and from time to time to institute and prosecute, in the name of Aradigm or otherwise, for the benefit of Purchaser or its successors and assigns, proceedings at law, in equity, or otherwise, which Purchaser or its successors or assigns reasonably deem proper in order to collect or reduce to possession or endorse any of the Assigned Assets and to do all acts and things in relation to the Assigned Assets which Purchaser or its successors or assigns reasonably deem desirable.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARADIGM

Aradigm hereby represents and warrants to Purchaser as follows:

11

Section 3.01           Organization, Qualification, and Corporate Power.  Aradigm (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, (b) has obtained all necessary corporate approvals to enter into and execute this Agreement and (c) has the full right, power and authority to enter into this Agreement.

Section 3.02           Authorization.  Aradigm has full power and authority to execute and deliver this Agreement, and to consummate the transactions contemplated hereunder and to perform its obligations hereunder, and no other proceedings on the part of Aradigm are necessary to authorize the execution, delivery and performance of this Agreement.  This Agreement constitutes the valid and legally binding obligations of Aradigm, enforceable against Aradigm in accordance with its terms and conditions, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

Section 3.03           Assets.  The Assigned Assets include all assets of Aradigm and its Affiliates that are used or held for use by Aradigm and its Affiliates primarily in the operation or conduct of the Business.

(a)           The Assigned Assets include all assets of Aradigm and its Affiliates that are used or held for use by Aradigm and its Affiliates primarily in the operation or conduct of the Business.

(b)           Following the consummation of the transactions contemplated by this Agreement and the related agreements, and the execution of the instruments of transfer contemplated hereby and thereby, Purchaser will own, with good, valid and marketable title, or lease, under valid and subsisting leases, or otherwise acquire the interests of Aradigm in the Assigned Assets, free and clear of any Liens, and without incurring any penalty or similar transfer fee.

Section 3.04           Transferred Books and Records.  The Transferred Books and Records listed on Exhibit B are all of the Books and Records maintained by Aradigm that pertain to the Business and the Assigned Assets.

Section 3.05           Transferred Contracts.  The Transferred Contracts listed on Exhibit C are all of the contracts between Aradigm and any Third Party currently necessary for or primarily related to, the operation of the Business, and true and complete copies of all such Transferred Contracts have been delivered or made available to Purchaser or its representatives.  Each Transferred Contract is in full force and effect and, to Aradigm’s knowledge, Aradigm is not subject to any default thereunder, nor, to Aradigm’s knowledge, is any party obligated to Aradigm pursuant to any such Transferred Contract subject to any default thereunder.  Aradigm has neither breached, violated or defaulted under, nor received notice that Aradigm has breached, violated or defaulted under, any of the terms or conditions of any Transferred Contract.  Aradigm has obtained, or will obtain prior to the Closing, all necessary consents, waivers and approvals of parties to any Transferred Contract as are required thereunder in connection with the Closing, or for any such Transferred Contract to be transferred to Purchaser, and to remain in full force and effect without limitation, modification or alteration after the Closing.  Following the Closing, Purchaser will be permitted to exercise all of the rights Aradigm had under the Transferred

12

Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which Aradigm would otherwise be required to pay pursuant to the terms of such Transferred Contracts had the transactions contemplated by this Agreement not occurred.

Section 3.06           Transferred Intellectual Property.

(a)           The Exhibits listing the Transferred Patents and the Transferred Trademarks are, to Aradigm’s knowledge, complete and accurate.  With respect to Transferred Patents, those Transferred Patents that are Registered Patents are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of use),  and are not subject to any unpaid maintenance fees or taxes falling due within 90 days after the Closing Date.  There are no proceedings or actions known to Aradigm before any court, tribunal (including the United States Patent and Trademark Office (the “PTO”) or equivalent authority anywhere in the world) related to any such Registered Patent.

(b)           To Aradigm’s knowledge, each Registered Patent that is a Transferred Patent is properly filed and is currently pending or issued, and all necessary registration, maintenance and renewal fees in connection with such Registered Patent that is a Transferred Patent have been paid and all necessary documents and certificates in connection with such Registered Patent have been filed with the relevant patent authorities in the United States or foreign jurisdictions in which Aradigm has elected to pursue such Registered Patent, as the case may be, for the purposes of maintaining such Registered Patent.  There are, to Aradigm’s knowledge, no actions that must be taken by Aradigm within 90 days after the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to PTO office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any such Registered Patent.  To the extent Aradigm has acquired from any Person any Technology or Intellectual Property Right, in each case that are included in the Assigned Assets, Aradigm has obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such Technology and Intellectual Property Rights (including the right to seek past and future damages with respect thereto) to Aradigm.  To the maximum extent provided for by, and in accordance with, applicable laws and regulations, Aradigm has recorded each such assignment of a Registered Intellectual Property Right assigned to Aradigm with the relevant Governmental Body, including the PTO, the U.S. Copyright Office, or their respective equivalents in any relevant foreign jurisdiction, as the case may be.  Aradigm has not claimed a particular status, including “Small Entity Status,” in the application for any Registered Patent that is a Transferred Patent, which claim of status was not at the time made, or which has since become, inaccurate or false or that will no longer be true and accurate as of the Closing Date.

(c)           Aradigm has no knowledge of any misrepresentation regarding, or failure to disclose, any fact or circumstances in any application for any Registered Patent that is a Transferred Patent that would materially and adversely affect the validity or enforceability of such Registered Patent that is a Transferred Patent.

13

(d)           All Registered Intellectual Property Rights included in the Assigned Assets are free and clear of any Liens.  Immediately prior to the Closing, Aradigm is the exclusive owner or exclusive licensee of all Business Intellectual Property.

(e)           Schedule 3.06(e) sets forth a list of all Regulatory Documents.

(f)            All Assigned Assets will be fully transferable, alienable or licensable by Purchaser without restriction and without payment of any kind to any Third Party, including royalty obligations, other than those restrictions and payments Aradigm would be subject to as of the Closing Date with respect to such Assigned Assets had the transactions contemplated by this Agreement not occurred.

(g)           Each material item of Technology used in the conduct of the Business by Aradigm was (i) written and created by then-current employees of Aradigm acting within the scope of their employment or (ii) acquired or licensed by Aradigm from Third Parties who have validly and irrevocably assigned such item to Aradigm, or granted Aradigm a license to use such item of a sufficient scope to cover Aradigm’s use or prior use of thereof in the Business.

(h)           To Aradigm’s knowledge, the conduct of the Business by Aradigm as it was previously conducted does not, infringe or misappropriate any Intellectual Property Right of any person, or constitute unfair competition or trade practices under the laws of any jurisdiction, and Aradigm has not received notice from any person claiming that such conduct by Aradigm infringes or misappropriates any Intellectual Property Right of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction.

(i)            Each employee and consultant of Aradigm that provides services to Aradigm in connection with the Business has entered into a valid and binding written agreement with Aradigm sufficient to vest title in Aradigm of all Technology and Intellectual Property Rights included in the Assigned Assets and created by such employee or consultant in the scope of his or her services or employment for Aradigm.

(j)            Aradigm has not transferred ownership of, nor granted any exclusive license of or exclusive right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Technology or Intellectual Property Right that is or was used in connection with the Business, to any other person.

(k)           To Aradigm’s knowledge, no person is infringing or misappropriating any Intellectual Property Right included in the Assigned Assets.

(l)            No Business Intellectual Property is subject to any proceeding or outstanding decree, order, judgment or settlement agreement or stipulation against Aradigm or, to Aradigm’s knowledge, against any Third Parties from whom Aradigm acquired or licensed Business Intellectual Property that restricts in any material way the use, transfer or licensing of such Business Intellectual Property by Aradigm or is reasonably likely to affect the validity, use or enforceability of such Business Intellectual Property.

14

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Aradigm as follows:

Section 4.01Organization, Qualification, and Corporate Power.  Purchaser (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of [Delaware], (b) has obtained all necessary corporate approvals to enter into and execute this Agreement and (c) has the full right, power and authority to enter into this Agreement.

Section 4.02Authorization.  Purchaser has full power and authority to execute and deliver this Agreement, and to consummate the transactions contemplated hereunder and to perform its obligations hereunder, and no other proceedings on the part of Purchaser are necessary to authorize the execution, delivery and performance of this Agreement.  This Agreement constitutes the valid and legally binding obligations of Purchaser, enforceable against Purchaser in accordance with its terms and conditions, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

ARTICLE V
OTHER AGREEMENTS AND COVENANTS

Section 5.01Additional Documents and Further Assurances.  Each Party hereto, at the request of another Party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be reasonably requested for effecting completely the consummation of the transactions contemplated hereby.

Section 5.02Reasonable Cooperation of Purchaser.  Purchaser shall cooperate, to the extent reasonable, with Aradigm’s efforts to obtain any Third Party consents; provided, however, that this Section 6.02 shall not obligate Purchaser to incur any additional expense or liability.

Section 5.03Reasonable Efforts.  Each of the Parties will use their reasonable efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement.

Section 5.04Indemnification.

(a)Indemnification of Purchaser.

(i)Aradigm shall indemnify and hold harmless each of Purchaser and its Affiliates, and the directors, officers, and employees of Purchaser and of such Affiliates, and the successors and assigns of any of the foregoing (collectively, the “Purchaser Indemnitees”), from and against any and all liabilities, damages, settlements, claims, actions, suits, penalties, fines, costs and expenses (including, without limitation, reasonable attorneys’ fees and other expenses of settlement) (any of the foregoing, a “Claim”) incurred by any Purchaser Indemnitee, based upon a Claim of a Third Party, to the extent resulting from the breach of any of Aradigm’s

15

express representations and warranties set forth in Article III of this Agreement.  Aradigm’s obligations to the Purchaser Indemnitees pursuant to this Section 5.04(a)(i) shall be limited, in the aggregate, to amounts actually received by Aradigm by operation of Section 2.06(a)(i).  Notwithstanding the foregoing, Aradigm shall not have any obligation to the Purchaser Indemnitees in respect of any breach of representations and warranties as to which Purchaser has actual knowledge (including for this purpose the actual knowledge of Steve Farr, John Turanin or Jonathan Rigby) prior to the Closing.

(b)           Aradigm shall indemnify and hold harmless the Purchaser Indemnitees from and against all Claims arising from the Excluded Liabilities.

(c)           Indemnification of Aradigm.  Purchaser shall indemnify and hold harmless each of Aradigm and its Affiliates, and the directors, officers, and employees of Aradigm and of such Affiliates, and the successors and assigns of any of the foregoing (collectively, the “Aradigm Indemnitees”), from and against any and all liabilities, damages, settlements, claims, actions, suits, penalties, fines, costs and expenses (including, without limitation, reasonable attorneys’ fees and other expenses of settlement) incurred by any Aradigm Indemnitee, based upon (i) a Claim of a Third Party, to the extent resulting from the breach of any of Purchaser’s express representations and warranties set forth in Article IV of this Agreement, (ii) a Claim relating to product liability concerning any of the Assigned Assets or (iii) a Claim relating to the Assumed Liabilities.

(d)           Procedure.  A Party that intends to claim indemnification under this Section 5.04 (the “Indemnitee”) shall promptly notify the other Party (the “Indemnitor”) in writing of any Claim in respect of which the Indemnitee intends to require such indemnification, and the Indemnitor shall have sole control of the defense and/or settlement thereof; provided that the Indemnitee shall have the right to participate, at its own expense, with counsel of its own choosing in the defense and/or settlement of such Claim.  The indemnification obligations of the Parties in this Section 5.04 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed.  The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such Claim, if prejudicial to Indemnitor’s ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Section 5.04, but the omission to so deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability to any Indemnitee otherwise than under this Section 5.04.  The Indemnitee under this Section 5.04 and its directors, officers and employees shall cooperate fully with the Indemnitor and its legal representatives and provide full information in the investigation of any Claim covered by this indemnification.

(e)           Sole Remedy.  The indemnification rights provided for in this Article V shall constitute the sole and exclusive remedy and the sole basis and means of recourse among the Aradigm Indemnities and the Purchaser Indemnities with respect to Claims arising out of or in connection with any breach of or inaccuracy in any representation, warranty, covenant or agreement contained in this Agreement.

Section 5.05           Covenant Not to Compete.  Aradigm and its Affiliates agree for a period of four (4) years after the Closing Date (the “Initial Period”) not to (i) conduct, participate in or

16

sponsor, directly or indirectly, any activities directed toward the research, development of technologies or products for the delivery of one or more active pharmaceutical ingredients via needle free injection or the manufacture, marketing or distribution of such products (each, a “Competing Activity”) or (ii) appoint, license or otherwise authorize any Third Party, whether pursuant to such license, appointment, or authorization or otherwise to perform any Competing Activities; provided that during the Initial Period, Purchaser (itself or through one or more Third Parties) is diligently pursuing the development (including preclinical development) or commercialization of one or more Products.  Thereafter during the Royalty Term, Aradigm and its Affiliates agree not to develop or commercialize any product for needle free injection of any active pharmaceutical ingredient for which Purchaser (itself or through one or more Third Parties) is then actively developing or commercializing a Product incorporating such active pharmaceutical ingredient (or any prodrug, metabolite, degradant, intermediate, salt form, hydrate, ester, isomer thereof).

ARTICLE VI
MISCELLANEOUS

Section 6.01           Press Releases and Public Announcements.  No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that (a) either Party may make any public disclosure it believes in good faith is required by applicable law and (b) Aradigm may correspond with Third Parties in writings in form and substance reasonably satisfactory to Purchaser with respect to obtaining consents from such Third Parties.  In furtherance of the foregoing sentence, the Parties agree and acknowledge that either party may issue a press release regarding this Agreement and the transactions contemplated herein at a time to be mutually agreed after the Closing Date, which press release shall not provide the financial terms of the Agreement.  The Parties will provide to each other a copy of such press release at least five business days prior to its release and such press release shall be subject to written approval of the receiving Party, which approval shall not be unreasonably withheld or delayed.

Section 6.02           No Third-Party Beneficiaries.  This Agreement shall not confer any rights or remedies upon any Person other than the Parties, and their respective successors and permitted assigns.

Section 6.03           Force Majeure.  Except with respect to the payment of money, in the event either Party hereto is prevented from or delayed in the performance of any of its obligations hereunder by reason of acts of God, terrorism, war, invasion, strikes, riots, earthquakes, storms, fires, energy shortage, acts of government or governmental agencies, or any other cause whatsoever beyond the reasonable control of the Party, the Party so prevented or delayed shall be excused from the performance of any such obligation to the extent and during the period of such prevention or delay.

Section 6.04           Limitation of Liability.  NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR PROFITS RELATING TO THE SAME), ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER SUCH CLAIM IS BASED ON

17

CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE OF SUCH PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME.

Section 6.05Entire Agreement and Modification.  This Agreement (including the exhibits hereto) constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.  This Agreement may not be amended except by a written agreement executed by all Parties.

Section 6.06Amendment.  This Agreement may be amended by Purchaser and Aradigm or any successor thereto by execution by each Party (or their successors) of an instrument in writing.

Section 6.07Waivers.  The rights and remedies of the Parties to this Agreement are cumulative and not alternative.  Neither the failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.  To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other Party, (b) no waiver that may be given by a Party will be applicable except in the specific instance for which it is given and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of such Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 6.08Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns.  This Agreement shall not be assigned by either Party without the prior written consent of the other Party, except that either Party may assign this Agreement, in whole or in part, to an Affiliate of such Party or to the successor (including the surviving company in any consolidation, reorganization or merger) or assignee of all or substantially all of its business pertaining hereto.  This Agreement will be binding upon any permitted assignee of either Party.  No assignment shall have the effect of relieving any Party to this Agreement of any of its obligations hereunder.

Section 6.09Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

Section 6.10Interpretation.  The captions and headings to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement.  Unless specified to the contrary, references to Articles, Sections or Exhibits mean the particular Articles, Sections and Exhibits to this Agreement and references to this Agreement include all such subparts.  Unless context otherwise clearly requires, whenever

18

used in this Agreement:  (a) the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation”; (b) the word “day” or “year” means a calendar day or year unless otherwise specified; (c) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement; (d) the words “hereof,” “herein,” “hereby” and derivative or similar words refer to this Agreement (including any and all subparts); (e) the word “or” shall be construed as the inclusive meaning identified with the phrase “and/or”; (f) provisions that require that a Party, the Parties or any committee hereunder “agree,” “consent” or “approve” or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise; (g) words of any gender include the other gender; (h) words using the singular or plural number also include the plural or singular number, respectively; and (i) references to any specific Law or article, section or other division thereof shall be deemed to include the then-current amendments thereto or any replacement Law thereof.

Section 6.11           Notices.  All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by certified or registered first class mail, postage prepaid, return receipt requested, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by certified or registered first class mail, postage prepaid, return receipt requested and shall be addressed to the intended recipient as set forth below:

If to Purchaser:
Addressed to:	SJ2 Therapeutics, Inc.
	3929 Point Eden Way
	Hayward, California 94545
	Attention: President
	Facsimile: (510) 265 0277
With a copy to:	Wilson, Sonsini, Goodrich & Rosati
	650 Page Mill Rd
	Palo Alto, California 94304-1050
	Attn: J. Casey McGlynn, Esq.
	Facsimile: (650) 493-6811
If to Aradigm:
Addressed to:	Aradigm Corporation.
	3929 Point Eden Way
	Hayward, California 94545
	Attention: Chief Financial Officer
	Facsimile: (510) 265 0277
With a copy to:	Cooley Godward LLP

19

3175 Hanover Street

Palo Alto, CA 94304-1130

Attn: James Kitch, Esq.

Facsimile: (650) 843-5027

Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party ten days’ advance written notice to the other Party pursuant to the provisions above.

Section 6.12           Governing Law.  This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.

Section 6.13           Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

Section 6.14           Construction.  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

Section 6.15           Attorneys’ Fees.  If any legal proceeding or other action relating to this Agreement is brought or otherwise initiated, the prevailing Party shall be entitled to recover reasonable attorney’s fees, costs and disbursements (in addition to any other relief to which the prevailing Party may be entitled).

Section 6.16           Further Assurances.  The Parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents and (c) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

[The remainder of this page left intentionally blank; signature page follows]

20

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on of the date first above written.

ARADIGM CORPORATION
By:	/s/ Tom Chesterman
Name:  Tom Chesterman
Title:  Senior Vice President and Chief Financial Officer
SJ2 THERAPEUTICS, INC.
By:	/s/ Steven J. Farr
Name:  Steven J. Farr
Title:  President

Schedule 3.06(e)

Regulatory Documents

[***]

*** 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.

EXHIBIT A

Transferred Assets (including Transferred Technology)

[***]

*** 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.

EXHIBIT B

Transferred Books and Records

[***]

*** 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.

EXHIBIT C

Transferred Contracts

[***]

*** 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.

EXHIBIT D

Transferred Intellectual Property

[***]

*** 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.

EXHIBIT E

General Assignment and Bill of Sale

[Attached]

FORM OF BILL OF SALE AND ASSIGNMENT AGREEMENT

This Bill of Sale and Assignment Agreement is made effective as of August 25, 2006, by and between SJ2 Therapeutics, Inc., a Delaware corporation (“Purchaser”), and Aradigm Corporation, a California corporation (“Aradigm”).  All capitalized words and terms used in this Agreement and not defined herein shall have the respective meanings ascribed to them in the Asset Purchase Agreement dated August 25, 2006 between Aradigm and the Purchaser (the “Asset Purchase Agreement”).

BACKGROUND

WHEREAS, Aradigm and Purchaser have entered into the Asset Purchase Agreement, under which Aradigm has agreed to sell, convey, assign, transfer and deliver the Assigned Assets to Purchaser or its assigns.

AGREEMENT

1.Sale.  Aradigm does hereby sell, convey, assign, transfer and deliver to Purchaser, and Purchaser does hereby purchase, acquire and accept from Aradigm, all of Aradigm’s right, title and interest in and to the Assigned Assets, subject to the licensed reserved on behalf of Aradigm pursuant to Section 2.01 of the Asset Purchase Agreement.

2.Representations.  All representations, warranties, agreements and indemnities of Aradigm with respect to the Assigned Assets set forth in the Asset Purchase Agreement will continue in effect as provided therein and will not be deemed to be amended, modified, terminated or superseded by or merged with this Bill of Sale and Assignment Agreement.

3.Miscellaneous Provisions.

3.1.Amendments; Waiver.  The terms, provisions and conditions of this Bill of Sale and Assignment Agreement may be amended only by agreement in writing of all parties.  No waiver of any provision nor consent to any exception to the terms of this Bill of Sale and Assignment Agreement or any agreement contemplated hereby will be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.

3.2.Further Assurances.  Each party will execute and deliver, both before and after the Closing Date, such further certificates, agreements and other documents and take such other actions as the other party may reasonably request or as may be necessary or appropriate to consummate or implement the Transactions, including to more effectively transfer the Assigned Assets, or to evidence such events or matters.

3.3.Assignment.  Neither this Bill of Sale and Assignment Agreement nor any rights or obligations under it are assignable by one party without the prior written consent of the other party.

3.4.Descriptive Headings.  The descriptive headings of the sections and subsections of this Bill of Sale and Assignment Agreement are for convenience only and do not constitute a part of this Bill of Sale and Assignment Agreement.

3.5.Counterparts.  This Bill of Sale and Assignment Agreement and any amendment hereto or any other agreement delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts.  All counterparts will constitute one and the same agreement and will become effective when one or more counterparts have been signed by each party and delivered to the other party.  A facsimile signature page will be deemed an original.

3.6.Governing Laws.  This Bill of Sale and Assignment Agreement and the legal relations between the parties will be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State and without regard to conflicts of law doctrines unless certain matters are preempted by federal law.

3.7.Waiver.  No failure on the part of any party to exercise or delay in exercising any right hereunder will be deemed a waiver thereof, nor will any single or partial exercise preclude any further or other exercise of such or any other right.

3.8.Representation By Counsel; Interpretation.  The parties each acknowledge that each has been represented by counsel in connection with this Bill of Sale and Assignment Agreement and the transactions contemplated by the Asset Purchase Agreement.  Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Bill of Sale and Assignment Agreement against the party that drafted it has no application and is expressly waived.  The provisions of this Agreement will be interpreted in a reasonable manner to effect the intent of the parties hereto.

3.9.Severability.  If any provision of this Bill of Sale and Assignment Agreement is held to be unenforceable for any reason, it will be adjusted rather than voided, if possible, to achieve the intent of the parties.  All other provisions of this Bill of Sale and Assignment Agreement will be deemed valid and enforceable to the extent possible.

[signature page to follow]

2

IN WITNESS WHEREOF, Aradigm and Purchaser have caused this Bill of Sale and Assignment Agreement to be duly executed as of the day and year first above written.

PURCHASER:				ARADIGM:
SJ2 THERAPEUTICS, INC.				ARADIGM CORPORATION
By:	/s/			By:	/s/
Name:			Stephen J. Farr	Name:			T.C. Chesterman
Title:		President		Title:		SVP & CFO

IN WITNESS WHEREOF, Aradigm and Purchaser have caused this Bill of Sale and Assignment Agreement to be duly executed as of the day and year first above written.

PURCHASER:				ARADIGM:
SJ2 THERAPEUTICS, INC.				ARADIGM CORPORATION
By:	/s/			By:
Name:			Stephen J. Farr	Name:
Title:		President		Title:

EXHIBIT F

Assumed Liabilities

1.All obligations under Assumed Contracts, other than obligations due and owing as of the date of the Agreement to Third Parties that are parties to such Assumed Contracts.

2.Liabilities (other than Excluded Liabilities) incurred in the use of the Assigned Assets following the Closing Date.

3.See attached list for additional items.

[***]

*** 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.

EXHIBIT G

Transfer Plan

[***]

*** 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.

EXHIBIT H

Transitional Services Agreement

[Attached]

[ARADIGM LETTERHEAD]

August 25,  2006

SJ2 Therapeutics, Inc.

Re:Transition Services

Ladies and Gentlemen:

SJ2 Therapeutics, Inc. (“SJ2”) and Aradigm Corporation (“Aradigm”) are entering into an Asset Purchase Agreement (the “APA”) dated as of the date of this letter (the “Effective Date”), which, among other things, provides for the sale to SJ2 of certain Aradigm assets related to the development, manufacture, and commercialization of Aradigm’s Intraject Delivery System.

1.Services.  On the terms and subject to the conditions contained herein, Aradigm shall provide, or shall cause third parties designated or hired by it (such designated third parties, together with Aradigm, the “Service Providers”) to provide to SJ2 the following services (collectively, the “Services”) for the time period through December 31, 2006 (“Expiration Date”):

(a)General information technology services and support (e.g., e-mail access, computer equipment and software support, network access and support to SJ2’s server only, and other general computer technologies support) within Aradigm’s current systems and procedures until SJ2 vacates Aradigm’s facilities or the Expiration date, which ever is earlier,

(b)Telephone and fax services and support,

(c)Aradigm will provide SJ2 with document control support for the activities documented in Aradigm’s current document control processes, using Aradigm’s Document Control System (DCS) database.  Aradigm has assumed that SJ2 will purchase the DCS on or shortly after the Effective Date.  It is Aradigm’s intention to hire a temporary senior level Document Control Specialist, on or shortly after the Effective Date, who will be fully funded by SJ2, to allow Aradigm’s current document control personnel to provide document control support to SJ2 consistent with Aradigm’s current Document Control processes.  If Aradigm is unable to hire a temporary senior level Document Control Specialist, or should the temporary employee hired leave Aradigm for any reason, Aradigm will not be able to provide the services described in this section 1(c).

(d)Human resources services and support for Aradigm consultants transferring to SJ2,

(e)Payment for individual Aradigm consultants transferring to SJ2,

1

(f)Technical consulting as available and approved in writing by both parties,

(g)Office facilities, furnishings, and services (e.g., utilities, maintenance, mail, etc.), and

(h)Such other services as Aradigm and SJ2 may agree to as set forth in paragraph 4.

2.Current Invoices.  Exhibit A to this letter contains an invoice for transitional services provided by Aradigm to SJ2 through the months of July and August 2006.  The parties acknowledge that a secondary invoice will be provided to SJ2 relating to transitional service provided at the time of closing Aradigm’s August accounting records.  As Aradigm’s August accounting records have not been closed as of the Effective Date,

3.Term of Agreement.  Except for the services performed prior to the Effective Date as referenced in paragraph 2, all services to be provided under this Agreement shall begin as of the Effective Date and shall terminate on the Expiration Date.  Aradigm and SJ2 will negotiate in good faith if SJ2 needs to extend the term of this letter and/or any provision of any Service beyond the Expiration Date (and the parties hereby acknowledge that the negotiation of any such extension may involve a renegotiation of the charges with respect to any such Services).  This letter may be extended upon the mutual agreement of the parties hereto in writing, either in whole or with respect to one or more of the Services; provided that, such extension shall only apply to the specific Services for which this letter was extended.  Services shall be provided up to and including the applicable Expiration Date, subject to earlier termination as provided in this letter.

4.Additional Services.  From time to time after the Effective Date, Aradigm and SJ2 may identify and mutually agree upon additional services to be provided to SJ2 in accordance with the terms of this letter (the “Additional Services”).  At such times, the parties shall execute an addendum to this Agreement setting forth a description of any Additional Service, the time period during which such Additional Service will be provided, the charge for such Additional Service and any other terms applicable.  Aradigm and SJ2 acknowledge that charges for Additional Services will include a profit margin consistent with industry standards for the provision of similar services.  Additional Services may include, but shall not be limited to, regulatory consulting for the Intraject Sumatriptan NDA, clinical training of the CRO selected to conduct the Intraject bioequivalence study, submission of the Intraject Sumatriptan IND on behalf of SJ2 and assistance with R&D efforts.

5.Provision of Services.  Aradigm will use commercially reasonable efforts to ensure that employees and Service Providers are available to perform its obligations hereunder.  Aradigm shall provide the Services in accordance with the policies, procedures and practices in effect as of immediately prior to the Effective Date.  Aradigm and SJ2 will use their commercially reasonable efforts to promote a smooth and efficient transition of operations.

2

6.No Warranties.  ARADIGM WILL USE COMMERCIALLY REASONABLE EFFORTS TO CAUSE THE SERVICES TO BE PERFORMED IN A PROFESSIONAL AND COMPETENT MANNER; HOWEVER, ARADIGM DOES NOT MAKE ANY WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, BUSINESS CONTINUITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES, MATERIALS OR OTHER DELIVERABLES PROVIDED, OR CAUSED TO BE PROVIDED, BY IT UNDER THIS LETTER.

7.Transition to SJ2 Systems and Personnel.  During the term of this letter, Aradigm will use reasonable efforts to provide to SJ2, at SJ2’s expense, consultation, assistance and information as reasonably requested by SJ2, and will otherwise perform the Services, so as to effect a smooth transition from SJ2’s utilization of Aradigm’s systems and personnel to SJ2’s utilization of its own systems and personnel in connection with the development of the Intraject Delivery System prior to the termination or expiration of this letter.

8.Payments.  SJ2 shall pay Aradigm on a monthly basis for documented actual charges for the performance of the Services.  Aradigm will invoice SJ2 for its representatives’ activities using an hourly rate based on salary, benefits and overhead of the Aradigm representatives performing the Services.  Aradigm will not apply a profit to its representatives’ hourly rates through the Expiration Date.

9.Discontinuation of Services.  If SJ2 chooses to discontinue any Service prior to the Expiration Date, SJ2 shall give at least 30 days prior written notice, of its intent to terminate this letter as to that particular Service, which termination as to that particular service shall be effective on the last day of the month on which the 30 days prior written notice lapses.  SJ2 will pay Aradigm hereto the fees and costs of any terminated Service up until the effective date of termination of such Service.

10.Termination.  Notwithstanding anything to the contrary contained in this letter, this letter may be terminated, in whole or in part, at any time:  (a) by the mutual consent of SJ2 and Aradigm; or (b) by either SJ2 or Aradigm in the event of any material breach or default by the other party of any of its obligations under this letter and the failure of such defaulting party to cure, or to take substantial steps towards the curing of, such breach or default within 14 days after receipt of written notice from the non-defaulting party requesting such breach or default to be cured.

11.No Implied Responsibilities or Obligations.  NO PARTY HERETO ASSUMES ANY RESPONSIBILITY OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS LETTER OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES.  NOTWITHSTANDING ANYTHING CONTAINED IN THIS LETTER TO THE CONTRARY, IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE,

3

BUSINESS INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES.

12.Independent Contractors.  The relationship between SJ2 and Aradigm established under this letter is that of independent contractors and no party shall be deemed an employee, agent, partner, or joint venturer of or with the other.  Each Service Provider will be solely responsible for any employment-related taxes, insurance premiums or other employment benefits respecting its personnel’s performance of any Services.  SJ2 agrees to grant to any applicable Service Provider’s personnel reasonable access to sites, systems and information as necessary for the Service Provider to perform its obligations under this letter.  The personnel of SJ2 and Aradigm shall agree to obey any and all security regulations and other published policies of the other party relevant to the provision or receipt of any Services.

13.Confidentiality.  Any information from time to time communicated or delivered by SJ2 or Aradigm to the other party, including without limitation trade secrets, business methods, and cost, supplier, manufacturing and customer information, shall be treated by SJ2 and Aradigm, respectively, as confidential information of the other party, and shall not be disclosed or revealed to any third party whatsoever or used in any manner except as expressly provided for in this letter; provided, however that such confidential information shall not be subject to the restrictions and prohibitions set forth in this paragraph 13 to the extent that such confidential information:  (a) is available to the public in public literature or otherwise, or after disclosure by one party to the other becomes public knowledge through no default of the party receiving such confidential information; or (b) was known to the party (as demonstrated by the written records of such party) receiving such confidential information with no obligation to maintain confidentiality prior to the receipt of such confidential information by such party, whether received before or after the date of this letter; or (c) is obtained by the party receiving such confidential information from a third party not subject to a requirement of confidentiality with respect to such confidential information.  For the avoidance of doubt, information will not be considered to be available to the public, in the public literature, or in the prior possession of the receiving party merely because individual elements thereof are available to the public, in the public literature, or in the prior possession of the receiving party, unless the combination of such elements is available to the public, in the public literature, or in the prior possession of the receiving party.  SJ2 and Aradigm shall take all such precautions as it normally takes with its own confidential information to prevent any improper disclosure of such confidential information to any third party; provided that, such confidential information may be disclosed:  (x) pursuant to any order of a court or government entity having jurisdiction and power to order such information to be released or made public; (y) within the limits required to obtain any authorization from any governmental or regulatory agency; or (z) with the prior written consent of the other party, which shall not be unreasonably withheld, as may otherwise be required in connection with the purposes of this letter.

14.Access to Aradigm Computer Systems.  If SJ2 is given access to any computer equipment, computer, software, network, electronic files, or electronic data storage system owned or controlled by Aradigm (“Aradigm Computer Systems”), then

4

SJ2 shall limit access and use of such Aradigm Computer Systems solely to receive Services under this letter and shall not access, attempt to access or use any Aradigm Computer Systems, other than those specifically required to receive the Services.  All user identification numbers and passwords disclosed to SJ2 and any of Aradigm’s confidential information obtained by SJ2 as a result of its access to and use of any such Aradigm Computer Systems shall be deemed to be, and shall be treated as, Aradigm’s confidential information under applicable provisions of this letter.  SJ2 agrees to cooperate with Aradigm in the investigation of any apparent unauthorized access by SJ2 or its representatives to any Aradigm Computer Systems, or any apparent unauthorized release of Aradigm’s confidential information by the employees, contractors or advisers of SJ2.

15.Indemnification.  SJ2 indemnifies Aradigm and its affiliates against, and agrees to hold each of them harmless from, any and all damage, loss, liability and expense (including reasonable expenses of investigation and reasonable attorneys’ fees and any incidental, indirect or consequential damages, losses, liabilities or expenses) (“Damages”) incurred or suffered by Aradigm or any of its affiliates (other than Damages incurred or suffered by Aradigm or any of its affiliates arising from any claims made by employees of Aradigm) that arise from any third-party claim for personal injury or damage to property based upon the performance of the Services by any of Aradigm’s employees, except to the extent such third-party claim arises out of such employee’s negligence, willful misconduct or breach of obligations under this letter.  Aradigm indemnifies SJ2 and its affiliates against, and agrees to hold each of them harmless from, any and all Damages incurred or suffered by SJ2 or any of its affiliates (other than Damages incurred or suffered by SJ2 or any of its affiliates arising from any claims made by employees of SJ2) that arise from any third-party claim for personal injury or damage to property based upon actions by any of SJ2’s employees under the terms of this letter, except to the extent such third-party claim arises out of such employee’s negligence, willful misconduct or breach of obligations under this letter.

16.Existing Ownership Rights Unaffected.  Neither SJ2 nor Aradigm will gain, by virtue of this letter, any rights or ownership of copyrights, patents, know-how, trade secrets, trademarks or any other intellectual property rights owned by the other party.

17.Dispute Resolution.  All disputes arising out of this letter shall be settled as far as possible by negotiations between SJ2 and Aradigm.  If SJ2 and Aradigm cannot agree on an amicable settlement within 30 days from written submission of the matter by one party to the other, the matter shall be shall be settled by binding arbitration in the County of Hayward in the State of California in accordance with the Commercial Arbitration Rules then in effect of JAMS/Endispute.  Arbitration will be conducted by one arbitrator, mutually selected by SJ2 and Aradigm.  If Aradigm and SJ2 fail to mutually select an arbitrator within 15 days following the submission of the matter to JAMS/Endispute, then arbitration will be conducted by three arbitrators:  one selected by Aradigm; one selected by SJ2; and the third selected by the first two arbitrators.  If SJ2 or Aradigm fails to select an arbitrator within ten days following the expiration of the initial 15 day period, then the other shall be entitled to select the second arbitrator.  SJ2 and

5

Aradigm agree to use all reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the mutually selected arbitrator or the last of the three arbitrators, as the case may be, and to use all reasonable efforts to cause the decision of the arbitrators to be furnished within 95 days after the appointment of the mutually selected arbitrator or the last of the three arbitrators, as the case may be.  SJ2 and Aradigm further agree that discovery shall be completed at least 10 days prior to the date of the arbitration hearing.  The final decision of the arbitrators shall be furnished to SJ2 and Aradigm in writing and shall constitute a conclusive determination of the issues in question, binding upon SJ2 and Aradigm and shall not be contested by any of them.  The non-prevailing party in any arbitration shall pay the reasonable expenses (including attorneys’ fees) of the prevailing party and the fees and expenses associated with the arbitration (including the arbitrators’ fees and expenses).  For purposes of this paragraph 17, the non-prevailing party shall be determined solely by the arbitrators.

18.No Third Party Beneficiaries.  This letter shall not confer any rights or remedies upon any person or entity other than SJ2 or Aradigm and their respective successors and permitted assigns.

19.Counterparts and Facsimile Signature.  This letter may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  This letter may be executed by facsimile signature.

20.Notices.  All notices and other communications under this letter will be in writing and deemed to have been duly given if given in accordance with Section 6.11 of the APA.

21.Successors and Assigns.  The provisions of this letter shall be binding upon and inure to the benefit of SJ2 and Aradigm and their respective successors and assigns; provided, however, that except as expressly provided in this letter, no party may assign, delegate or otherwise transfer any of its rights or obligations under this letter without the consent of each other party.

[The remainder of this page is left intentionally blank; signature page follows]

6

If you are in agreement with the terms of this letter, please execute this letter where indicated below and return a copy of the signed letter to Aradigm.

			ARADIGM CORPORATION
			By:	/s/
			Name:		T.C. Chesterman
			Title:		SVP & CEO
ACCEPTED AND AGREED TO:
SJ2 THERAPEUTICS, INC.
By:	/s/
Name:		Stephen J. Farr
Title:		President

7

EXHIBIT I

Intraject Delivery System

[***]

*** 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.

EXHIBIT J

Nontransferable Assets

None.

EX-10.8

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.8

OFFICE LEASE

BETWEEN

EMERY STATION JOINT VENTURE, LLC (LANDLORD)

AND

ZOGENIX, INC., (TENANT)

EMERYSTATION

Emeryville, California

ARTICLE 1 BASIC LEASE PROVISIONS			1
	1.1	BASIC LEASE PROVISIONS	1
	1.2	ENUMERATION OF EXHIBITS AND RIDER	2
	1.3	DEFINITIONS	2
ARTICLE 2 PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING			6
	2.1	LEASE OF PREMISES	6
	2.2	TERM	6
	2.3	FAILURE TO GIVE POSSESSION	6
	2.4	CONDITION OF PREMISES	7
	2.5	PARKING	7
	2.6	RIGHT OF FIRST OFFER	8
	2.7	EARLY ACCESS	8
	2.8	COMPLIANCE WITH LAWS	9
ARTICLE 3 RENT			9
ARTICLE 4 RENT ADJUSTMENTS AND PAYMENTS			9
	4.1	RENT ADJUSTMENTS	9
	4.2	STATEMENT OF LANDLORD	10
	4.3	BOOKS AND RECORDS	10
	4.4	TENANT OR LEASE SPECIFIC TAXES	11
ARTICLE 5 SECURITY DEPOSIT			11
ARTICLE 6 SERVICES			12
	6.1	LANDLORD'S GENERAL SERVICES	12
	6.2	ELECTRICAL SERVICES	12
	6.3	ADDITIONAL AND AFTER HOUR SERVICES	13
	6.4	TELEPHONE SERVICES	13
	6.5	DELAYS IN FURNISHING SERVICES	14
	6.6	CHOICE OF SERVICE PROVIDER	14
	6.7	SIGNAGE	14
ARTICLE 7 POSSESSION, USE AND CONDITION OF PREMISES			15
	7.1	POSSESSION AND USE OF PREMISES	15
	7.2	LANDLORD ACCESS TO PREMISES; APPROVALS	23
	7.3	QUIET ENJOYMENT	24
ARTICLE 8 MAINTENANCE			24
	8.1	LANDLORD'S MAINTENANCE	24
	8.2	TENANT'S MAINTENANCE	24
ARTICLE 9 ALTERATIONS AND IMPROVEMENTS			25
	9.1	TENANT ALTERATIONS	25
	9.2	LIENS	26
ARTICLE 10 ASSIGNMENT AND SUBLETTING			26
	10.1	ASSIGNMENT AND SUBLETTING	26
	10.2	RECAPTURE	27
	10.3	EXCESS RENT	28
	10.4	TENANT LIABILITY	28
	10.5	ASSUMPTION AND ATTORNMENT	28
ARTICLE 11 DEFAULT AND REMEDIES			29
	11.1	EVENTS OF DEFAULT	29
	11.2	LANDLORD'S REMEDIES	29
	11.3	ATTORNEY'S FEES	31
	11.4	BANKRUPTCY	31
	11.5	LANDLORD'S DEFAULT	32

i

ARTICLE 12 SURRENDER OF PREMISES			32
	12.1	IN GENERAL	32
	12.2	LANDLORD'S RIGHTS	33
ARTICLE 13 HOLDING OVER			33
ARTICLE 14 DAMAGE BY FIRE OR OTHER CASUALTY			33
	14.1	SUBSTANTIAL UNTENANTABILITY	33
	14.2	INSUBSTANTIAL UNTENANTABILITY	34
	14.3	RENT ABATEMENT	35
	14.4	WAIVER OF STATUTORY REMEDIES	35
ARTICLE 15 EMINENT DOMAIN			35
	15.1	TAKING OF WHOLE OR SUBSTANTIAL PART	35
	15.2	TAKING OF PART	35
	15.3	COMPENSATION	35
ARTICLE 16 INSURANCE			36
	16.1	TENANT'S INSURANCE	36
	16.2	FORM OF POLICIES	36
	16.3	LANDLORD'S INSURANCE	36
	16.4	WAIVER OF SUBROGATION	37
	16.5	NOTICE OF CASUALTY	37
ARTICLE 17 WAIVER OF CLAIMS AND INDEMNITY			37
	17.1	WAIVER OF CLAIMS	37
	17.2	INDEMNITY BY TENANT	38
ARTICLE 18 RULES AND REGULATIONS			38
	18.1	RULES	38
	18.2	ENFORCEMENT	38
ARTICLE 19 LANDLORD'S RESERVED RIGHTS			39
ARTICLE 20 ESTOPPEL CERTIFICATE			39
	20.1	IN GENERAL	39
	20.2	ENFORCEMENT	39
ARTICLE 21 RELOCATION OF TENANT			40
ARTICLE 22 REAL ESTATE BROKERS			40
ARTICLE 23 MORTGAGEE PROTECTION			40
	23.1	SUBORDINATION AND ATTORNMENT	40
	23.2	MORTGAGEE PROTECTION	41
ARTICLE 24 NOTICES			41
ARTICLE 25 MISCELLANEOUS			42
	25.1	LATE CHARGES	42
	25.2	NO JURY TRIAL; VENUE; JURISDICTION	42
	25.3	DEFAULT UNDER OTHER LEASE	43
	25.4	OPTION	43
	25.5	TENANT AUTHORITY	43
	25.6	ENTIRE AGREEMENT	43
	25.7	MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE	43
	25.8	EXCULPATION	43
	25.9	ACCORD AND SATISFACTION	43
	25.10	LANDLORD'S OBLIGATIONS ON SALE OF BUILDING	44
	25.11	BINDING EFFECT	44
	25.12	CAPTIONS	44
	25.13	TIME; APPLICABLE LAW; CONSTRUCTION	44
	25.14	ABANDONMENT	44
	25.15	LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES	45

ii

25.16	SECURITY SYSTEM	45
25.17	NO LIGHT, AIR OR VIEW EASEMENTS	45
25.18	RECORDATION	45
25.19	SURVIVAL	45
25.20	RIDERS	45

iii

OFFICE LEASE

ARTICLE 1
BASIC LEASE PROVISIONS

1.1    BASIC LEASE PROVISIONS

        In the event of any conflict between these Basic Lease Provisions and any other Lease provision, such other Lease provision shall control.

(1)

BUILDING AND ADDRESS:

EmeryStation
5858 Horton Street
Emeryville, California 94608

(2)

LANDLORD AND ADDRESS:

Emery Station Joint Venture, LLC
c/o Wareham Development Corporation
1120 Nye Street, Suite 400
San Rafael, California 94901

(3)

TENANT AND CURRENT ADDRESS:

(a) Name: Zogenix, Inc.

(b) State of formation: Delaware

Notices to Tenant shall be addressed:

At the Premises:
Attention: Manager

(4)

DATE OF LEASE: as of October 31, 2006



(5)

LEASE TERM: 24 months



(6)

PROJECTED COMMENCEMENT DATE^*: Upon Substantial Completion of the Landlord Work which is estimated to be November 15, 2006



(7)

PROJECTED EXPIRATION DATE: The last day of the 24th calendar month after the Commencement Date which is estimated to be November 14, 2008.



(8)

MONTHLY BASE RENT:

        *      Landlord and Tenant agree that the Lease Term shall commence upon the earlier to occur of Tenant's opening for business in the space or November 15, 2006, so long as the carpet cleaning and touch-up painting are complete by then. The balance of Landlord's work will be done promptly following Tenant's occupancy of the Premises.

PERIOD FROM/TO	MONTHLY
Months 1-12	$	10,823.80
Months 13-24	$	11,148.51

        The Base Rent for the first month of the Term shall be paid upon Lease Execution

(9)

RENTABLE AREA OF THE PREMISES: 4,163 square feet

1

(10)

BASE YEAR: 2007



(11)

SUITE NUMBER OF PREMISES: 455



(12)

TENANT'S USE OF PREMISES: General office and related uses, any other lawful uses compatible with the dignity and character of the Building ("Use"). Tenant acknowledges and understands that the Premises are served with Building Standard office HVAC and not with 100% outside air.



(13)

PARKING: Up to 12 parking spaces on a "premium" and "non-premium" basis. "Premium" parking spaces ("Premium Spaces") are located in the Building and "non-premium" parking spaces ("Regular Spaces") are located adjacent to the Building in the Terraces Garage. Tenant shall be allocated the use of 3 Premium Spaces and 9 Regular Spaces. Tenant shall pay Landlord's quoted rates for such Premium Spaces and Regular Spaces, which as of the date hereof are $100 / month for Premium Spaces and $75 / month for Regular Spaces. Upon sixty (60) days advance notice to Tenant, Landlord may re-locate the Regular Spaces to an adjacent garage(s) or adjacent surface lot(s). To the extent available, Tenant shall be permitted to lease additional Premium Spaces on a monthly basis; provided, however, upon thirty (30) days advance notice to Tenant, Landlord shall have the right to re-allocate such additional Premium Spaces to Regular Spaces.



(14)

SECURITY DEPOSIT: $22,297.02



(15)

BROKERS:

Landlord's Broker:	CB Richard Ellis 155 Grand Avenue Oakland, California 94612 Attention: Mike Raffetto
Tenant's Broker:	Garrett Krueger at Aegis Realty

1.2    ENUMERATION OF EXHIBITS AND RIDER

        The Exhibits and Rider set forth below and attached to this Lease are incorporated in this Lease by this reference:

EXHIBIT A	Plan of Premises
EXHIBIT B	Intentionally omitted
EXHIBIT C-1	Laboratory Rules and Regulations
EXHIBIT C-2	Rules and Regulations
RIDER 1	Commencement Date Agreement

1.3    DEFINITIONS

        For purposes hereof, the following terms shall have the following meanings:

        AFFILIATE: Any corporation or other business entity that is currently owned or controlled by, owns or controls, or is under common ownership or control with Tenant.

        BUILDING: The building located at the address specified in Section 1.1. The Building includes office, lab, retail and other uses.

        COMMENCEMENT DATE: The date specified in Section 1.1 as the Projected Commencement Date, unless changed by operation of Article Two.

2

        COMMON AREAS: All areas of the Project made available by Landlord from time to time for the general common use or benefit of the tenants of the Building, and their employees and invitees, or the public, as such areas currently exist and as they may be changed from time to time.

        DECORATION: Tenant Alterations which do not require a building permit and which do not involve any of the structural elements of the Building, or any of the Building's systems, including its electrical, mechanical, plumbing, security, heating, ventilating, air-conditioning, communication, and fire and life safety systems.

        DEFAULT RATE: Two (2) percentage points above the rate then most recently announced by Bank of America N.T.&S.A. at its San Francisco main office as its base lending reference rate, from time to time announced, but in no event higher than the maximum rate permitted by Law.

        EXPIRATION DATE: The date specified in Section 1.1, as determined under Article Two.

        FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion, strike or labor troubles, or any cause whatsoever beyond the reasonable control of Landlord, including water shortages, energy shortages or governmental preemption in connection with an act of God, a national emergency, or by reason of Law, or by reason of the conditions of supply and demand which have been or are affected by act of God, war or other emergency.

        INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the Property, the property manager and the leasing manager for the Property and their respective partners, members, directors, officers, agents and employees.

        LAND: The parcel(s) of real estate on which the Building and Project are located.

        LANDLORD WORK: The construction or installation of improvements to the Premises, to be furnished by Landlord, as specifically described in the Lease or exhibits attached hereto.

        LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements, orders, rulings or decisions adopted or made by any governmental body, agency, department or judicial authority having jurisdiction over the Property, the Premises or Tenant's activities at the Premises and any covenants, conditions or restrictions of record which affect the Property.

        LEASE: This instrument and all exhibits and riders attached hereto, as may be amended from time to time.

        LEASE YEAR: The twelve month period beginning on the Commencement Date and each subsequent twelve month, or shorter (if applicable), period until the Expiration Date.

        MONTHLY BASE RENT: The monthly rent specified in Section 1.1.

        MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument encumbering the Property.

        NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and other holidays recognized by the Landlord and the janitorial and other unions servicing the Building in accordance with their contracts.

        OPERATING EXPENSES: All costs, expenses and disbursements of every kind and nature which Landlord shall pay or become obligated to pay in connection with the ownership, management, operation, maintenance, replacement and repair of the Building and the Property (including, without limitation, property management fees, costs and expenses, and the amortized portion of any capital expenditure or improvement, together with interest thereon, and the costs of changing utility service providers). Operating Expenses shall not include, (i) costs of alterations of the premises of tenants of the Project, (ii) costs of capital improvements to the Project (except for amortized portion of capital improvements installed for the purpose of reducing or controlling Operating Expenses or complying

3

with applicable Laws), (iii) depreciation charges, (iv) interest and principal payments on loans (except for loans for capital improvements which Landlord is allowed to include in Operating Expenses as provided above), (v) ground rental payments, (vi) real estate brokerage and leasing commissions, (vii) advertising and marketing expenses, (viii) costs of Landlord reimbursed by insurance proceeds, (ix) expenses incurred in negotiating leases of tenants in the Project or enforcing lease obligations of tenants in the Project, (x) Landlord's general corporate overhead, (xi) any cost incurred in connection with upgrading the Building to comply with insurance requirements, life safety codes, ordinances, statutes, or other Laws in effect prior to the Commencement Date, (xii) any costs incurred in connection with correction of any defects in design or construction of the Building including any capital improvements referenced in clause (ii) above, and (xiii) any costs incurred by Landlord for the repair of damage to the Building caused by fire, windstorm, earthquake or other casualty, condemnation or eminent domain to include terrorism or environmental other than commercially reasonable deductibles. If any Operating Expense, though paid in one year, relates to more than one calendar year, at the option of Landlord such expense may be proportionately allocated among such related calendar years. Operating Expenses for the Building that are not, in Landlord's reasonable discretion, allocable solely to either the lab, office or retail portion of the Building shall be equitably allocated by Landlord between such uses.

        PREMISES: The space located in the Building at the Suite Number listed in Section 1.1 and depicted on Exhibit A attached hereto.

        PROJECT or PROPERTY: The Project consists of the office building with ground floor office and/or retail spaces located at the street address specified in Section 1.1 in Emeryville, California, associated surface and garage parking as designated by Landlord from time to time, landscaping and improvements, together with the Land, any associated interests in real property, and the personal property, fixtures, machinery, equipment, systems and apparatus located in or used in conjunction with any of the foregoing. The Project may also be referred to as the Property.

        REAL PROPERTY: The Property excluding any personal property.

        RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment Deposits, and all other charges, payments, late fees or other amounts required to be paid by Tenant under this Lease.

        RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses or Taxes. The Rent Adjustments shall be determined and paid as provided in Article Four.

        RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent Adjustment attributable to each month of the applicable Lease Year. On or before the beginning of each Lease Year or with Landlord's Statement (defined in Article Four), Landlord may estimate and notify Tenant in writing of its estimate of the Operating Expenses and of Taxes for such Lease Year. Prior to the first determination by Landlord of the amount of Operating Expenses and of Taxes for the first Lease Year, Landlord may estimate such amounts in the foregoing calculation. The last estimate by Landlord shall remain in effect as the applicable Rent Adjustment Deposit unless and until Landlord notifies Tenant in writing of a change, which notice may be given by Landlord from time to time during a Lease Year.

        RENTABLE AREA OF THE BUILDING: The amount of occupiable square footage in the Building as reasonably determined by Landlord from time to time.

        RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section 1.1.

        SECURITY DEPOSIT: The funds specified in Section 1.1, if any, deposited by Tenant with Landlord as security for Tenant's performance of its obligations under this Lease.

        STANDARD OPERATING HOURS: Monday through Friday from 8:00 A.M. to 6:00 P.M. and Saturdays from 9:00 A.M. to 1:00 P.M., excluding National Holidays.

4

        SUBSTANTIALLY COMPLETE or SUBSTANTIAL COMPLETION: The completion of the Landlord Work, except for minor insubstantial details of construction, decoration or mechanical adjustments which remain to be done.

        TAXES: All federal, state and local governmental taxes, assessments and charges of every kind or nature, whether general, special, ordinary or extraordinary, which Landlord shall pay or become obligated to pay because of or in connection with the ownership, leasing, management, control, sale or transfer or operation of the Property or any of its components (including any personal property used in connection therewith), which may also include any rental or similar taxes levied in lieu of or in addition to general real and/or personal property taxes. For purposes hereof, Taxes for any year shall be Taxes which are assessed for any period of such year, whether or not such Taxes are billed and payable in a subsequent calendar year. There shall be included in Taxes for any year the amount of all fees, costs and expenses (including reasonable attorneys' fees) paid by Landlord during such year in seeking or obtaining any refund or reduction of Taxes. Taxes for any year shall be reduced by the net amount of any tax refund received by Landlord attributable to such year. If a special assessment payable in installments is levied against any part of the Property, Taxes for any year shall include only the installment of such assessment and any interest payable or paid during such year. Taxes shall not include any federal or state inheritance, general income, gift or estate taxes, except that if a change occurs in the method of taxation resulting in whole or in part in the substitution of any such taxes, or any other assessment, for any Taxes as above defined, such substituted taxes or assessments shall be included in the Taxes.

        TENANT ADDITIONS: Collectively, Landlord Work and Tenant Alterations.

        TENANT ALTERATIONS: Any alterations, improvements, additions, installations or construction in or to the Premises or any Building systems serving the Premises (excluding Landlord Work); and any supplementary air conditioning systems installed by Landlord or by Tenant at Landlord's request pursuant to Section 6.1(c).

        TENANT DELAY: Any event or occurrence that delays the completion of the Landlord Work which is caused by or is described as follows:

        (1)   special work, changes, alterations or additions requested or made by Tenant in the design or finish in any part of the Premises;

        (2)   Tenant's delay in submitting plans, supplying information, approving plans, specifications or estimates, giving authorizations or otherwise;

        (3)   the performance or completion by Tenant or any person engaged by Tenant of any work in or about the Premises; or

        (4)   failure to perform or comply with any obligation or condition binding upon Tenant including the failure to approve and pay for such Landlord Work or other items if and to the extent the Lease provides they are to be approved or paid by Tenant.

        TENANT'S SHARE: The percentage that represents the ratio of the Rentable Area of the Premises to the Rentable Area of the Building, as determined by Landlord from time to time.

        TERM: The term of this Lease commencing on the Commencement Date and expiring on the Expiration Date.

        TERMINATION DATE: The Expiration Date or such earlier date as this Lease terminates or Tenant's right to possession of the Premises terminates.

5

ARTICLE 2
PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING

2.1    LEASE OF PREMISES

        Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Term and upon the terms, covenants and conditions provided in this Lease. In the event Landlord delivers possession of the Premises to Tenant prior to the Commencement Date, Tenant shall be subject to all of the terms, covenants and conditions of this Lease (except with respect to the payment of Rent) as of the date of such possession.

2.2    TERM

        (a)   The Commencement Date shall be the date determined as follows:

        (1)   If the Landlord Work is Substantially Complete on or before the Projected Commencement Date, then on the date which is the earlier to occur of: (a) the Projected Commencement Date, or (b) the date Tenant first occupies all or part of the Premises for the conduct of business; or

        (2)   If the Landlord Work is not Substantially Complete by the Projected Commencement Date, then on the date on which the Landlord Work is Substantially Complete.

        (b)   Within thirty (30) days following the occurrence of the Commencement Date, Landlord and Tenant shall enter into an agreement (the form of which is attached hereto as Rider 1) confirming the Commencement Date and the Expiration Date. If Tenant fails to enter into such agreement, then the Commencement Date and the Expiration Date shall be the dates designated by Landlord in such agreement.

2.3    FAILURE TO GIVE POSSESSION

        If Landlord shall be unable to give possession of the Premises on the Projected Commencement Date by reason of the following: (i) the Building has not been sufficiently completed to make the Premises ready for occupancy, (ii) the Landlord Work is not Substantially Complete, (iii) the holding over or retention of possession of any tenant, tenants or occupants, or (iv) for any other reason, then Tenant shall be entitled to an abatement of rent equivalent to one (1) day of rent for each day after the Projected Commencement Date that the Commencement Date is delayed (it being acknowledged and agreed by the parties that Landlord shall not be subject to any additional liability for the failure to give possession on the Projected Commencement Date). Under such circumstances the rent reserved and covenanted to be paid herein shall not commence until the Premises are made available to Tenant by Landlord and any such rent abatement periods have expired, and no such failure to give possession on the Projected Commencement Date shall affect the validity of this Lease or the obligations of the Tenant hereunder. The Lease shall be amended so that the Term shall be extended by the period of time possession is delayed. The Premises shall be deemed to be ready for Tenant's occupancy in the event Landlord's Work is Substantially Complete, or if the delay in the availability of the Premises for occupancy shall be due to any Tenant Delay and/or default on the part of Tenant. In the event of any dispute as to whether the Landlord Work is Substantially Complete or whether the delay was caused by a Tenant Delay or a default by Tenant, the parties shall agree on a neutral third party to resolve such dispute and the decision of such third party shall be final and binding on the parties. Notwithstanding anything to the contrary herein, if the Landlord shall be unable to give possession of the Premises within thirty (30) days after the Projected Commencement Date (such 30-day period to be extended day-for-day by the amount of any Tenant Delay or Force Majeure), Tenant shall have the right to terminate this Lease.

6

2.4    CONDITION OF PREMISES

        Tenant shall notify Landlord in writing within thirty (30) days after the Commencement Date of any defects in the Premises claimed by Tenant or in the materials or workmanship furnished by Landlord in completing the Landlord Work. Landlord Work shall consist of:

•

Install VCT and a standard sink in the back work room;



•

Touch up paint and clean existing carpets as needed; and

        Except for defects stated in such notice, Tenant shall be conclusively deemed to have accepted the Premises "AS IS" in the condition existing on the date Tenant first takes possession, and to have waived all claims relating to the condition of the Premises. Landlord shall proceed diligently to correct the defects stated in such notice unless Landlord disputes the existence of any such defects. In the event of any dispute as to the existence of any such defects, the decision of a neutral third party to be appointed by the parties shall be final and binding on the parties. No agreement of Landlord to alter, remodel, decorate, clean or improve the Premises or the Real Property and no representation regarding the condition of the Premises or the Real Property has been made by or on behalf of Landlord to Tenant, except as may be specifically stated in this Lease.

        During the Lease Term, Tenant shall be entitled to use free of charge any extra office furniture and other such furnishings, fixtures and equipment ("FF&E") as Landlord or Wareham Development Corporation may have available. In the event there is any FF&E in the Premises upon the Commencement Date, at Tenant's request, within thirty (30) days from such date, Landlord shall remove such FF&E at Landlord's sole cost and expense. It shall be Tenant's obligation to arrange for any moving and assembly of any FF&E it chooses to use. Tenant shall have the obligation to maintain and repair any such FF&E during the Term, either returning it to storage or leaving it in the Premises upon termination of the Lease, as Landlord so directs at the time.

2.5    PARKING

        During the Term, Tenant may use the number of spaces specified in Section 1.1 for parking at the standard prevailing monthly rates being charged from time to time by Landlord or its parking operator without regard to discounts provided to any other occupants of the Buildings (currently $75.00 per stall per month for Regular Spaces and $100 per stall per month for Premium Spaces). In the event Tenant fails at any time to pay the full amount of such parking charges, Tenant's parking rights shall be reduced to the extent of Tenant's failure to pay for any such parking. Parking space locations within the applicable parking structures shall be designated by Landlord or Landlord's parking operator from time to time. Tenant acknowledges and agrees that the parking spaces serving the Project may include tandem parking and a mixture of spaces for compact vehicles as well as full-size passenger automobiles, and that Tenant shall not use parking spaces for vehicles larger than the striped size of the parking spaces. All vehicles utilizing Tenant's parking privileges shall prominently display identification stickers or other markers, and/or have passes or keycards for ingress and egress, as may be required and provided by Landlord or its parking operator from time to time. Tenant shall comply with any and all parking rules and regulations from time to time established by Landlord or Landlord's parking operator, including a requirement that Tenant pay to Landlord or Landlord's parking operator a charge for loss and replacement of passes, keycards, identification stickers or markers, and for any and all loss or other damage caused by persons or vehicles related to use of Tenant's parking privileges. Tenant shall not allow any vehicles using Tenant's parking privileges to be parked, loaded or unloaded except in accordance with this Section, including in the areas and in the manner designated by Landlord or its parking operator for such activities. If any vehicle is using the parking or loading areas contrary to any provision of this Section, Landlord or its parking operator shall have the right, in addition to all other rights and remedies of Landlord under this Lease, to remove or tow away the vehicle without prior

7

notice to Tenant, and the cost thereof shall be paid to Landlord within ten (10) days after notice from Landlord to Tenant.

2.6    RIGHT OF FIRST OFFER.

        (a)   Subject to the rights of other tenants pursuant to leases in effect on the Commencement Date, in the event any Available Premises (as hereinafter defined) becomes available between the start of the 7^th month and the end of 21^st month of the Term, Landlord shall first offer such Available Premises to Tenant for leasing (the "Right of First Offer"). A Right of First Offer shall be in writing and shall specify the rental price and terms and conditions on which Landlord will lease the Available Premises to Tenant.

        (b)   As used in this Section, "Available Premises" shall mean any office space between approximately 6,000 square feet and 10,000 square feet that becomes available for leasing to third parties during the Term and is located in the Building or in EmeryStation North, EmeryStation East or Heritage Square (which projects are owned by affiliates of Landlord). Space shall not be deemed to be Available Premises if an existing tenant of such space renews or extends its term with respect to such space whether pursuant to the terms of an extension right or otherwise.

        (c)   Tenant shall have ten (10) business days after receipt of a Right of First Offer to commit to the leasing of the Available Premises at the price and on the terms and conditions contained in such Right of First Offer by delivering written notice of such commitment to Landlord (the "Commitment Notice"). Landlord (or as applicable, its affiliate(s) in the event the Available Premises is in a building other than EmeryStation 1) and Tenant shall have thirty (30) days after the Landlord's receipt of a Commitment Notice to negotiate in good faith and enter into a lease for the Available Premises. Within 30 days after the execution by the parties of such new lease for the Available Premises, Tenant shall have the option of terminating this Lease so long as it provides Landlord with at least thirty (30) days prior written notice of such termination. Tenant's failure to timely deliver a Commitment Notice shall be deemed a waiver of its Right of First Offer, and Landlord (or its affiliates, as applicable) shall be permitted to lease the Available Premises to a third party at a price that is no lower than the price contained in such Right of First Offer, and on terms and conditions that are not materially more favorable than the terms and conditions contained in such Right of First Offer.

        (d)   Notwithstanding anything to the contrary contained herein, all rights of Tenant pursuant to this Section shall automatically terminate without notice and shall be of no further force and effect, whether or not Tenant has timely exercised the option granted herein, if a Default (as hereinafter defined) exists at the time of exercise of the option or at the time of commencement of the term for the Available Premises.

2.7    EARLY ACCESS.

        Tenant shall be permitted to enter the Premises prior to the Commencement Date (the "Early Access Period") for purposes of installing Tenant's cabling, security system, furniture, fixtures and equipment; provided, however, that Tenant's entry into the Premises during the Early Access Period shall be subject to and conditioned upon Tenant's coordination of such entry with Landlord and Landlord's general contractor(s) so as not to delay Substantial Completion, Tenant providing Landlord with copies of certificates of insurance, complying in all respects with the terms of this Lease for all insurance required to be provided hereunder prior to entering the Premises, and Tenant complying with such restrictions and conditions on such access which Landlord deems reasonably necessary (and Tenant acknowledges and agrees that any restrictions and conditions imposed by Landlord with the purpose of attempting to avoid any delay in the Commencement Date shall be deemed reasonable). Except as provided in this Section 2.8, such early access and the installation of such cabling, security system, furniture, fixtures and equipment shall be subject to all of the terms and conditions of this Lease. Tenant will not be obligated to pay rent during the Early Access Period. In no event shall Tenant or

8

Tenant's employees, agents, consultants, contractors or invitees interfere with any construction being undertaken by or on behalf of Landlord, nor with any inspections or issuance of final approvals by any applicable governmental authority, and if Tenant fails to cease such interference promptly after notice from Landlord specifying the nature of such interference, Landlord shall have the right to terminate Tenant's early access. Other than with respect to the gross negligence of Landlord or Landlord's agents, Tenant hereby releases and discharges Landlord and Landlord's employees, agents, consultants, contractors and manager from and against any and all claims of loss, damage or injury to persons or property, including without limitation any product inventory, which is alleged to have occurred during such period of early access. Landlord makes no representation or warranty about safety of the Premises during any period of early access, as construction and other activities may be ongoing.

2.8    COMPLIANCE WITH LAWS.

        Landlord represents and warrants that as of the Commencement Date, the Premises and Building will comply with all Laws, including, without limitation, fire, environmental, health, and safety laws, or that if they do not Landlord shall bear at its sole expense the cost of any required correction. Landlord shall, as an Operating Expense, promptly comply with all Laws to which the Premises and Building may be subject during the Term (other than compliance required by reason of Tenant's particular and unique manner of use of the Premises), including, without limitation, Laws requiring the making of any structural repairs or modifications or capital expenditures or improvements.

ARTICLE 3
RENT

        Tenant agrees to pay to Landlord at the first office specified in Section 1.1, or to such other persons, or at such other places designated by Landlord, without any prior demand therefor in immediately available funds and without any deduction or offset whatsoever, Rent, including Monthly Base Rent and Rent Adjustments in accordance with Article Four, during the Term. Monthly Base Rent shall be paid monthly in advance on the first day of each month of the Term, except that the first installment of Monthly Base Rent shall be paid by Tenant to Landlord concurrently with execution of this Lease. Monthly Base Rent shall be prorated for partial months within the Term. Unpaid Rent shall bear interest at the Default Rate from the date due until paid. Tenant's covenant to pay Rent shall be independent of every other covenant in this Lease.

ARTICLE 4
RENT ADJUSTMENTS AND PAYMENTS

4.1    RENT ADJUSTMENTS

        Tenant shall pay to Landlord Rent Adjustments with respect to each Lease Year after the Base Year as follows:

        (1)   The Rent Adjustment Deposit representing Tenant's Share of Operating Expenses for the applicable Lease Year in excess of the Base Year amount, monthly during the Term with the payment of Monthly Base Rent; and

        (2)   The Rent Adjustment Deposit representing Tenant's Share of Taxes for the applicable Lease Year in excess of the Base Year amount, monthly during the Term with the payment of Monthly Base Rent; and

9

        (3)   Any Rent Adjustments due in excess of the Rent Adjustment Deposits in accordance with Section 4.2. Rent Adjustments due from Tenant to Landlord for any Lease Year shall be Tenant's Share of Operating Expenses for such year in excess of the Tenant's Share of the Base Year Operating Expenses and Tenant's Share of Taxes for such year in excess of Tenant's Share of Base Year Taxes.

4.2    STATEMENT OF LANDLORD

        As soon as feasible after the expiration of each calendar year after the Base Year, Landlord will furnish Tenant a statement ("Landlord's Statement") showing the following:

        (1)   Operating Expenses and Taxes for the Base Year and the applicable calendar year;

        (2)   The amount of Rent Adjustments due Landlord for the last calendar year, less credit for Rent Adjustment Deposits paid, if any; and

        (3)   Any change in the Rent Adjustment Deposit due monthly in the current calendar year, including the amount or revised amount due for months preceding any such change pursuant to Landlord's Statement.

        Tenant shall pay to Landlord within thirty (30) days after receipt of such statement any amounts for Rent Adjustments then due in accordance with Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to this Section shall be credited to the Base Rent and Rent Adjustment Deposit next coming due, or promptly refunded to Tenant if the Term has already expired provided Tenant is not in default hereunder. No interest or penalties shall accrue on any amounts that Landlord is obligated to credit or refund to Tenant by reason of this Section 4.2. Landlord's failure to deliver Landlord's Statement or to compute the amount of the Rent Adjustments shall not constitute (i) a waiver by Landlord of its right to deliver such items or (ii) a release of Tenant's obligations to pay such amounts. The Rent Adjustment Deposit shall be credited against Rent Adjustments due for the applicable Lease Year. During the last complete Lease Year or during any partial Lease Year in which the Lease terminates, Landlord may include in the Rent Adjustment Deposit its estimate of Rent Adjustments which may not be finally determined until after the termination of this Lease. Tenant's obligation to pay Rent Adjustments survives the expiration or termination of the Lease.

4.3    BOOKS AND RECORDS

        Landlord shall maintain books and records showing Operating Expenses and Taxes in accordance with sound accounting and management practices, consistently applied. The Tenant or its representative (which representative shall be a certified public accountant licensed to do business in the state in which the Property is located and whose primary business is certified public accounting and who shall not be paid on a contingency basis) shall have the right, for a period of 60 days following the date upon which Landlord's Statement is delivered to Tenant, to examine the Landlord's books and records with respect to the items in the foregoing statement of Operating Expenses and Taxes during normal business hours, upon written notice, delivered at least three (3) business days in advance. If Tenant does not object in writing to Landlord's Statement within 75 days of Tenant's receipt thereof, specifying the nature of the item in dispute and the reasons therefor, then Landlord's Statement shall be considered final and accepted by Tenant. If Tenant does dispute any Landlord's Statement, Tenant shall deliver a copy of any such audit to Landlord at the time of notification of the dispute. If Tenant does not provide such notice of dispute and a copy of such audit to Landlord within such 75 day period, it shall be deemed to have waived such right to dispute Landlord's Statement. Any amount due to the Landlord as shown on Landlord's Statement, whether or not disputed by Tenant as provided herein shall be paid by Tenant when due as provided above, without prejudice to any such written exception. In no event shall Tenant be permitted to examine Landlord's records or to dispute any statement of Operating Expenses and Taxes unless Tenant has paid and continues to pay all Rent when due. Upon resolution of any dispute with respect to Operating Expenses and Taxes, Tenant shall either pay Landlord any shortfall or

10

Landlord shall credit Tenant with respect to any overages paid by Tenant. The records obtained by Tenant shall be treated as confidential and neither Tenant nor any of its representatives or agents shall disclose or discuss the information set forth in the audit to or with any other person or entity ("Confidentiality Requirement"). Tenant shall indemnify and hold Landlord harmless for any losses or damages arising out of the breach of the Confidentiality Requirement.

4.4    TENANT OR LEASE SPECIFIC TAXES

        In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand, any and all taxes payable by Landlord (other than federal or state inheritance, general income, gift or estate taxes) whether or not now customary or within the contemplation of the parties hereto: (a) upon, allocable to, or measured by the Rent payable hereunder, including any gross receipts tax or excise tax levied by any governmental or taxing body with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (c) upon the measured value of Tenant's personal property located in the Premises or in any storeroom or any other place in the Premises or the Property, or the areas used in connection with the operation of the Property, it being the intention of Landlord and Tenant that, to the extent possible, such personal property taxes shall be billed to and paid directly by Tenant; (d) resulting from Landlord Work or Tenant Alterations to the Premises, whether title thereto is in Landlord or Tenant; or (e) upon this transaction. Taxes paid by Tenant pursuant to this Section 4.5 shall not be included in any computation of Taxes payable pursuant to Sections 4.1 and 4.2.

ARTICLE 5
SECURITY DEPOSIT

        Tenant concurrently with the execution of this Lease shall pay to Landlord in immediately available funds the Security Deposit. The Security Deposit may be applied by Landlord to cure, in whole or part, any default of Tenant under this Lease, and upon notice by Landlord of such application, Tenant shall replenish the Security Deposit in full by paying to Landlord within ten (10) days of demand the amount so applied. Landlord's application of the Security Deposit shall not constitute a waiver of Tenant's default to the extent that the Security Deposit does not fully compensate Landlord for all losses, damages, costs and expenses incurred by Landlord in connection with such default and shall not prejudice any other rights or remedies available to Landlord under this Lease or by Law. Landlord shall not pay any interest on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its general accounts. The Security Deposit shall not be deemed an advance payment of Rent or a measure of damages for any default by Tenant under this Lease, nor shall it be a bar or defense of any action that Landlord may at any time commence against Tenant. In the absence of evidence satisfactory to Landlord of an assignment of the right to receive the Security Deposit or the remaining balance thereof, Landlord may return the Security Deposit to the original Tenant, regardless of one or more assignments of this Lease. Upon the transfer of Landlord's interest under this Lease, Landlord's obligation to Tenant with respect to the Security Deposit shall terminate upon transfer to the transferee of the Security Deposit, or any balance thereof, provided such transferee has assumed the obligations of the Landlord pursuant to the terms hereof. If Tenant shall fully and faithfully comply with all the terms, provisions, covenants, and conditions of this Lease, the Security Deposit, or any balance thereof, shall be returned to Tenant within thirty (30) days after Landlord recovers possession of the Premises or such longer time as may be permissible under Law. Tenant hereby waives any and all rights of Tenant under the provisions of Section 1950.7 of the California Civil Code or other Law regarding security deposits.

11

ARTICLE 6
SERVICES

6.1    LANDLORD'S GENERAL SERVICES

        (a)   Tenant shall have access to the Premises 7 days a week, 24 hours a day.

        (b)   So long as the Lease is in full force and effect and Tenant has paid all Rent then due, Landlord shall furnish the following services to the Premises, the cost of which services shall be included in Operating Expenses:

        (1)   heat, ventilation and air-conditioning ("HVAC") in the Premises during Standard Operating Hours as necessary in Landlord's reasonable judgment for the comfortable occupancy of the Premises under normal business office operations, subject to compliance with all applicable voluntary and mandatory regulations and Laws;

        (2)   tempered and cold water for lavatories in common with other tenants from the regular supply of the Building;

        (3)   customary cleaning and janitorial services in the Premises five (5) days per week, excluding National Holidays;

        (4)   electric current for general office use, including normal lighting, normal business office machines and customary janitorial service.

        (5)   washing of the outside windows in the Premises weather permitting at intervals determined by Landlord; and

        (6)   electrical and other utility services (including but not limited to natural gas, water, etc.) in the Common Areas of the Project and automatic passenger and swing/freight elevator service in common with other tenants of the Building. Freight elevator service will be subject to reasonable scheduling by Landlord and payment of Landlord's standard charges.

        (c)   If Tenant uses heat generating machines or equipment in the Premises to an extent which adversely affects the temperature otherwise maintained by the air-cooling system or whenever the occupancy or electrical load adversely affects the temperature otherwise maintained by the air-cooling system, Landlord reserves the right to install or to require Tenant to install supplementary air-conditioning units in the Premises. Tenant shall bear all costs and expenses related to the installation, maintenance and operation of such units.

        (d)   Landlord shall cause the Building to be run and maintained in a first class manner comparable to other like facilities.

        (e)   Tenant shall have access to the EmeryStation gymnasium pursuant to Landlord's Building Standard policies therefor.

6.2    ELECTRICAL SERVICES

        (a)   Landlord shall furnish to the Premises electric current for general office use, including normal lighting and normal business office machines. Notwithstanding any provision of the Lease to the contrary, without, in each instance, the prior written approval of Landlord, in Landlord's prudent business judgment, Tenant shall not: (i) make any alterations or additions to the electric equipment or systems; or (ii) install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises other than computers used in typical industry standard amounts for uses similar to the Use. Tenant's use of electric current shall at no time exceed the capacity of the wiring, feeders and risers providing electric current to the Premises or the Building. The consent of

12

Landlord to the installation of electric equipment shall not relieve Tenant from the obligation to limit usage of electricity to no more than such capacity.

        (b)   So long as the Lease is in full force and effect and Tenant has paid all Rent then due, Landlord shall furnish to the Premises replacement lamps, bulbs, ballasts and starters used in any normal Building lighting installed in the Premises, except that if the replacement or repair of such items is a result of negligence of Tenant, its employees, agents, servants, licensees, subtenants, contractors or invitees, such cost shall be paid by Tenant within ten days after notice from Landlord and shall not be included as part of Operating Expenses.

6.3    ADDITIONAL AND AFTER HOUR SERVICES

        At Tenant's written request, Landlord shall furnish additional quantities of any of the services or utilities specified in Section 6.1, if Landlord can reasonably do so, on the terms set forth herein. If Tenant shall fail to make any such payment, Landlord may, upon notice to Tenant and in addition to Landlord's other remedies under this Lease, discontinue any or all of such additional services.

6.4    TELEPHONE SERVICES

        All telegraph, telephone, and communication connections which Tenant may desire shall be subject to Landlord's prior written approval, in Landlord's reasonable discretion, and the location of all wires and the work in connection therewith shall be performed by contractors approved by Landlord and shall be subject to the direction of Landlord, except that such approval is not required as to Tenant's telephone equipment (including cabling) within the Premises and from the Premises in a route designated by Landlord to any telephone cabinet or panel provided (as existing or as installed as part of Landlord's Work, if any) on Tenant's floor for Tenant's connection to the telephone cable serving the Building so long as Tenant's equipment does not require connections different than or additional to those to the telephone cabinet or panel provided. Except to the extent of such cabling within the Premises or from the Premises to such telephone cabinet or panel, Landlord reserves the right to designate and control the entity or entities providing telephone or other communication cable installation, removal, repair and maintenance in the Building and to restrict and control access to telephone cabinets or panels, so long as such entity is competitively priced with other similar vendors. In the event Landlord designates a particular vendor or vendors to provide such cable installation, removal, repair and maintenance for the Building, Tenant agrees to abide by and participate in such program. Tenant shall be responsible for and shall pay all costs incurred in connection with the installation of telephone cables and communication wiring in the Premises, including any hook-up, access and maintenance fees related to the installation of such wires and cables in the Premises and the commencement of service therein, and the maintenance thereafter of such wire and cables; and there shall be included in Operating Expenses for the Building all installation, removal, hook-up or maintenance costs incurred by Landlord in connection with telephone cables and communication wiring serving the Building which are not allocable to any individual users of such service but are allocable to the Building generally. If Tenant fails to maintain all telephone cables and communication wiring in the Premises and such failure affects or interferes with the operation or maintenance of any other telephone cables or communication wiring serving the Building, Landlord or any vendor hired by Landlord may enter into and upon the Premises forthwith and perform such repairs, restorations or alterations as Landlord deems necessary in order to eliminate any such interference (and Landlord may recover from Tenant all of Landlord's costs in connection therewith). If required by Landlord, no later than the Termination Date Tenant shall remove all telephone cables and communication wiring installed by Tenant for and during Tenant's occupancy. Tenant agrees that neither Landlord nor any of its agents or employees shall be liable to Tenant, or any of Tenant's employees, agents, customers or invitees or anyone claiming through, by or under Tenant, for any damages, injuries, losses, expenses, claims or causes of action because of any interruption, diminution, delay or discontinuance at any time

13

for any reason in the furnishing of any telephone or other communication service to the Premises and the Building.

6.5    DELAYS IN FURNISHING SERVICES

        Tenant agrees that Landlord shall not be in breach of this Lease nor be liable to Tenant for damages or otherwise, for any failure to furnish, or a delay in furnishing, or a change in the quantity or character of any service when such failure, delay or change is occasioned, in whole or in part, by repairs, improvements or mechanical breakdowns by the act or default of Tenant or other parties or by an event of Force Majeure; provided, however, that Landlord shall use commercially reasonable efforts to minimize any damages to Tenant caused by any such failure, delay or change. No such failure, delay or change shall be deemed to be an eviction or disturbance of Tenant's use and possession of the Premises, or relieve Tenant from paying Rent or from performing any other obligations of Tenant under this Lease, without any deduction or offset. Failure to any extent to make available, or any slowdown, stoppage, or interruption of, the specified utility services resulting from any cause, including changes in service provider or Landlord's compliance with any voluntary or similar governmental or business guidelines now or hereafter published or any requirements now or hereafter established by any governmental agency, board, or bureau having jurisdiction over the operation of the Property shall not render Landlord liable in any respect for damages to either persons, property, or business, nor be construed as an eviction of Tenant or work an abatement of Rent, nor relieve Tenant of Tenant's obligations for fulfillment of any covenant or agreement hereof. Should any equipment or machinery furnished by Landlord break down or for any cause cease to function properly, Landlord shall use reasonable diligence to repair or replace same promptly, but Tenant shall have no claim for abatement of Rent or damages on account of any interruption of service occasioned thereby or resulting therefrom except, in each case, if caused by the gross negligence or willful misconduct of Landlord.

6.6    CHOICE OF SERVICE PROVIDER

        Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent permitted by applicable law, elect to change, from time to time, the company or companies which provide services (including electrical service, gas service, water, telephone and technical services) to the Building, the Premises and/or its occupants. Notwithstanding anything to the contrary set forth in this Lease, Tenant acknowledges that Landlord has not and does not make any representations or warranties concerning the identity or identities of the company or companies which provide services to the Building and the Premises or its occupants and Tenant acknowledges that the choice of service providers and matters concerning the engagement and termination thereof shall be solely that of Landlord. The foregoing provision is not intended to modify, amend, change or otherwise derogate any provision of this Lease concerning the nature or type of service to be provided or any specific information concerning the amount thereof to be provided. Tenant agrees to cooperate with Landlord and each of its service providers in connection with any change in service or provider.

6.7    SIGNAGE

        Initial Building standard signage will be installed by Landlord in the directory in the main lobby of the Building, in the listing of tenants in the elevator lobby for the floor on which the Premises is located and at Tenant's main entry door to the Premises. Any change in such initial signage shall be only with Landlord's prior written consent, shall conform to Building standard signage and shall be at Tenant's sole cost and expense.

14

ARTICLE 7
POSSESSION, USE AND CONDITION OF PREMISES

7.1    POSSESSION AND USE OF PREMISES

        (a)   Tenant shall be entitled to possession of the Premises when the Landlord Work is Substantially Complete. Tenant shall occupy and use the Premises only for the uses specified in Section 1.1 to conduct Tenant's business. Tenant shall not occupy or use the Premises (or permit the use or occupancy of the Premises) for any purpose or in any manner which: (1) is unlawful or in violation of any Law or Hazardous Material Law; (2) may be dangerous to persons or property or which may increase the cost of, or invalidate, any policy of insurance carried on the Building or covering its operations; (3) is contrary to or prohibited by the terms and conditions of this Lease or the rules of the Building set forth in Article Eighteen; or (4) would tend to create or continue a nuisance.

        (b)   Landlord shall provide Tenant with access card keys and Tenant shall place a deposit for such cards with Landlord to cover lost cards or cards which are not returned at the end of the Term.

        (c)   Landlord and Tenant acknowledge that the Americans With Disabilities Act of 1990 (42 U.S.C. §12101 et seq.) and regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time (collectively referred to herein as the "ADA") establish requirements for business operations, accessibility and barrier removal, and that such requirements may or may not apply to the Premises, the Building and the Project depending on, among other things: (1) whether Tenant's business is deemed a "public accommodation" or "commercial facility", (2) whether such requirements are "readily achievable", and (3) whether a given alteration affects a "primary function area" or triggers "path of travel" requirements. The parties hereby agree that: (a) Landlord shall be responsible for ADA Title III compliance in the Common Areas, except as provided below, (b) Landlord shall be responsible for ADA Title III compliance in the Premises with respect to the Landlord Work, (c) Tenant shall be responsible for ADA Title III compliance in the Premises except for the Landlord Work; provided, however, that Landlord shall be responsible for remedying, at Landlord's sole cost and expense, any ADA Title III non-compliance in the Premises that existed as of the Commencement Date and such cost and expense shall not constitute an Operating Expense hereunder, (d) Landlord may perform, or require that Tenant perform, and Tenant shall be responsible for the cost of, ADA Title III "path of travel" requirements triggered by Tenant Alterations in the Premises, and (e) Landlord may perform, or require Tenant to perform, and Tenant shall be responsible for the cost of, ADA Title III compliance in the Common Areas necessitated by the Building being deemed to be a "public accommodation" instead of a "commercial facility" as a result of Tenant's use of the Premises. Tenant shall be solely responsible for requirements under Title I of the ADA relating to Tenant's employees.

        (d)   Hazardous Materials.

                (1)    Definitions.    The following terms shall have the following meanings for purposes of this Lease:

        (1)   "Biohazardous Materials" means any and all substances and materials defined or referred to as a "medical waste," "biological waste," "biohazardous waste," "biohazardous material" or any other term of similar import under any Hazardous Materials Laws, including (but not limited to) California Health & Safety Code Sections 25105 et seq., and any regulations promulgated thereunder, as amended from time to time.

        (2)   "Environmental Condition" means the Release of any Hazardous Materials in, over, on, under, through, from or about the Project (including, but not limited to, the Premises).

        (3)   "Environmental Damages" means all claims, suits, judgments, damages, losses, penalties, fines, liabilities, encumbrances, liens, costs and expenses of whatever kind or nature, contingent or

15

otherwise, matured or unmatured, foreseeable or unforeseeable, arising out of or in connection with any Environmental Condition, including, to the extent arising out of an Environmental Condition, without limitation: (A) damages for personal injury, or for injury to Project or natural resources occurring on or off the Project, including without limitation (1) any claims brought by or on behalf of any person, (2) any loss of, lost use of, damage to or diminution in value of any Project or natural resource, and (3) costs of any investigation, remediation, removal, abatement, containment, closure, restoration or monitoring work required by any federal, state or local governmental agency or political subdivision, or otherwise reasonably necessary to protect the public health or safety, whether on or off the Project; (B) reasonable fees incurred for the services of attorneys, consultants, contractors, experts and laboratories in connection with the preparation of any feasibility studies, investigations or reports or the performance of any work described above: (C) any liability to any third person or governmental agency to indemnify such person or agency for costs expended or liabilities incurred in connection with any items described in clause (A) or (B) above; (D) any fair market or fair market rental value of the Project; and (E) the amount of any penalties, damages or costs a party is required to pay or incur in excess of that which the party otherwise would reasonably have expected to pay or incur absent the existence of the applicable Environmental Condition.

        (4)   "Handling," when used with reference to any substance or material, includes (but is not limited to) any receipt, storage, use, generation, Release, transportation, treatment or disposal of such substance or material.

        (5)   "Hazardous Materials" means any and all chemical, explosive, biohazardous, radioactive or otherwise toxic or hazardous materials or hazardous wastes, including without limitation any asbestos-containing materials, PCBs. CFCs, petroleum and derivatives thereof, Radioactive Materials, Biohazardous Materials, Hazardous Wastes, any other substances defined or listed as or meeting the characteristics of a hazardous substance, hazardous material, hazardous waste, extremely hazardous waste, restricted hazardous waste, toxic substance, toxic waste, biohazardous material, biohazardous waste, biological waste, medical waste, radiation, radioactive substance, radioactive waste, or other similar term, as applicable, under any law, statute, ordinance, code, rule, regulation, directive, order, condition or other written requirement enacted, promulgated or issued by any public officer or governmental or quasi-governmental authority, whether now in force or hereafter in force at any time or from time to time to protect the environment or human health, and/or any mixed materials, substances or wastes containing more than one of the foregoing categories of materials, substances or wastes.

        (6)   "Hazardous Materials Laws" means, collectively, (A) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601-9657, (B) the Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801-1812, (C) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901-6987 (together with any amendments thereto, any regulations thereunder and any amendments to any such regulations as in effect from time to time, "RCRA"), (D) the California Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health & Safety Code Sections 25300 et seq., (E) the Hazardous Materials Release Response Plans and Inventory Act, California Health & Safety Code Sections 25500 et seq., (F) the California Hazardous Waste Control Law, California Health & Safety Code Sections 25100 et seq. (together with any amendments thereto, any regulations thereunder and any amendments to any such regulations as in effect from time to time, the "CHWCL"), (G) California Health & Safety Code Sections 25015-25027.8, (H) any amendments to or successor statutes to any of the foregoing, as adopted or enacted from time to time, (I) any regulations or amendments thereto promulgated pursuant to any of the foregoing from time to time, (J) any statutes, laws, ordinances, codes or regulations relating to Biohazardous Materials, including (but not limited to) any regulations or requirements with respect to the shipping, use,

16

decontamination and disposal thereof, and (K) any other Legal Requirement now or at any time hereafter in effect regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Materials, including (but not limited to) any requirements or conditions imposed pursuant to the terms of any orders, permits, licenses, registrations or operating plans issued or approved by any governmental or quasi-governmental authority from time to time either on a Project-wide basis or in connection with any Handling of Hazardous Materials in, on or about the Premises or the Project.

        (7)   "Hazardous Wastes" means (A) any waste listed as or meeting the identified characteristics of a "hazardous waste" or terms of similar import under RCRA, (B) any waste meeting the identified characteristics of a "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under the CHWCL, and/or (C) any and all other substances and materials defined or referred to as a "hazardous waste" or other term of similar import under any Hazardous Materials Laws.

        (8)   "Radioactive Materials" means (A) any and all substances and materials the Handling of which requires an approval, consent, permit or license from the Nuclear Regulatory Commission, (B) any and all substances and materials the Handling of which requires a Radioactive Material License or other similar approval, consent, permit or license from the State of California, and (C) any and all other substances and materials defined or referred to as "radiation," a "radioactive material" or "radioactive waste," or any other term of similar import under any Hazardous Materials Laws, including (but not limited to) Title 26, California Code of Regulations Section 17-30100, and any statutes, regulations or other laws administered, enforced or promulgated by the Nuclear Regulatory Commission.

        (9)   "Release" means any accidental or intentional spilling, leaking, pumping, pouring, emitting, discharging, injecting, escaping, leaching, migrating, dumping or disposing into the air, land, Surface water, groundwater or the environment (including without limitation the abandonment or discarding of receptacles containing any Hazardous Materials).

        (10) "Tenant's Contamination" means any Hazardous Material Release on or about the Property by Tenant or /or any agents, employees, contractors, vendors, suppliers, licensees, subtenants, and invitees of Tenant (a "Tenant Party").

        (11) "Landlord's Contamination" means any hazardous materials which exist in, on, under or in the vicinity of the Project as of the date of this Lease or which migrate onto or beneath the Project from off-site sources during the term of the Lease or after termination of the Lease. Tenant shall not be required to pay any costs with respect to the remediation or abatement of Landlord's Contamination.

                (2)    Handling of Hazardous Materials.    The parties acknowledge that Tenant wishes and intends to use all or a portion of the Premises as a radio/bio-pharmaceutical, research, development, preparation and dispensing facility and otherwise for the conduct by Tenant of its business in accordance with the Use; that such use, as conducted or proposed to be conducted by Tenant, would customarily include the Handling of Hazardous Materials, and that Tenant shall therefore be permitted to engage in the Handling in the Premises of necessary and reasonable quantities of Hazardous Materials customarily used in or incidental to the operation of a radio/bio pharmaceutical research, preparation and dispensing facility and the other business operations of Tenant in the manner conducted or proposed to be conducted by Tenant hereunder ("Permitted Hazardous Materials"), provided that the Handling of such Permitted Hazardous Materials by all Tenant Parties shall at all times comply with and be subject to all provisions of this Lease and all Legal Requirements, including all Hazardous Materials Laws. Without limiting the generality of the foregoing, Tenant shall comply at all times with all Hazardous Materials Laws applicable to any aspect of Tenant's use of the Premises and the Project and of Tenant's operations and activities in, on and about the Premises and the Project,

17

and shall ensure at all times that Tenant's Handling of Hazardous Materials on and about the Premises does not violate (x) the terms of any governmental licenses or permits applicable to the Building (including, but not limited to, the Building Discharge Permit as defined below) or Premises or to Tenant's Handling of any Hazardous Materials therein, or (y) any applicable requirements or restrictions relating to the occupancy classification of the Building and the Premises.

                (3)    Disposition or Emission of Hazardous Materials.    Tenant shall not Release or dispose of any Hazardous Wastes or Hazardous Materials except to the extent authorized by law or by permit at the Premises or on the Project, but instead shall arrange for off-site disposal, under Tenant's own name and EPA waste generator number (or other similar identifying information issued or prescribed by any other governmental authority with respect to Radioactive Materials, Biohazardous Materials or any other Hazardous Materials) and at Tenant's sole expense, in compliance with all applicable Hazardous Materials Laws, with Landlord's Rules and with all other applicable legal and regulatory requirements.

                (4)    Information Regarding Hazardous Materials.    Tenant shall provide the following information and/or documentation to Landlord in writing prior to the Commencement Date, and thereafter shall update such information and/or documentation (x) annually, in January of each calendar year, (y) upon any material change in Tenant's Hazardous Materials inventory or in Tenant's business operations involving Hazardous Materials, and (z) at such other times as Landlord may reasonably request in writing from time to time, which updates shall reflect any material changes in such information and/or documentation:

                (1)   An inventory of all Hazardous Materials that Tenant receives, uses, handles, generates, transports, stores, treats or disposes of from time to time, or at the time of preparation of such inventory proposes or expects to use, handle, generate, transport, store, treat or dispose of from time to time, in connection with its operations at the Premises. Such inventory shall include, but shall separately identify, any Hazardous Wastes, Biohazardous Materials and Radioactive Materials covered by the foregoing description. If such inventory includes any Biohazardous Materials, Tenant shall also disclose in writing to Landlord the Biosafety Level designation associated with the use of such materials.

                (2)   Copies of all then existing permits, licenses, registrations and other similar documents issued by any governmental or quasi-governmental authority that authorize any Handling of Hazardous Materials in, on or about the Premises or the Project by any Tenant Party.

                (3)   All Material Safety Data Sheets ("MSDSs"), if any, required to be completed with respect to operations of Tenant at the Premises from time to time in accordance with Title 26, California Code of Regulations Section 8-5194 or 42 U.S.C. Section 11021, or any amendments thereto, and any Hazardous Materials Inventory Sheets that detail the MSDSs.

                (4)   All hazardous waste manifests (as defined in Title 26, California Code of Regulations Section 22-66481), if any, that Tenant is required to complete from time to time in connection with its operations at the Premises.

18

                (5)   A copy of any Hazardous Materials Business Plan required from time to time with respect to Tenant's operations at the Premises pursuant to California Health & Safety Code Sections 25500 et seq., and any regulations promulgated thereunder, as amended from time to time, or in connection with Tenant's application for a business license from the City of Emeryville. If applicable law does not require Tenant to prepare a Hazardous Materials Business Plan, Tenant shall furnish to Landlord at the times and in the manner set forth above the information that would customarily be contained in a Hazardous Materials Business Plan, including (but not limited to) information regarding Tenant's Hazardous Materials inventories. The parties acknowledge that a Hazardous Materials Business Plan would ordinarily include an emergency response plan, and that regardless of whether applicable law requires Tenant or other tenants in the Building to prepare Hazardous Materials Business Plans, Landlord in its discretion may elect to prepare a coordinated emergency response plan for the entire Building and/or for multiple Buildings on the Project.

                (6)   Any Contingency Plans and Emergency Procedures required of Tenant from time to time, in connection with its operations at the Premises, pursuant to applicable law, Title 26, California Code of Regulations Sections 22-67140 et seq., and any amendments thereto, and any Training Programs and Records required under Title 26, California Code of Regulations Section 22-66493, and any amendments thereto from time to time. Landlord in its discretion may elect to prepare a Contingency Plan and Emergency Procedures for the entire Building and/or for multiple Buildings on the Project, in which event, if applicable law does not require Tenant to prepare a Contingency Plan and Emergency Procedures for its operations at the Premises, Tenant shall furnish to Landlord at the times and in the manner set forth above the information that would customarily be contained in a Contingency Plan and Emergency Procedures.

                (7)   Copies of any biennial or other periodic reports furnished or required to be furnished to the California Department of Health Services from time to time, under applicable law, pursuant to Title 26, California Code of Regulations Section 22-66493 and any amendments thereto, relating to any Hazardous Materials.

                (8)   Copies of any other lists, reports, studies, or inventories of Hazardous Materials or of any subcategories of materials included in Hazardous Materials that Tenant is otherwise required to prepare and file from time to time with any governmental or quasi-governmental authority in connection with Tenant's operations at the Premises, including (but not limited to) reports filed by Tenant with the federal Food & Drug Administration or any other regulatory authorities primarily in connection with the presence (or lack thereof) of any "select agents" or other Biohazardous Materials on the Premises, together with proof of filing thereof.

                (9)   Any other information reasonably requested by Landlord in writing from time to time in connection with (A) Landlord's monitoring (in Landlord's reasonable discretion) and enforcement of Tenant's obligations under this Section and of compliance with applicable Legal Requirements in connection with any Handling or Release of Hazardous Materials in the Premises or Building or on or about the Project by any Tenant Party, (B) any inspections or enforcement actions by any governmental authority pursuant to any Hazardous Materials Laws or any other Legal Requirements relating to the presence or Handling of Hazardous Materials in the Premises or Building or on or about the Project by any Tenant Party, and/or (C) Landlord's preparation (in Landlord's discretion) and enforcement of any reasonable rules and procedures relating to the presence or Handling by Tenant or any Tenant Party of Hazardous Materials in the Premises or Building or on or about the Project, including (but not limited to) any contingency plans or emergency response plans as described above. Except as otherwise required by Law, Landlord shall keep confidential any information supplied to Landlord by Tenant pursuant to the foregoing, provided, however, that the foregoing shall not apply to any information filed with any governmental authority or available to the public at large. Landlord may only provide such

19

information to its lenders, consultants or provided such entities agree to keep such information confidential.

                (5)    Indemnification; Notice of Release.    Tenant shall be responsible for and shall indemnify, defend and hold Landlord harmless from and against all Environmental Damages to the extent arising out of or in connection with, or otherwise relating to, (i) any Handling of Hazardous Materials by any Tenant Party in, on or about the Premises or the Project in violation of this Section, (ii) any breach of Tenant's obligations under this Section or of any Hazardous Materials Laws by any Tenant Party, or (iii) the existence of any Tenant Contamination in, on or about the Premises or the Project to the extent caused by any Tenant Party, including without limitation any removal, cleanup or restoration work and materials necessary to return the Project or any improvements of whatever nature located on the Project to the condition existing prior to the Handling of Hazardous Materials in, on or about the Premises or the Project by any Tenant Party. In the event of any Tenant Contamination in, on or about the Premises or any other portion of the Project or any adjacent lands, Tenant shall promptly remedy the problem in accordance with all applicable Hazardous Materials Laws and Legal Requirements, shall give Landlord oral notice of any such non-standard or non-customary Release promptly after Tenant becomes aware of such Release, followed by written notice to Landlord within five (5) days after Tenant becomes aware of such Release, and shall furnish Landlord with concurrent copies of any and all notices, reports and other written materials filed by any Tenant Party with any governmental authority in connection with such Release. Landlord shall be responsible for and shall indemnify and hold Tenant harmless from and against all costs of any Environmental Damages which arise during or after the Term of this Lease, as a result of the presence of, any Release of or the Handling of any Hazardous Material in, on, about or under the Premises, Building or Property, except to the extent provided for in this Section 7.1(d); provided that Tenant shall have the burden of reasonably demonstrating that such Hazardous Materials were not of the type used by Tenant in the Premises. Tenant shall be conclusively presumed to have met its burden to the extent that any hazardous materials are identified as being present in any environmental report or other data on the date of commencement of this Lease and are not used by Tenant. Tenant shall have no obligation to remedy any Hazardous Materials contamination which was not caused or released by a Tenant Party.

                (6)    Governmental Notices.    Tenant shall promptly provide Landlord with copies of all notices received by Tenant relating to any actual or alleged presence or Handling by any Tenant Party of Hazardous Materials in, on or about the Premises or any other portion of the Project, including, without limitation, any notice of violation, notice of responsibility or demand for action from any federal, state or local governmental authority or official in connection with any actual or alleged presence or Handling by any Tenant Party of Hazardous Materials in or about the Premises or any other portion of the Project.

                (7)    Inspection by Landlord.    In addition to, and not in limitation of, Landlord's rights under this Lease, upon reasonable prior request by Landlord, Tenant shall grant Landlord and its consultants, as well as any governmental authorities having jurisdiction over the Premises or over any aspect of Tenant's use thereof, reasonable access to the Premises at reasonable times to inspect Tenant's Handling of Hazardous Materials in, on and about the Premises, and Landlord shall not thereby incur any liability to Tenant or be deemed guilty of any disturbance of Tenant's use or possession of the Premises by reason of such entry; provided, however that Landlord shall use reasonable efforts to minimize interference with Tenant's use of the Premises caused by such entry. Landlord shall comply with any security precaution reasonably imposed by Tenant during any entry onto the Premises and shall minimize to the extent reasonably possible any interference with Tenant's use of the Premises caused by such entry. Notwithstanding Landlord's rights of inspection and review of documents, materials and physical conditions under this Section with respect to Tenant's Handling of Hazardous Materials, Landlord shall have no duty or obligation to perform any such inspection or review or to monitor in any way any documents, materials, physical conditions or compliance with Legal

20

Requirements in connection with Tenant's Handling of Hazardous Materials, and no third Party shall be entitled to rely on Landlord to conduct any such inspection, review or monitoring by reason of the provisions of this Section.

                (8)    Monitoring by Landlord.    Landlord reserves the absolute right to monitor, in Landlord's reasonable discretion and at Landlord's cost (the reasonable cost of which shall be recoverable as an Operating Expense hereunder (except in the case of a breach of any of Tenant's obligations under this Section, in which event such monitoring costs may be charged back entirely to Tenant and shall be reimbursed by Tenant to Landlord within ten (10) days after written demand by Landlord from time to time, accompanied by supporting documentation reasonably evidencing the costs for which such reimbursement is claimed)), at such times and from time to time as Landlord in its reasonable discretion may determine, through consultants engaged by Landlord or otherwise as Landlord in its reasonable discretion may determine, (x) all aqueous and atmospheric discharges and emissions from the Premises during the Term by a Tenant Party, (y) Tenant's compliance and the collective compliance of all tenants in the Building with requirements and restrictions relating to the occupancy classification of the Building (including, but not limited to, Hazardous Materials inventory levels of Tenant and all other tenants in the Building), and (z) Tenant's compliance with all other requirements of this Section.

                (9)    Discovery of Discharge.    If Landlord, Tenant or any governmental or quasi-governmental authority discovers any Release from the Premises during the Term by a Tenant Party in violation of this Section that, in Landlord's reasonable determination, jeopardizes the ability of the Building or the Project to meet applicable Legal Requirements or otherwise adversely affects the Building's or the Project's compliance with applicable discharge or emission standards, or if Landlord discovers any other breach of Tenant's obligations under this Section, then upon receipt of written notice from Landlord or at such earlier time as Tenant obtains actual knowledge of the applicable discharge, emission or breach, Tenant at its sole expense shall within a reasonable time (x) in the case of a Release in violation of this Lease, cease the applicable discharge or emission and remediate any continuing effects of the discharge or emission until such time, if any, as Tenant demonstrates that the applicable discharge or emission is in compliance with all applicable Legal Requirements and any other applicable regulatory commitments and obligations to the satisfaction of the appropriate governmental agency with jurisdiction over the release, and (y) in the case of any other breach of Tenant's obligations under this Section, take such corrective measures as Landlord may reasonably request in writing in order to cure or eliminate the breach as promptly as practicable and to remediate any continuing effects of the breach.

                (10)    Post-Occupancy Study.    If Tenant or any Tenant Party Handles any Hazardous Materials in, on or about the Premises or the Project during the Term of this Lease, then no later than fifteen (15) days prior to the termination or expiration of this Lease, Tenant at its sole cost and expense shall obtain and deliver to Landlord an environmental study, performed by an expert reasonably satisfactory to Landlord, evaluating the presence or absence of any Tenant Contamination in, on and about the Premises and the Property. Such study shall be based on a reasonable and prudent level of tests and investigations of the Premises and surrounding portions of the Project (if appropriate) which tests shall be conducted no earlier than the date of termination or expiration of this Lease. Liability for any remedial actions required or recommended on the basis of such study shall be allocated in accordance with the applicable provisions of this Lease. To the extent any such remedial actions are the responsibility of Tenant, Tenant at its sole expense shall promptly commence and diligently pursue to completion the required remedial actions.

                (11)    Emergency Response Plans.    If Landlord in its reasonable discretion adopts any emergency response plan and/or any Contingency Plan and Emergency Procedures for the Building or for multiple Buildings on the Project as contemplated above, Landlord shall provide copies of any such plans and procedures to Tenant and, so long as such plans and procedures are reasonable and do not unreasonably interfere with Tenant's Use at or access to the Premises or materially increase the cost incurred by Tenant with respect to the Premises, Tenant shall comply with all of the requirements of

21

such plans and procedures to the extent applicable to Tenant and/or the Premises. If Landlord elects to adopt or materially modify any such plans or procedures that apply to the Building during the Term of this Lease, Landlord shall consult with Tenant in the course of preparing such plans, procedures or modifications in order to try to ensure that they will accurately reflect and be consistent with Tenant's operations in the Premises, but Landlord alone shall determine, in its good faith reasonable discretion, the appropriate scope of such consultation and nothing in this paragraph shall be construed to give Tenant any right of approval or disapproval over Landlord's adoption or modification of any such plans or procedures so long as such plans and procedures are reasonable and do not unreasonably interfere with Tenant's Use at or access to the Premises or materially increase the cost incurred by Tenant with respect to the Premises.

                (12)    Radioactive Materials.    Without limiting any other applicable provisions of this Section, if Tenant Handles or proposes to Handle any Radioactive Materials in or about the Premises, Tenant shall provide Landlord with copies of Tenant's licenses or permits for such Radioactive Materials and with copies of all radiation protection programs and procedures required under applicable Legal Requirements or otherwise adopted by Tenant from time to time in connection with Tenant's Handling of such Radioactive Materials. In addition, Tenant shall comply with any and all rules and procedures issued by Landlord in its good faith discretion from time to time with respect to the Handling of Radioactive Materials on the Project (such as, by way of example but not limitation, rules implementing a label defacement program for decayed waste destined for common trash and/or rules relating to transportation and storage of Radioactive Materials on the Project), provided that such rules and procedures shall be reasonable and not in conflict with any applicable Legal Requirements.

                (13)    Deemed Holdover Occupancy.    Notwithstanding any other provisions of this Lease, Tenant expressly agrees as follows:

                (1)   If Tenant Handles any Radioactive Materials in or about the Premises during the term of this Lease, then for so long as any license or permit relating to such Radioactive Materials remains open following any otherwise applicable termination or expiration of the Term of this Lease and another entity handling Radioactive Materials which is a prospective tenant of Landlord is legally prohibited from occupying a portion of the Premises for a use similar to the Use, then and in such event, Tenant shall be deemed to be occupying that portion of the Premises on a holdover basis without Landlord's consent (notwithstanding such otherwise applicable termination or expiration of the Term of this Lease) and shall be required to continue to pay Rent and other charges in accordance with the holdover provisions of this Lease solely for that portion of the premises which is covered by the radioactive materials license, until such time as all such Radioactive Materials licenses and permits have been fully closed out in accordance with the requirements of this Lease and with all applicable Hazardous Materials Laws and other Legal Requirements.

                (2)   If Tenant Handles any Hazardous Materials in or about the Premises during the term of this Lease and, at the otherwise applicable termination or expiration of the Term of this Lease Tenant has failed to remove from the Premises and the Building all known Hazardous Materials Handled by a Tenant Party or has failed to complete any remediation or removal of Tenant's Contamination and/or to have fully remediated, in compliance with the requirements of this Lease and with all applicable Hazardous Materials Laws and other Legal Requirements, the Tenant's Handling and/or Release (if applicable) of any such Hazardous Materials during the Term of this Lease, then for so long as such circumstances continue to exist, Tenant shall be deemed to be occupying the Premises on a holdover basis without Landlord's consent (notwithstanding such otherwise applicable termination or expiration of the Term of this Lease) and shall be required to continue pay Rent and other charges in accordance with the holdover provisions of this Lease until such time as all such circumstances have been fully resolved in accordance with the requirements of this Lease and with all applicable Hazardous Materials Laws and other Legal Requirements.

22

                (14)    Survival of Obligations.    Each party's obligations under this Section shall survive the expiration or other termination of this Lease and shall survive any conveyance by Landlord of its interest in the Premises. The provisions of this Section and any exercise by either party of any of the rights and remedies contained herein shall be without prejudice to any other rights and remedies that such party may have under this Lease or under applicable law with respect to any Environmental Conditions and/or any Hazardous Materials with respect to any breach of the other party's obligations under this Section. Either party's exercise or failure to exercise, at any time or from time to time, any or all of the rights granted in this Section shall not in any way impose any liability on such party or shift from the other party to such party any responsibility or obligation imposed upon the other party under this Lease or under applicable law with respect to Hazardous Materials, Environmental Conditions and/or compliance with Legal Requirements.

                (15)    Laboratory Rules and Regulations.    Tenant agrees for itself and for its subtenants, employees, agents, and invitees to comply with the laboratory rules and regulations ("Laboratory Rules and Regulations") attached to this Lease as Exhibit C-1 and with all reasonable modifications and additions thereto which Landlord may make from time to time so long as such modifications and additions are generally applicable to the other tenants in the Building and would not materially interfere with Tenant's use of the Premises for the purposes set forth herein.

7.2    LANDLORD ACCESS TO PREMISES; APPROVALS

        (a)   Tenant shall permit Landlord to erect, use and maintain pipes, ducts, wiring and conduits in and through the Premises, so long as Tenant's use, layout or design of the Premises is not materially affected or altered. Landlord or Landlord's agents shall have the right to enter upon the Premises in the event of an emergency, or to inspect the Premises, to perform janitorial and other services, to conduct safety and other testing in the Premises and to make such repairs, alterations, improvements or additions to the Premises or the Building or other parts of the Property as Landlord may deem necessary or desirable (including all alterations, improvements and additions in connection with a change in service provider or providers). Janitorial and cleaning services shall be performed after normal business hours. Any entry or work by Landlord requires reasonable prior notice and may be during normal business hours and Landlord shall use reasonable efforts to ensure that any entry or work shall not materially interfere with Tenant's occupancy of the Premises.

        (b)   If Tenant shall not be personally present to permit an entry into the Premises when for any reason an entry therein shall be necessary or permissible, Landlord (or Landlord's agents), after attempting to notify Tenant (unless Landlord believes an emergency situation exists), may enter the Premises without rendering Landlord or its agents liable therefor, and without relieving Tenant of any obligations under this Lease.

        (c)   Provided Landlord has provided reasonable prior notice to Tenant and shall use reasonable efforts to not materially interfere with Tenant's occupancy of the Premises, Landlord may enter the Premises for the purpose of conducting such inspections, tests and studies as Landlord may deem desirable or necessary to confirm Tenant's compliance with all Laws and Hazardous Materials Laws or for other purposes necessary in Landlord's reasonable judgment to ensure the sound condition of the Property and the systems serving the Property. Landlord's rights under this Section 7.2(c) are for Landlord's own protection only, and Landlord has not, and shall not be deemed to have assumed, any responsibility to Tenant or any other party as a result of the exercise or non-exercise of such rights, for compliance with Laws or Hazardous Materials Laws or for the accuracy or sufficiency of any item or the quality or suitability of any item for its intended use.

        (d)   Landlord may do any of the foregoing, or undertake any of the inspection or work described in the preceding paragraphs without such action constituting an actual or constructive eviction of Tenant, in whole or in part, or giving rise to an abatement of Rent by reason of loss or interruption of business of the Tenant, or otherwise.

23

        (e)   The review, approval or consent of Landlord with respect to any item required or permitted under this Lease is for Landlord's own protection only, and Landlord has not, and shall not be deemed to have assumed, any responsibility to Tenant or any other party, as a result of the exercise or non-exercise of such rights, for compliance with Laws or Hazardous Materials Laws or for the accuracy or sufficiency of any item or the quality or suitability of any item for its intended use.

7.3    QUIET ENJOYMENT

        Landlord covenants, in lieu of any implied covenant of quiet possession or quiet enjoyment, that so long as Tenant is in compliance with the covenants and conditions set forth in this Lease, Tenant shall have the right to quiet enjoyment of the Premises without hindrance or interference from Landlord or those claiming through Landlord, and subject to the covenants and conditions set forth in the Lease and to the rights of any Mortgagee or ground lessor.

ARTICLE 8
MAINTENANCE

8.1    LANDLORD'S MAINTENANCE

        Subject to the provisions of Articles Four and Fourteen, Landlord shall maintain and make necessary repairs to the foundations, roofs, exterior walls, and the structural elements of the Building, the electrical, plumbing, heating, ventilating, air-conditioning, mechanical, communication, security and the fire and life safety systems of the Building and those corridors, washrooms and lobbies which are Common Areas of the Building, except that: (a) Landlord shall not be responsible for the maintenance or repair of any floor or wall coverings in the Premises or any of such systems which are located within the Premises and are supplemental or special to the Building's standard systems; and (b) the cost of performing any of said maintenance or repairs whether to the Premises or to the Building caused by the negligence of Tenant, its employees, agents, servants, licensees, subtenants, contractors or invitees, shall be paid by Tenant, unless recoverable under Landlord's insurance, subject to the waivers set forth in Section 16.4. Landlord shall not be liable to Tenant for any expense, injury, loss or damage resulting from work done in or upon, or in connection with the use of, any adjacent or nearby building, land, street or alley.

8.2    TENANT'S MAINTENANCE

        Tenant shall periodically inspect the Premises to identify any conditions that are dangerous or in need of maintenance or repair. Tenant shall promptly provide Landlord with notice of any such conditions. Tenant shall, at its sole cost and expense, perform all maintenance and repairs to the Premises that are not Landlord's express responsibility under this Lease, and keep the Premises in good condition and repair, reasonable wear and tear excepted. Tenant's repair and maintenance obligations include, without limitation, repairs to: (a) floor covering; (b) interior partitions; (c) doors; (d) the interior side of demising walls; (e) electronic, phone and data cabling and related equipment that is installed by or for the exclusive benefit of Tenant (collectively, "Cable"); (f) supplemental air conditioning units, kitchens, including hot water heaters, plumbing, and similar facilities exclusively serving Tenant; and (g) Tenant Alterations. If Tenant fails to make any repairs to the Premises for more than 15 days after notice from Landlord (although notice shall not be required in an emergency), Landlord may make the repairs, and Tenant shall pay the reasonable cost of the repairs, together with an administrative charge in an amount equal to 10% of the cost of the repairs. Tenant hereby waives all right to make repairs at the expense of Landlord or in lieu thereof to vacate the Premises and its other similar rights as provided in California Civil Code Sections 1932(1), 1941 and 1942 or any other Legal Requirement (whether now or hereafter in effect). In addition to the foregoing, Tenant shall be responsible for repairing all special tenant fixtures and improvements, including garbage disposals, showers, plumbing, and appliances.

24

ARTICLE 9
ALTERATIONS AND IMPROVEMENTS

9.1    TENANT ALTERATIONS

        (a)   The following provisions shall apply to the completion of any Tenant Alterations:

        (1)   Tenant shall not, except as provided herein, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, make or cause to be made any Tenant Alterations in or to the Premises or any Property systems serving the Premises. Prior to making any Tenant Alterations, Tenant shall give Landlord ten (10) days prior written notice (or such earlier notice as would be necessary pursuant to applicable Law) to permit Landlord sufficient time to post appropriate notices of non-responsibility. Subject to all other requirements of this Article Nine, Tenant may undertake Decoration work without Landlord's prior written consent. Tenant shall furnish Landlord with the names and addresses of all contractors and subcontractors and copies of all contracts. All Tenant Alterations shall be completed at such time and in such manner as Landlord may from time to time designate, and only by contractors or mechanics approved by Landlord, which approval shall not be unreasonably withheld, provided, however, that Landlord may, in its sole discretion, specify the engineers and contractors to perform all work relating to the Building's systems (including the mechanical, heating, plumbing, security, ventilating, air-conditioning, electrical, communication and the fire and life safety systems in the Building) so long as such Landlord designated engineers and contractors are competitively priced with Tenant's preferred engineers and contractors. In the event that such Landlord designated engineers and contractors are not competitively priced with Tenant's preferred engineers and contractors, the parties shall expeditiously and in good faith work together to agree on competitively priced engineers and contractors to perform the Tenant Alterations. The contractors, mechanics and engineers who may be used are further limited to those whose work will not cause or threaten to cause disharmony or interference with Landlord or other tenants in the Building and their respective agents and contractors performing work in or about the Building. Landlord may further condition its consent upon Tenant furnishing to Landlord and Landlord approving prior to the commencement of any work or delivery of materials to the Premises related to the Tenant Alterations such of the following as specified by Landlord: architectural plans and specifications, opinions from Landlord's engineers stating that the Tenant Alterations will not in any way adversely affect the Building's systems, necessary permits and licenses, certificates of insurance, and such other documents in such form reasonably requested by Landlord. Landlord may, in the exercise of reasonable judgment, request that Tenant provide Landlord with appropriate evidence of Tenant's ability to complete and pay for the completion of the Tenant Alterations such as a performance bond or letter of credit. Upon completion of the Tenant Alterations, Tenant shall deliver to Landlord an as-built mylar and digitized (if available) set of plans and specifications for the Tenant Alterations.

        (2)   Tenant shall pay the cost of all Tenant Alterations and the cost of decorating the Premises and any work to the Property occasioned thereby. Upon completion of Tenant Alterations, Tenant shall furnish Landlord with contractors' affidavits and full and final waivers of lien and receipted bills covering all labor and materials expended and used in connection therewith and such other documentation reasonably requested by Landlord or Mortgagee.

25

        (3)   Tenant agrees to complete all Tenant Alterations (i) in accordance with all Laws, Hazardous Materials Laws, all requirements of applicable insurance companies and in accordance with Landlord's standard construction rules and regulations, and (ii) in a good and workmanlike manner with the use of good grades of materials. Tenant shall notify Landlord immediately if Tenant receives any notice of violation of any Law in connection with completion of any Tenant Alterations and shall immediately take such steps as are necessary to remedy such violation. In no event shall such supervision or right to supervise by Landlord nor shall any approvals given by Landlord under this Lease constitute any warranty by Landlord to Tenant of the adequacy of the design, workmanship or quality of such work or materials for Tenant's intended use or of compliance with the requirements of Section 9.1(a)(3)(i) and (ii) above or impose any liability upon Landlord in connection with the performance of such work.

        (b)   All Landlord Work and Tenant Additions whether installed by Landlord or Tenant, shall without compensation or credit to Tenant, become part of the Premises and the property of Landlord at the time of their installation and shall remain in the Premises, unless pursuant to Article Twelve, Tenant may remove them or is required to remove them at Landlord's request.

9.2    LIENS

        Tenant shall not permit any lien or claim for lien of any mechanic, laborer or supplier or any other lien to be filed against the Building, the Land, the Premises, or any other part of the Property arising out of work performed, or alleged to have been performed by, or at the direction of, or on behalf of Tenant. If any such lien or claim for lien is filed, Tenant shall within ten (10) days of receiving notice of such lien or claim (a) have such lien or claim for lien released of record or (b) deliver to Landlord a bond in form, content, amount, and issued by surety, satisfactory to Landlord, indemnifying, protecting, defending and holding harmless the Indemnitees against all costs and liabilities resulting from such lien or claim for lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to take any of the above actions, Landlord, in addition to its rights and remedies under Article Eleven, without investigating the validity of such lien or claim for lien, may pay or discharge the same and Tenant shall, as payment of additional Rent hereunder, reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorneys' fees.

ARTICLE 10
ASSIGNMENT AND SUBLETTING

10.1    ASSIGNMENT AND SUBLETTING

        (a)   Without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion, Tenant may not sublease, assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Lease or the encumbering of Tenant's interest therein in whole or in part, by operation of Law or otherwise or permit the use or occupancy of the Premises, or any part thereof, by anyone other than Tenant, provided, however, if Landlord chooses not to recapture the space proposed to be subleased or assigned as provided in Section 10.2, Landlord shall not unreasonably withhold its consent to a subletting or assignment under this Section 10.1. Tenant agrees that the provisions governing sublease and assignment set forth in this Article Ten shall be deemed to be reasonable. If Tenant desires to enter into any sublease of the Premises or assignment of this Lease, Tenant shall deliver written notice thereof to Landlord ("Tenant's Notice"), together with the identity of the proposed subtenant or assignee and the proposed principal terms thereof and financial and other information sufficient for Landlord to make an informed judgment with respect to such proposed subtenant or assignee at least thirty-five (35) days prior to the commencement date of the term of the proposed sublease or assignment. If Tenant proposes to sublease less than all of the Rentable Area of the Premises, the space proposed to be sublet and the space retained by Tenant must each be a marketable unit as reasonably determined by Landlord and otherwise in compliance with all Laws.

26

Landlord shall notify Tenant in writing of its approval or disapproval of the proposed sublease or assignment or its decision to exercise its rights under Section 10.2 within thirty (30) days after receipt of Tenant's Notice (and all required information). In no event may Tenant sublease any portion of the Premises or assign the Lease to any other tenant of the Project. Tenant shall submit for Landlord's approval (which approval shall not be unreasonably withheld) any advertising which Tenant or its agents intend to use with respect to the space proposed to be sublet.

        (b)   With respect to Landlord's consent to an assignment or sublease, Landlord may take into consideration any factors that Landlord may deem relevant, and the reasons for which Landlord's denial shall be deemed to be reasonable shall include, without limitation, the following:

        (1)   the business reputation or creditworthiness of any proposed subtenant or assignee is not acceptable to Landlord; or

        (2)   in Landlord's reasonable judgment the proposed assignee or sublessee would diminish the value or reputation of the Building or Landlord; or

        (3)   any proposed assignee's or sublessee's use of the Premises would violate Section 7.1 of the Lease or would violate the provisions of any other leases of tenants in the Project; or

        (4)   the proposed sublessee or assignee is a bona fide prospective tenant of Landlord in the Project as demonstrated by a written proposal dated within ninety (90) days prior to the date of Tenant's request; or

        (5)   the proposed sublessee or assignee would materially increase the estimated pedestrian and vehicular traffic to and from the Premises and the Building.

        (c)   Any sublease or assignment shall be expressly subject to the terms and conditions of this Lease. Any subtenant or assignee shall execute such documents as Landlord may reasonably require to evidence such subtenant or assignee's assumption of the obligations and liabilities of Tenant under this Lease. Tenant shall deliver to Landlord a copy of all agreements executed by Tenant and the proposed subtenant and assignee with respect to the Premises. Landlord's approval of a sublease, assignment, hypothecation, transfer or third party use or occupancy shall not constitute a waiver of Tenant's obligation to obtain Landlord's consent to further assignments or subleases, hypothecations, transfers or third party use or occupancy.

        (d)   So long as Tenant is not entering into a transaction described herein for the purpose of avoiding or otherwise circumventing the remaining terms of this Article, Tenant may, subject to Section 10.5, assign its entire interest under this Lease or Sublease all or a portion of the Premises, without the consent of Landlord, to (i) an Affiliate, or (ii) a successor to Tenant by purchase or other acquisition of Tenant's capital stock or substantially all of Tenant's assets, merger, consolidation or reorganization, provided that all of the following conditions are satisfied: (1) Tenant is not then in Default under this Lease; (2) Tenant shall give Landlord written notice at least fifteen (15) days prior to the effective date of the proposed transfer together with the information required hereunder and such entity shall expressly assume Tenant's obligations hereunder; (3) with respect to an assignment to an Affiliate, Tenant continues to have a net worth equal to or greater than Tenant's net worth at the date immediately prior to such transfer; and (4) with respect to a purchase, merger, consolidation or reorganization which results in Tenant ceasing to exist as a separate legal entity, Tenant's successor shall have a net worth equal to Tenant's net worth at the date immediately prior to such transfer.

10.2    RECAPTURE

        Landlord shall have the option to exclude from the Premises covered by this Lease ("recapture") the space proposed to be sublet if and only if the sublease is for a substantial portion of the Premises and for substantially all of the remaining Term or may recapture the Premises if the Lease is assigned. If Landlord elects to recapture, Tenant shall surrender possession of the space proposed to be

27

subleased or subject to the assignment to Landlord on the effective date of recapture of such space from the Premises, such date being the Termination Date for such space. Effective as of the date of recapture of any portion of the Premises pursuant to this section, the Monthly Base Rent, Rentable Area of the Premises and Tenant's Share shall be adjusted accordingly.

10.3    EXCESS RENT

        Tenant shall pay Landlord on the first day of each month during the term of the sublease or assignment, seventy percent (70%) of the amount by which the sum of all rent and other consideration (direct or indirect) due from the subtenant or assignee for such month exceeds: (i) that portion of the Monthly Base Rent and Rent Adjustments due under this Lease for said month which is allocable to the space sublet or assigned; and (ii) the following costs and expenses for the subletting or assignment of such space: (1) brokerage commissions and attorneys' fees and expenses, (2) the actual costs paid in making any improvements or substitutions in the Premises required by any sublease or assignment; and (3) "free rent" periods, costs of any inducements or concessions given to subtenant or assignee, moving costs, and other amounts in respect of such subtenant's or assignee's other leases or occupancy arrangements. All such costs and expenses shall be amortized over the term of the sublease or assignment pursuant to sound accounting principles.

10.4    TENANT LIABILITY

        In the event of any sublease or assignment, whether or not with Landlord's consent, Tenant shall not be released or discharged from any liability, whether past, present or future, under this Lease, including any liability arising from the exercise of any renewal or expansion option, to the extent such exercise is expressly permitted by Landlord. Tenant's liability shall remain primary, and in the event of default by any subtenant, assignee or successor of Tenant in performance or observance of any of the covenants or conditions of this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said subtenant, assignee or successor. After any assignment, Landlord may consent to subsequent assignments or subletting of this Lease, or amendments or modifications of this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto, and such action shall not relieve Tenant or any successor of Tenant of liability under this Lease. If Landlord grants consent to such sublease or assignment, Tenant shall pay all reasonable attorneys' fees and expenses incurred by Landlord with respect to such assignment or sublease. In addition, if Tenant has any options to extend the Term or to add other space to the Premises, such options shall not be available to any subtenant or assignee, directly or indirectly without Landlord's express written consent, which may be withheld in Landlord's sole discretion.

10.5    ASSUMPTION AND ATTORNMENT

        If Tenant shall assign this Lease as permitted herein, the assignee shall expressly assume all of the obligations of Tenant hereunder in a written instrument satisfactory to Landlord and furnished to Landlord not later than fifteen (15) days prior to the effective date of the assignment. If Tenant shall sublease the Premises as permitted herein, Tenant shall, at Landlord's option, within fifteen (15) days following any request by Landlord, obtain and furnish to Landlord the written agreement of such subtenant to the effect that the subtenant will attorn to Landlord and will pay all subrent directly to Landlord.

28

ARTICLE 11
DEFAULT AND REMEDIES

11.1    EVENTS OF DEFAULT

        The occurrence or existence of any one or more of the following shall constitute a "Default" by Tenant under this Lease:

        (1)   Tenant fails to pay any installment or other payment of Rent including Rent Adjustment Deposits or Rent Adjustments within five (5) days after the date when due;

        (2)   Tenant fails to observe or perform any of the other covenants, conditions or provisions of this Lease and fails to cure such default within thirty (30) days after written notice thereof to Tenant, or if such default cannot be cured within that time, then such additional time as may be necessary, if, within such thirty (30) days, Tenant has commenced and is diligently pursuing the remedies necessary to cure such default, unless the default involves a hazardous condition, which shall be cured forthwith or unless the failure to perform is a Default for which this Lease specifies there is no cure or grace period;

        (3)   a petition is filed by or against Tenant to declare Tenant bankrupt or seeking a plan of reorganization or arrangement under any Chapter of the Bankruptcy Act, or any amendment, replacement or substitution therefor, or to delay payment of, reduce or modify Tenant's debts, which in the case of an involuntary action is not discharged within thirty (30) days;

        (4)   Tenant is declared insolvent by Law or any assignment of Tenant's property is made for the benefit of creditors;

        (5)   a receiver is appointed for Tenant or Tenant's property, which appointment is not discharged within thirty (30) days;

        (6)   upon the dissolution of Tenant; or

        (7)   upon the third occurrence within any Lease Year that Tenant fails to pay Rent when due or has breached a particular covenant of this Lease (whether or not such failure or breach is thereafter cured within any stated cure or grace period or statutory period).

11.2    LANDLORD'S REMEDIES

        (a)   A Default shall constitute a breach of the Lease for which Landlord shall have the rights and remedies set forth in this Section 11.2 and all other rights and remedies set forth in this Lease or now or hereafter allowed by Law, whether legal or equitable, and all rights and remedies of Landlord shall be cumulative and none shall exclude any other right or remedy now or hereafter allowed by applicable Law.

        (b)   With respect to a Default that has occurred and is continuing, at any time Landlord may terminate Tenant's right to possession by written notice to Tenant stating such election. Any written notice required pursuant to Section 11.1 shall constitute notice of unlawful detainer pursuant to California Code of Civil Procedure Section 1161 if, at Landlord's sole discretion, it states Landlord's election that Tenant's right to possession is terminated after expiration of any period required by Law or any longer period required by Section 11.1. Upon the expiration of the period stated in Landlord's written notice of termination (and unless such notice provides an option to cure within such period and Tenant cures the Default within such period), Tenant's right to possession shall terminate and this Lease shall terminate, and Tenant shall remain liable as hereinafter provided. Upon such termination in writing of Tenant's right to possession, Landlord shall have the right, subject to applicable Law, to re-enter the Premises and dispossess Tenant and the legal representatives of Tenant and all other occupants of the Premises by unlawful detainer or other summary proceedings, or as otherwise permitted by Law, regain possession of the Premises and remove their property (including their trade

29

fixtures, personal property and those Tenant Additions which Tenant is required or permitted to remove under Article Twelve), but Landlord shall not be obligated to effect such removal, and such property may, at Landlord's option, be stored elsewhere, sold or otherwise dealt with as permitted by Law, at the risk of, expense of and for the account of Tenant, and the proceeds of any sale shall be applied pursuant to Law. Landlord shall in no event be responsible for the value, preservation or safekeeping of any such property. Tenant hereby waives all claims for damages that may be caused by Landlord's removing or storing Tenant's personal property pursuant to this Section or Section 12.1, and Tenant hereby indemnifies, and agrees to defend, protect and hold harmless, the Indemnitees from any and all loss, claims, demands, actions, expenses, liability and cost (including attorneys' fees and expenses) arising out of or in any way related to such removal or storage. Upon such written termination of Tenant's right to possession and this Lease, Landlord shall have the right to recover damages for Tenant's Default as provided herein or by Law, including the following damages provided by California Civil Code Section 1951.2:

        (1)   the worth at the time of award of the unpaid Rent which had been earned at the time of termination;

        (2)   the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could reasonably have been avoided;

        (3)   the worth at the time of award of the amount by which the unpaid Rent for the balance of the term of this Lease after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; and

        (4)   any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, without limitation, Landlord's unamortized costs of tenant improvements, leasing commissions and legal fees incurred in connection with entering into this Lease. The word "rent" as used in this Section 11.2 shall have the same meaning as the defined term Rent in this Lease. The "worth at the time of award" of the amount referred to in clauses (1) and (2) above is computed by allowing interest at the Default Rate. The worth at the time of award of the amount referred to in clause (3) above is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For the purpose of determining unpaid Rent under clause (3) above, the monthly Rent reserved in this Lease shall be deemed to be the sum of the Monthly Base Rent, monthly storage space rent, if any, and the amounts last payable by Tenant as Rent Adjustments for the calendar year in which Landlord terminated this Lease as provided hereinabove.

        (c)   Even if Tenant is in Default and/or has abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession by written notice as provided in Section 11.2(b) above, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover Rent as it becomes due under this Lease. In such event, Landlord shall have all of the rights and remedies of a landlord under California Civil Code Section 1951.4 (lessor may continue Lease in effect after Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations), or any successor statute. During such time as Tenant is in Default, if Landlord has not terminated this Lease by written notice and if Tenant requests Landlord's consent to an assignment of this Lease or a sublease of the Premises, subject to Landlord's option to recapture pursuant to Section 10.2, Landlord shall not unreasonably withhold its consent to such assignment or sublease. Tenant acknowledges and agrees that the provisions of Article Ten shall be deemed to constitute reasonable limitations of Tenant's right to assign or sublet. Tenant acknowledges and agrees that in the absence of written notice

30

pursuant to Section 11.2(b) above terminating Tenant's right to possession, no other act of Landlord shall constitute a termination of Tenant's right to possession or an acceptance of Tenant's surrender of the Premises, including acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease or the withholding of consent to a subletting or assignment, or terminating a subletting or assignment, if in accordance with other provisions of this Lease.

        (d)   In the event that Landlord seeks an injunction with respect to a breach or threatened breach by Tenant of any of the covenants, conditions or provisions of this Lease, Tenant agrees to pay the premium for any bond required in connection with such injunction.

        (e)   Tenant hereby waives any and all rights to relief from forfeiture, redemption or reinstatement granted by Law (including California Civil Code of Procedure Sections 1174 and 1179) in the event of Tenant being evicted or dispossessed for any cause or in the event of Landlord obtaining possession of the Premises by reason of Tenant's Default or otherwise;

        (f)    The voluntary or other surrender or termination of this Lease, or a mutual termination or cancellation thereof, shall not work a merger and shall terminate all or any existing assignments, subleases, subtenancies or occupancies permitted by Tenant, except if and as otherwise specified in writing by Landlord.

        (g)   No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant, and no exercise by Landlord of its rights pursuant to Section 25.15 to perform any duty which Tenant fails timely to perform, shall impair any right or remedy or be construed as a waiver. No provision of this Lease shall be deemed waived by Landlord unless such waiver is in writing signed by Landlord. The waiver by Landlord of any breach of any provision of this Lease shall not be deemed a waiver of any subsequent breach of the same or any other provision of this Lease.

11.3    ATTORNEY'S FEES

        In the event any party brings any suit or other proceeding with respect to the subject matter or enforcement of this Lease, the prevailing party (as determined by the court, agency or other authority before which such suit or proceeding is commenced) shall, in addition to such other relief as may be awarded, be entitled to recover attorneys' fees, expenses and costs of investigation as actually incurred, including court costs, expert witness fees, costs and expenses of investigation, and all attorneys' fees, costs and expenses in any such suit or proceeding (including in any action or participation in or in connection with any case or proceeding under the Bankruptcy Code, 11 United States Code Sections 101 et seq., or any successor statutes, in establishing or enforcing the right to indemnification, in appellate proceedings, or in connection with the enforcement or collection of any judgment obtained in any such suit or proceeding).

11.4    BANKRUPTCY

        The following provisions shall apply in the event of the bankruptcy or insolvency of Tenant:

        (a)   In connection with any proceeding under Chapter 7 of the Bankruptcy Code where the trustee of Tenant elects to assume this Lease for the purposes of assigning it, such election or assignment, may only be made upon compliance with the provisions of (b) and (c) below, which conditions Landlord and Tenant acknowledge to be commercially reasonable. In the event the trustee elects to reject this Lease then Landlord shall immediately be entitled to possession of the Premises without further obligation to Tenant or the trustee.

31

        (b)   Any election to assume this Lease under Chapter 11 or 13 of the Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the "Electing Party") must provide for:

        The Electing Party to cure or provide to Landlord adequate assurance that it will cure all monetary defaults under this Lease within fifteen (15) days from the date of assumption and it will cure all nonmonetary defaults under this Lease within thirty (30) days from the date of assumption, or if such default cannot be cured within that time, then such additional time as may be necessary, if, within such thirty (30) days, the Electing Party has commenced and is diligently pursuing the remedies necessary to cure such default. Landlord and Tenant acknowledge such condition to be commercially reasonable.

        (c)   If the Electing Party has assumed this Lease or elects to assign Tenant's interest under this Lease to any other person, such interest may be assigned only if the intended assignee has provided adequate assurance of future performance (as herein defined), of all of the obligations imposed on Tenant under this Lease.

        For the purposes hereof, "adequate assurance of future performance" means that Landlord has ascertained that each of the following conditions has been satisfied:

        (1)   The assignee has submitted a current financial statement, certified by its chief financial officer, which shows a net worth and working capital in amounts sufficient to assure the future performance by the assignee of Tenant's obligations under this Lease; and

        (2)   Landlord has obtained consents or waivers from any third parties that may be required under a lease, mortgage, financing arrangement, or other agreement by which Landlord is bound, to enable Landlord to permit such assignment.

        (d)   Landlord's acceptance of rent or any other payment from any trustee, receiver, assignee, person, or other entity will not be deemed to have waived, or waive, the requirement of Landlord's consent, Landlord's right to terminate this Lease for any transfer of Tenant's interest under this Lease without such consent, or Landlord's claim for any amount of Rent due from Tenant.

11.5    LANDLORD'S DEFAULT

        Landlord shall be in default hereunder in the event Landlord has not begun and pursued with reasonable diligence the cure of any failure of Landlord to meet its obligations hereunder within thirty (30) days after the receipt by Landlord of written notice from Tenant of the alleged failure to perform. In no event shall Tenant have the right to terminate or rescind this Lease as a result of Landlord's default as to any covenant or agreement contained in this Lease. Tenant hereby waives such remedies of termination and rescission and hereby agrees that Tenant's remedies for default hereunder and for breach of any promise or inducement shall be limited to a suit for damages and/or injunction. In addition, Tenant hereby covenants that, prior to the exercise of any such remedies, it will give the Mortgagee notice and a reasonable time to cure any default by Landlord.

ARTICLE 12
SURRENDER OF PREMISES

12.1    IN GENERAL

        Upon the Termination Date, Tenant shall surrender and vacate the Premises immediately and deliver possession thereof to Landlord in a clean, good and tenantable condition, ordinary wear and tear, and damage caused by Landlord excepted. Tenant shall deliver to Landlord all keys to the Premises. All improvements in and to the Premises, including any Tenant Alterations (collectively, "Leasehold Improvements") shall remain upon the Premises at the end of the Term without compensation to Tenant. Landlord, however, by written notice to Tenant at least 30 days prior to the Termination Date, may require Tenant, at its expense, to remove (a) any Cable installed by or for the

32

benefit of Tenant, and (b) any Tenant Alterations that, in Landlord's reasonable judgment, are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (collectively referred to as "Required Removables"). Required Removables shall include, without limitation, internal stairways, raised floors, personal baths and showers, vaults, rolling file systems and structural alterations and modifications. The designated Required Removables shall be removed by Tenant before the Termination Date. Tenant shall repair damage caused by the installation or removal of Required Removables. If Tenant fails to perform its obligations in a timely manner, Landlord may perform such work at Tenant's expense. Tenant, at the time it requests approval for a proposed Tenant Alteration, may request in writing that Landlord advise Tenant whether the Tenant Alteration or any portion of the Alteration is a Required Removable. Within 10 days after receipt of Tenant's request, Landlord shall advise Tenant in writing as to which portions of the Tenant Alteration are Required Removables. If any of the Tenant Alterations which were installed by Tenant involved the lowering of ceilings, raising of floors or the installation of specialized wall or floor coverings or lights, then, unless otherwise approved by Landlord in writing, Tenant shall also be obligated to return such surfaces to their condition prior to the commencement of this Lease. Tenant shall also be required to close any staircases or other openings between floors. In the event possession of the Premises is not delivered to Landlord when required hereunder, or if Tenant shall fail to remove those items described above, Landlord may (but shall not be obligated to), at Tenant's expense, remove any of such property and store, sell or otherwise deal with such property, and undertake, at Tenant's expense, such restoration work as Landlord deems necessary or advisable.

12.2    LANDLORD'S RIGHTS

        All property which may be removed from the Premises by Landlord shall be conclusively presumed to have been abandoned by Tenant and Landlord may deal with such property as provided in Section 11.2(b), including the waiver and indemnity obligations provided in that Section. Tenant shall also reimburse Landlord for all costs and expenses incurred by Landlord in removing any of Tenant Alterations and in restoring the Premises to the condition required by this Lease at the Termination Date.

ARTICLE 13
HOLDING OVER

        In the event that Tenant holds over in possession of the Premises after the Termination Date, Tenant shall pay Landlord 150% of the monthly Rent payable for the month immediately preceding the holding over (including increases for Rent Adjustments which Landlord may reasonably estimate. Tenant shall also pay all damages sustained by Landlord by reason of such retention of possession. The provisions of this Article shall not constitute a waiver by Landlord of any re-entry rights of Landlord and Tenant's continued occupancy of the Premises shall be as a tenancy in sufferance.

ARTICLE 14
DAMAGE BY FIRE OR OTHER CASUALTY

14.1    SUBSTANTIAL UNTENANTABILITY

        (a)   If any fire or other casualty (whether insured or uninsured) renders all or a substantial portion of the Premises or the Building untenantable, Landlord shall, with reasonable promptness after the occurrence of such damage, estimate the length of time that will be required to substantially complete the repair and restoration and shall by notice advise Tenant of such estimate ("Landlord's Notice"). If Landlord estimates that the amount of time required to substantially complete such repair and restoration will exceed one hundred eighty (180) days from the date such damage occurred, then Landlord, or Tenant if all or a substantial portion of the Premises is rendered untenantable, shall have the right to terminate this Lease as of the date of such damage upon giving written notice to the other

33

at any time within twenty (20) days after delivery of Landlord's Notice, provided that if Landlord so chooses, Landlord's Notice may also constitute such notice of termination.

        (b)   Unless this Lease is terminated as provided in the preceding subparagraph, Landlord shall proceed with reasonable promptness to repair and restore the Premises to its condition as existed prior to such casualty, subject to reasonable delays for insurance adjustments and Force Majeure delays, and also subject to zoning Laws and building codes then in effect. If such repairs and restoration are not in fact completed within one hundred eighty (180) days from the date such damage occurred, then Tenant shall have the right to terminate this Lease; provided, however, Landlord shall have no liability to Tenant if such repairs and restoration are not in fact completed within the time period estimated by Landlord so long as Landlord shall proceed with reasonable diligence to complete such repairs and restoration.

        (c)   Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance coverage, whether carried by Landlord or Tenant, for damages to the Premises, except for those proceeds of Tenant's insurance of its own personal property and equipment which would be removable by Tenant at the Termination Date. All such insurance proceeds shall be payable to Landlord whether or not the Premises are to be repaired and restored, provided, however, if this Lease is not terminated and the parties proceed to repair and restore Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of Tenant's insurance covering Tenant Additions, such proceeds shall be applied to reimburse Tenant for its cost of repairing and restoring Tenant Additions.

        (d)   Notwithstanding anything to the contrary herein set forth: (i) Landlord shall have no duty pursuant to this Section to repair or restore any portion of any Tenant Additions or to expend for any repair or restoration of the Premises or Building amounts in excess of insurance proceeds paid to Landlord and available for repair or restoration; and (ii) whether or not the Lease is terminated pursuant to this Article Fourteen, in no event shall Tenant be entitled to any compensation or damages for loss of the use of the whole or any part of the Premises or for any inconvenience or annoyance occasioned by any such damage, destruction, rebuilding or restoration of the Premises or the Building or access thereto.

        (e)   Any repair or restoration of the Premises performed by Tenant shall be in accordance with the provisions of Article Nine hereof.

14.2    INSUBSTANTIAL UNTENANTABILITY

        If the Premises or the Building is damaged by a casualty but neither is rendered substantially untenantable and Landlord estimates that the time to substantially complete the repair or restoration will not exceed one hundred eighty (180) days from the date such damage occurred, then Landlord shall proceed to repair and restore the Building or the Premises, including the initial Landlord Work but excluding other Tenant Additions, with reasonable promptness, unless such damage is to the Premises and occurs during the last six (6) months of the Term, in which event either Tenant or Landlord shall have the right to terminate this Lease as of the date of such casualty by giving written notice thereof to the other within twenty (20) days after the date of such casualty. Notwithstanding the aforesaid, Landlord's obligation to repair shall be limited in accordance with the provisions of Section 14.1 above.

34

14.3    RENT ABATEMENT

        If all or any part of the Premises are rendered untenantable by fire or other casualty and this Lease is not terminated, Rent shall abate for that part of the Premises which is untenantable on a per diem basis from the date of the casualty until Landlord has Substantially Completed the repair and restoration work in the Premises which it is required to perform, provided, that as a result of such casualty, Tenant does not occupy the portion of the Premises which is untenantable during such period.

14.4    WAIVER OF STATUTORY REMEDIES

        The provisions of this Lease, including this Article Fourteen, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, the Premises or the Property or any part of either, and any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California Civil Code, with respect to any rights or obligations concerning damage or destruction shall have no application to this Lease or to any damage to or destruction of all or any part of the Premises or the Property or any part of either, and are hereby waived.

ARTICLE 15
EMINENT DOMAIN

15.1    TAKING OF WHOLE OR SUBSTANTIAL PART

        In the event the whole or any substantial part of the Building or of the Premises is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation) and is thereby rendered untenantable, this Lease shall terminate as of the date title vests in such authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of the Termination Date. Notwithstanding anything to the contrary herein set forth, in the event the taking is temporary (for less than the remaining Term of the Lease), Landlord may elect either (i) to terminate this Lease or (ii) permit Tenant to receive the entire award attributable to the Premises in which case Tenant shall continue to pay Rent and this Lease shall not terminate.

15.2    TAKING OF PART

        In the event a part of the Building or the Premises is taken or condemned by any competent authority (or a deed is delivered in lieu of condemnation) and this Lease is not terminated, the Lease shall be amended to reduce or increase, as the case may be, the Monthly Base Rent and Tenant's Share to reflect the Rentable Area of the Premises or Building, as the case may be, remaining after any such taking or condemnation. Landlord, upon receipt and to the extent of the award in condemnation (or proceeds of sale) shall make necessary repairs and restorations to the Premises (exclusive of Tenant Additions) and to the Building to the extent necessary to constitute the portion of the Building not so taken or condemned as a complete architectural and economically efficient unit. Notwithstanding the foregoing, if as a result of any taking, or a governmental order that the grade of any street or alley adjacent to the Building is to be changed and such taking or change of grade makes it necessary or desirable to substantially remodel or restore the Building or prevents the economical operation of the Building, Landlord shall have the right to terminate this Lease upon ninety (90) days prior written notice to Tenant.

15.3    COMPENSATION

        Except as otherwise provided herein, Landlord shall be entitled to receive the entire award (or sale proceeds) from any such taking, condemnation or sale without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award; provided, however, Tenant shall have the right separately to pursue against the condemning authority a separate award in respect of the loss, if any, to Tenant Additions paid for by Tenant without any credit or allowance from Landlord so long as there is no diminution of Landlord's award as a result.

35

ARTICLE 16
INSURANCE

16.1    TENANT'S INSURANCE

        Tenant, at Tenant's expense, agrees to maintain in force, with a company or companies acceptable to Landlord, during the Term: (a) Commercial General Liability Insurance on a primary basis for personal injury, bodily injury, death and property damage, including contractual liability and such insurance shall be for such limits that are reasonably required by Landlord from time to time but not less than a combined single limit of Three Million and No/100 Dollars ($3,000,000.00); (b) Workers' Compensation and Employers' Liability Insurance to the extent required by and in accordance with the Laws of the State of California; (c) All Risks property insurance in an amount adequate to cover the full replacement cost of all Tenant Additions, equipment, installations, fixtures and contents of the Premises in the event of loss (we are not familiar with "Special Cause of Loss"; All Risks has been available from every other tenant); (d) in the event a motor vehicle is to be used by Tenant in connection with its business operation from the Premises, Comprehensive Automobile Liability Insurance coverage with limits of not less than One Million and No/100 Dollars ($1,000,000.00) combined single limit coverage against bodily injury liability and property damage liability arising out of the use by or on behalf of Tenant, its agents and employees in connection with this Lease, of any owned, non-owned or hired motor vehicles; and (e) such other insurance or coverages as Landlord reasonably requires.

16.2    FORM OF POLICIES

        Each policy referred to in 16.1 shall satisfy the following requirements. Each Commercial General Liability policy shall (i) name Landlord and the Indemnitees as additional insureds, (ii) be issued by one or more responsible insurance companies qualified to do business in the State of California reasonably satisfactory to Landlord, (iii) where applicable, provide for deductible amounts satisfactory to Landlord and not permit co-insurance, (iv) shall provide that such insurance may not be canceled or amended without thirty (30) days' prior written notice to the Landlord, and (v) each policy of property insurance shall provide that the policy shall not be invalidated should the insured waive in writing prior to a loss, any or all rights of recovery against any other party for losses covered by such policies. Tenant shall deliver to Landlord, certificates of insurance prior to the Commencement Date and not less than ten (10) days prior to the expiration date of each policy.

16.3    LANDLORD'S INSURANCE

        Landlord agrees to purchase and keep in full force and effect during the Term hereof, including any extensions or renewals thereof, insurance under policies issued by insurers of recognized responsibility, qualified to do business in the State of California on the Building in amounts not less than the greater of eighty (80%) percent of the then full replacement cost (without depreciation) of the Building (above foundations and excluding Tenant Additions) or an amount sufficient to prevent Landlord from becoming a co-insurer under the terms of the applicable policies, against fire and such other risks as may be included in standard forms of all risk coverage insurance reasonably available from time to time. Landlord agrees to maintain in force during the Term, Commercial General Liability Insurance covering the Building on an occurrence basis against all claims for personal injury, bodily injury, death, and property damage. Such insurance shall be for a combined single limit of not less than Three Million and No/100 Dollars ($3,000,000.00). Neither Landlord's obligation to carry such insurance nor the carrying of such insurance shall be deemed to be an indemnity by Landlord with respect to any claim, liability, loss, cost or expense due, in whole or in part, to Tenant's negligent acts or omissions or willful misconduct. Without obligation to do so, Landlord may, in its sole discretion from time to time, carry insurance in amounts greater and/or for coverage additional to the coverage and amounts set forth above.

36

16.4    WAIVER OF SUBROGATION

        (a)   Landlord agrees that, if obtainable at no, or minimal, additional cost, and so long as the same is permitted under the laws of the State of California, it will include in its "All Risks" policies appropriate clauses pursuant to which the insurance companies (i) waive all right of subrogation against Tenant with respect to losses payable under such policies and/or (ii) agree that such policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policies.

        (b)   Tenant agrees to include, if obtainable at no, or minimal, additional cost, and so long as the same is permitted under the laws of the State of California, in its "All Risks" insurance policy or policies on Tenant Additions, whether or not removable, and on Tenant's furniture, furnishings, fixtures and other property removable by Tenant under the provisions of this Lease appropriate clauses pursuant to which the insurance company or companies (i) waive the right of subrogation against Landlord and/or any tenant of space in the Building with respect to losses payable under such policy or policies and/or (ii) agree that such policy or policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policy or policies.

        (c)   Provided that Landlord's right of full recovery under its policy or policies aforesaid is not adversely affected or prejudiced thereby, Landlord hereby waives any and all right of recovery which it might otherwise have against Tenant, its servants, agents and employees, for loss or damage occurring to the Real Property and the fixtures, appurtenances and equipment therein, to the extent the same is covered by Landlord's insurance, notwithstanding that such loss or damage may result from the negligence or fault of Tenant, its servants, agents or employees. Provided that Tenant's right of full recovery under its aforesaid policy or policies is not adversely affected or prejudiced thereby, Tenant hereby waives any and all right of recovery which it might otherwise have against Landlord, its servants, and employees and against every other tenant of the Real Property who shall have executed a similar waiver as set forth in this Section 16.4 (c) for loss or damage to Tenant Additions, whether or not removable, and to Tenant's furniture, furnishings, fixtures and other property removable by Tenant under the provisions hereof to the extent the same is coverable by Tenant's insurance required under this Lease, notwithstanding that such loss or damage may result from the negligence or fault of Landlord, its servants, agents or employees, or such other tenant and the servants, agents or employees thereof.

        (d)   Landlord and Tenant hereby agree to advise the other promptly if the clauses to be included in their respective insurance policies pursuant to subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore provided. Landlord and Tenant hereby also agree to notify the other promptly of any cancellation or change of the terms of any such policy that would affect such clauses or naming.

16.5    NOTICE OF CASUALTY

        Tenant shall give Landlord notice in case of a fire or accident in the Premises promptly after Tenant is aware of such event.

ARTICLE 17
WAIVER OF CLAIMS AND INDEMNITY

17.1    WAIVER OF CLAIMS

        To the extent permitted by Law, Tenant releases the Indemnitees from, and waives all claims for, damage to person or property sustained by the Tenant or any occupant of the Premises or the Property resulting directly or indirectly from any existing or future condition, defect, matter or thing in and about the Premises or the Property or any part of either or any equipment or appurtenance therein, or

37

resulting from any accident in or about the Premises or the Property, or resulting directly or indirectly from any act or neglect of any tenant or occupant of the Property or of any other person, including Landlord's agents and servants, except to the extent caused by the gross negligence or willful and wrongful act of any of the Indemnitees. To the extent permitted by Law, Tenant hereby waives any consequential damages, compensation or claims for inconvenience or loss of business, rents, or profits as a result of such injury or damage. If any such damage, whether to the Premises or the Property or any part of either, or whether to Landlord or to other tenants in the Property, results from any act or neglect of Tenant, its employees, servants, agents, contractors, invitees or customers, Tenant shall be liable therefor and Landlord may, at Landlord's option, repair such damage and Tenant shall, upon demand by Landlord, as payment of additional Rent hereunder, reimburse Landlord within ten (10) days of demand for the total cost of such repairs, in excess of amounts, if any, paid to Landlord under insurance covering such damages. Tenant shall not be liable for any such damage caused by its acts or neglect if Landlord or a tenant has recovered the full amount of the damage from proceeds of insurance policies and the insurance company has waived its right of subrogation against Tenant.

17.2    INDEMNITY BY TENANT

        To the extent permitted by Law, Tenant hereby indemnifies, and agrees to protect, defend and hold the Indemnitees harmless, against any and all actions, claims, demands, liability, costs and expenses, including attorneys' fees and expenses for the defense thereof, arising from Tenant's occupancy of the Premises, from the undertaking of any Tenant Additions or repairs to the Premises, from the conduct of Tenant's business on the Premises, or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or from any willful act or negligence of Tenant, its agents, contractors, servants, employees, customers or invitees, in or about the Premises or the Property or any part of either. In case of any action or proceeding brought against the Indemnitees by reason of any such claim, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel reasonably acceptable to Landlord. Landlord shall not settle, compromise or dispose of any and all actions, claims and demands related to the foregoing indemnity. The foregoing indemnity shall not operate to relieve Indemnitees of liability to the extent such liability is caused by the willful and grossly-negligent act of Indemnitees. Further, the foregoing indemnity is subject to and shall not diminish any waivers in effect in accordance with Section 16.4 by Landlord or its insurers to the extent of amounts, if any, paid to Landlord under its "All-Risks" property insurance.

ARTICLE 18
RULES AND REGULATIONS

18.1    RULES

        Tenant agrees for itself and for its subtenants, employees, agents, and invitees to comply with the rules and regulations listed on Exhibit C-2 attached hereto and with all reasonable modifications and additions thereto which Landlord may make from time to time so long as such modifications and additions are generally applicable to other tenants in the Building and would not materially interfere with Tenant's use of the Premises for the purposes set forth herein.

18.2    ENFORCEMENT

        Nothing in this Lease shall be construed to impose upon the Landlord any duty or obligation to enforce the rules and regulations as set forth on Exhibit C or as hereafter adopted, or the terms, covenants or conditions of any other lease as against any other tenant, and the Landlord shall not be liable to the Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Landlord shall use reasonable efforts to enforce the rules and regulations of the Project in a uniform and non-discriminatory manner.

38

ARTICLE 19
LANDLORD'S RESERVED RIGHTS

        Landlord shall have the following rights exercisable without notice to Tenant and without liability to Tenant for damage or injury to persons, property or business and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for offset or abatement of Rent: (1) to change the Building's name or street address upon thirty (30) days' prior written notice to Tenant; (2) to install, affix and maintain all signs on the exterior and/or interior of the Building; (3) to designate and/or approve prior to installation, all types of signs, window shades, blinds, drapes, awnings or other similar items, and all internal lighting that may be visible from the exterior of the Premises; (4) upon reasonable notice to Tenant, to display the Premises to prospective purchasers and lenders at reasonable hours at any time during the Term and to prospective tenants at reasonable hours during the last twelve (12) months of the Term; (5) to grant to any party the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to prohibit Tenant from using the Premises for the purpose permitted hereunder; (6) to change the arrangement and/or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, washrooms or public portions of the Building, and to close entrances, doors, corridors, elevators or other facilities, provided that such action shall not materially and adversely interfere with Tenant's access to the Premises or the Building; (7) to have access for Landlord and other tenants of the Building to any mail chutes and boxes located in or on the Premises as required by any applicable rules of the United States Post Office; and (8) to close the Building after Standard Operating Hours, except that Tenant and its employees and invitees shall be entitled to admission at all times, under such regulations as Landlord prescribes for security purposes.

ARTICLE 20
ESTOPPEL CERTIFICATE

20.1    IN GENERAL

        Within ten (10) days after request therefor by Landlord, Mortgagee or any prospective mortgagee or owner, Tenant agrees as directed in such request to execute an Estoppel Certificate in recordable form, binding upon Tenant, certifying (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, a description of such modifications and that this Lease as modified is in full force and effect); (ii) the dates to which Rent has been paid; (iii) that Tenant is in the possession of the Premises if that is the case; (iv) that Landlord is not in default under this Lease, or, if Tenant believes Landlord is in default, the nature thereof in detail; (v) that Tenant has no offsets or defenses to the performance of its obligations under this Lease (or if Tenant believes there are any offsets or defenses, a full and complete explanation thereof); (vi) that the Premises have been completed in accordance with the terms and provisions hereof or the Workletter, that Tenant has accepted the Premises and the condition thereof and of all improvements thereto and has no claims against Landlord or any other party with respect thereto; (vii) that if an assignment of rents or leases has been served upon the Tenant by a Mortgagee, Tenant will acknowledge receipt thereof and agree to be bound by the provisions thereof; (viii) that Tenant will give to the Mortgagee copies of all notices required or permitted to be given by Tenant to Landlord; and (ix) to any other information reasonably requested.

20.2    ENFORCEMENT

        In the event that Tenant fails to deliver an Estoppel Certificate, then such failure shall be a Default; provided that Landlord shall give Tenant not less than 10 days additional written notice of and opportunity to cure such Default. In addition to any other remedy available to Landlord, Landlord may impose a charge equal to $500.00 for each day that Tenant fails to deliver an Estoppel Certificate after such notice and cure period has expired.

39

ARTICLE 21
RELOCATION OF TENANT

        At any time after the end of the 6^th month and prior to the start of the 19^th month of this Lease, Landlord may substitute for the Premises other premises in the Project or in EmeryStation North, EmeryStation East or heritage Square (the "New Premises"), in which event the New Premises shall be deemed the Premises for all purposes under this Lease, provided that (i) the New Premises shall be substantially similar to the Premises in area and configuration: (ii) if Tenant is then occupying the Premises, Landlord shall pay the actual and reasonable expenses of physically moving Tenant, its property and equipment to the New Premises including payment for replacement stationery if applicable: (iii) Landlord shall give Tenant not less that sixty (60) days' prior written notice of such substitution: and (iv) Landlord, at its expense, shall improve the New Premises with improvements substantially similar to those in the Premises at the time of such substitution, if the Premises are then improved.

ARTICLE 22
REAL ESTATE BROKERS

        Tenant represents that, except for the broker(s) listed in Section 1.1, Tenant has not dealt with any real estate broker, sales person, or finder in connection with this Lease, and no such person initiated or participated in the negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby agrees to indemnify, protect, defend and hold Landlord and the Indemnitees, harmless from and against any and all liabilities and claims for commissions and fees arising out of a breach of the foregoing representation. Landlord agrees to pay any commission to which the brokers listed in Section 1.1 are entitled in connection with this Lease pursuant to Landlord's written agreement with such broker.

ARTICLE 23
MORTGAGEE PROTECTION

23.1    SUBORDINATION AND ATTORNMENT

        This Lease is and shall be expressly subject and subordinate at all times to (i) any ground or underlying lease of the Real Property, now or hereafter existing, and all amendments, extensions, renewals and modifications to any such lease, and (ii) the lien of any mortgage or trust deed now or hereafter encumbering fee title to the Real Property and/or the leasehold estate under any such lease, and all amendments, extensions, renewals, replacements and modifications of such mortgage or trust deed and/or the obligation secured thereby, unless such ground lease or ground lessor, or mortgage, trust deed or Mortgagee, expressly provides or elects that the Lease shall be superior to such lease or mortgage or trust deed. If any such mortgage or trust deed is foreclosed (including any sale of the Real Property pursuant to a power of sale), or if any such lease is terminated, upon request of the Mortgagee or ground lessor, as the case may be, Tenant shall attorn to the purchaser at the foreclosure sale or to the ground lessor under such lease, as the case may be, provided, however, that such purchaser or ground lessor shall not be (i) bound by any payment of Rent for more than one month in advance except payments in the nature of security for the performance by Tenant of its obligations under this Lease; (ii) subject to any offset, defense or damages arising out of a default of any obligations of any preceding Landlord; or (iii) bound by any amendment or modification of this Lease made without the written consent of the Mortgagee or ground lessor; or (iv) liable for any security deposits not actually received in cash by such purchaser or ground lessor. This subordination shall be self-operative and no further certificate or instrument of subordination need be required by any such Mortgagee or ground lessor. In confirmation of such subordination, however, Tenant shall execute promptly any reasonable certificate or instrument that Landlord, Mortgagee or ground lessor may request. Tenant hereby constitutes Landlord as Tenant's attorney-in-fact to execute such certificate or instrument for and on behalf of Tenant upon Tenant's failure to do so within fifteen (15) days of a

40

request to do so. Upon request by such successor in interest, Tenant shall execute and deliver reasonable instruments confirming the attainment provided for herein.

23.2    MORTGAGEE PROTECTION

        Tenant agrees to give any Mortgagee or ground lessor, by registered or certified mail, a copy of any notice of default served upon the Landlord by Tenant, provided that prior to such notice Tenant has received notice (by way of service on Tenant of a copy of an assignment of rents and leases, or otherwise) of the address of such Mortgagee or ground lessor. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagee or ground lessor shall have an additional thirty (30) days after receipt of notice thereof within which to cure such default or if such default cannot be cured within that time, then such additional notice time as may be necessary, if, within such thirty (30) days, any Mortgagee or ground lessor has commenced and is diligently pursuing the remedies necessary to cure such default (including commencement of foreclosure proceedings or other proceedings to acquire possession of the Real Property, if necessary to effect such cure). Such period of time shall be extended by any period within which such Mortgagee or ground lessor is prevented from commencing or pursuing such foreclosure proceedings or other proceedings to acquire possession of the Real Property by reason of Landlord's bankruptcy. Until the time allowed as aforesaid for Mortgagee or ground lessor to cure such defaults has expired without cure, Tenant shall have no right to, and shall not, terminate this Lease on account of default. This Lease may not be modified or amended so as to reduce the Rent or shorten the Term, or so as to adversely affect in any other respect to any material extent the rights of the Landlord, nor shall this Lease be canceled or surrendered, without the prior written consent, in each instance, of the ground lessor or the Mortgagee.

ARTICLE 24
NOTICES

        (a)   All notices, demands or requests provided for or permitted to be given pursuant to this Lease must be in writing and shall be personally delivered, sent by Federal Express or other reputable overnight courier service, or mailed by first class, registered or certified United States mail, return receipt requested, postage prepaid.

        (b)   All notices, demands or requests to be sent pursuant to this Lease shall be deemed to have been properly given or served by delivering or sending the same in accordance with this Section, addressed to the parties hereto at their respective addresses listed in Section 1.1.

        (c)   Notices, demands or requests sent by mail or overnight courier service as described above shall be effective upon deposit in the mail or with such courier service. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from (i) in the case of delivery by mail, the date of receipt on the return receipt of the notice, demand or request by the addressee thereof, or (ii) in the case of delivery by Federal Express or other overnight courier service, the date of acceptance of delivery by an employee, officer, director or partner of Landlord or Tenant. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given, as indicated by advice from Federal Express or other overnight courier service or by mail return receipt, shall be deemed to be receipt of notice, demand or request sent. Notices may also be served by personal service upon any officer, director or partner of Landlord or Tenant, and shall be effective upon such service.

        (d)   By giving to the other party at least thirty (30) days written notice thereof, either party shall have the right from time to time during the term of this Lease to change their respective addresses for notices, statements, demands and requests, provided such new address shall be within the United States of America.

41

ARTICLE 25
MISCELLANEOUS

25.1    LATE CHARGES

        (a)   All payments required hereunder (other than the Monthly Base Rent, Rent Adjustments, and Rent Adjustment Deposits, which shall be due as hereinbefore provided) to Landlord shall be paid within ten (10) days after Landlord's demand therefor. All such amounts (including Monthly Base Rent, Rent Adjustments, and Rent Adjustment Deposits) not paid when due shall bear interest from the date due until the date paid at the Default Rate in effect on the date such payment was due.

        (b)   In the event Tenant is more than five (5) days late in paying any installment of Rent due under this Lease, Tenant shall pay Landlord a late charge equal to five percent (5%) of the delinquent installment of Rent. The parties agree that (i) such delinquency will cause Landlord to incur costs and expenses not contemplated herein, the exact amount of which will be difficult to calculate, including the cost and expense that will be incurred by Landlord in processing each delinquent payment of rent by Tenant, (ii) the amount of such late charge represents a reasonable estimate of such costs and expenses and that such late charge shall be paid to Landlord for each delinquent payment in addition to all Rent otherwise due hereunder. The parties further agree that the payment of late charges and the payment of interest provided for in subparagraph (a) above are distinct and separate from one another in that the payment of interest is to compensate Landlord for its inability to use the money improperly withheld by Tenant, while the payment of late charges is to compensate Landlord for its additional administrative expenses in handling and processing delinquent payments.

        (c)   Payment of interest at the Default Rate and/or of late charges shall not excuse or cure any default by Tenant under this Lease, nor shall the foregoing provisions of this Article or any such payments prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay Rent when due, including the right to terminate this Lease.

25.2    NO JURY TRIAL; VENUE; JURISDICTION

        To the fullest extent permitted by law, including laws enacted after the date of this Lease, each party hereto (which includes any assignee, successor, heir or personal representative of a party) shall not seek a jury trial, hereby waives trial by jury, and hereby further waives any objection to venue in the County in which the Project is located, and agrees and consents to personal jurisdiction of the courts of the State of California, in any action or proceeding or counterclaim brought by any party hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or damage, or the enforcement of any remedy under any statute, emergency or otherwise, whether any of the foregoing is based on this Lease or on tort law. No party will seek to consolidate any such action in which a jury has been waived with any other action in which a jury trial cannot or has not been waived. It is the intention of the parties that these provisions shall be subject to no exceptions. The provisions of this Section shall survive the expiration or earlier termination of this Lease.

42

25.3    DEFAULT UNDER OTHER LEASE

        Tenant agrees for Tenant and Tenant's heirs, executors, administrators, successors and assigns and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, national origin or ancestry (whether in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the Premises or otherwise) nor shall Tenant or any person claiming under or through Tenant establish or permit any such practice or practices of discrimination or segregation with reference to the use or occupancy of the Premises by Tenant or any person claiming through or under Tenant.

25.4    OPTION

        This Lease shall not become effective as a lease or otherwise until executed and delivered by both Landlord and Tenant. The submission of the Lease to Tenant does not constitute a reservation of or option for the Premises, but when executed by Tenant and delivered to Landlord, the Lease shall constitute an irrevocable offer by Tenant in effect for fifteen (15) days to lease the Premises on the terms and conditions herein contained.

25.5    TENANT AUTHORITY

        Tenant represents and warrants to Landlord that it has full authority and power to enter into and perform its obligations under this Lease, that the person executing this Lease is fully empowered to do so, and that no consent or authorization is necessary from any third party. Landlord may request that Tenant provide Landlord evidence of Tenant's authority.

25.6    ENTIRE AGREEMENT

        This Lease, the Exhibits attached hereto and the Workletter contain the entire agreement between Landlord and Tenant concerning the Premises and there are no other agreements, either oral or written, and no other representations or statements, either oral or written, on which Tenant has relied. This Lease shall not be modified except by a writing executed by Landlord and Tenant.

25.7    MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE

        If Mortgagee of Landlord requires a modification of this Lease which shall not result in any increased cost or expense to Tenant or in any change in the rights and obligations of Tenant hereunder, then Tenant agrees that it will enter into a modification agreement with respect to this Lease agreement.

25.8    EXCULPATION

        Tenant agrees, on its behalf and on behalf of its successors and assigns, that any liability or obligation under this Lease shall only be enforced against Landlord's equity interest in the Property and in no event against any other assets of the Landlord, or Landlord's officers or directors or partners, and that any liability of Landlord with respect to this Lease shall be so limited and Tenant shall not be entitled to any judgment in excess of such amount.

25.9    ACCORD AND SATISFACTION

        No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of Rent due shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of Rent shall 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 installment or payment of Rent or pursue any other remedies available to Landlord. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Premises shall reinstate, continue or extend the Term.

43

Receipt or acceptance of payment from anyone other than Tenant, including an assignee of Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept such payment on account of the amount due without prejudice to Landlord's right to pursue any remedies available to Landlord.

25.10    LANDLORD'S OBLIGATIONS ON SALE OF BUILDING

        In the event of any sale or other transfer of the Building, Landlord shall be entirely freed and relieved of all agreements and obligations of Landlord hereunder accruing or to be performed after the date of such sale or transfer, and any remaining liability of Landlord with respect to this Lease shall be limited to the dollar amount specified in Section 24.8 and Tenant shall not be entitled to any judgment in excess of such amount. Landlord shall have the right to assign this Lease to an entity comprised of the principals of Landlord or affiliates of such entities. Upon such assignment and assumption of all of the obligations of Landlord hereunder, Landlord shall be entirely freed and relieved of all obligations hereunder.

25.11    BINDING EFFECT

        Subject to the provisions of Article Ten, this Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and permitted assigns.

25.12    CAPTIONS

        The Article and Section captions in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such Articles and Sections.

25.13    TIME; APPLICABLE LAW; CONSTRUCTION

        Time is of the essence of this Lease and each and all of its provisions. This Lease shall be construed in accordance with the Laws of the State of California. If more than one person signs this Lease as Tenant, the obligations hereunder imposed shall be joint and several. If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each item, covenant or condition of this Lease shall be valid and be enforced to the fullest extent permitted by Law. Wherever the term "including" or "includes" is used in this Lease, it shall have the same meaning as if followed by the phrase "but not limited to". The language in all parts of this Lease shall be construed according to its normal and usual meaning and not strictly for or against either Landlord or Tenant.

25.14    ABANDONMENT

        In the event Tenant vacates or abandons the Premises but is otherwise in compliance with all the terms, covenants and conditions of this Lease, Landlord shall, with reasonable prior notice to Tenant, (i) have the right to enter into the Premises in order to show the space to prospective tenants, (ii) have the right to reduce the services provided to Tenant pursuant to the terms of this Lease to such levels as Landlord reasonably determines to be adequate services for an unoccupied premises, and (iii) during the last six (6) months of the Term, have the right to prepare the Premises for occupancy by another tenant upon the end of the Term. Tenant expressly acknowledges that in the absence of written notice pursuant to Section 11.2(b) or pursuant to California Civil Code Section 1951.3 terminating Tenant's right to possession, none of the foregoing acts of Landlord or any other act of Landlord shall constitute a termination of Tenant's right to possession or an acceptance of Tenant's surrender of the Premises, and the Lease shall continue in effect.

44

25.15    LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES

        If Tenant fails timely to perform any of its duties under this Lease or the Workletter beyond any applicable notice and cure periods, Landlord shall have the right (but not the obligation), to perform such duty on behalf and at the expense of Tenant without prior notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty shall be deemed to be additional Rent under this Lease and shall be due and payable upon demand by Landlord.

25.16    SECURITY SYSTEM

        Landlord, as an Operating Expense, shall provide security for the Building not dissimilar to the security currently being provided in the Building, however Landlord shall not be responsible for the quality of any such patrol or system which may be provided hereunder or for damage or injury to Tenant, its employees, invitees or others due to the failure, action or inaction of such patrol or system.

25.17    NO LIGHT, AIR OR VIEW EASEMENTS

        Any diminution or shutting off of light, air or view by any structure which may be erected on lands of or adjacent to the Project shall in no way affect this Lease or impose any liability on Landlord.

25.18    RECORDATION

        Neither this Lease, nor any notice nor memorandum regarding the terms hereof, shall be recorded by Tenant unless requested by Landord. Any such unauthorized recording shall be a Default for which there shall be no cure or grace period. Tenant agrees to execute and acknowledge, at the request of Landlord, a memorandum of this Lease, in recordable form.

25.19    SURVIVAL

        The waivers of the right of jury trial, the other waivers of claims or rights, the releases and the obligations of Tenant under this Lease to indemnify, protect, defend and hold harmless Landlord and/or Indemnitees shall survive the expiration or termination of this Lease, and so shall all other obligations or agreements which by their terms survive expiration or termination of the Lease.

25.20    RIDERS

        All Riders attached hereto and executed both by Landlord and Tenant shall be deemed to be a part hereof and hereby incorporated herein.

        [Signatures on Following Page]

45

        IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in Section 1.1 hereof.

TENANT:	LANDLORD:
ZOGENIX, INC., a Delaware corporation	EMERY STATION JOINT VENTURE, LLC, a California limited liability company
By: /s/ Stephen J. Farr Print Name: Stephen J. Farr Its: President and CEO	By: /s/ Richard K. Robbins Richard K. Robbins Managing Member
Date: 30 October 2006	Date: Nov. 1, 2006

46

EXHIBIT A

PLAN OF PREMISES

[Pictorial description of space]

A-1

EXHIBIT B
Intentionally omitted

B-1

EXHIBIT C-1

LABORATORY RULES AND REGULATIONS

1.

Any laboratory equipment (glass and cage washers, sterilizers, centrifuges, etc.) being used during normal business hours must be properly insulated for noise to prevent interruption of other tenants' business. Landlord reserves the right to request all equipment be insulated prior to occupancy. Should other tenants complain of noise, lab tenant will be responsible for abating any noise issues, at their sole cost.

2.

Any damages to property due to leaks from lab equipment will be the sole responsibility of the Tenant. Should damage occur in other Tenant spaces, any and all damages and clean up will be the responsibility of equipment owner (lab tenant).

3.

Animal activities are a recognized and necessary process in the biotech industry. It can only be conducted by lab tenants pursuant to all the requirements of their respective lease (including the "Use" clause) and requires specific, written approval by Landlord in advance. We also expect any animal operations to be conducted pursuant to all regulations, standards and best industry practices relating to them.

4.

The EmeryStation Campus is a mixed-use facility and lab tenants share space with office tenants. To reduce the potential interaction with office tenants and their employees and visitors with any biotech animal operations or animal testing performed, deliveries of animals and any equipment, foods, cleaners, etc. associated with animal activities must be coordinated through the loading dock after hours and with the cooperation of the building management and security personnel. Tenant should make every effort to handle any deliveries relating to animal activities outside of Standard Operating Hours. The freight elevator must be used at all times, and delivery trucks should not be visible to the other tenants in the campus area. No cartons, containers or cardboard boxes bearing the nature of contents may be stored or left in common area spaces, to include any garage/freight areas. Feed bags, animal carriers, and any and all containers must be disposed of properly and with discretion.

5.

All exterior signage relating to laboratory operations (i.e. visible to common areas including corridors) must be kept to the minimum required by law. All signs must have Landlord's approval prior to installation.

C-1

EXHIBIT C-2

RULES AND REGULATIONS

1.

No sidewalks, entrance, passages, courts, elevators, vestibules, stairways, corridors or halls shall be obstructed or encumbered by Tenant or used for any purpose other than ingress and egress to and from the Premises and if the Premises are situated on the ground floor of the Project, Tenant shall further, at Tenant's own expense, keep the sidewalks and curb directly in front of the Premises clean and free from rubbish.

2.

No awning or other projection shall be attached to the outside walls or windows of the Project without the prior written consent of Landlord. No curtains, blinds, shades, drapes or screens shall be attached to or hung in, or used in connection with any window or door of the Premises, without the prior written consent of Landlord. Such awnings, projections, curtains, blinds, shades, drapes, screens and other fixtures must be of a quality, type, design, color, material and general appearance approved by Landlord, and shall be attached in the manner approved by Landlord. All lighting fixtures hung in offices or spaces along the perimeter of the Premises must be of a quality, type, design, bulb color, size and general appearance approved by Landlord.

3.

No sign, advertisement, notice, lettering, decoration or other thing shall be exhibited, inscribed, painted or affixed by Tenant on any part of the outside or inside of the Premises or of the Project, without the prior written consent of Landlord. In the event of the violation of the foregoing by Tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to Tenant.

4.

The sashes, sash doors, skylights, windows and doors that reflect or admit light or air into the halls, passageways or other public places in the Project shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the window sills or in the public portions of the Project.

5.

No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Project, nor placed in public portions thereof without the prior written consent of Landlord.

6.

The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by Tenant to the extent that Tenant or Tenant's agents, servants, employees, contractors, visitors or licensees shall have caused the same.

7.

Tenant shall not mark, paint, drill into or in any way deface any part of the Premises or the Project. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct.

8.

No animal or bird of any kind shall be brought into or kept in or about the Premises or the Project, except seeing-eye dogs or other seeing-eye animals.

9.

Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights.

10.

Tenant shall not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of the Project, or neighboring buildings or premises, or those having business with them. Tenant shall not throw anything out of the doors, windows or skylights or down the passageways.

11.

Neither Tenant nor any of Tenant's agents, servants, employees, contractors, visitors or licensees shall at any time bring or keep upon the Premises any flammable, combustible or explosive fluid,

C-2

chemical or substance, except for such items which are used by Tenant in the conduct of its business.

12.

No additional locks, bolts or mail slots of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any change be made in existing locks or the mechanism thereof. Tenant must, upon the termination of the tenancy, restore to Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay to Landlord the cost thereof.

13.

All removals, or the carrying in or out of any safes, freight, furniture, construction material, bulky matter or heavy equipment of any description must take place during the hours which Landlord or its agent may determine from time to time. Landlord reserves the right to prescribe the weight and position of all safes, which must be placed upon two-inch thick plank strips to distribute the weight. The moving of safes, freight, furniture, fixtures, bulky matter or heavy equipment of any kind must be made upon previous notice to the Building Manager and in a manner and at times prescribed by him, and the persons employed by Tenant for such work are subject to Landlord's prior approval. Landlord reserves the right to inspect all safes, freight or other bulky articles to be brought into the Project and to exclude from the Project all safes, freight or other bulky articles which violate any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part.

14.

Tenant shall not purchase spring water, towels, janitorial or maintenance or other like service from any company or persons not approved by Landlord. Landlord shall approve a sufficient number of sources of such services to provide Tenant with a reasonable selection, but only in such instances and to such extent as Landlord in its judgment shall consider consistent with security and proper operation of the Project.

15.

Landlord shall have the right to prohibit any advertising or business conducted by Tenant referring to the Project which, in Landlord's opinion, tends to impair the reputation of the Project or its desirability as a first class building for offices and/or commercial services and upon notice from Landlord, Tenant shall refrain from or discontinue such advertising.

16.

Landlord reserves the right to exclude from the Project between the hours of 6:00 p.m. and 8:00 a.m. Monday through Friday, after 1:00 p.m. on Saturdays and at all hours Sundays and legal holidays, all persons who do not present a pass to the Project issued by Landlord. Landlord may furnish passes to Tenant so that Tenant may validate and issue same. Tenant shall safeguard said passes and shall be responsible for all acts of persons in or about the Project who possess a pass issued to Tenant.

17.

Tenant's contractors shall, while in the Premises or elsewhere in the Project, be subject to and under the control and direction of the Building Manager (but not as agent or servant of said Building Manager or of Landlord).

18.

If the Premises is or becomes infested with vermin as a result of the use or any misuse or neglect of the Premises by Tenant, its agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith at Tenant's expense cause the same to be exterminated from time to time to the satisfaction of Landlord and shall employ such licensed exterminators as shall be approved in writing in advance by Landlord.

19.

The requirements of Tenant will be attended to only upon application at the office of the Project. Project personnel shall not perform any work or do anything outside of their regular duties unless under special instructions from the office of the Landlord.

20.

Canvassing, soliciting and peddling in the Project are prohibited and Tenant shall cooperate to prevent the same.

C-3

21.

No water cooler, air conditioning unit or system or other apparatus shall be installed or used by Tenant without the written consent of Landlord.

22.

There shall not be used in any premises, or in the public halls, plaza areas, lobbies, or elsewhere in the Project, either by Tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks or dollies, except those equipped with rubber tires and sideguards.

23.

Tenant, Tenant's agents, servants, employees, contractors, licensees, or visitors shall not park any vehicles in any driveways, service entrances, or areas posted "No Parking" and shall comply with any other parking restrictions imposed by Landlord from time to time.

24.

Tenant shall install and maintain, at Tenant's sole cost and expense, an adequate visibly marked (at all times properly operational) fire extinguisher next to any duplicating or photocopying machine or similar heat producing equipment, which may or may not contain combustible material, in the Premises.

25.

Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises.

26.

Tenant shall not use the name of the Project for any purpose other than as the address of the business to be conducted by Tenant in the Premises, nor shall Tenant use any picture of the Project in its advertising, stationery or in any other manner without the prior written permission of Landlord. Landlord expressly reserves the right at any time to change said name without in any manner being liable to Tenant therefor.

27.

Tenant shall not prepare any food nor do any cooking, operate or conduct any restaurant, luncheonette or cafeteria for the sale or service of food or beverages to its employees or to others, except that food and beverage preparation by Tenant's employees using microwave ovens or coffee makers shall be permitted provided no odors of cooking or other processes emanate from the Premises. Tenant shall not install or permit the installation or use of any vending machine or permit the delivery of any food or beverage to the Premises except by such persons and in such manner as are approved in advance in writing by Landlord.

28.

The Premises shall not be used as an employment agency, a public stenographer or typist, a labor union office, a physician's or dentist's office, a dance or music studio, a school, a beauty salon, or barber shop, the business of photographic, multilith or multigraph reproductions or offset printing (not precluding using any part of the Premises for photographic, multilith or multigraph reproductions solely in connection with Tenant's own business and/or activities), a restaurant or bar, an establishment for the sale of confectionery, soda, beverages, sandwiches, ice cream or baked goods, an establishment for preparing, dispensing or consumption of food or beverages of any kind in any manner whatsoever, or news or cigar stand, or a radio, television or recording studio, theatre or exhibition hall, or manufacturing, or the storage or sale of merchandise, goods, services or property of any kind at wholesale, retail or auction, or for lodging, sleeping or for any immoral purposes.

29.

Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not install any machine or equipment which causes noise, heat, cold or vibration to be transmitted to the structure of the building in which the Premises are located without Landlord's prior written consent, which consent may be conditioned on such terms as Landlord may require. Tenant shall not place a load upon any floor of the Premises exceeding the floor load per square foot that such floor was designed to carry and which is allowed by Law.

C-4

30.

Tenant shall not bring any Hazardous Materials onto the Premises except for those that are in general commercial use and are incidental to Tenant's business office operations and only in quantities suitable for immediate use.

31.

Tenant shall not store any vehicle within the parking area. Tenant's parking rights are limited to the use of parking spaces for short-term parking, of up to twenty-four (24) hours, of vehicles utilized in the normal and regular daily travel to and from the Project. Tenants who wish to park a vehicle for longer than a 24-hour period shall notify the Building Manager for the Project and consent to such long-term parking may be granted for periods up to two (2) weeks. Any motor vehicles parked without the prior written consent of the Building Manager for the Project for longer than a 24-hour period shall be deemed stored in violation of this rule and regulation and shall be towed away and stored at the owner's expense or disposed of as provided by Law. Notwithstanding the foregoing, Tenant shall have the right to park one company owned car for periods longer than 24-hours.

32.

Smoking is prohibited in the Premises, the Building and all enclosed Common Areas of the Project, including all lobbies, all hallways, all elevators and all lavatories.

C-5

RIDER 1

COMMENCEMENT DATE AGREEMENT

        EMERY STATION JOINT VENTURE, LLC, a California limited liability company ("Landlord"), and                    , a                    corporation ("Tenant"), have entered into a certain Lease dated as of                    , 2006 (the "Lease").

        WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement Date and Expiration Date of the Lease as provided for in Section 2.2(b) of the Lease;

        NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein and in the Lease, Landlord and Tenant agree as follows:

        1.     Unless otherwise defined herein, all capitalized terms shall have the same meaning ascribed to them in the Lease.

        2.     The Commencement Date (as defined in the Lease) of the Lease is                    .

        3.     The Expiration Date (as defined in the Lease) of the Lease is                    .

        4.     Tenant hereby confirms the following:

        (a)   That it has accepted possession of the premises pursuant to the terms of the Lease;

        (b)   That the Landlord Work is Substantially Complete; and

        (c)   That the Lease is in full force and effect.

        5.     Except as expressly modified hereby, all terms and provisions of the Lease are hereby ratified and confirmed and shall remain in full force and effect and binding on the parties hereto.

        6.     The Lease and this Commencement Date Agreement contain all of the terms, covenants, conditions and agreements between the Landlord and the Tenant relating to the subject matter herein. No prior other agreements or understandings pertaining to such matters are valid or of any force and effect.

TENANT:	LANDLORD:
TETHYS BIOSCIENCE, INC., a	EMERY STATION JOINT VENTURE, LLC, a California limited liability company
By:	By:
Print Name:		Richard K. Robbins
Its:		Managing Member

RIDER-1

QuickLinks

Exhibit 10.8

OFFICE LEASE BETWEEN EMERY STATION JOINT VENTURE, LLC (LANDLORD) AND ZOGENIX, INC., (TENANT) EMERYSTATION Emeryville, California
OFFICE LEASE ARTICLE 1 BASIC LEASE PROVISIONS
ARTICLE 2 PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING
ARTICLE 3 RENT
ARTICLE 4 RENT ADJUSTMENTS AND PAYMENTS
ARTICLE 5 SECURITY DEPOSIT
ARTICLE 6 SERVICES
ARTICLE 7 POSSESSION, USE AND CONDITION OF PREMISES
ARTICLE 8 MAINTENANCE
ARTICLE 9 ALTERATIONS AND IMPROVEMENTS
ARTICLE 10 ASSIGNMENT AND SUBLETTING
ARTICLE 11 DEFAULT AND REMEDIES
ARTICLE 12 SURRENDER OF PREMISES
ARTICLE 13 HOLDING OVER
ARTICLE 14 DAMAGE BY FIRE OR OTHER CASUALTY
ARTICLE 15 EMINENT DOMAIN
ARTICLE 16 INSURANCE
ARTICLE 17 WAIVER OF CLAIMS AND INDEMNITY
ARTICLE 18 RULES AND REGULATIONS
ARTICLE 19 LANDLORD'S RESERVED RIGHTS
ARTICLE 20 ESTOPPEL CERTIFICATE
ARTICLE 21 RELOCATION OF TENANT
ARTICLE 22 REAL ESTATE BROKERS
ARTICLE 23 MORTGAGEE PROTECTION
ARTICLE 24 NOTICES
ARTICLE 25 MISCELLANEOUS
RIDER 1 COMMENCEMENT DATE AGREEMENT

EX-10.9

Exhibit 10.9

FIRST AMENDMENT
to
LEASE BETWEEN
EMERY STATION JOINT VENTURE, LLC (LANDLORD)
And
ZOGENIX, INC. (TENANT)
EMERYSTATION I PROJECT
Emeryville, California

That certain Lease dated October 31, 2006 by and between Emery Station Joint Venture, LLC, as Landlord, and Zogenix, Inc., as Tenant, is hereby amended by this First Amendment dated July 10, 2007 as follows:

I.

Tenant has requested, and Landlord has agreed to (subject to its ability to relocate the existing tenant thereof under commercially reasonable terms) an expansion of the proposed Premises to include the 3,253 rentable square foot Suite 465 (the "Expansion Space"), which is immediately north of Tenant's existing 4,163 rentable square foot Premises (the "Existing Premises"). Both Landlord and Tenant shall have the right to cancel this First Lease Amendment, with no liability of either to the other, if said existing tenant shall not have vacated the Expansion Space within ninety (90) days of the date hereof.

II.

Effective upon delivery of Suite 465 in its as-is condition (once the existing tenant has moved out including removal of its furniture unless said furniture has been available to be purchased and Tenant has elected to do so), which date shall be referred to as the "Expansion Space Commencement Date", the base Lease will be modified as follows:

a)

Section 1.1(5) LEASE TERM shall become four (4) years following the first day of calendar month following the Expansion Space Commencement Date.

b)

Section 1.1(8) MONTHLY BASE RENT shall be modified as follows: The Expansion Space shall bear Monthly Base Rent of $10,000.00 during the first 12 months following the Expansion Space Commencement Date (the equivalent of $3.074 per rentable square foot per month). On the first Anniversary of the Expansion Space Commencement Date and annually thereafter this Monthly Base Rent shall increase by three percent (3%). Per the terms of the Lease, Tenant's Existing Premises bears Monthly Base Rent of $10,823.80 through November 30, 2007, at which time it becomes $11,148.51 through November 30, 2008. For the period from December 1, 2008 until the end of the newly-extended Lease Term pursuant to II(a) above, the Existing Premises will bear Monthly Base Rent at the same rate per square foot as the Expansion Premises is scheduled to bear.

c)

Section 1.1(9) RENTABLE AREA OF THE PREMISES shall become 7,416 square feet and Tenant's pro-rata share shall be adjusted accordingly.

d)

Section 1.I (1 0) BASE YEAR shall be modified to indicate that the Base Year for both the Existing Premises and the Expansion Premises shall be 2007.

e)

Section 1.1(13) PARKING shall, be modified such that Tenant shall be entitled to as many as ten (10) more non-premium spaces on an as needed basis, making the total non-premium spaces to which they are entitled nineteen (19).

f)

Section I ..1(14) SECURITY DEPOSIT shall be modified as follows: Within five (5) business days of the Expansion Space Commencement Date, tenant shall remit $17,423.06 in good and collected funds to Landlord to increase the Security Deposit under the Lease to a new total of $39,720.08.

III.

Upon the Expansion Space Commencement Date, Landlord shall make available to Tenant a Tenant Improvement Allowance totaling $95,628.75, which funds Tenant can use to reimburse itself for valid, documentable third-party costs associated with improvements that Tenant has already made to its Existing Space and/or for improvements Tenant will make after the date hereof to either the Expansion Space and/or its Existing Premises.

IV.

Article 20 regarding relocation shall continue to prohibit this right by Landlord during the last six months of the Lease Term.

V.

A new section shall be added to Tenant's Lease as follows:

RIGHT OF SECOND EXPANSION

During the first six (6) months following the date of this First Amendment, Tenant may provide a written notice to Landlord that it intends to lease the 1,602 rentable square foot Suite 453 (the "Second Expansion Space"), which suite is currently being used as a conference room and marketing office by an affiliate of Landlord. Landlord shall deliver possession of Suite 453 in its then as-is condition, vacant, within a commercially-reasonable timeframe of Tenant's written notice, understanding that Landlord will need to relocate the functions of the suite to another location. Upon Landlord's delivery of possession of the Second Expansion Space to Tenant, Tenant's Lease shall be further amended as follows:

a)

The Rentable Area of the Premises shall be increased by 1,602 square feet to a new total of 9,018 square feet.



b)

Monthly Base Rent for the Second Expansion Space shall be $5,500.00, increasing three percent (3%) annually.



c)

The Base year for the Second Expansion Space shall be 2007.

VI.

Tenant represents to Landlord that it has represented itself in this transaction and that no brokerage fee or other such payment shall be due any representative of Tenant as a result hereof.

Except for those terms outlined above, all other terms and conditions of the base Lease and WorkLetter and Exhibits shall apply.

In witness hereof, the parties have executed this First Amendment as of the date noted below.

TENANT:		LANDLORD:
Zogenix, Inc., a Delaware Corporation.		Emery Station Joint Venture, LLC, a California Limited Liability
By:	/s/  STEPHEN J. FARR	By:	[Illegible]
Print Name:	Stephen J. Farr	Print Name:	[Illegible]
Its:	President	Its:
Dated:	13 July 2007	Dated:

EX-10.10

Exhibit 10.10

	SUBLEASE
	CB RICHARD ELLIS, INC.
	BROKERAGE AND MANAGEMENT
	LICENSED REAL ESTATE BROKER

1.PARTIES.

This Sublease, dated                                                      March 20                                           ,  2007                    ; , is made between TBA Entertainment Corporation, a Delaware corporation                                                                                              (“Sublessor”), Zogenix, Inc., a Delaware corporation                                                                                                                            (“Sublessee”).

2.MASTER LEASE.

Sublessor is the lessee under a written lease dated April 23                                                                                 ,   1998                , wherein Pacific Torrey Reserve Holdings L.P., a California limited partnership (“Lessor”) leased to Sublessor the real property located in the City of   San Diego                                                                                            , County of   San Diego , State of California                                                                                         , described as  Suite 310-3, 794 rentable square feet, 11682 El Camino Real, San Diego, CA 92130                                                    
                                                                                                                                                                          &nb sp;                                     
(“Master Premises”). Said Lease has been amended by the following amendments First Amendment to Lease dated June 22, 2003 and Second Amendment to Lease dated September 24, 2004                                                                                                                                                                                                                                                                                          &nb sp;                                    ; said lease and amendments are herein collectively referred to as the “Master Lease” and are attached hereto as Exhibit “A.”

3.PREMISES.

Sublessor hereby subleases to Sublessee on the terms and conditions set forth in this Sublease the following portion of the                                        4,193 rentable square feet (“RSF”)/3,646 usable square feet (“USF”) referred to as Suite 320, 11682 Master Premises (“Premises”): El Camino Real,                                                                                                                              San Diego, CA 92130 per the attached Exhibit “C”.                                                                                                                              

4.WARRANTY BY SUBLESSOR.

Sublessor warrants and represents to Sublessee that the Master Lease has not been amended or modified except as expressly set forth herein, that Sublessor is not now, and as of the commencement of the Term hereof will not be, in default or breach of any of the provisions of the Master Lease, and that Sublessor has no knowledge of any claim by Lessor that Sublessor is in default or breach of any of the provisions of the Master Lease.

5.TERM.

The term of this Sublease shall commence on                              June 1                                , 2007                          (Commencement Date”), and end on                                              May 31, 2010               (“Termination Date”), unless otherwise sooner terminated in accordance with the provisions of this Sublease. In the event the Term commences on a date other than the Commencement Date, Sublessor and Sublessee shall execute a memorandum setting forth the actual date of commencement of the Term. Possession of the Premises (“Possession”) shall be delivered to Sublessee on the commencement of the Term. If for any reason Sublessor does not deliver Possession to Sublessee on the commencement of the Term, Sublessor shall not be subject to any liability for such failure, the Termination Date shall not be extended by the delay, and the validity of this Sublease shall not be impaired, but rent shall abate until delivery of Possession. Notwithstanding the foregoing, if Sublessor has not delivered Possession to Sublessee within thirty (30) days after the Commencement Date, then at any time thereafter and before delivery of Possession, Sublessee may give written notice to Sublessor of Sublessee’s intention to cancel this Sublease. Said notice shall set forth an effective date for such cancellation which shall be at least ten (10) days after delivery of said notice to Sublessor. If Sublessor delivers Possession to Sublessee on or before such effective date, this Sublease shall remain in full force and effect. If Sublessor fails to deliver Possession to Sublessee on or before such effective date, this Sublease shall be cancelled, in which case all consideration previously paid by Sublessee to Sublessor on account of this Sublease shall be returned to Sublessee, this Sublease shall thereafter be of no further force or effect, and Sublessor shall have no further liability to Sublessee on account of such delay or cancellation. If Sublessor permits Sublessee to take Possession prior to the commencement of the Term, such early Possession shall not advance the Termination Date and shall be subject to the provisions of this Sublease, including without limitation the payment of rent. Notwithstanding the above, the Sublessee may utilize the period of May 16-31, 2007 for installation of carpet and furniture, fixtures and equipment (“FF&E”) on a rent free basis.

6.RENT. (Please SeeAddendum)

6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without deduction, setoff, notice, or demand, at 21700 Oxnard St., Ste. 1430, Woodland Hills, CA 91367, Attn: Accounts Receivable                                                                                 or at such other place as Sublessor shall designate from time to time by notice to Sublessee, the sum of Fourteen thousand four hundred sixty-five dollars and eighty-five cents per monthDollars ($14,465.85                                ) per month, in advance on the first day of each month of the Term. Sublessee shall pay to Sublessor upon execution of this Sublease the sum of Fourteen thousand four hundred sixty-five dollars and eighty-five cents                             Dollars ($14,465.85                          ) as rent for June, 2007                                                          & nbsp;                                                                                 . If the Term begins or ends on a day other than the first or last day of a month, the rent for the partial months shall be prorated on a per diem basis. Additional provisions:

Please See Addendum                                                                                                                                                  & nbsp;                         

1

7.SECURITY DEPOSIT. (Please See Addendum)

Sublessee shall deposit with Sublessor upon execution of this Sublease the sum of Fourteen thousand four hundred sixty-five Dollars and eighty-five cents                                                                                                 Dollars ($ 14,465.85                               ) as security for Sublessee’s faithful performance of Sublessee’s obligations hereunder (“Security Deposit”. If Sublessee fails to pay rent or other charges when due under this Sublease, or fails to perform any of its other obligations hereunder, Sublessor may use or apply all or any portion of the Security Deposit for the payment of any rent or other amount then due hereunder and unpaid, for the payment of any other sum for which Sublessor may become obligated by reason of Sublessee’s default or breach, or for any loss or damage sustained by Sublessor as a result of Sublessee’s default or breach. If Sublessor so uses any portion of the Security Deposit, Sublessee shall, within ten (10) days after written demand by Sublessor, restore the Security Deposit to the full amount originally deposited, and Sublessee’s failure to do so shall constitute a default under this Sublease. Sublessor shall not be required to keep the Security Deposit separate from its general accounts, and shall have no obligation or liability for payment of interest on the Security Deposit. In the event Sublessor assigns its Interest in this Sublease, Sublessor shall deliver to its assignee so much of the Security Deposit as is then held by Sublessor. Within ten (10) days after the Term has expired, or Sublessee has vacated the Premises, or any final adjustment pursuant to Subsection 6.2 hereof has been made, whichever shall last occur, and provided Sublessee is not then in default of any of its obligations hereunder, the Security Deposit, or so much thereof as had not theretofore been applied by Sublessor, shall be returned to Sublessee or to the last assignee, If any, of Sublessee’s interest hereunder.

8.USE OF PREMISES.

The Premises shall be used and occupied only for general office space                                                                                                                                                                                                                                                        , and for no other use or purpose.

9.ASSIGNMENT AND SUBLETTING.

Sublessee may assign this Sublease or further sublet all or any part of the Premises with the prior written consent of Sublessor (and the consent of Lessor, if such is required under the terms of the Master Lease) which shall not be unreasonably withheld. Sublessor shall approve or deny Sublessee’s request within ten (10) days of Sublessee’s providing information to Sublessor as required in the Lease.

10.OTHER PROVISIONS OF SUBLEASE.

All applicable terms and conditions of the Master Lease are Incorporated into and made a part of this Sublease as if Sublessor were the lessor thereunder. Sublessee the lessee thereunder, and the Premises the Master Premises, except for the following: N/A                                                                                                                                                                     &nbs p;                                                                                                                                                                                                              &nb sp;                                                                                                                                                                                                                &nb sp;                                    . Sublessee assumes and agrees to perform the lessee’s obligations under the Master Lease during the Term to the extent that such obligations are applicable to the Premises, except that the obligation to pay rent to Lessor under the Master Lease shall be considered performed by Sublessee to the extent and in the amount rent is paid to Sublessor in accordance with Section 6 of this Sublease. Sublessee shall not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. Sublessor shall exercise due diligence in attempting to cause Lessor to perform its obligations under the Master Lease for the benefit of Sublessee. If the Master Lease terminates, this Sublease shall terminate and the parties shall be relieved of any further liability or obligation under this Sublease, provided however, that if the Master Lease terminates as a result of a default or breach by Sublessor or Sublessee under this Sublease and/or the Master Lease, then the defaulting party shall be liable to the nondefaulting party for the damage suffered as a result of such termination. Notwithstanding the foregoing, if the Master Lease gives Sublessor any right to terminate the Master Lease in the event of the partial or total damage, destruction, or condemnation of the Master Premises or the building or project of which the Master Premises are a part, the exercise of such right by Sublessor shall not constitute a default or breach hereunder.

11.ATTORNEYS’ FEES.

If Sublessor, Sublessee, or Broker shall commence an action against the other arising out of or in connection with this Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney’s fees.

12.AGENCY DISCLOSURE:

Sublessor and Sublessee each warrant that they have dealt with no other real estate broker in connection with this transactionexcept: CB RICHARD ELLIS, INC., who represents TBA Entertainment Corporation, a Delaware corporation (“Sublessor”)                                                                                                                                                                                  &nb sp;                                    , and  Burnham Real Estate Services                                                                                                                                               , who represents  Zogenix Inc., a Delaware corporation (“Sublessee”)                                                                                                                                                                                                                                                                                      &nb sp;                                    . In the event that CB RICHARD ELLIS, INC. represents both Sublessor and Sublessee, Sublessor and Sublessee hereby confirm that they were timely advised of the dual representation and that they consent to the same, and that they do not expect said broker to disclose to either of them the confidential information of the other party.

13.COMMISSION. (Please See Addendum)

Upon execution of this Sublease, and consent thereto by Lessor (if such consent is required under the terms of the Master Lease), Sublessor shall pay Broker a real estate brokerage commission in accordance with Sublessor’s contract with Broker for the subleasing of the Premises, if any, and otherwise in the amount of Thirty-four thousand eight hundred thirty-one dollars and           twenty-five cents                                                                                                                          Dollars (S34,831.25                     ), for services rendered in effecting this Sublease. Broker is hereby made a third party beneficiary of this Sublease for the purpose of enforcing its right to said commission.

14.NOTICES.

All notices and demands which may or are to be required or permitted to be given by either party on the other hereunder shall be in writing. All notices and demands by the Sublessor to Sublessee shall be sent by United States Mail, postage prepaid. addressed to the Sublessee at the Premises, and to the address hereinbelow, or to such other place as Sublessee may from time to time designate in a notice to the Sublessor. All notices and demands by the Sublessee to Sublessor shall be sent by United States Mall, postage prepaid, addressed to the Sublessor at the address set forth herein, and to such other person or place as the Sublessor may from time to time designate in a notice to the Sublessee.

To Sublessor:  11682 El Camino Real, Suite 310, San Diego, CA 92130, Attn: Robert E. Geddes                                                     

To Sublessee:  11682 El Camino Real, Suite 320, San Diego, CA 92130, Attn: Chief Financial Officer

 4435 Eastgate Mall, Ste. 200, San Diego, CA 92121, Attn: Pat Rohan/Burnham Real Estate                                   

2

15.CONSENT BY LESSOR.

THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER THE TERMS OF THE MASTER LEASE.

16.COMPLIANCE.

The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment In Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act.

TBA Entertainment Corporation, a Delaware
Sublessor:			corporation	Sublessee:			Zogenix, Inc., a Delaware corporation
By:	Robert E. Geddes  /s/ R.E. Geddes			By:	Roger L. Hawley  /s/ Roger L. Hawley
Title:		CEO		Title:		Chief Executive Officer
By:				By:
Title:				Title:
Date:		3/20/07		Date:

CONSULT YOUR ADVISORS- This document has been prepared for approval by your attorney. No representation or recommendation is made by CB Richard Ellis, Inc. as to the legal sufficiency or tax consequences of this document or the transaction to which it relates. These are questions for your attorney.

In any real estate transaction, it is recommended that you consult with a professional, such as a civil engineer, industrial hygienist or other person with experience in evaluating the condition of the property, including the possible presence of asbestos, hazardous materials and underground storage tanks.

3

ADDENDUM TO THAT CERTAIN OFFICE BUILDING SUBLEASE DATED MARCH    , 2007 BY AND BETWEEN TBA ENTERTAINMENT CORPORATION, A DELAWARE CORPORATION, HEREINAFTER REFERRED TO AS SUBLESSOR, AND ZOGENIX, INC., A DELAWARE CORPORATION, HEREINAFTER REFERRED TO AS SUBLESSEE, FOR THE PROPERTY LOCATED AT 11682 EL CAMINO REAL, CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.

1.Minimum Rent: The Minimum Rent for Year 1 is determined as follows:

ØBase monthly rental rate - $2.76/RSF/month, net of utilities

ØAllowance for operating expense pass throughs - $.06/RSF/month

ØAllowance for leasing commission amortization - $.20/RSF/month

ØAllowance for furniture acquisition amortization - $.30/RSF/month

ØAllowance for electricity/utilitites - $.13

ØTOTAL - - $3.45/RSF/month

As provided for in the Master Lease, utilities and air conditioning are provided from 7:00 A.M. to 7:00 P.M. Monday through Friday and from 9:00 A.M. to 1:00 P.M. on Saturdays with Sundays and publicly recognized holidays excluded. All other services provided by the Lessor as part of the Master Lease shall be per the attached Master Lease Agreement.

It is understood that the above Minimum Rent includes a provision for electricity/utilities such that no payment will be made by Sublessee to Sublessor for electricity/utilities. Should the cost for electricity/utilities exceed $1,628/mo ($.20/RSF/month) for the combined Suites 310 & 320, Sublessor may make an adjustment and be compensated by Sublessee. As an example: Monthly average electricity/utilities charges to Sublessor over a 6 month period are $.24/RSF/month, Sublessee shall pay Sublessor as follows: $.24-$.20= $.04 average x 4,193 SF = $167.72/month x 6 months - $1,006.32

Sublessee, regardless what is described in the Master Lease, shall not be responsible for any rent other than the rent in Item 6 of the Sublease and Item 1 (Minimum Rent) of this Addendum as well as Rental Adjustments of Item 2 of this Addendum. Additional Rent is described in the Lease, Article 4, Sections 4.1 through 4.6 are solely the responsibility of the Sublessor.

2.Rental Adjustments: The Minimum Rent as outlined above shall be adjusted annually by a fixed three percent (3%) amount.

3.Delivery of Premises: The Sublessor shall be responsible for the costs associated with the installation of a demising/dividing partition section separating the Sublease premises from the balance of Sublessor’s space. The costs involved in separating lighting and light switches between Suites 310 and 320 shall be borne by the Sublessor. All improvements in the Premises prior to Sublease commencement shall be in proper working order and condition. Should repairs be necessary, Sublessor shall pay the cost.

It is hereby agreed and understood that the Sublessor shall be responsible for costs, as applicable, for space planning and construction drawings, City of San Diego tenant improvement permits and tenant improvement construction as noted above.

Other than the installation of the demising/dividing partition and separation of lighting and light switches, the Sublease premises shall be delivered in an “as is” condition. Any additional tenant improvement work required by Sublessee shall be at the Sublessee’s sole cost and expense, and shall require the approval of the Sublessor and Lessor.

Sublessor consents to Sublessee’s installation of carpeting matching carpeting currently in place in Suite 310, the potential expansion space. Sublessor does not require the removal of Sublessee’s carpeting, should the carpeting match that in Suite 310, at the end of the Sublease. Sublessee may install the carpeting after approval of the Sublease by Lessor (but in no event prior to May 16, 2007) or at any time during the Sublease term. Sublessee is not required by Sublessor to carpet the Premises. Carpeting is the sole expense of Sublessee. Any carpeting installation is subject to Lessor’s consent as described in the Master Lease.

4.Existing Furniture and Furniture Systems: Use of the Sublessor’s existing furniture and furniture systems are added to the Minimum Rent as provided for in the preceeding Paragraph 1 of this Addendum at an amount equivalent to thirty cents ($.30)/RSF/month

($1,257.90/month). Exact furniture items are identified on the attached Exhibit “B” and do include the audio/visual items located in the conference room.

Provided the Sublessee is not in rental default, beyond any cure period, during the 36- month Sublease term for Suite 320, the furniture, furniture systems and audio/visual equipment shall become the property of the Sublessee as of May 31, 2010.

5.Parking: The Sublessee shall be entitiled to a parking ratio of 4 spaces per 1,000 USF leased, twenty-five percent (25%) of which are reserved parking spaces. Therefore, Sublessee shall have access to fourteen (14) total parking spaces, four (4) of which shall be located in the reserved subterranean parking area of the building. Should the Premises be expanded per Item 8, Sublessee’s parking shall be increased pro rata (reserved and non-reserved) based on the ratio applicable to the initial premises. All parking shall be free of charge during the initial Sublease term and, if exercised, the Option to Extend term.

6.Security Deposit: Pursuant to Paragraph 7 (Security Deposit) of the Sublease, Sublessee shall deposit with Sublessor on execution of the Sublease, the sum of $14,465.85. In the event Sublessee fails to pay rent when due under this Sublease more than one (1) time in any calendar year, after receiving written notice from Sublessor, Sublessee shall, within five (5) business days, deposit with Sublessor the additional sum of $14,465.85 as an additional Security Deposit.

7.Option to Extend: Provided the Sublessee is not in default of any terms and conditions of the Sublease, Sublessee shall be entitled to extend the term of the Sublease for a period of seventeen (17) months (the “Option Term”), upon first giving Sublessor six (6) months prior written notification. The rent for the Option Term is as follows:

ØJune 1, 2010 – May 31, 2011         $14,465.85 per month ($3.45/RSF/mo.)

ØJune 1, 2011 – October 31, 2011    $14,885.15 per month ($3.55/RSF/mo.)

8.Expansion: If at any time, Sublessor elects to vacate and/or sublease any or all of its space in Suite 310, Sublessor shall notify Sublessee in writing and Sublessee, upon ten (10) days written notice, may add the proposed space to its premises at the Monthly Minimum Rental Rate applicable for the appropriate time frames of this sublease reduced, however, by $.30/RSF/month due to the fact that no furniture purchase is included. The occupancy and rent commencement for the expansion space will occur between 30 and 60 days after Sublessee’s acceptance with the exact date to be mutually agreed upon. Should Sublessee elect to add the additional space, Sublessor shall remove the demising/dividing wall at Sublessor’s expense. The Sublease term of the expansion space shall be coterminus with the term for Suite 320 including an extension of the term for Suite 320. Should Sublessee expand into all of Suites 310 and 320, the electricity/utilities for the combined Suite 310 and Suite 320 shall be switched into the name of Sublessee (and thereafter paid by the Sublessee), and the electricity/utilities component of Minimum Rent ($.13/RSF/month) shall be reduced from the Minimum Rent payable to Sublessor.

9.Signage: Building standard directory and building standard suite entry signage shall be at the Sublessee’s expense.

10.Use of IT Area: The Sublessee, at its option, may place its server in the Sublessor’s IT closet and use, if practical, Sublessor’s local area network cabling and phone lines.

11.Commission: Upon execution of this Sublease, the Sublessor agrees to pay CB Richard Ellis, Inc., a leasing commission equivalent to $34,831.25 which is equavilent to 6¹/₂ % of Months 1-36 total lease consideration. It is understood that Burnham Real Estate Services shall be entitled to a fee equivalent to 4% of the 6¹/₂% described herein of Months 1-36 total lease consideration, or $21,434.62. The CB Richard Ellis, Inc., share is 2¹/₂% of the 6¹/₂% described herein of the Months 1-36 total lease consideration, or $13,396.63. The commission shall be paid 50% upon Sublease execution and 50% upon occupancy and Sublease commencement.

In the event the Sublease is extended pursuant to the Option to Renew terms and/or if the Sublessee elects to expand per the Expansion provisions of the Sublease, Sublessor shall pay CB Richard Ellis, Inc., a commission equivalent to 6 1/2% of the total Sublease consideration of the lease extension or expansion as applicable. It is understood that the commission for lease extension and/or expansion shall be shared between Burnham

Real Estate Services and CB Richard Ellis, Inc. as outlined above and shall be paid 50% upon execution and 50% upon occupancy or commencement of the extended term or expansion as applicable.

EXHIBIT “A”

FIRST AMENDMENT TO LEASE

This First Amendment to Lease (“1st Amendment”) is made, for reference purposes only, this 22nd day of June, 2003, between Pacific North Court Holdings, L.P., a California Limited partnership as successor in interest in pacific, Torrey Reserve Holdings L.P. (“Landlord”) and TBA Entertainment Corporation a Delaware Corporation, as successor in interest to Avalon Entertainment Corp. a California corporation (“Tenant”) with reference to the following facts:

RECITALS

A.Landlord and Tenant entered into that certain Lease dated April 23, 1998 (the “Lease”) for that certain premises located at 11682 El Camino Real, Suite 310, San Diego CA 92130.

B.The parties desire to amend the Lease as set forth in this 1st Amendment.

C.All capitalized terms used in this 1st Amendment unless specifically defined herein shall          have the same meaning as the capitalized terms used in the Lease.

NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are expressly acknowledged, Landlord and Tenant agrees as follows:

AGREEMENT

1.Term:  The term of the Lease shall hereby be extended for the period of Three (3) years, commencing September 1, 2003 and terminating August 31, 2006 (“Extension Term”).

2.Rent.  The Basic Monthly Rent provided for under Article 3 of the Lease shall be adjusted to $10,433.50 effective September 1, 2003. Subsequent adjustments to the Basic Monthly Rent for the term of this Extension shall be effective Commencing on September 1 and continuing annually on September 1 each year thereafter for the term of this Extension. The basic monthly rent adjustment shall be calculated as follows:

Lease Year	Monthly Rent		Annual Rent
1		$10,433.50	$125,202.00
2		$10,746.51	$128,958.06
3		$11.068.90	$132,826.80

3.Contingency. Execution of this 1^st Lease Amendment is contingent upon the immediate payment by Tenant to Landlord in the amount of $3,258.00 for the 2002 Actual Common Area Maintenance Expense Reconciliation.

4.Base Year.  The base calendar year for the purpose of determining building operating expense adjustments pursuant to Part 1, Paragraph 7(a) of the Lease shall be 2003 for the Extension Term.

5.Tenant Improvement Allowance.  No later than November 1, 2003 Landlord shall provide new interior point for the Premises, and minor carpet repair at Landlord’s expense.

6.Tenant Certification.  By execution of this 1^st Amendment, Tenant hereby certifies that as of the date hereof, and to the best of Tenant’s knowledge, that Landlord is not in default of the performance of its obligations pursuant to the Lease, and Tenant has no claim, defense, or offset with respect to the Lease.

7.Confirmation.  Except, as and to the extent modified by this 1st Amendment to Lease all        provisions of the Lease shall remain in full force and effect. In the event of a conflict between the terms of the Lease and the terms of this Amendment, the terms in this Amendment shall control.

THIS SPACE LEFT BLANK INTENTIONALLY

Landlord  Tenant

SIGNATURE PAGE

IN WITNESS WHEREOF, Landlord and Tenant agree to the foregoing as evidence by affixing their signatures below.

LANDLORD: Pacific North Court Holdings, L.P., a California limited partnership a successor in interest to Pacific Torrey Reserve Holdings, L.P.
By:		AMERICAN ASSETS, INC. as agent
By:		/s/ Jamie Cronemeyer
		Jamie Cronemeyer
Its:				Vice President, Commercial Real Estate
Date:					7/7/03
By:				/s/ Amy White
				Amy White
Its:				Senior Portfolio Manager
Date:					7/03/03
TENANT: TBA Entertainment Corporation
a Delaware Corporation
By:	/s/ Bryan Cusworth
Printed Name:						Bryan Cusworth
Its:			Chief Financial Officer
Date:					7/1/03

Landlord     Tenant

SECOND AMENDMENT TO LEASE

BETWEEN

PACIFIC NORTH COURT HOLDINGS, L.P.,

A California limited partnership

as LANDLORD

AND

TBA ENTERTAINMENT CORPORATION, a Delaware corporation

as Tenant

SECOND AMENDMENT TO LEASE

This Second Amendment to Lease (this “Second Amendment”), entered into as of September 24, 2004 by and between Pacific North Court Holdings, L.P., a California limited partnership, (“Landlord”) as successor-in-interest under the Lease to Pacific Torrey Reserve Holdings, L.P., a California limited partnership (“Original Landlord”), and TBA Entertainment Corporation, a Delaware corporation (“Tenant”), as successor-in-interest under the Lease to Avalon Entertainment Group, a California corporation (“Original Tenant”), modifies that certain Office Lease dated as of April 23, 1998 (the “Original Lease”), by and between Original Landlord and Original Tenant, as modified by that certain First Amendment to Lease dated as of June 22, 2003 (the “First Amendment” and together with the Original Lease, the “Lease”). All capitalized terms used in this Second Amendment and not specifically defined herein shall have the meanings set forth in the Lease.

The parties hereto desire that the Lease be amended to provide for, among other things, an extension of the Term and expansion of the Premises.

AGREEMENT

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

1.Extension of Term.  The Term of the Lease is hereby extended for an additional period of sixty-two (62) months, commencing September 1, 2006 and expiring October 31, 2011 (the “Second Extension Term”). Consistent with the foregoing Paragraph 5 of part I of the Original Lease (Summary of Basic Lease Information) and Paragraph 1 of the First Amendment are hereby deemed deleted in their entirely and replaced with the following:

“5. “Lease Term”

(a)“Duration”: One hundred fifty-eight (158) months.

(b)“Lease Commencement date”: September 1, 1998

(c)“Lease Expiration Date”: October 31, 2011”

2.Renewal Option.  The parties agree that Tenant’s Option to Extend, as set forth in Section 2.4 of Part II of the Original Lease (the “Option”) shall remain in full force and effect in accordance with all terms and conditions of such section 2.4, except that: (a) the “Option” to be exercised shall occur by Tenant sending Landlord a notice nine (9) months prior to the October 31, 2011 Lease Expiration Date, and (b) the “Extension Term” and the “Option,” as such icons are used in section 2.4, shall be deemed modified to provide for one (1) option to renew for three (3) years only.

3.New Premises.  As of the Expansion Commencement Date (as hereinafter defined), Paragraph 4(d) of Part I of the Original Lease (Summary of Basic Lease Information) shall be deemed to be revised to reflect that Tenant has expanded its Premises - which currently consists only of Suite 310 (comprised of 3,794 rentable square feet of space on the 3^rd floor of the Building) - to also include Suite 320 (comprised of 4,346 rentable square feet of space on the 3^rd floor of the Building) for a total of 8,140 rentable square feet of space and 7,084 usable square feet of space (Suite 320 is referred to herein as the “Expansion Space” and, together with Suite 310, as the “New Premises”.) “Expansion Commencement Date” shall be defined to mean the later of either. (i) November 1, 2004 or (ii) the earlier of (x) the date Tenant commences business operations from Suites 310 and 320 or (y) the first business day of the week following Tenant’s receipt of a factually correct notice from Landlord that substantial completion of the 2004 Tenant Improvements has occurred. As of the Expansion Commencement Date, all references in the Lease to “Premises” shall be deemed to refer to the new Premises, with the demining plan shown or Exhibit A to this Second Amendment.

4.Monthly Basic Rent.  Commencing on the Expansion Commencement Date, Paragraph 6 of the Lease shall be deemed modified to reflect Tenant’s Monthly Base Rent as follows:

Effective Dates	Monthly Base Rent Per Rentable Square Foot	Monthly Base Rent for the New Premises
11/1/2004 - 10/31/2005	$2.60	$21,164.00
11/1/2005 - 10/31/2006	$2.678	$21,798.92
11/1/2006 - 10/31/2004	$2.758	$22,452.89
11/1/2007 - 10/31/2008	$2.841	$23,126.47
11/1/2008 - 10/31/2009	$2.926	$23,820.27
11/1/2009 - 10/31/2010	$3.014	$24,534.88
11/1/2010 - 10/31/2011	$3.105	$25,270.92

Such payments shall be in addition to all additional rent and other amounts payable by Tenant under the Lease.

5.Tenant’s Base Year.  Effective on the Expansion Commencement Date, Paragraph 7(a) of part I of the Original Lease (Summary of Basic Lease Information), and Paragraph 4 of the First Amendment, shall be deemed modified to reflect Tenant’s Base Year as 2005.

-1-

6.Tenant’s Operating Expense Percentage.  Effective on the Expansion Commencement Date, Paragraph 7(b) of part I of the Original Lease (Summary of Basic Lease Information) shall be deemed modified to reflect Tenant’s Share of Direct Expenses to be 10.839%.

7.Parking.  Effective on the Expansion Commencement Date, Paragraph 10 of Part I of the Original Lease (Summary of Basic Lease Information) shall be deemed deleted in its entirety and replaced with following.

“Tenant’s shall be entitled to the use of twenty-eight (28) parking spaces, of which seven (7) parking spaces shall be reserved parking spaces in the subbermean reserved executive parking area of the Building and twenty-one (21) parking spaces shall be unreserved parking spaces (subject to reduction for Tenant’s prorata share of Project handicapped and visitor parking spaces). All seven (7) reserved parking spaces and twenty-one (21) unreserved parking spaces shall be provided at no charge to the Tenant through October 31, 2011.

8.Broker: Paragraph 12 of part I of the Original Lease (Summary of Basic Lease Information) shall be deleted in its entirety and replaced by the following:

“Brokers:     CBRE (Dick Balentri) representing Landlord and so broker representing Tenant.”

9.Tenant Improvements.  To be constructed by Landlord. See Exhibit B to this Second Amendment.

10.Guaranty.  In connection with the execution of the Original Lease, a Guaranty dated 4/23/98 (“Guaranty”) was signed by TBA Entertainment Corporation, Inc. which has now succeeded to the interests of the Tenant so that the same exact entity is both the Tenant and the Guarantor. Therefore, in order to avoid any confusion, the parties agree that the Guaranty is terminated and is no longer in force or effect.

11.SNDA.  Tenant and Bear Stares Funding, Inc. are parties to that certain Subordination, Nodisturbance, Attunement and Agreement dated March 26, 1999 (the “SNDA”), which is still in effect as of the date hereof. Landlord covenants that the security Instrument referenced in the SNDA is the only deed of trust or mortgage encumbering the Project as of the date of this Second Amendment.

12.Further Assurances.  Each of the parities hereto agrees to execute all documents and instruments and to take all other actions as may specifically be provided for herein or is the Lease as may be required in order to consumarate the purposes of this Second Amendment.

13.Integration Interpretation.  This Second Amendment in combination with the Lease contains or expressly incorporates by reference the entire agreement of the parties with respect to the matters contemplated herein and supersedes all prior negotiations. Except as specifically set forth herein, the Lease remains unmodified and in fall force and effect.

14.No Default.  Tenant represents and warrants to Landlord that Tenant is not in default under the Lease and that Tenant has made no assignment, sublease, transfer or other disposition of the Lease, any interest in the Lease or any demand, obligation, liability or cause of action arising out of the Lease.

-2-

IN WITNESS WHEREOF, this Second Amendment has been executed as of the date first above set forth.

LANDLORD:			TENANT:
PACIFIC NORTH COURT HOLDINGS, L.P.,			TBA ENTERTAINMENT CORPORATION,
a California limited partnerships			a Delaware corporation
By:	American Assets, Inc.,				By:		/s/ Eugene L. Cobuzzi
	a California corporation
	Agent for Owner				Print Name:			Eugene L. Cobuzzi
	By:	/s/ James Durfey			Its:			C.O.O.
		James Durfey
		V.P., Office Leasing and Management
				By:		/s/ Peter Castor
				Print Name:					Peter Castor
				Its:		CFO

-3-

EXHIBIT B

TENANT IMPROVEMENTS TO THE PREMISES

General recital: Landlord shall provide tenant improvements for the Premises, subject to the terms and conditions as more completely described herein.

Section 1.               Tenant’s Plan Approval.  Concurrently with, or within ten calendar days following, the execution of this Second Amendment, Tenant shall cause space plant (“Space Plans”) to be delivered to Landlord for its approval which Space Plans shall show all partition walls, doors, exists. Landlord shall approve, or disapprove if a Design Problem, as defined below, exists, within three (3) business days of receipt of such space Plans. Within forty-five (45) days following the execution of this Second Amendment, Tenant shall cause Facility Solutions to prepare detailed plans and specifications (the “Plan”) to be prepared and delivered to Landlord, which Plans shall reflect the work to be performed within the Premises by Landlord in order to suitably prepare the Premises for Tenant’s use (the “2004 Landlord’s work”), Landlord shall, within five (5) business days following its receipt of the Plans, either approve such Plans (consent to which shall not be withhold, conditioned or delayed unless and to the extent a Design Problem exists) or provide Tenant with the reasons that Landlord is withholding such consent because a Design Problem exists. If Landlord does not approve the Plans, Tenant shall promptly exists the Plans to be revised, consistent with Landlord’s comments to the extent necessary to eliminate the Design Problem, and then resubmit the Plans to Landlord for review within seven (7) business days of Landlord’s notice to Tenant of said non-approval of Tenant’s Plan. No work shall be undertaken by Landlord until the Plans have been finally approved by Landlord. This, procedure shall be repeated until the Space Plans and the Plans have been approved by Landlord. Performance of the 2004 Landlord’s Work shall strictly conform to the approval Plans and any deviation will required Landlord and Tenant’s prior approval.

A Design Problem will be deemed to exist to the extent that the Plans and the improvements to be constructed pursuant to the Plans (a) do not comply with Laws and Orders (as defined in Section 7.1 of the Lease) (b) could affect the exterior appearance of the Building (c) would unreasonably interfere with any other tenant’s use of their premises for general business office questions, (d) would adversely affect the Base Building Systems (as defined in Section 11.1 of the Lease) or (e) adversely affect the structural integrity of the Building.

Section 2.               2004 Landlord’s Work.  Following mutual approval of the Plans, Landlord shall cause the Premises to be built-out and delivered to Tenant as soon as reasonably possible. (Notwithstanding the foregoing Landlord and Tenant acknowledge that Tenant has been occupying Suite 310 pursuant to the term of Lease and that tenant shall continue to accept and occupy the Suite 310 in its currently existing “as-is” condition, subject only to the completion of 2004 Landlord’s Work on Suite 310). The build-out of the Premises shall be completed by Landlord in a good and workmanlike manner, and in accordance with the Plans. The 2004 Landlord’s Work contractor shall be either Human Constructing or Pacific Building Group, and Landlord agrees to require the selected contractor to competitively bid major subcontractor trade. Landlord shall instruct the Contractor to first complete the work in Suite 320 and allow Tenant to move into Suite 320 whereupon the Contractor shall then complete the work in Suite 310. Landlord shall cause the Contractor to perform such work at such times and in such a manner to as to reasonably mitigate any interference with Tenant’s ongoing business operations from the Premises.

Section 3.               Landlord’s Contribution - Tenant Improvement Allowance.  Landlord shall be responsible for bearing all costs and expenses of completing the Landlord’s Work up to a maximum of $212,520 (based on $30 per usable square foot multiplied by 7,084 unable square feet in the New Premises (the “2004 Tenant Improvement Allowance” or “2004 Allowance”). All costs and expenses in excess of such 2004 Tenant Improvement Allowance shall be payable by Tenant after the 2004 Allowance has been exhausted and the Landlord’s Work has been substantially completed within five (5) days following written demand from Landlord, accompanied by supporting invoices. If after the Landlord’s Work in Suite 310 and 320 has been substantially completed and the 2004 Allowance has not been exhausted, the Landlord shall credit the caused and undisturbed portion of the 2004 Allowance to the rents next due and owing under the Lease.

Section 4.               Use of Landlord’s Tenant Improvement Allowance

4.1           The 2004 Allowance that Landlord agrees to contribute toward the cost of the 2004 Landlord’s Work shall in no event be applied toward Tenant’s furniture, fixtures, furnishings (including modular furniture systems), personal property, signs, consultant fee or any monetary obligations of Tenant under the lease or the Second Amendment, except as provided in Section 3 above, and in Sections 4.2 and 4.3 below. Such funds will be used to pay the cost of the 2004 Tenant Improvements which shall become the property of Landlord and remain upon and be surrendered with the Premises, as a part thereof, at the end of the Term of the Lease.

4.2           The 2004 Allowance shall be applied toward space planning, construction drawings, City of San Diego tenant improvement building permits and the cost of the tenant improvement construction.

4.3           All fees, permits, utility charges, or assessments associated with the construction of 2004 Landlord’s Work (or, in the event of Future Improvements under Paragraph 8 of this Exhibit “B”, Tenant’s Work) are Tenant’s responsibility to pay, but may be paid by the Landlord on Tenant’s behalf from the Tenant Improvement Allowance if not paid directly by Tenant.

Section 5.             Estimated Completion Date.  Landlord shall make reasonable efforts to cause the 2004 Landlord’s Work to be substantially completed within 75 days following mutual approval of the Plans, subject to extensions caused by Force Majeure Delays (as defined below) or Tenant Delays (as defined in Section 6, below).

-1-

For purposes of this Exhibit, the term “substantial completion” or” substantially completed” shall have the meaning set forth is Paragraph 5 of Exhibit C to the Original Lease. For purposes of this Exhibits, “Force Majaure Delaya” shall mean and refer to a period of delay or delaya encountered by Landlord or Tenants affecting the work of design or construction of the Landlord’s work because of delays due t to excess time in obtaining governmental permits or approvals beyond the time period normally required to obtain such permits or approvals for similar space, similarly improved, in comparable office buildings in Sen Diego, California, fire, earthquake or other acts of God: weather conditions: acts of the public enemy: riot: public earnest; in corrections: governmental regulations of the sales of materials or supplies or the transportation thereof: strikes or boycotter, work stoppage, shortages of material or labor: defaults by contractors or subcontractor, or any other cause  beyond the reasonable control of Landlord or Tenant.

Section 6.               Delay of the Substantial completion of the premises. Expect as provided in this Section 6. Tenant’s obligation to pay rent for the premises shall occur as set forth in the Second Amendment. However, if there shall be a delay or there are delays in the Substantial Completion of the 2004 Landlord’s Work as a result of the following (collectively, “Tenant Delays”):

6.1           Tenant’s failure to comply with the Ties Deadlines (except where such delay otherwise qualifies as a Force Majeure Dalay):

6.2           Tenant’s failure to timely approve any matter requiring Tenant’s approval:

6.3           A breach by Tenant of the terms of this Exhibit “B” or the Lease, as modified by the First and Second Amendment thereto, beyond any applicable notice and care period but only to the extent such breach results in an actual delay in Substantial Completion:

6.4           Changes in any of the place after the required submission date for the places or after disapproval of the same by Landlord (for reasonable reasons) or because the same do not comply with building codes or other applicable laws; provided, however, that if Tenant submits any Plans prior to the date due under this Exhibit “B”, then any additional time required as a result of the changes described in this Section 6.4 shall not constitute a Tenant Delay until and unless such delay exceeds beyond the date Tenant is required to submit such Plans under the terms of this Exhibit “B”;

6.5           Tenant’s request for changes in the approved Plans.

6.6           Tenant’s requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time given the anticipated date of Substantial Completion of the 2004 Landlord’s Work, or which are different from or not included in, Landlord’s standard tenant improvement specifications; provided, however, that this Section 6.6 shall not apply to the extent Tenant agrees to substitute for such item another item that is available and can be installed within the required time frames;

6.7           Changes to the base, shall and core requested by Tenant as specified on the approved Plans; or

6.8           Any other negligent act or omission of Tenant, or its agents, or employees;

then, notwithstanding anything to the contrary set forth in the Lease or this Exhibit “B” and regardless of the actual date of the Substantial Completion of Landlord’s Work, the date of Substantial Completion thereof shall be deemed to be the date that Substantial Completion would have occurred if no Tenant Delay(s), as set forth above, had occurred. No Tenant Delay shall be deemed to have occurred to the extent such delay is a result of Force Majors Delays nor shall a Tenant Delay occur unless Landlord shall within one(1) business day after the occurrence give Tenant written notice specifying such Tenant Delay, and Tenant shall not within such one(1) business day correct or cure them. The number of days of Tenant Delay shall then commence as of the date of Landlord’s delivery of such notice to Tenant. Any delays to the extent due to any negligent or wrongful act or omission of Landlord, its agents or contractors, shall be excluded from the number of days of Tenant Delays.

Section 7.               Expansion Commencement Date. Landlord shall provide Tenant with an “Acceptance of Expansion Premises” letter upon Tenant’s acceptance of possession of the Expansion Space, and a “Confirmation of Lease Terms” written memorandum reflecting the exact Expansion Commencement Date; however, say failures to do so shall not affect the Expansion Commencement Date. If the Expansion Commencement Date provided for by this in the Confirmation of lease Terms memorandum is different then the Expansion Commencement Date set forth in Paragraph 3 of the Second Amendment, then (a) the Expansion Commencement Date provided for by the Confirmation of Lease Terms memorandum shall control and (b) Paragraph 3 of the Second Amendment shall be deemed amended accordingly. Tenant shall execute the Acceptance of Expansion Premises letter on the date of Landlord’s turnover of possession of the Expansion Space to Tenant, subject to any punch-list items identified therein. Tenant shall execute and return to Landlord the Confirmation of Lease Terms memorandum within ten days of submitted by Landlord. Failure by Tenant to execute the Acceptance of Expansion Premises letter or the Confirmation of Lease Terms memorandum shall not amend the terms thereof and, unless Tenant has objected in writing to such letter and/or memorandum within ten (10) days or receipt thereof, shall be deemed as Tenant’s final and conclusive acceptance of the terms of such letter and/or memorandum.

Section 8.               Future Improvements by Tenant to Premises, Plan Approval. In that event the Tenant shall desire to perform future improvements to the Premises (in addition to the Landlord work to be done utilizing the 2004 Tenant Improvement Allowance) during the term of the Lease or any extension thereof, Tenant shall cause

-2-

detailed plans and specifications (the “Future Improvement plans”) to be prepared and delivered to Landlord; which Future Improvement Plans shall reflect the work to be performed within the Promises by Tenant in order to suitably prepare the Premises for Tenant’s use (“Tenant’s Work”). Landlord shall, within 10 calendar days following its receipt of the Future improvement Plans, approve such Future Improvement Plans unless a Design Problems exists or provide Tenant with the reasons that a Design Problem exists and Landlord is withholding such consent. Performance of the Tenant’s Work shall strictly conform to the approved Future Improvement Plans and any deviation will repairs Landlord’s prior approval. All costs arising from said future Tenant’s Work shall be the sole and exclusive responsibility of Tenant to pay, in a prompt and timely fashion as said costs become due.

8.1           Construction of Tenant Improvements by Tenant’s Contractor. After the Future Improvement Plans for the Tenant’s Work have been approved  by Landlord, Tenant, and the local governing agencies, Tenant shall submit to Landlord the name, address, license number, evidence of insurance, and any other information required by Landlord of Tenant’s proposed contractor(s) (“Contractor”) for Landlord’s review and approval. If Landlord deems, in Landlord’s reasonable discretion, that Tenant’s proposed Contractor is unacceptable or is not bondable, Tenant shall resubmit information on a replacement contractor until a mutually approved Contractor is selected. Upon said selection, Tenant shall enter into a construction contract with the Contractor which shall include a provision for compliance with Landlord’s rules and regulations as defined herein, and Tenant shall provide Landlord with a copy of said contract. In no event shall Tenant be permitted to perform Tenant’s Work prior to providing all information requested by Landlord relating to Tenant’s work. Failure by Tenant to provide any information reasonable requested by Landlord, including but not limited to evidence of Tenant’s and Tenant’s Contractor’s compliance with all of the insurance requirements hereof, shall constitute a default of the Lease in the event Tenant proceeds with Tenant’s Work. Violations of Landlord’s rules, regulations, and requirements as set forth herein or as otherwise established by Landlord shall constitute a default of the Lease if not accepted by Tenant and/or Tenant’s Constructor within twenty four (24) hours notice, either written or oral, by Landlord to Tenant. Landlord shall have the right to post  a notice of non-responsibility at a prominent location within Tenant’s Premises.

If shall be the responsibility of Tenant to enforce the following requirements of Tenant’s Contractor, and all subcontractions of Tenant’s Contractor, at every level:

8.1.1        Tenant’s Contractor shall perform Tenant’s Work in a manner and at times which do not impede or delay Landlord’s contractor in the Project. Any delays in the completion work by the Landlord or Landlord’s contractor on the Project, or the commencement of the  annual rental and any damage to any work caused by Tenant’s Contractor shall be at the sole cost and expense of Tenant.

8.1.2        Tenant’s Contractor shall be responsible for the repair, replacement or clean-up of my damage by such Contractor to other contractors’ work which specifically includes access ways to the Premises which may be concurrently used by others. Firelesses, aidowalks, hallways, and access to other tenant’s suites may not be blocked or obstructed at any time.

8.1.3        [Intentionally omitted.]

8.1.4        Tenant’s Contractor shall contain his or her storage of materials and his or her operations within the Premises and such other space as he or the say be assigned by Landlord. Should he or she be assigned space outside of the Premises, he or she shall move to such other space as Landlord shall direct from time to time to avoid interference or delays with other work. Tenant’s Contractor shall park construction vehicles in areas designed by Landlord.

8.1.5        All trade and surplus construction materials shall be stored within the Premises and shall be promptly removed from the Premises. Tenant’s Contractor shall not use common area trade enclosures or waste bins for disposal of trash or surplus construction material.

8.1.6        [Intentionally omitted.]

8.1.7        Noise shall be kept to a minimum at all times, and shall not be permitted to interfere with the conduct of other tenant’s business, or the general operations of the Project. Tenant’s Contractor shall notify Landlord or Landlord’s project manager of any planned work to be done on weekends or other than normal job hours.

8.1.8        Tenant and Tenant’s Contractor are responsible for compliance with all applicable codes and regulations of duly constituted authorities having jurisdiction as far as the performance of the Tenant’s Work is concerned and for all applicable safety regulations established by the Landlord, OBHA, or other regulatory agencies, and Tenant further agrees to save and hold Landlord harmless for Tenant’s actions arising from Tenant’s Work. Prior to commencement of construction, Tenant shall submit to Landlord evidence of insurance as required by this Lease and evidence of insurance for Tenant’s Contractor.

8.1.9        Tenant’s Contractor shall not post signs on any part of the Project or on the Premises, without Landlord’s prior writes approval.

8.1.10      Tenant shall be responsible for and shall obtain and record a Notice of Completion promptly following completion of Tenant’s work.

-3-

8.1.11      [Intentionally omitted.]

8.1.12      Tenant shall provide to Landlord a copy of the fully executed construction contract, including all addendum and a line item breakdown by trade thereto, between Tenant and its Contractor for the Tenant’s Work.

8.1.13      All required permits and approvals, including but not limited to Planning, Building, Fire, and Health department permits, must be obtained and all necessary calculations, including, but not limited to, those required under Title 24, must be submitted to the local governing agencies for all work to be performed by Tenant or Tenant’s Contractor in the Promises.

8.1.14      Any modifications to the building exterior shall be subject to Landlord’s prior approval. No romex wiring shall be allowed, nor shall water lines be placed in slabe, unless approved by Lanlord prior to installations. All equipment placed upon the roof as a result of the Tenant’s Work, and all roof penetrations, shall be approved by Landlord prior to the commencement of work.

8.1.15      Landlord, at Landlord’s reasonable discretion, may from time to time establish such other rules and regulations for protection of property and the general safety of occupants and invitees of the Project. Such rules and regulations shall apply to Tenant and Tenant’s Contractor as though established upon the execution of this Exhibit “B”.

8.2           Coordination of Construction. Tenant covenants and agrees the Tenant and Tenant’s Contractor shall not destroy or in any way damage any portion of the Project. Further, Tenant covenants and agrees that Tenant and Tenant’s Contractor shall coordinate the Tenant’s Work with any construction schedule for any work being performed by or an behalf of Landlord or any other tenant, and that the performance of the Tenant’s Work shall not interfere with Landlord’s or any other tenant’s construction activities. If there be such interference or conflict, notice thereof shall be given to Tenant and immediately after receipt of such notice the Tenant agrees to cause or came to be terminated such interference or conflict. Further, should Tenant delay Landlord’s work due to acts of Tenant or Tenant’s Contractor, Construction Change Orders, subsequent review and approvals required or other matters that materially affect Landlord’s construction program, Tenant shall be responsible to Landlord for any lost rents due to the delay of the commencement of the Lease Term. Tenant further convenants and agrees that Tenant and Tenant’s Contractor shall comply with all rules and regulations promulgated by Landlord, or its agent, and all directives of Landlord governing construction or installation activities, including but not limited to, permissible hours for construction or installation activities, storage of equipment and responsibility for cleaning of work area. If Tenant or Tenant’s Contractor shall fail to comply with the provisions of this Section any costs incurred by Landlord as a result of such failure shall be at Tenant’s sale and exclusive expense.

8.3           No Landlord Liability. Landlord shall not be liable for any loss, cost, damage, or expense incurred or claimed by Tenant or any other person or party on account of the construction or installation of the Tenant’s Work or any other person or party on account of the construction or installation of the Tenant’s Work or any other improvements to the Premises made by Tenant. Tenant hereby acknowledges and agrees that the compliance of the Tenant’s Work, or other Alterations made to the Premises by the Tenant and any plans therefore, with all applicable governmental laws, codes, and regulations shall be solely Tenant’s responsibility. Landlord assumes no liability or responsibility resulting from the failure of the Tenant to comply with all applicable governmental laws, codes and regulations or for any defect in any of the Tenant’s Work or other Alteration to the Premises made by Tenant. Tenant further agrees to Indemnify, defected, and hold harmless Landlord from any loss, cost, damage or expense Incurred, claimed, asserted, or arising in connection with any of the foregoing, except as may be caused by Landlord’s gross negligence or willful misconduct.

-4-

Exhibit A

TBA Entertainment Corporation

New Premises

TORREY RESERVE

NORTH COURT

BUILDING 1 - 3rd FLOOR

11662 EL CAMNO REAL

THIRD AMENDMENT TO LEASE

This Third Amendment to Lease ((this “Third Amendment”) entered into as of March 20, 2007 by and between Pacific North Court Holdings, L.P., a California limited partnership (“Original Landlord”), and TBA Entertainment Corporation, a Delaware corporation (“Tenant”), as successor-in-interest under the Lease to Avalon Entertainment Group, A California corporation (“Original Tenant”), modifies that certain Office Lease dated as of April 23, 1998 (the “Original Lease”), by and between Original Landlord and Original Tenant, as modified by that certain First Amendment to Lease dated as of June 22, 2003 (the “First Amendment”) and that certain Second Amendment to Lease dated as of September 24, 2004 (together with the Original Lease, the “Lease”). All capitalized terms used in this Third Amendment and not specifically defined herein shall have the meanings set forth in the Lease.

The parties hereto desire that the Lease be amended to provide for, among other things, a change to the insurance provisions of the Lease.

AGREEMENT

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

1.                                             Insurance. Sections 13.5 through 13.7 of the Lease are hereby deleted in their entirety and replaced by Exhibit A hereto.

2.                                             Further Assurances. Each of the parties hereto agrees to execute all documents and instruments and to take all other actions as may specifically be provided for herein or in the Lease as may be required in order to consummate the purposes of this Third Amendment.

3.                                             Integration; Interpretation. This Third Amendment in combination with the Lease contains or expressly incorporates by reference the entire agreement of the parties with respect to the matters contemplated herein and supersedes all prior negotiations. Except as specifically set forth herein, the Lease remains unmodified and in full force and effect.

IN WITNESS WHEREOF, this Third Amendment has been executed as of the date first above set forth.

LANDLORD:			TENANT:
PACIFIC NORTH COURT HOLDINGS			TBA ENTERTAINMENT
L.P., a California limited partnership			CORPORATION, a Delaware corporation
By:	American Assets, Inc.,		By:	/s/ R.E.Geddes
	A California corporation
	Agent for Owner		Print Name:		R.E.Geddes
	By:	/s/ John W. Chamberlain	Its:			CEO
		John W. Chamberlain - CEO
	By:	/s/ James R. Durfey – VP – Office
		James R. Durfey – VP – Office
		Leasing and Management

EXHIBIT A

13.5 Tenant’s Insurance Coverage.  Tenant shall, at Tenant’s sole expense, throughout the Lease Term maintain the following coverages:

13.5.1. Commercial General Liability.  Tenant shall, at Tenant’s sole expense, obtain and maintain Commercial General Liability insurance (i) with a single combined liability limit and property damage limit of not less than $2,000,000.00, (ii) insuring (a) against all liability of Tenant and Tenant’s agents, employees, contractors, licensees, and invitees arising out of or in connection with Tenant’s use or occupancy of the Premises, (iii) naming Landlord, its agent, and any lender having a security interest against the Project (“Lender”) as additional insureds, (iv) containing cross-liability endorsements, and (v) which includes products liability insurance (if Tenant is to sell merchandise or other products derived from the Premises). Not more frequently than once every year, if in the opinion of Landlord the amount or scope of such insurance at that time is not adequate, Tenant shall increase such insurance as reasonably required by Landlord.

13.5.2. Fire and Extended Coverage Insurance.  Tenant shall, at Tenant’s sole expense, maintain on Tenant’s Alterations and Tenant's personal property and fixtures a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, coverage with respect to boiler and machinery insurance, and sprinkler leakage coverage, in each case to the extent of at least 100 percent of full replacement value, issued in the names of Tenant, and Landlord’s Lender, as their interest may appear. Such “full replacement value” shall be determined by the company issuing such policy at the time the policy is initially obtained. Not more frequently than once every two years, either Landlord or Tenant may, at its election, notify the other that it elects to have the replacement value redetermined. Such redetermination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and Landlord and Tenant shall be promptly notified of the results by the company. Such policy shall be promptly adjusted according to such redetermination.

13.5.3. Tenant’s Workers’ Compensation and Employer Liability Coverage.  Tenant shall procure and maintain workers’ compensation insurance as required by law and employer’s liability insurance with limits of no less than the greater of (i) the statutorily required limits, or (ii) one million dollars ($1,000,000).

13.6. Delivery of Certificate, Policy, and Endorsements.  Before the Lease Commencement Date, Tenant shall deliver to Landlord the endorsements referred to in this Article as well as an original certificate of insurance, executed by an authorized agent of the insurer or insurers, evidencing compliance with the liability insurance requirements. The certificate shall provide for not less than thirty (30) days’ advance written notice to Landlord from the insurers of any cancellation, non-renewal, or material change in coverage or available limits of liability and shall confirm compliance with the liability insurance requirements of this Lease. The “endeavor to” and “failure to mail such notice shall impose no obligation or liability of any kind upon the Company” language and any similar language shall be stricken from the certificate.

13.7. Insurance Generally.  If Tenant fails during the Lease Term to maintain any insurance required to be maintained by Tenant under this Lease, then Landlord may, at its election, arrange for any such insurance, and Tenant shall reimburse Landlord for any premiums for any such insurance within five days after Tenant receives a copy of the premium notice. If any such premiums arc allocable to a period, a portion of which occurs during the Lease Term and the remainder of which occurs before or after the Lease Term, then such premiums shall be apportioned between Landlord and Tenant based upon the number of days during such period that occur during the Lease Term and the number of days that occur before or after the Lease Term, such that Tenant pays for the premiums that are allocable to the period during the Lease Term.

Insurance required to be maintained by Tenant under this Lease (i) shall be issued as a primary policy by insurance companies authorized to do business in the state in which the Premises are located with a Best's Rating of at least “A-” and a Best’s Financial Size Category rating of at least “X”, as set forth in the most current edition of "Best's Insurance Reports” (unless otherwise approved by Landlord), or such higher rating as may be required by Landlord's lender, (ii) shall name Landlord and Landlord’s lender as additional named insureds (the additional insured endorsement must be on ISO Form CG 20 11 11 85 or an equivalent acceptable to Landlord, with such modifications as Landlord may require), (iii) shall consist of “occurrence” based coverage, without provision for subsequent conversion to “claims” based coverage, (iv) shall not be cancelable or subject to reduction of coverage or other modification except after 30 days’ prior written notice to Landlord, (v) the coverage afforded to Landlord and any lender of Landlord must be at least broad as that afforded to Tenant and may not contain any terms, conditions, exclusions, or limitations applicable to Landlord or any lender of Landlord that do not apply to Tenant, and (vi) shall not provide for a deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at least 30 days prior to the expiration of each such policy, furnish Landlord with a renewal of or “binder” extending such policy. Tenant shall promptly upon request deliver to Landlord copies of such policy or policies or certificates evidencing the existence and amounts of such insurance together with evidence of payment of premiums.

TORREY RESERVE

OFFICE LEASE

Between

Pacific Torrey Reserve Holdings, L.P.,
a California limited partnership

(LANDLORD)

and

Avalon Entertainment Group,
a California  corporation

(TENANT)

Date:  4/23/98

TABLE OF CONTENTS

	SUBJECT MATTER	PAGE
Article 1	PROJECT, BUILDING AND PREMISES	1
Article 2	LEASE TERM	1
Article 3	BASE RENT	3
Article 4	ADDITIONAL RENT	3
Article 5	SECURITY DEPOSIT	7
Article 6	USE	7
Article 7	COMPLIANCE WITH LAWS	8
Article 8	HAZARDOUS MATERIAL	8
Article 9	UTILITIES AND SERVICES	10
Article 10	REPAIRS AND MAINTENANCE	11
Article 11	ALTERATIONS AND ADDITIONS	12
Article 12	COVENANT AGAINST LIENS	13
Article 13	EXCULPATION, INDEMNIFICATION, AND INSURANCE	14
Article 14	DAMAGE AND DESTRUCTION	17
Article 15	CONDEMNATION	18
Article 16	ASSIGNMENT AND SUBLEASING	20
Article 17	SURRENDER OF PREMISES	22
Article 18	HOLDING OVER	23
Article 19	ESTOPPEL CERTIFICATES	23
Article 20	SUBORDINATION, NONDISTURBANCE, AND
	ATTORNMENT	24
Article 21	DEFAULTS AND REMEDIES	25
Article 22	LATE PAYMENTS	26
Article 23	NON-WAIVER	27
Article 24	WAIVER OF RIGHT TO JURY TRIAL	27
Article 25	ATTORNEY FEES AND COSTS	27
Article 26	LANDLORD’S ACCESS TO PREMISES	28
Article 27	SIGNS	28
Article 28	TENANT PARKING	29
Article 29	SECURITY	29
Article 30	MISCELLANEOUS	30
EXHIBIT A	SITE PLAN OF PROJECT
EXHIBIT B	DIAGRAM OF PREMISES
EXHIBIT C	TENANT IMPROVEMENT AGREEMENT
EXHIBIT D	NOTICE OF BASIC LEASE INFORMATION
EXHIBIT E	RULES AND REGULATIONS
EXHIBIT F	ESTOPPEL CERTIFICATE

Part I

SUMMARY OF BASIC LEASE INFORMATION

The basic terms of this Lease are as follows. All terms in quotations are defined terms used elsewhere in this Lease:

1.Date of Lease:                4/23/98                                                                                     

2.“Landlord”: Pacific Torrey Reserve Holdings, L.P., a California limited partnership

3.“Tenant”: Avalon Entertainment Group, a California corporation

4.Description of Involved Property:

(a)“Project”: That certain mixed-use project commonly referred to as Torrey Reserve Unit No. 2, as more particularly described on attached Exhibit A.

(b)“Building”: Building 1 - North Court, 11682 El Camino Real;

(c)Number of Rentable Square Feet in Building: 75,043;

(d)“Premises”: That certain office space consisting of approximately 3,794 Rentable Square Feet of space and 3,307 Usable Square Feet of space located on the 3rd floor of the Building, as more particularly described on Exhibit B, known as Suite TBD.

5.“Lease Term”:

(a)Duration:     5 years and 0 months;

(b)“Lease Commencement Date”: The earlier of (1) the date on which Tenant occupies all or part of the Premises, or (2) the date on which the Tenant Improvements are Substantially Complete (as defined below), subject to acceleration due to Tenant delays;

The anticipated Lease Commencement Date is September 1, 1998;

(c)“Lease Expiration Date”: The last day of the Lease Term which, subject to extension or earlier termination upon Tenant’s default, will be the last day of the month in which the fifth (5th) anniversary of the Lease Commencement Date occurs;

6.“Base Rent”:

Lease Year	Monthly Base Rent
1	$	8,157.10
2	$	8,401.81
3	$	8,653.86
4	$	8,913.48
5	$	9,180.88

7.Additional Expenses:

(a)“Base Year”: The calendar year of 1999;

(b)Tenant’s Share of Direct Expenses: Approximately  5.06%.

1

8.Security Deposit:     An amount equal to one month’s rent.

9.“Permitted Use”: General office space or any other legally permitted use compatible with a first-class office building.

10.Parking: Tenant shall be entitled to the use of 13 parking spaces, of which 3 shall be under building reserved parking spaces and 10 shall be unreserved parking spaces, subject to Tenant’s pro rata share of Project handicapped and visitor parking spaces.

11.Addresses for notices:

	(a)	Landlord’s address:			c/o American Assets, Inc.
					11455 El Camino Real, Suite 200
					San Diego,CA 92130-2045
					Attn.: Property Manager
	(b)	Tenant’s address:
		(1)		Before Lease Commencement Date:
						Attn:
		(2)	After Lease Commencement Date:			At the Premises
	(c)	Address of Landlord’s lender:				Wells Fargo Bank
						401 B Street, Suite 304
						San Diego, CA 92101
						Attn.: Mr. Jeffrey C. Reed
12.	Brokers:		CB Commercial (Dick Balestri) representing Landlord and The Irving Hughes Group, Inc. (George Champion III) representing Tenant.
13.	Guarantor:		TBA Entertainment Corporation

Each reference in this Lease to any provision in this Summary shall be construed to incorporate all the terms provided under that provision of the Summary. In the event of any conflict between a provision in this Summary and a provision in the balance of the Lease, the latter shall control.

2

Part II
LEASE PROVISIONS

Article 1
PROJECT, BUILDING AND PREMISES

1.1. Lease of Premises.  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. Tenant acknowledges that Landlord has made no representation or warranty regarding the condition of the Premises, the Building, and/or the Project except as specifically stated in this Lease.

1.2. Appurtenant Rights.  Tenant is granted the right at all times during the Lease Term (as defined below) to the nonexclusive use, in common with others, of the main lobby, common corridors and hallways, stairwells, elevators, restrooms, driveways, underground, unreserved parking areas, and other common areas located within and below the Building. Landlord, however, has the right in its sole, reasonable discretion to determine the manner in which all such common areas are maintained and operated, and the use of those common areas shall be subject to the Rules and Regulations (as defined below), and Landlord reserves the right to change all elements of the Project, provided that such changes do not materially and adversely affect Tenant’s rights under this Lease.

1.3. Preparation of Premises: Acceptance.  The rights and obligations of the parties regarding the construction of the Premises before the commencement of the Lease Term are stated in the Tenant Improvement Agreement attached to this Lease as Exhibit C. If this Lease conflicts with the Tenant Improvement Agreement, the Tenant Improvement Agreement shall prevail.

1.4. Rentable Area and Usable Area.

1.4.1. Standard of Calculation.  For purposes of this Lease, “Rentable Area”, “Rentable Square Feet”, “Rentable Square Footage”, “Usable Area”, “Usable Square Feet”, and “Usable Square Footage” will be calculated under the American National Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1C1996 (revised and adopted June 7, 1996) or successor standard(s), adopted by the Building Owners and Managers Association International (BOMA).

1.4.2. Verification of Rentable Area of Premises and Building.  The Rentable Area of the Premises and the Building is subject to verification by Landlord’s space planner or architect. That verification shall be made in accordance with this Section. Tenant’s space planner or architect may consult with Landlord’s space planner or architect regarding that verification. Verification of the Rentable Area of the Premises shall be done, if at all, within 90 days of the Lease Commencement Date. Verification of the Rentable Area of the Building may be accomplished within such 90-day period or at any time thereafter that there is a change to the Building necessitating such verification. If Landlord’s space planner or architect determines that the Rentable Area of the Premises or the Building is different from that stated in this Lease, all Rent that is based on that incorrect amount shall be modified in accordance with that determination. If that determination is made, it shall be confirmed in writing by Landlord to Tenant.

Article 2
LEASE TERM

2.1. Lease Term.  The provisions of this Lease shall be effective as of the date of this Lease. The Lease Term shall commence on the Lease Commencement Date and shall expire on the Lease Expiration Date, unless this Lease is sooner terminated as provided in this Lease or extended pursuant to Section 2.4.4, below.

1

2.2. Confirmation of Lease Information.  At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form set forth in Exhibit D, attached to this Lease, which Tenant shall execute and return to Landlord within five (5) days after receipt.

2.3. Lease Year.  The term “Lease Year” shall mean (i) as to the first Lease Year, that twelve (12) month period commencing on the Commencement Date (provided; however, if the Commencement Date falls on a day other than the first day of a calendar month, then the first Lease Year will be extended through the final day of the calendar month in which the first anniversary of the Commencement Date occurs), (ii) as to every subsequent Lease Year other than the final Lease Year of the Term, the twelve (12) month period following the prior Lease Year, and (iii) as to the final Lease Year of the Term, the period commencing on that day immediately following the final day of the penultimate Lease Year of the Term and ending on the Expiration Date or earlier date of termination. (As an example of the foregoing, a Commencement Date of April 20, 1951 would yield a first Lease Year of April 20, 1951 through April 30, 1952. The following Lease Year would be May 1, 1952 through April 30, 1953. A “three (3) year” Term would end on April 30, 1954.)

2.4. Option to Extend.  Tenant shall have the option to extend the Lease Term (the “Option”) for one (1) additional term of five (5) years (the “Extension Term”), provided Tenant is in full occupancy of the Premises at the time of exercise of the Option, and Tenant gives Landlord written notice of its election to exercise the Option no less than nine (9) months prior to the expiration of the Lease Term. Time is of the essence of Tenant’s notice obligation hereunder.

2.4.1. Restrictions on Transferability of Option.  The Option is personal to the Tenant originally named in this Lease and may not be exercised by any Transferee (as defined below) other than an entity controlling, controlled by, or under common control with Tenant.

2.4.2. Conditions Negating Tenant’s Right to Exercise Option.  Tenant shall not have the right to exercise the Option, notwithstanding anything set forth above to the contrary: (a) during any period of time commencing from the date Landlord gives to Tenant a written notice that Tenant is in default under any provision of this Lease, and continuing until the default alleged in said notice is cured; or (b) during the period of time commencing on the day after a monetary obligation to Landlord is due from Tenant and unpaid (without any necessity for notice thereof to Tenant) and continuing until the obligation is paid. The period of time within which the Option may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Option because of the foregoing provisions of this paragraph, even if the effect thereof is to eliminate Tenant’s right to exercise the Option.

2.4.3. Conditions Terminating Tenant’s Rights Under Exercised Option.  All rights with respect to the Option shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Option, if, after such exercise, but prior to the commencement of the Extension Term, (a) Tenant fails to cure a monetary default within fifteen (15) days after the date Landlord gives notice to Tenant of such default; (b) Tenant fails to cure a non-monetary default within thirty (30) days after the date the Landlord gives notice to Tenant of such default; or (c) Landlord gives to Tenant two or more notices of default or a late charge becomes payable for any such default, whether or not such defaults are cured.

2.4.4. Terms and Conditions of Extension Term.  If Tenant exercises the Option for the Extension Term, then the Base Rent and all other terms and conditions of renewal shall be at the then prevailing rental rate and terms and conditions for comparable office space in the Project at the time of commencement of the Extension Term; provided, however, Tenant shall not be entitled to any tenant improvement allowance.

2.5. Delay in Delivery of Premises.  If Landlord is unable to deliver possession of the Premises to Tenant on or before the Lease Commencement Date, Landlord shall not be subject to any liability for its failure to do so. This failure shall not affect the validity of this Lease or the obligations of Tenant under it, but the Lease Term shall commence on the date on which Landlord delivers possession of the Premises to Tenant; provided, however, if the

2

Premises are not delivered to Tenant within ninety (90) days of the scheduled Lease Commencement Date, then Tenant shall have the right to terminate this Lease at any time prior to delivery of the Premises with no liability to Tenant or Landlord.

Article 3
BASE RENT

3.1. Definition of “Base Rent”: No Set Off.  Tenant shall pay the Base Rent to Landlord in equal monthly installments as set forth in the Summary of Basic Lease Information, in advance on or before the first day of every calendar month during the Lease Term, without any notice, demand, set-off, or deduction. Payment must be in United States dollars and shall be made at the management office of the Building or at any other place that Landlord may from time to time designate in writing.

3.2. Initial Payment: Proration.  The Base Rent for the first full calendar month of the Lease Term shall be paid when Tenant executes this Lease. If any payment date (including the Lease Commencement Date) falls on a day other than the first day of that calendar month, or if any Base Rent payment is for a period shorter than one calendar month, the Base Rent for that fractional calendar month shall accrue on a daily basis for each day of that fractional month at a daily rate equal to 1/365 of the total annual Base Rent. All other payments or adjustments that are required to be made under the terms of this Lease shall be prorated on the same basis.

3.3. Application of Payments.  All payments received by Landlord from Tenant shall be applied first to obligations other than Base Rent, and then to Base Rent (and within any category of obligations, in the order incurred). No designation by Tenant, either in a separate writing or on a check or money order, shall modify this clause or have any force or effect.

3.4. Certified Funds.  If any two non-cash payments made by Tenant are not paid by the bank or other institution on which they are drawn, Landlord shall have the right, exercisable by notice to Tenant, to require that Tenant make all future payments by certified funds or cashier’s check.

Article 4
ADDITIONAL RENT

4.1. Additional Rent: Rent.  In addition to paying the Base Rent specified in Article 3, Tenant shall pay as additional rent Tenant’s Share of the annual Direct Expenses (as defined below) that are in excess of the amount of Direct Expenses applicable to the Base Year (as defined below). That additional rent, together with other amounts of any kind (other than Base Rent) payable by Tenant to Landlord under the terms of this Lease, shall be collectively referred to in this Lease as “Additional Rent”. Base Rent and Additional Rent are collectively referred to in this Lease as “Rent”. All amounts due under this Article as Additional Rent are payable for the same periods and in the same manner, time, and place as the Base Rent. Without limitation on other obligations of Tenant that survive the expiration of the Lease Term, Tenant’s obligations to pay the Additional Rent provided for in this Article will survive the expiration of the Lease Term.

4.2. Definitions.  The following definitions apply in this Article (and elsewhere in this Lease):

4.2.1. Base Year. “Base Year” means the period defined as such in the Summary of Basic Lease Information.

4.2.2. Building’s Operating Costs. “Building’s Operating Costs” means all expenses, costs, and amounts of every kind or nature that Landlord pays or incurs because of or in connection with the ownership, operation, management, maintenance, or repair of the Building. Building Operating Costs include, without limitation, the following amounts paid or incurred (collectively, “Operating Costs”) relative to the Building (a) the cost of supplying any utilities to the common areas, (b) janitorial costs and the cost of operating, managing,

3

maintaining, and repairing the common areas and the following building systems: utility, mechanical, sanitary, storm drainage, and elevator, (c) the cost of supplies and tools and of equipment, maintenance, and service contracts in connection with those systems, (d) the cost of licenses, certificates, permits, and inspections, (e) the cost of contesting the validity or applicability of any government enactments that may affect the Operating Expenses (as defined below), (f) costs incurred in connection with the implementation and operation of a parking or transportation management program or similar program, (g) the cost of insurance carried by Landlord pursuant to this Lease, in amounts reasonably determined by Landlord and any deductibles or coinsurance amounts, (h) fees, charges, and other costs including management fees (or amounts in lieu of such fees), consulting fees, legal fees, and accounting fees of all persons engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the operation, management, maintenance, and repair of the Building and the Project, provided that with regard to management fees only, the fees for each Lease Year following the Base Year shall not increase by more than five percent (5%) of the fees for the prior Lease Year, (i) the cost of parking area maintenance, repair, and restoration, including resurfacing, repainting, restriping, and cleaning, (j) wages, salaries, and other compensation and benefits of all persons engaged in the operation, maintenance, or security of the Building and the Project plus employer’s Social Security taxes, unemployment taxes, insurance, and any other taxes imposed on Landlord that may be levied on those wages, salaries, and other compensation and benefits. If any of Landlord’s employees provide services for more than one project of Landlord, only the prorated portion of those employees’ wages, salaries, other compensation and benefits, and taxes reflecting the percentage of their working time devoted to the Project shall be included in Building Operating Costs, (k) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument relating to the sharing of costs, that is either in existence at the time of execution of this Lease or is necessary for the operation of the Building or Project, (l) amortization (including interest on the unamortized cost at a rate equal to the floating commercial loan rate announced from time to time by Bank of America as its reference rate plus two (2) percentage points per annum) of the cost of acquiring or renting personal property used in the maintenance, repair, and operation of the Building and/or the Project, (m) the cost of capital improvements or other costs incurred that (1) are intended as a labor saving device or to effect other economies in the maintenance or operation of all or part of the Building and/or the Project, or (2) are required under any government law or regulation but that were not required when permits for construction were obtained. All permitted capital expenditures shall be amortized (including interest on the unamortized cost at the rate stated in subparagraph (1)) over their useful life, as reasonably determined by Landlord; but Building Operating Costs will exclude the following (“Excluded Costs”): (a) depreciation, interest, and amortization on mortgages or ground lease payments, except as otherwise provided herein, (b) legal fees incurred in negotiating and enforcing tenant leases, (c) real estate brokers’ leasing commissions, (d) initial improvements or alterations to tenant spaces, (e) the cost of providing any service directly to and paid directly by any tenant, (f) any costs expressly excluded from Operating Expenses elsewhere in this Lease, (g) costs of any items for which Landlord receives reimbursement from insurance proceeds or a third party (insurance proceeds shall be excluded from Operating Expenses in the year in which they are received), but any deductible amount under any insurance policy shall be included within Operating Expenses, (h) costs of capital improvements, except as specifically provided above, (i) costs incurred for the benefit of a single tenant (for example, tenant improvement costs to build-out a particular suite), (j) costs incurred due to Landlord’s breach of a lease, law, or ordinance, and (m) repairs necessitated by the gross negligence or willful misconduct of Landlord.

4.2.3. Building’s Pro Rata Share.  “Building’s Pro Rata Share” means a fraction, the numerator of which is the total aggregate Rentable Square Feet in the Building, and the denominator of which is the total aggregate Rentable Square Feet in all of the buildings in the Project for which certificates of occupancy have been issued. The Building’s Pro Rata Share will be calculated as of January 1 of each calendar year; which calculation will remain in effect (regardless of changes to the Project) until the following January 1.

4.2.4. Direct Expenses.  “Direct Expenses” means the sum of Operating Expenses plus Tax Expenses (as such terms are defined below).

4

4.2.5. Expense Year. “Expense Year” means each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.

4.2.6. Operating Expenses. “Operating Expenses” means the sum of (i) all Building Operating Costs, (ii) the Building’s Pro Rata Share of the Project Operating Costs, and (iii) any costs or expenses payable pursuant to the provisions of any reciprocal easement and maintenance agreement (or similar agreement) recorded against the Project either now or in the future including any owner’s association or similar fees, assessments or dues presently or hereafter established for the Project.

4.2.7. Project Operating Costs. “Project Operating Costs” means (i) all expenses, costs, and amounts of every kind or nature which are incurred because of or in connection with the ownership, operation, management, maintenance, or repair of the common areas of the Project, and (ii) all Taxes relating to or assessed against the common areas of the Project. Project Operating Costs include all Operating Costs paid or incurred in connection with the common areas of the Project but excluding any Building Operating Costs and Excluded Costs (relative to the Project).

4.3. Adjustment of Operating Expenses.  Operating Expenses shall be adjusted as follows:

4.3.1. Gross Up Adjustment When Building Is Less Than Fully Occupied. If the occupancy of the Building during any part of any Expense Year (including the Base Year) is less than 95%, Landlord shall make an appropriate adjustment of the variable components of Operating Expenses for that Expense Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred had the Building been 95% occupied. This amount shall be considered to have been the amount of Operating Expenses for that Expense Year. For purposes of this paragraph, “variable components” include only those component expenses that are affected by variations in occupancy levels.

4.3.2. Adjustment When Landlord Does Not Furnish a Service to All Tenants. If, during any part of any Expense Year (including the Base Year), Landlord is not furnishing a particular service or work (the cost of which, if furnished by Landlord, would be included in Operating Expenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, Operating Expenses for that Expense Year shall be considered to be increased by an amount equal to the additional Operating Expenses that Landlord would reasonably have incurred during such period if Landlord had furnished such service or work to that tenant.

4.4. Tax Expenses.

4.4.1. Definition of Tax Expenses.  “Tax Expenses” means the sum of all federal, state, county, or local government or municipal taxes, fees, charges, or other impositions of every kind or nature, whether general, special, ordinary, or extraordinary (“Taxes”) that are paid or incurred by Landlord because of or in connection with the ownership, leasing, and operation of the Building. Taxes include taxes, fees, and charges such as real property taxes, general and special assessments, transit taxes, leasehold taxes, and taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant); personal property taxes imposed on the fixtures, machinery, equipment, apparatus, systems, and equipment; appurtenances; furniture; and other personal property used in connection with the Building and the common areas of the Project. Notwithstanding the foregoing, the following shall be excluded from Taxes: (a) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal, state, and local income taxes, and other taxes applied or measuredby Landlord’s general or net income (as opposed to rents, receipts, or income attributable to operations at the Building), (b) any items included as Operating Expenses, and (c) personal property taxes attributable to property owned or installed by or for other tenants of the Building.

5

4.4.2. Adjustment of Taxes.  For purposes of this Lease, Tax Expenses (and Taxes included in the definition of Project Operating Costs) shall be calculated as if the tenant improvements in the Building were fully constructed and the Project, the Building, and all tenant improvements in the Building were fully assessed for real estate tax purposes. Landlord specifically agrees that the gross receipts component of Tax Expenses for the Base Year and each subsequent year shall be calculated as if the Building were one hundred percent (100%) occupied with rent paying tenants. Accordingly, during the portion of any Expense Year occurring after the Base Year, Tax Expenses shall be considered to be increased appropriately.

4.4.3. Tenant’s Share.  “Tenant’s Share’ means a percentage which is calculated by multiplying the number of Rentable Square Feet of the Premises by 100 and dividing the product by the total Rentable Square Feet in the Building. If either the Premises or the Building are expanded or reduced, Tenant’s Share shall be appropriately adjusted. Tenant’s Share for the Expense Year in which that change occurs shall be determined on the basis of the number of days during the Expense Year in which each such Tenant’s Share was in effect. Notwithstanding any other provision in this Lease to the contrary, Tenant’s Share of the Tax Expenses will not include any increase in the Tax Expenses due to a reassessment of the Building or Project occurring after two previous changes of ownership during the initial Lease Term.

4.5. Calculation and Payment of Additional Rent.  Tenant’s Share of any Direct Expenses for any Expense Year shall be calculated and paid as follows:

4.5.1. Calculation of Excess.  If Tenant’s Share of Direct Expenses for any Expense Year ending or beginning within the Lease Term exceeds Tenant’s Share of the amount of Direct Expenses applicable to the Base Year, Tenant shall pay as Additional Rent to Landlord an amount equal to that excess (the “Excess”), in the manner stated below.

4.5.2. Statement/Payment of Direct Expenses.  Tenant shall pay to Landlord, on the first day of each calendar month during the Lease Term, commencing with January 1, 2000, as Additional Rent, an amount (“Tenant’s Monthly Payment”) equal to one-twelfth of Tenant’s Share of the amount by which the Direct Expenses for such calendar year exceed the Base Year Direct Expenses (“Increased Direct Expenses”), as estimated by Landlord in the most recently delivered Estimated Statement (as defined below). Landlord intends to deliver to Tenant, prior to the commencement of each calendar year during the Lease Term, a written statement (“Estimated Statement”) setting forth Landlord’s estimate of the Direct Expenses and Increased Direct Expenses allocable to the ensuing calendar year, and Tenant’s Share of such Increased Direct Expenses. Landlord may, at its option, during any calendar year, deliver to Tenant a revised Estimated Statement, revising Landlord’s estimate of the Direct Expenses and Increased Direct Expenses, in accordance with Landlord’s most current estimate. Within approximately ninety (90) days after the end of each calendar year during the Lease Term, Landlord intends to deliver to Tenant a written statement (“Actual Statement”) setting forth the actual Direct Expenses allocable to the preceding calendar year or, in the case of the calendar year in which the Commencement Date occurs, such Actual Statement will set forth the Base Year Direct Expenses. Tenant’s failure to object to Landlord regarding the contents of an Actual Statement, in writing, within 30 days after delivery to Tenant of such Actual Statement, shall constitute Tenant’s absolute and final acceptance and approval of the Actual Statement. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any calendar year exceeds Tenant’s Share of the actual Increased Direct Expenses allocable to such calendar year, then such excess will be credited against future Tenant’s Monthly Payments, unless such calendar year was the calendar year during which the Lease Expiration Date occurs (the “Last Calendar Year”), in which event either (i) such excess shall be credited against any monetary default of Tenant under this Lease, or (ii) if Tenant is not in default under this Lease, then Landlord shall pay to Tenant such excess. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any calendar year is less than Tenant’s Share of the actual Increased Direct Expenses allocable to such calendar year, then Tenant shall, within ten days of delivery of the Actual Statement, pay to Landlord the amount of such deficiency. Landlord’s delay in delivering any Estimated Statement or Actual Statement will not release Tenant of its obligation to pay any Tenant’s Monthly

6

Payment or any such excess upon receipt of the Estimated Statement or the Actual Statement, as the case may be. The references in this paragraph to the actual Increased Direct Expenses allocable to a calendar year, shall include, if such calendar year is the last calendar year of the Lease Term, the actual Increased Direct Expenses allocable to the portion of such year prior to the Lease Expiration Date.

4.6. Landlord’s Books and Records.  If Tenant disputes the amount of Additional Rent stated in an Actual Statement, Tenant may designate, within ninety (90) days after receipt of that Actual Statement, an independent certified public accountant to inspect Landlord’s records which inspection shall be at Tenant’s sole cost and expense unless such inspection correctly discloses a discrepancy (in Tenant’s favor) of greater than three (3) percent of the total Direct Expenses, in which case Landlord shall pay the reasonable costs of such inspection. Tenant is not entitled to request the inspection, however, if Tenant is then in default under this Lease. The accountant must be a member of a nationally or locally recognized accounting firm and must not charge a fee based on the amount of Additional Rent that the accountant is able to save Tenant by the inspection. Tenant must give reasonable notice to Landlord of the request for inspection, and the inspection must be conducted in Landlord’s offices at a reasonable time or times. If, after that inspection, Tenant still disputes the Additional Rent, such dispute will be resolved by arbitration in accordance with the commercial rules and procedures of the American Arbitration Association; however, Tenant shall pay such disputed amount (under protest) until such arbitration is completed. Any failure by Tenant to dispute the information set forth on any Actual Statement from Landlord within ninety (90) days of the date such Actual Statement is delivered to Tenant will constitute Tenant’s conclusive acceptance of such Statement.

Article 5
SECURITY DEPOSIT

5.1. Security Deposit.  Concurrently with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a cash sum in the amount of the Security Deposit stated in the Summary of Basic Lease Information. Landlord shall hold the Security Deposit as security for the performance of Tenant’s obligations under this Lease. If Tenant defaults on any provision of this Lease, Landlord may, without prejudice to any other remedy it has, apply all or part of the Security Deposit to: (a) any Rent or other sum in default; (b) any amount that Landlord may spend or become obligated to spend in exercising Landlord’s rights following a default by Tenant (as provided below); or (c) any expense, loss, or damage that Landlord may suffer because of Tenant’s default. Tenant waives the provisions of California Civil Code Section 1950.7, and all other provisions of law now in force or that become in force after the date of execution of this Lease, that provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant, or to clean the Premises. Landlord and Tenant agree that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other foreseeable or unforeseeable loss or damage caused by the act or omission of Tenant or Tenant’s officers, agents, employees, independent contractors, or invitees. If Landlord disposes of its interest in the Premises, Landlord shall deliver or credit the Security Deposit to Landlord’s successor in interest in the Premises and thereupon be relieved of further responsibility with respect to the Security Deposit. If Landlord applies any portion of the Security Deposit, Tenant shall, within thirty (30) days after demand by Landlord, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount. Tenant is not entitled to any interest on the Security Deposit and may commingle the Security Deposit with other funds of Landlord. The unused portion of the Security Deposit, if any, shall be returned to the last known address of Tenant or the last assignee of Tenant’s interest under this Lease, within thirty (30) days following the expiration or termination of the Lease Term.

Article 6
USE

6.1. Permitted Use.  Tenant shall use the Premises solely for the Permitted Use. Tenant shall not use or permit the Premises to be used for any other purpose without

7

Landlord’s prior written consent, which consent will not unreasonably be withheld. Tenant shall comply with the rules attached to this Lease as Exhibit E and any reasonable, non-discriminatory amendments or additions promulgated by Landlord from time to time for the safety, care, and cleanliness of the Premises, the Building, and the Project or for the preservation of good order (the “Rules and Regulations”). Landlord shall not discriminate against Tenant in the enforcement of the Rules and Regulations in relation to the other tenants in the Building. No provision of the Rules and Regulations will permit Landlord to obstruct access to the Premises or otherwise unreasonably interfere with Tenant’s use of the Premises. Landlord shall not be responsible to Tenant for the failure of any other tenants or occupants of the Building to comply with the Rules and Regulations. In addition to complying with other provisions of this Lease concerning the use of the Premises: (a) Tenant shall not use or allow any person to use the Premises for any purpose that is contrary to the Rules and Regulations, that violates any Laws and Orders (as defined below), that constitutes waste or nuisance, or that would unreasonably annoy other occupants of the Building or the owners or occupants of other buildings; and (b) Tenant shall comply with all recorded covenants, conditions, and restrictions, easement agreements, and like recorded instruments that now or later affect the Project that have been recorded prior to the execution of this Lease.

Article 7
COMPLIANCE WITH LAWS

7.1. Definition of “Laws and Orders”.  For purposes of this Lease, the term “Laws and Orders” includes all laws, statutes, ordinances, standards, rules, requirements, or orders now in force or hereafter enacted, promulgated, or issued by any federal, state, county, city, or governmental agency. Such term also includes government measures regulating or enforcing public access, occupational, health, or safety standards for employers, employees, landlords, or tenants.

7.2. Repairs, Replacements, Alterations, and Improvements.  After the Commencement Date, Tenant, at Tenant’s sole expense, shall promptly make all repairs, replacements, alterations, or improvements to the Premises, including tenant improvements, Alterations, fixtures, and furnishings, needed to comply with all Laws and Orders to the extent that the Laws and Orders relate to or are triggered by (a) Tenant’s particular use of the Premises, (b) the tenant improvements located in the Premises, or (c) any Alterations located in the Premises. Landlord shall make all repairs and alterations required to comply with the provisions of the Americans With Disabilities Act other than those for which Tenant is responsible pursuant to clauses (a), (b), and (c), above. Additionally, Landlord shall promptly make all repairs, replacements, alterations, or improvements needed to comply with all other Laws and Orders to the extent that the Laws and Orders relate to the Building and are not needed due to the causes specified in clauses (a) through (c), above. If, however, such compliance work on the Building is triggered by any tenant improvements or Alterations, Tenant shall bear all expense of such work.

Article 8
HAZARDOUS MATERIAL

8.1. Use of Hazardous Materials.  Tenant shall not cause or permit any Hazardous Material (as defined below) to be generated, brought onto, used, stored, or disposed of in or about the Premises, the Building, or the Project by Tenant or its agents, employees, contractors, subtenants, or invitees, except for limited quantities of standard office and janitorial supplies. Tenant shall: (a) use, store, and dispose of all such permitted Hazardous Material in strict compliance with all applicable statutes, ordinances, and regulations in effect during the Lease Term that govern and/or relate to Hazardous Material, public health and safety and protection of the environment (“Environmental Laws”), and (b) comply at all times during the Lease Term with all Environmental Laws.

8.2. Notice of Release or Investigation.  If, during the Lease Term, Tenant becomes aware of (a) any actual or threatened release of any Hazardous Material on, under, or about the Premises, the Building, or the Project, or (b) any inquiry, investigation, proceeding, or

8

claim by any governmental agency or other person regarding the presence of Hazardous Material on, under, or about the Premises, the Building, or the Project, Tenant shall give Landlord written notice of the release or investigation within five (5) days after learning of it and shall simultaneously furnish to Landlord copies of any claims, notices of violation, reports, or other writings received by Tenant that concern the release or investigation.

8.3. Indemnification by Tenant.    Tenant shall, at Tenant’s sole expense, and with counsel reasonably acceptable to Landlord, indemnify, defend, and hold harmless Landlord and Landlord’s shareholders, directors, officers, employees, partners, affiliates, and agents with respect to all losses, of every kind and nature, arising out of or resulting from, directly or indirectly, the release of any Hazardous Material in or about the Premises, the Building, or the Project, or the violation of any Environmental Law, by Tenant or Tenant’s agents, employees, contractors, or invitees. This indemnification shall survive the expiration or termination of this Lease.

8.4. Indemnification by Landlord.   Landlord shall, at Landlord’s sole expense and with counsel reasonably acceptable to Tenant, indemnify, defend, and hold harmless Tenant and Tenant’s shareholders, directors, officers, employees, partners, affiliates, and agents with respect to all losses arising out of or resulting from the release of any Hazardous Material in or about the Building or the Project, or the violation of any Environmental Law by Landlord or Landlord’s agents, employees, contractors, or invitees (but excluding any other tenant of the Project or their agents, contractors, or invitees). This indemnification shall survive the expiration or termination of this Lease.

8.5. Remediation Obligations.    If the presence of any Hazardous Material brought onto the Premises, the Building, or the Project by Tenant or Tenant’s agents, employees, contractors, or invitees results in contamination of the Building or the Project, Tenant shall promptly take all necessary actions, at Tenant’s sole expense, to return the Premises, the Building, and/or the Project to the condition that existed before the introduction of such Hazardous Material. Tenant shall first obtain Landlord’s approval of the proposed remedial action. This provision does not limit the indemnification obligation set forth in the preceding paragraph.

8.6. Definition of “Hazardous Material”.    As used in this Lease, the term “Hazardous Material” shall mean any hazardous or toxic substance, material, or waste that is or becomes regulated by the United States, the State of California, or any local government authority having jurisdiction over the Building. Hazardous Material includes, without limitation: (a) any “hazardous substance”, as that term is defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections 9601-9675); (b) “Hazardous waste”, as that term is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections 6901-6992k); (c) any pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning any hazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect); (d) petroleum products; (e) radioactive material, including any source, special nuclear, or byproduct material as defined in 42 United States Code Sections 2011-2297gB4; (f) Asbestos in any form or condition; and (g) polychlorinated biphenyls (PCBs) and substances or compounds containing PCBs.

8.7. Existence of Hazardous Materials.    To the best of Landlord’s actual knowledge, no Hazardous Materials exist in, on, or about the Premises, the Building, or the Project except in legally permissible amounts; provided, however, Landlord knows or has reason to believe that tenants in the Building (and elsewhere in the Project) utilize standard office and janitorial supplies constituting Hazardous Materials in connection with their tenancy at the Project.

9

Article 9
UTILITIES AND SERVICES

9.1. Standard Tenant Utilities and Services.    Subject to applicable government rules, regulations, and guidelines and the rules or actions of the public utility furnishing the service, Landlord shall provide (as a Direct Expense) the following utilities and services:

9.1.1. Heating and Air Conditioning.    Landlord shall provide heating and air conditioning when necessary for normal comfort for normal office use in the Premises, as reasonably determined by Landlord, on Mondays through Fridays from 7 a.m. through 7 p.m. and on Saturdays from 9 a.m. through 1 p.m. except for the dates of observation of New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and other locally or nationally recognized holidays (“Normal Business Hours”).

9.1.2. Electricity.   Landlord shall provide wiring, outlets, and systems sufficient to provide electrical current to the Premises for ordinary and customary office uses. In addition to the foregoing, Landlord shall replace lamps, starters, and ballasts for Building-standard lighting fixtures within the Premises upon Tenant’s request and at Landlord’s expense. Tenant shall replace lamps, starters, and ballasts for non-Building-standard lighting fixtures within the Premises at Tenant’s sole expense. All electricity used by Tenant in the Premises (including the portion of the electricity utilized in connection with the HVAC system serving the Premises) shall be separately metered and shall be paid by Tenant directly to the utility provider.

9.1.3. Water.    Landlord shall provide city water from the regular Building outlets for ordinary and customary drinking, lavatory, and toilet purposes.

9.1.4. Janitorial Services.    Landlord shall provide five (5) day per week ordinary and customary, basic janitorial services in and about the Premises consistent with other first class office buildings in the vicinity of the Building. Landlord shall not be required to provide janitorial services to above-standard improvements installed in the Premises including but not limited to metallic trim, wood floor covering, glass panels, interior windows, kitchens, executive washrooms, or shower facilities. Any janitorial services required by Tenant and provided by Landlord in excess of such ordinary and customary, basic janitorial services shall be separately paid for by Tenant.

9.2. Over-Standard Tenant Use.    Tenant shall not over-tax the Building electrical and other utility systems. In the event of any damage to any Building systems caused by Tenant’s use thereof in excess of ordinary and customary usage for an office, Tenant shall be responsible for all costs and expenses incurred by Landlord as a result of such over-use. In addition, if Tenant requires any utilities or services described in this Article in excess of the standard levels being provided by Landlord, or during hours other than Normal Business Hours, Tenant may request such services from Landlord’s property manager and Landlord shall have the right to impose reasonable restrictions on such usage and/or commercially reasonable charges therefor. The cost for after hours heating and air conditioning is estimated to be Twenty-Five Dollars ($25.00) per hour, subject to increase over the Lease Term, including the Extension Term, if any.

9.3. Interruption of Utilities.    Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services) or for diminution in the quality or quantity of any service when the failure, delay, or diminution is entirely or partially caused by: (a) breakage, repairs, replacements, or improvements which is corrected within two (2) business days; (b) strike, lockout, or other labor trouble; (c) inability to secure electricity, gas, water, or other fuel at the Building despite reasonable efforts to do so; (d) accident or casualty; (e) act or default of Tenant or other parties other than Landlord; or (f) any other cause beyond Landlord’s reasonable control. Such failure, delay, or diminution shall not be considered to constitute an eviction or a disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except that Tenant shall be entitled to an equitable abatement of Rent for the period of such failure,

10

delay, or diminution to the extent such failure, delay, or diminution is directly attributable to Landlord’s negligence or intentional misconduct and continues for more than two (2) business days. Landlord shall not be liable under any circumstances for a loss of or injury to property or for injury to or interference with Tenant’s business, including loss of profits through, in connection with, or incidental to a failure to furnish any of the utilities or services under this Article. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to promptly correct any such interruption of utilities or services. Landlord may also comply with mandatory or voluntary controls or guidelines promulgated by any government entity relating to the use or conservation of energy, water, gas, light, or electricity or the reduction of automobile or other emissions without creating any liability of Landlord to Tenant under this Lease as long as compliance with voluntary controls or guidelines does not materially and unreasonably interfere with Tenant’s use of the Premises.

Article 10
REPAIRS AND MAINTENANCE

10.1. Tenant’s Repair and Maintenance Obligations.    Tenant shall not take any action (or neglect to take any action within the Premises) which will cause any damage to any portion of the Premises or the Base Building Systems (as defined below) or otherwise increase Landlord’s obligations or expenses under Paragraph 10.2, below. In addition, Tenant shall maintain all of Tenant’s furniture, trade fixtures, and equipment within the Premises, as well as all Alterations, in good condition and repair and in a manner which will not damage or overburden the Building or the Base Building Systems. Further, Tenant shall promptly notify Landlord of any damage to (or need for repair in connection with) any portion of the Building located within the interior of the Premises including, without limitation, any damaged or broken Base Building Systems, fixtures, and/or appurtenances.

10.2. Landlord’s Repair and Maintenance Obligations.    Subject to Articles 15 and 16 (regarding damage, destruction and condemnation), Landlord shall, as part of the Building Operating Costs, repair and maintain in good order and condition (reasonable wear and tear excepted), consistent with first class office buildings in the vicinity of the Building: (a) the structural portions, fixtures, and appurtenances of the Premises, and all Tenant Improvements constructed by Landlord; (b) the structural portions and common area of the Building; (c) the Base Building Systems, including those located within the Premises; (d) the exterior portions of the Building and Project; and (e) all other common areas located in the Building, or in or on the Project, including the parking facilities serving the Building. Repairs shall be made promptly when appropriate to keep the applicable portion of the Building, the Project, and other items in the condition described in this paragraph. To the extent that the need for repair and maintenance is due to Tenant’s or Tenant’s agents, employees, contractors, or invitees’ negligence, misuse, or use of the Building or the Base Building Systems in a manner which exceeds what is normal and customary for office space, such repair and maintenance shall be at Tenant’s sole expense. After receipt of an invoice from Landlord, Tenant shall pay Landlord, Landlord’s actual costs incurred in connection with such repairs and replacements plus a reasonable percentage of such costs, to be uniformly established for the Building, sufficient to reimburse Landlord for all overhead, general conditions, fees, and other costs and expenses arising from Landlord’s involvement with such repairs and replacements. Landlord shall not be in default of its repair and maintenance obligations under this paragraph if Landlord performs the repairs and maintenance within three (3) days after written notice by Tenant to Landlord of the need for such repairs and maintenance. Furthermore, if due to the nature of the particular repair or maintenance obligation or to causes beyond Landlord’s reasonable control, more than three (3) days are reasonably required to complete it, Landlord shall not be in default under this paragraph if Landlord begins its efforts to repair within such three (3) day period and diligently prosecutes the required work to completion. No abatement of Rent and, except as otherwise specifically provided herein, no liability of Landlord shall result from any injury to or interference with Tenant’s business arising from the making of or failure to make any repairs, replacements, alterations, or improvements in or to any portion of the Premises, the Building, or the Project. As part of the consideration to Landlord hereunder, Tenant waives and releases its rights, including its right to make repairs at Landlord’s expense, under California Civil Code Sections 1941-1942 or any similar law, statute, or ordinance now or hereafter in effect. If, after written notification to Landlord by Tenant of the need for

11

repairs and maintenance, Landlord has not performed the repairs and maintenance within three (3) days after written notice, or Landlord has failed to diligently prosecute the required work if more than three (3) days are reasonably required to complete it, Tenant may, upon twenty-four (24) hours telephonic notice, perform the requested repairs and maintenance. After final adjudication in a court of law of competent jurisdiction, if the court determines that such repairs and maintenance were properly Landlord’s responsibility, Landlord shall reimburse Tenant for the reasonable third-party costs incurred by Tenant in undertaking such repair or maintenance, to the extent the court has determined Landlord was liable to perform the repairs and maintenance, and if Landlord fails to do so within ten (10) days of such adjudication, Tenant may deduct such amount from its Rent obligations hereunder.

Article 11
ALTERATIONS AND ADDITIONS

11.1. Landlord’s Consent to Alterations.    Tenant may not make any improvements, alterations, additions, or changes to the Premises (“Alterations”) without obtaining Landlord’s prior written consent. Tenant shall request such consent by written notice to Landlord, which written notice must be accompanied by detailed and complete plans and specifications for the proposed work. As a condition of its consent to Alterations, Landlord may impose any reasonable requirements that Landlord considers appropriate under the circumstances including, without limitation, evidence of adequate financial capability and provision of appropriate insurance. Landlord shall not unreasonably withhold its consent to any proposed Alterations. Landlord will be deemed to be acting reasonably if it withholds consent for, among other Alterations, any Alterations that would or could: (a) affect the structure of the Building or any portion of the Building other than the interior of the Premises; (b) affect the Base Building Systems; (c) result in the Landlord being required under any Laws and Orders to perform any work that Landlord could otherwise avoid or defer (“Additional Required Work”); (d) result in an increase in the demand for utilities or services that Landlord is required to provide; or (e) cause an increase in the premiums for hazard or liability insurance carried by Landlord. The term “Base Building Systems” means all systems and equipment (including, without limitation, plumbing; heating, ventilation, and air conditioning; electrical; fire/life safety; elevator; and security systems) that serve all or part of the Building. Tenant shall reimburse Landlord for the reasonable fees and costs of any architects, engineers, or other consultants reasonably retained by Landlord to review the proposed Alterations.

11.2. Compliance of Alterations With Laws and Insurance Requirements.    If Landlord approves any Alterations, Tenant shall cause all Alterations to comply with the following: (a) applicable Laws and Orders; (b) applicable requirements of a fire rating bureau; or (c) applicable requirements of Landlord’s hazard insurance carrier to the extent that Tenant is informed of them. Tenant shall also comply with those requirements in the course of constructing the Alterations. Before beginning construction of any Alteration, Tenant shall obtain a valid building permit and any other permits required by any government entity having jurisdiction over the Premises. Tenant shall provide copies of those permits to Landlord before the work begins. Tenant shall, at Tenant’s sole expense, perform any Additional Required Work, which shall be subject to the same requirements as any Alteration. If any Additional Required Work must be performed outside the Premises, Landlord may elect to perform that work at Tenant’s expense. No consent by Landlord to any proposed Alterations shall constitute a waiver of Tenant’s obligations under this paragraph.

11.3. Manner of Construction.    Tenant shall build all Alterations entirely within the Premises and in conformance with Landlord’s construction rules and regulations, using only contractors and subcontractors approved in writing by Landlord (which approval will not unreasonably be withheld). All work relating to any Alterations shall be done in a good and workmanlike manner, using new materials equivalent in quality to those used in the construction of the initial improvements to the Premises. All work shall be diligently prosecuted to completion. Tenant shall ensure that all work is performed in a manner that does not obstruct access to or through the Building or its common areas and that it does not interfere either with other tenants’ use of their premises or with any other work being undertaken in the Building. Tenant shall take all measures necessary to ensure that labor peace is maintained at all times. Within twenty (20) days after completion of any Alterations,

12

Tenant shall deliver to Landlord a reproducible copy of the drawings of the Alterations, as built.

11.4. Payment for Improvements.    Tenant shall promptly pay all charges and costs incurred in connection with any Alteration, as and when required by the terms of any agreements with contractors, designers, or suppliers. On completion of any Alteration, Tenant shall: (a) cause a timely notice of completion to be recorded in the office of the San Diego County Recorder in accordance with Civil Code Section 3093 or any successor statute; (b) deliver to Landlord evidence of full payment and unconditional final waivers of all liens for labor, services, or materials; and (c) pay Landlord any reasonable expenses incurred by Landlord in connection with Tenant’s work.

11.5. Landlord’s Property.    All Alterations and fixtures that may be installed or placed in or about the Premises from time to time shall be and become the property of Landlord upon installation; except that Tenant may remove any trade fixtures or freestanding office equipment and furniture that Tenant can substantiate to Landlord has not been paid for with any tenant improvement allowance funds (if any) provided to Tenant by Landlord. Tenant must repair any damage to the Premises and the Building caused by such removal. In addition, by written notice to Tenant at the time consent to install any Alteration(s) is given, Landlord may require Tenant, at Tenant’s sole expense, to remove any Alterations upon termination or expiration of this Lease, and restore the Premises to their configuration and condition before the Alterations were made. If Tenant fails to complete that restoration before expiration of the Lease Term or, in the case of earlier termination, within fifteen (15) days after written notice from Landlord requesting the restoration, Landlord may do so and charge the cost of the restoration to Tenant. Notwithstanding the foregoing, Tenant shall not be required to remove (or pay Landlord to remove) the tenant improvements made pursuant to attached Exhibit C.

11.6. Initial Improvements.    The terms of the Tenant Improvement Agreement, attached to this Lease as Exhibit C, and not the terms of this Article shall govern the construction of the initial tenant improvements to the Premises.

Article 12
COVENANT AGAINST LIENS

12.1. Covenant Against Liens.    Tenant shall not be the cause or object of any liens or allow such liens to exist, attach to, be placed on, or encumber Landlord’s or Tenant’s interest in the Premises, the Building, or the Project by operation of law or otherwise. Tenant shall not suffer or permit any lien of mechanics, material suppliers, or others to be placed against the Premises, the Building, or the Project with respect to work or services performed or claimed to have been performed for Tenant or materials furnished or claimed to have been furnished to Tenant or the Premises (other than by Landlord). Landlord has the right at all times to post and keep posted on the Premises any notice that it considers necessary for protection from such liens. At least seven (7) days before beginning construction of any Alteration or Tenant Improvements, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility in connection therewith. If any such lien attaches or Tenant receives notice of any such lien, Tenant shall cause the lien to be immediately released and removed of record or, if Tenant in good faith disputes such lien, Tenant may post a bond acceptable to Landlord provided that Tenant then diligently pursues the resolution of such matter and the removal of such lien. Despite any other provision of this Lease, if the lien is not released and removed within five (5) days after Landlord delivers notice of the lien to Tenant, Landlord may immediately take all action necessary to release and remove the lien, without any duty to investigate the validity of it. All expenses (including reasonable attorney fees) incurred by Landlord in connection with the lien shall be considered Additional Rent under this Lease and be immediately due and payable by Tenant.

13

Article 13
EXCULPATION, INDEMNIFICATION, AND
INSURANCE

13.1. Definition of “Tenant Parties” and “Landlord Parties”.    For purposes of this Article, the term “Tenant Parties” refers singularly and collectively to Tenant and Tenant’s officers, members, partners, agents, employees, and independent contractors as well as to all persons and entities claiming through any of these persons or entities. The term “Landlord Parties” refers singularly and collectively to Landlord and Landlord’s officers, directors, shareholders, members, parents, subsidiaries, and any other affiliated entities, personal representatives, executors, heirs, assigns, licensees, invitees, beneficiaries, agents, servants, employees, and independent contractors of these persons or entities.

13.2. Exculpation.    To the fullest extent permitted by law, Tenant, on its behalf and on behalf of all Tenant Parties, (i) waives all claims (in law, equity, or otherwise) against Landlord Parties arising out of, (ii) knowingly and voluntarily assumes the risk of, and (iii) agrees that Landlord Parties shall not be liable to Tenant Parties for any of the following: (a) injury to or death of any person; or (b) loss of, injury or damage to, or destruction of any tangible or intangible property, including the resulting loss of use, economic losses, and consequential or resulting damage of any kind from any cause. This exculpation clause shall not apply, however, to claims against Landlord Parties to the extent that a final judgment of a court of competent jurisdiction establishes that the injury, loss, damage, or destruction was proximately caused by the Landlord Parties’ fraud, gross negligence, willful injury to person or property, or violation of law. The provisions of this paragraph will survive the expiration or earlier termination of this Lease until all claims within the scope of this paragraph are fully, finally, and absolutely barred by the applicable statutes of limitations. Tenant acknowledges that this paragraph was part of the consideration to Landlord under this Lease.

13.3. Indemnification.

13.3.1. Tenant’s Indemnification of Landlord Parties.    To the fullest extent permitted by law, Tenant shall, at Tenant’s sole expense and with counsel reasonably acceptable to Landlord, indemnify, defend, and hold harmless the Landlord Parties from and against all Claims (as defined below), from any cause, arising out of or relating (directly or indirectly) to this Lease, the tenancy created under this Lease, or the Premises, including: (a) the use or occupancy, or manner of use or occupancy, of the Premises or Building by the Tenant Parties; (b) any act, error, omission, or negligence of the Tenant Parties or of any invitee, guest, or licensee of Tenant in, on, or about the Project; (c) Tenant’s conduct of its business; (d) any Alterations, activities, work, or things done, omitted, permitted, allowed, or suffered by Tenant Parties in, at, or about the Premises, the Building, or the Project, including the violation of or failure to comply with any applicable Laws and Orders, or judgments in existence on the Lease Commencement Date or enacted, promulgated, or issued after the date of this Lease; and (e) any breach or default in performance of any obligation on Tenant’s part to be performed under this Lease, whether before or during the Lease Term or after its expiration or earlier termination. The indemnification in this paragraph shall not apply to the extent that a final judgment of a court of competent jurisdiction establishes that a Claim against one Landlord Party was proximately caused by the gross negligence or willful misconduct of that Landlord Party. In that event, however, this indemnification shall remain valid for all other Landlord Parties. This indemnification extends to and includes Claims for: (a) injury to any persons (including death at any time resulting from that injury); (b) loss of, injury or damage to, or destruction of property (including all loss of use resulting from that loss, injury, damage, or destruction); and (c) all economic losses and consequential or resulting damage of any kind.

13.3.2. Definition of Claims.    For purposes of this Lease, “Claims” means any and all claims, losses, costs, damage, expenses, liabilities, liens, actions, causes of action (whether in tort or contract, law or equity, or otherwise), charges, assessments, fines, and penalties of any kind (including consultant and expert expenses, court costs, and attorney fees actually incurred).

14

13.3.3. Indemnification Independent of Insurance Obligations.    The indemnifications provided in this Article may not be construed or interpreted as in any way restricting, limiting, or modifying Tenant’s or Landlord’s insurance or other obligations under this Lease and is independent thereof. Compliance with the insurance requirements and other obligations under this Lease shall not in any way restrict, limit, or modify Tenant’s or Landlord’s indemnification obligations under this Lease. Notwithstanding the foregoing, the indemnification provisions of this Article shall not apply to the extent that the loss for which indemnification is sought is fully covered by insurance, as long as such insurance is not invalidated by this provision.

13.3.4. Attorney Fees.    The prevailing party shall be entitled to recover its actual attorney fees and court costs incurred in enforcing the indemnification clauses set forth in this Article.

13.3.5. Survival of Indemnification.    The indemnification clauses in this Article shall survive the expiration or earlier termination of this Lease until all claims involving any of the indemnified matters are fully, finally, and absolutely barred by the applicable statutes of limitations.

13.4. Compliance with Insurer Requirements.    Tenant shall, at Tenant’s sole expense, comply with all requirements, guidelines, rules, orders, and similar mandates and directives pertaining to the use of the Premises and the Building, whether imposed by Tenant’s insurers, Landlord’s insurers, or both. If Tenant’s business operations, conduct, or use of the Premises or the Building cause any increase in the premium for any insurance policies carried by Landlord, Tenant shall, within ten (10) business days after receipt of written notice from Landlord, reimburse Landlord for the increase. Tenant shall, at Tenant’s sole expense, comply with all rules, orders, regulations, or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and of any similar body.

13.5. Tenant’s Insurance Coverage.    Tenant shall, at Tenant’s sole expense, throughout the Lease Term maintain the following coverages:

13.5.1. Public Liability and Property Damage Insurance.    Tenant shall, at Tenant’s sole expense, obtain and maintain public liability and property damage insurance (i) with a single combined liability limit and property damage limit of not less than $2,000,000.00, (ii) insuring (a) against all liability of Tenant and Tenant’s agents, employees, contractors, licensees, and invitees arising out of or in connection with Tenant’s use or occupancy of the Premises, and (b) performance by Tenant of the indemnity provisions set forth in this Lease, (iii) naming Landlord, its agent, and any lender having a security interest against the Project (“Lender”) as additional named insureds, (iv) containing cross-liability endorsements, and (v) which includes products liability insurance (if Tenant is to sell merchandise or other products derived from the Premises). Not more frequently than once every year, if in the opinion of Landlord the amount or scope of such insurance at that time is not adequate, Tenant shall increase such insurance as reasonably required by Landlord.

13.5.2. Fire and Extended Coverage Insurance.    Tenant shall, at Tenant’s sole expense, maintain on Tenant’s Alterations and Tenant’s personal property and fixtures a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, coverage with respect to increased costs due to building ordinances, demolition coverage, boiler and machinery insurance, and sprinkler leakage coverage, in each case to the extent of at least 100 percent of full replacement value, issued in the names of Landlord, Tenant, and Landlord’s Lender, as their interests may appear. Such “full replacement value” shall be determined by the company issuing such policy at the time the policy is initially obtained. Not more frequently than once every two years, either Landlord or Tenant may, at its election, notify the other that it elects to have the replacement value redetermined by an insurance company. Such redetermination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and Landlord and Tenant shall be promptly notified of the results by the company. Such policy shall be promptly adjusted according to such redetermination.

15

13.5.3. Tenant’s Workers’ Compensation and Employer Liability Coverage.    Tenant shall procure and maintain workers’ compensation insurance as required by law and employer’s liability insurance with limits of no less than the greater of (i) the statutorily required limits, or (ii) one million dollars ($1,000,000).

13.6. Delivery of Certificate, Policy, and Endorsements.    Before the Lease Commencement Date, Tenant shall deliver to Landlord the endorsements referred to in this Article as well as a certified copy of Tenant’s liability policy or policies and an original certificate of insurance, executed by an authorized agent of the insurer or insurers, evidencing compliance with the liability insurance requirements. The certificate shall provide for no less than thirty (30) days’ advance written notice to Landlord from the insurer or insurers of any cancellation, non-renewal, or material change in coverage or available limits of liability and shall confirm compliance with the liability insurance requirements in this Lease. The “endeavor to” and “failure to mail such notice shall impose no obligation or liability of any kind upon the Company” language and any similar language shall be stricken from the certificate.

13.7. Insurance Generally.    If Tenant fails during the Lease Term to maintain any insurance required to be maintained by Tenant under this Lease, then Landlord may, at its election, arrange for any such insurance, and Tenant shall reimburse Landlord for any premiums for any such insurance within five days after Tenant receives a copy of the premium notice. If any such premiums are allocable to a period, a portion of which occurs during the Lease Term and the remainder of which occurs before or after the Lease Term, then such premiums shall be apportioned between Landlord and Tenant based upon the number of days during such period that occur during the Lease Term and the number of days that occur before or after the Lease Term, such that Tenant pays for the premiums that are allocable to the period during the Lease Term. Insurance required to be maintained by Tenant under this Lease (i) shall be issued as a primary policy by insurance companies authorized to do business in the state in which the Premises are located with a Best’s Rating of at least “A-” and a Best’s Financial Size Category rating of at least “X,” as set forth in the most current edition of “Best’s Insurance Reports” (unless otherwise approved by Landlord), or such higher rating as may be required by Landlord’s lender, (ii) shall name Landlord and Landlord’s lender as additional named insureds (the additional insured endorsement must be on ISO Form CG 20 11 11 85 or an equivalent acceptable to Landlord, with such modifications as Landlord may require), (iii) shall consist of “occurrence” based coverage, without provision for subsequent conversion to “claims” based coverage, (iv) shall not be cancelable or subject to reduction of coverage or other modification except after 30 days’ prior written notice to Landlord and Landlord’s lender, (v) the coverage afforded to Landlord and any lender of Landlord must be at least as broad as that afforded to Tenant and may not contain any terms, conditions, exclusions, or limitations applicable to Landlord or any lender of Landlord that do not apply to Tenant, and (vi) shall not provide for a deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at least 30 days prior to the expiration of each such policy, furnish Landlord with a renewal of or “binder” extending such policy. Tenant shall promptly upon request deliver to Landlord copies of such policy or policies or certificates evidencing the existence and amounts of such insurance together with evidence of payment of premiums.

13.8. Waiver of Subrogation.    Landlord and Tenant agree to cause the insurance companies issuing their respective property (first party) insurance to waive any subrogation rights that those companies may have against Tenant or Landlord, respectively, as long as the insurance is not invalidated by the waiver. If the waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant waive any right that either may have against the other on account of any loss or damage to their respective property to the extent that the loss or damage is insured under their respective insurance policies.

13.9. Landlord’s Insurance.    Landlord shall at all times while this Lease is in effect maintain (subject to recoupment as an Operating Expense) the following types of insurance: (a) insurance against fire and such other perils as may be included in a standard fire and extended coverage insurance policy on the Building in an amount not less than 95% of its actual replacement cost (exclusive of footings and foundations); and (b) commercial general

16

liability insurance on an occurrence basis with limits of liability in an amount not less than $2,000,000.00 combined single limit for each occurrence. Tenant understands and agrees that Landlord will not be required to insure Tenant’s property and that any insurance maintained by Landlord may be maintained under a blanket or umbrella policy.

Article 14
DAMAGE AND DESTRUCTION

14.1 . Repair of Damage by Landlord.    Tenant agrees to notify Landlord in writing promptly of any damage to the Premises resulting from fire, earthquake, or any other identifiable event of a sudden, unexpected, or unusual nature (“Casualty”). If the Premises are damaged by a Casualty or any common areas of the Building providing access to the Premises are damaged to the extent that Tenant does not have reasonable access to the Premises and if neither Landlord nor Tenant has elected to terminate this Lease in the manner provided below, Landlord shall promptly and diligently restore such damaged areas (excluding Tenant’s Alterations) to substantially the same condition as existed before the Casualty, except for modifications required by building codes and other laws and except for any other modifications to the common areas considered desirable by Landlord. In making these modifications, Landlord shall not materially impair Tenant’s access to the Premises. Landlord’s obligation to restore is subject to reasonable delays for insurance adjustment and other matters beyond Landlord’s reasonable control and subject to the other clauses of this Article. If Tenant requests that Landlord modify the original Landlord constructed tenant improvements in connection with the rebuilding, Landlord may condition its consent to those modifications on: (a) Tenant’s payment to Landlord before construction is begun of any sums in excess of the amount of insurance proceeds received by Landlord that are needed to complete the tenant improvements; and (b) Confirmation by Landlord’s architect or contractor that the modifications will not materially increase the scope of work or the time necessary to complete the tenant improvements.

14.2. Repair Period Notice.    Landlord shall, within the earlier of (a) fifteen (15) days after the date on which Landlord determines the full extent of the damage caused by the Casualty, (b) twenty (20) days after Landlord has determined the extent of the insurance proceeds available to effectuate repairs, or (c) sixty (60) days after the occurrence of the Casualty provide written notice to Tenant indicating the reasonably anticipated period for repairing the Casualty (the “Repair Period Notice”). The Repair Period Notice shall also state, if applicable, Landlord’s election either to repair or to terminate the Lease as provided below).

14.3. Landlord’s Option to Terminate or Repair.    If: (a) the Repair Period Notice estimates that the period for repairing the Casualty exceeds one hundred and eighty (180) days from the date of the commencement of the repair; (b) the estimated repair cost exceeds the insurance proceeds, if any, available for such repair (not including the deductible, if any, on Landlord’s casualty insurance), plus any amount that Tenant is obligated or elects to pay for such repair; (c) the estimated repair cost of the Premises or the Building, even though covered by insurance, exceeds fifty percent (50%) of the full replacement cost thereof; or (d) the Building cannot be restored except in a substantially different structural or architectural form than existed before the Casualty, Landlord may elect either to terminate this Lease or to effectuate repairs. Landlord’s election shall be stated in the Repair Period Notice.

14.4. Tenant’s Option To Terminate.    If the Repair Period Notice provided by Landlord indicates that the anticipated period for repairing the Casualty exceeds two hundred and ten (210) days, Tenant may elect to terminate this Lease by providing written notice (“Tenant’s Termination Notice”) to Landlord within ten (10) days after receiving the Repair Period Notice. If Tenant does not elect to terminate within this ten (10) day period, Tenant shall be considered to have waived the option to terminate.

14.5. Rent Abatement Due to Casualty.    Landlord and Tenant agree that, if the Casualty was not the result of the negligence or willful misconduct of Tenant or Tenant’s agents, employees, contractors, licensees, or invitees, Tenant shall be provided with a proportionate abatement of Rent based on the Rentable Square Footage of the Premises rendered unusable and not used by Tenant. That proportional abatement, if any, shall be

17

provided during the period beginning on the later of (a) the date of the Casualty or (b) the date on which Tenant ceases to occupy the affected portion of the Premises and ending on the date of Substantial Completion of Landlord’s restoration obligations as provided in this Article. Subject to Tenant’s termination right described above, the Rent abatement provided in this paragraph is Tenant’s sole remedy due to the occurrence of the Casualty. Landlord shall not be liable to Tenant or any other person or entity for any direct, indirect, or consequential damage (including but not limited to lost profits of Tenant or loss of or interference with Tenant’s business), whether or not caused by the negligence of Landlord or Landlord’s employees, contractors, licensees, or invitees, due to, arising out of, or as a result of the Casualty (including but not limited to the termination of the Lease in connection with the Casualty). If deemed appropriate by Tenant, Tenant may maintain business interruption insurance to provide coverage regarding such matters.

14.6. Damage Near End of Term.    Despite any other provision of this Article, if the Premises or the Building is destroyed or damaged by a Casualty during the last twelve (12) months of the Lease Term, Landlord and Tenant shall each have the option to terminate this Lease by giving written notice to the other of the exercise of that option within thirty (30) days after the occurrence of the Casualty.

14.7. Effective Date of Termination: Rent Apportionment.    If Landlord or Tenant elects to terminate this Lease under this Article in connection with a Casualty, such termination shall be effective thirty (30) days after delivery of notice of such election. Tenant shall pay Rent, properly apportioned up to the date of the Casualty. After the effective date of the termination, Landlord and Tenant shall be discharged of all future obligations under this Lease, except for those provisions that, by their terms, survive the expiration or earlier termination of the Lease.

14.8. Waiver of Statutory Provisions.    The provisions of this Lease, including those in this Article, constitute an express agreement between Landlord and Tenant that applies in the event of any Casualty to the Premises, the Building, or the Project. Tenant, therefore, fully waives the provisions of any statute or regulation, including California Civil Code Sections 1932(2)
and 1933(4), for any rights or obligations concerning a Casualty.

Article 15
CONDEMNATION

15.1. Definition of “Condemnation Date”.    As used in this Lease, the term “Condemnation” means a permanent taking through (a) the exercise of any government power (by legal proceedings or otherwise) by any public or quasi public authority or by any other party having the right of eminent domain (“Condemnor”) or (b) a voluntary sale or transfer by Landlord to any Condemnor, either under threat of exercise of eminent domain by a Condemnor or while legal proceedings for condemnation are pending.

15.2. Effect on Rights and Obligations. If, during the Lease Term or the period between the date of execution of this Lease and the date on which the Lease Term begins, there is any Condemnation of all or part of the Premises, Building, or Project on which the Premises and Building are constructed, the rights and obligations of the parties shall be determined under this Article, and Rent shall not be affected or abated except as expressly provided in this Article. Landlord shall notify Tenant in writing of any Condemnation within thirty (30) days after the later of (a) the filing of a complaint by Condemnor or (b) the final agreement and determination by Landlord and Condemnor of the extent of the taking (“Condemnation Notice”).

15.3. Termination of Lease.

15.3.1. Definition of “Termination Date”.    The “Termination Date” shall be the earliest of: (a) the date on which Condemnor takes possession of the property that is subject to the Condemnation; (b) the date on which title to the property subject to the Condemnation is vested in Condemnor; (c) if Landlord has elected to terminate, the date on which Landlord requires possession of the property in connection with the Condemnation, as

18

specified in a written notice delivered to Tenant no less than thirty (30) days before that date; or (d) if Tenant has elected to terminate, as provided below, thirty (30) days after Landlord’s receipt of written notice of termination from Tenant. If both Landlord and Tenant have elected to terminate under this Article, the Termination Date shall be the earliest of the dates described in (a) - (c) above.

15.3.2. Automatic Termination.    If the Premises are totally taken by Condemnation, this Lease shall terminate as of the Termination Date, and the Condemnation Award shall be allocated between Landlord and Tenant as provided below.

15.3.3. Landlord’s Right to Terminate.    Landlord shall have the option to terminate this Lease if: (a) ten percent (10%) or more of the Rentable Square Feet of the Building or the Premises is taken through Condemnation; (b) any portion of the Building or Project necessary for Landlord to operate the Building efficiently is taken through Condemnation; or (c) any other areas providing access to the Premises or Building are taken through Condemnation. To elect to terminate the Lease under this paragraph, Landlord must provide written notice of its election (“Landlord’s Taking Termination Notice”) to Tenant within thirty (30) days after the later of (a) the filing of a complaint by Condemnor or (b) the final agreement and determination by Landlord and Condemnor of the extent of the taking. In that event, this Lease shall be terminated on the Termination Date, and all Rent shall be prorated to that date. If Landlord does not elect to terminate under this paragraph, Landlord shall be obligated to reasonably restore (to the extent feasible) the Premises (excluding Tenant’s Alterations) or access to the Premises, subject to Landlord’s obtaining all necessary approvals, permits, and authorizations relating to such work.

15.3.4. Tenant’s Right To Terminate.    Tenant shall have the option to terminate this Lease by providing thirty (30) days’ written notice to Landlord if one or both of the following are taken through Condemnation: (a) ten percent (10%) or more of the Usable Square Feet of the Premises; or (b) any portion of the Building that provides Tenant with its access to the Premises and that, if taken, would eliminate Tenant’s access to the Premises. Tenant’s notice must be given within thirty (30) days after Tenant’s receipt of the Condemnation Notice.

15.3.5. Tenant’s Waiver.    Tenant agrees that its rights to terminate this Lease due to partial Condemnation are governed by this Article. Tenant waives all rights it may have under California Code of Civil Procedure Section 1265.130, or otherwise, to terminate this Lease based on a partial Condemnation.

15.3.6. Proration of Rent.    If this Lease is terminated under this Article, the termination shall be effective on the Termination Date, and Landlord shall prorate Rent to that date. Tenant shall be obligated to pay Rent for the period up to, but not including, the Termination Date as prorated by Landlord. Landlord shall return to Tenant any prepaid Rent allocable to any period on or after the Termination Date.

15.4. Effect of Condemnation if Lease Is Not Terminated.    If any part of the Premises is taken by Condemnation and this Lease is not terminated, Rent shall be proportionately reduced based on the Rentable Square Footage of the Premises taken. Landlord and Tenant agree to enter into an amendment to this Lease within thirty (30) days after the partial taking, confirming the reduction in Rentable Square Footage of the Premises and the reduction in Rent.

15.5. Allocation of Award.

15.5.1. Landlord’s Right to Award.    Except as provided in the next paragraph, in connection with a Condemnation: (a) Landlord shall be entitled to receive all compensation and anything of value awarded, paid, or received in settlement or otherwise (Award); and (b) Tenant irrevocably assigns and transfers to Landlord all rights to and interests in the Award and fully releases and relinquishes any claim to, right to make a claim on, or interest in the Award, including any amount attributable to any excess of the market value of the Premises for the remainder of the Lease Term over the present value as of the Termination Date of the

19

Rent payable for the remainder of the Term (commonly referred to as the “bonus value” of the Lease).

15.5.2. Tenant’s Right to Compensation.    Notwithstanding the foregoing, Tenant shall have the right to make a separate claim in the Condemnation proceeding, as long as the Award payable to Landlord is not reduced thereby, for: (a) the taking of the unamortized or under appreciated value of any leasehold improvements owned by Tenant that Tenant has the right to remove at the end of the Lease Term and that Tenant elects not to remove; (b) reasonable removal and relocation costs for any leasehold improvements that Tenant has the right to remove and elects to remove (if Condemnor approves of the removal); and (c) relocation costs under Government Code Section 7262.

15.6.Temporary Taking.    If a temporary taking of part of the Premises occurs through (a) the exercise of any government power (by legal proceedings or otherwise) by a Condemnor or (b) a voluntary sale or transfer by Landlord to any Condemnor, either under threat of exercise of eminent domain by a Condemnor or while legal proceedings for condemnation are pending, Rent shall abate during the time of such taking in proportion to the portion of the Premises taken. The entire Award relating to the temporary taking shall be and remain the property of Landlord. Tenant irrevocably assigns and transfers to Landlord all rights to and interest in the Award and fully releases and relinquishes any claim to, right to make a claim on, and any other interest in the Award.

Article 16
ASSIGNMENT AND SUBLEASING

16.1.Restricted Transfers.

16.1.1. Consent Required.    Definition of “Transfer”. Tenant shall obtain Landlord’s written consent before entering into or permitting any Transfer. A “Transfer” consists of any of the following, whether voluntary or involuntary and whether effected by death, operation of law, or otherwise: (a) any assignment, mortgage, pledge, encumbrance, or other transfer of any interest in this Lease; (b) any sublease or occupancy of any portion of the Premises by any persons other than Tenant and its employees; and (c) any change of ownership or reorganization included in the definition of Transfer as provided below. Any person to whom any Transfer is made or sought to be made is a “Transferee”.

16.1.2. Landlord’s Remedies.    If a Transfer fails to comply with this Article, Landlord may, at its option, do either or both of the following: (a) void the Transfer or (b) declare Tenant in material and incurable default hereunder notwithstanding any cure period specified below.

16.2. Transfer Procedure.    Before entering into or permitting any Transfer, Tenant shall provide to Landlord a written “Transfer Notice” at least twenty (20) days before the proposed effective date of the Transfer. The Transfer Notice shall include all of the following: (a) information regarding the proposed Transferee, including the name, address, and ownership of Transferee; the nature of Transferee’s business; Transferee’s character and reputation; and Transferee’s current financial statement (certified by an officer, a partner, or an owner of Transferee); (b) all the terms of the proposed Transfer, including the consideration payable by Transferee; the portion of the Premises that is subject to the Transfer (“Subject Space”); a general description of any planned alterations or improvements to the Subject Space; the proposed use of the Subject Space; the effective date of the Transfer; a calculation of the “Transfer Premium” (as defined below), payable in connection with the Transfer; and a copy of all documentation concerning the proposed Transfer; (c) any other information or documentation reasonably requested by Landlord; and (d) an executed estoppel certificate from Tenant in the form attached to this Lease as Exhibit F. As a condition to the effectiveness of the Transfer Notice, Tenant shall, when providing a Transfer Notice, pay an application fee of $300.00 toward Landlord’s administrative and other costs in reviewing and processing the Transfer Notice. If Landlord consents to any Transfer or if Landlord’s consent is not required pursuant to Paragraph 16.6.2, below, the following limits apply: (i) Landlord does not agree to waive or modify the terms and conditions of this Lease; (ii) Landlord does

20

not consent to any further Transfer by either Tenant or Transferee; (iii) Tenant shall remain liable under this Lease, and any guarantor of the Lease shall remain liable under the guaranty; (iv) Tenant may enter into that Transfer in accordance with this Article if: (1) the Transfer occurs within six (6) months after Landlord’s consent; (2) the Transfer is on substantially the same terms as specified in the Transfer Notice; and (3) Tenant delivers to Landlord, promptly after execution, an original, executed copy of all documentation pertaining to the Transfer in a form reasonably acceptable to Landlord; (v) if the Transfer does not occur within six (6) months of delivery of the Transfer Notice, or the terms of the Transfer have materially changed from those in the Transfer Notice, Tenant shall submit a new Transfer Notice, requesting Landlord’s consent. A material change is one the terms of which would have entitled Landlord to refuse to consent to the Transfer initially or would cause the proposed Transfer to be more favorable to Transferee than the terms in the original Transfer Notice.

16.3. Landlord’s Consent.

16.3.1. Reasonable Consent.    Landlord may not unreasonably withhold its consent to any proposed Transfer that complies with this Article. Reasonable grounds for denying consent include (among other grounds) any of the following: (a) Transferee’s character, reputation, credit history, or business is not consistent with the character or quality of the Building; (b) Transferee would be a significantly less prestigious occupant of the Building than Tenant; (c) Transferee is either a government agency or an instrumentality of one; (d) Transferee’s intended use of the Premises is inconsistent with the Permitted Use or will materially and adversely affect Landlord’s interest; (e) Transferee’s financial condition is or may be inadequate to support the Lease obligations of Transferee under the Transfer documents; (f) the Transfer would cause Landlord to violate another lease or agreement to which Landlord is a party or would give a tenant of the Project the right to cancel or modify its lease_; or (g) the rent charged by Tenant to Transferee during the term of that Transfer, using a present value analysis, is less than ninety percent (90%) of the rent then being quoted by Landlord for comparable space in the Building for a comparable term (“Quoted Rent”), using a present value analysis.

16.3.2. Landlord’s Written Response.    Within five (5) business days after receipt of a proper and complete Transfer Notice, Landlord shall approve or disapprove the proposed Transfer in writing. Landlord’s failure to respond within such five (5) business day period shall be deemed Landlord’s disapproval of the proposed Transfer unless the Transfer Notice specifies, in bold capital letters at the top of the Transfer Notice, “LANDLORD’S FAILURE TO RESPOND WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT SHALL BE DEEMED LANDLORD’S APPROVAL OF TRANSFER”, in which event Landlord’s failure to respond within such five (5) business day period shall be deemed Landlord’s approval of Tenant’s proposed Transfer.

16.4. Transfer Premium.

16.4.1. Transfer Premium.    As a reasonable condition to Landlord’s consent to any Transfer, Tenant shall pay to Landlord fifty percent (50%) of any Transfer Premium (as defined below). “Transfer Premium” means all Base Rent, additional rent, and other consideration payable by Transferee to Tenant (including key money and bonus money and any payment in excess of fair market value for services rendered by Tenant to Transferee or assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with the Transfer (“Transferee Rent”)), after deducting amounts payable by Tenant on account of the Transfer, such as leasing commissions and Tenant improvement costs, and the Rent payable by Tenant under this Lease (excluding the Transfer Premium) for the Subject Space (“Tenant Rent”). Tenant shall pay the Transfer Premium on a monthly basis, together with its payment of Base Rent. In calculating the Transfer Premium, Tenant Rent, Transferee Rent, and Quoted Rent, the parties shall first adjust the rent to the actual effective rent to be paid, taking into consideration any and all leasehold concessions, including any rent credit and tenant improvement allowance. For purposes of calculating the effective rent, all those concessions shall be amortized on a straight-line basis over the relevant term. On Landlord’s request, Tenant shall furnish a complete statement, certified by an independent certified public accountant or Tenant’s chief financial officer, describing in detail the

21

computation of any Transfer Premium that Tenant has derived or will derive from the Transfer. If Landlord’s independent certified public accountant finds that the Transfer Premium for any Transfer has been understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and, if such understatement exceeds three (3) percent of the total Transfer Premium, Landlord’s costs of that audit.

16.5.Effect of Transfer.    If, with Landlord’s consent, this Lease is assigned, Landlord may collect Rent directly from the Transferee. If all or part of the Premises is subleased and Tenant defaults, Landlord may collect Rent directly from the Transferee. Landlord may then apply the amount collected from the Transferee to Tenant’s monetary obligations under this Lease. Collecting Rent from a Transferee or applying that Rent to Tenant’s monetary obligations does not waive any provisions of this Article.

16.6.Transfers of Ownership Interests and Other Organizational Changes.

16.6.1.Change of Ownership: Reorganization.    For purposes of this Article, “Transfer” also includes: (a) if Tenant is a partnership or limited liability company: (1) a change in ownership effected voluntarily, involuntarily, or by operation of law within a twelve (12) month period, of forty-nine percent (49%) or more of the partners or members or forty-nine percent (49%) or more of the partnership or membership interests; or (2) the dissolution of the partnership or limited liability company without its immediate reconstitution. (b) if Tenant is a closely held corporation (i.e., one whose stock is not publicly held and not traded through an exchange or over the counter): (1) the sale or other transfer, within a twelve (12) month period, of more than an aggregate of forty-nine percent (49%) of the voting shares of Tenant (other than to immediate family members or a family trust by reason of gift or death); (2) the sale, mortgage, hypothecation, or pledge, within a twelve (12) month period, of more than an aggregate of forty-nine percent (49%) of the value of Tenant’s unencumbered assets; or (3) the dissolution, merger, consolidation, or other reorganization of Tenant.

16.6.2.Transfer to Affiliate.    Despite any other provision of this Lease, Landlord’s consent is not required for any Transfer to an Affiliate, as defined below, as long as the following conditions are met: (a) at least ten (10) business days before the Transfer, Landlord receives written notice of the Transfer (as well as any documents or information reasonably requested by Landlord regarding the Transfer or Transferee); (b) the Transfer is not a subterfuge by Tenant to avoid its obligations under the Lease; (c) if the Transfer is an assignment, Transferee assumes in writing all of Tenant’s obligations under this Lease relating to the Subject Space; and (d) Transferee has a tangible net worth, as evidenced by financial statements delivered to Landlord and certified by an independent certified public accountant in accordance with generally accepted accounting principles that are consistently applied (“Net Worth”), at least equal to Tenant’s Net Worth either immediately before the Transfer or as of the date of this Lease, whichever is greater.

16.6.3.Definition of “Affiliate”.    An “Affiliate” means any entity that controls, is controlled by, or is under common control with Tenant. “Control” means the direct or indirect ownership of more than fifty percent (50%) of the voting securities of an entity or possession of the right to vote more than fifty percent (50%) of the voting interest in the ordinary direction of the entity’s affairs.

Article 17
SURRENDER OF PREMISES

17.1.Surrender of Premises.    No act of Landlord or its authorized representatives shall constitute Landlord’s acceptance of a surrender of the Premises by Tenant unless that intent is specifically acknowledged in a writing signed by Landlord. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of all subleases or sub-tenancies. Landlord shall exercise this option by giving notice of that assignment to all subtenants within ten (10) days after the effective date of the surrender and termination.

22

17.2. Removal of Tenant Property by Tenant.    On the expiration or earlier termination of the Lease Term, Tenant shall quit the Premises and surrender possession to Landlord in accordance with this paragraph. Tenant shall leave the Premises in as good order and condition as when Tenant took possession of the Premises, except for reasonable wear and tear. On expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises: (a) all debris and rubbish; (b) any items of furniture, equipment, freestanding cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises; (c) any similar articles of any other persons claiming under Tenant that Landlord, in Landlord’s sole discretion, requires to be removed; and (d) any alterations and improvements that Tenant is required to remove in accordance with the provisions of this Lease relating to Alterations. Tenant shall, at Tenant’s sole expense, repair all damage or injury that may occur to the Premises or the Building caused by Tenant’s removal of those items.

Article 18
HOLDING OVER

18.1. Holdover Rent.    If Tenant remains in possession of the Premises after expiration or earlier termination of this Lease with Landlord’s express written consent, Tenant’s occupancy shall be a month to month tenancy at a rent agreed on by Landlord and Tenant but in no event less than the Base Rent and Additional Rent payable under this Lease during the last full month before the date of expiration or earlier termination of this Lease. The month to month tenancy shall be on the terms and conditions of this Lease except as provided in (a) the preceding sentence and (b) the lease clauses (if any) concerning lease term, expansion rights, purchase option, and extension rights. Landlord’s acceptance of rent after such holding over with Landlord’s written consent shall not result in any other tenancy or in a renewal of the original term of this Lease. If Tenant remains in possession of the Premises after expiration or earlier termination of this Lease without Landlord’s express written consent, Tenant’s continued possession shall be on the basis of a tenancy at sufferance and Tenant shall pay as rent during the holdover period an amount equal to one hundred twenty percent (120%) of the Base Rent and Additional Rent payable under this Lease for the last full month before the date of expiration or termination.

18.2. No Consent or Waiver Implied.    Tenant shall construe nothing in this Article as Landlord’s implied consent to any holding over by Tenant. Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease on expiration or other termination of this Lease. The provisions of this Article shall not be considered to limit or constitute a waiver of any other rights or remedies of Landlord provided in this Lease or at law.

Article 19
ESTOPPEL CERTIFICATES

19.1. Tenant’s Obligation to Provide Estoppel Certificates.    Within ten (10) days after a written request by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, substantially in the form of Exhibit F (or such other form reasonably required by any existing or prospective lender, mortgagee, or purchaser of all or part of the Project), indicating in the certificate any exceptions to the statements in the certificate that may exist at that time. The certificate shall also contain any other information reasonably requested by Landlord or any existing or prospective lender, mortgagee, or purchaser.

19.2. Additional Requested Documents or Instruments.    Within ten (10) days after a written request by Landlord (but only in connection with a proposed sale or financing transaction related to the Building or the Project), Tenant shall execute and deliver whatever other documents or instruments may be reasonably required for sale or financing purposes, including (if requested by Landlord) a current financial statement and financial statements for the year preceding the current financial statement year. Those statements shall be prepared in accordance with generally accepted accounting principles or tax method accounting principles. Within ten (10) days after a written request by Tenant, Landlord shall execute and deliver to

23

Tenant an estoppel certificate in a form acceptable to Landlord; provided, however, Landlord shall not be obligated to respond to more than three (3) such requests during the Lease Term.

19.3.Failure to Deliver.    Tenant’s failure to execute or deliver an estoppel certificate in the required time period shall constitute an acknowledgment by Tenant that the statements included in the estoppel certificate are true and correct, without exception. Tenant’s failure to execute or deliver an estoppel certificate, financial statement, or other document or instrument required under this Article in a timely manner shall additionally be a material breach of this Lease.

Article 20
SUBORDINATION, NONDISTURBANCE, AND
ATTORNMENT

20.1.Automatic Subordination.    This Lease is subject and subordinate to: (a) the lien of any mortgages, deeds of trust, or other encumbrances (“Encumbrances”) of the Building and Project; (b) all present and future ground or underlying leases (“Underlying Leases”) of the Building and the Project now or hereafter in force against the Building and the Project; (c) all renewals, extensions, modifications, consolidations, and replacements of the items described in clauses (a) and (b); and (d) all advances made or hereafter to be made on the security of the Encumbrances. Despite any other provision of this Article, any Encumbrance holder or lessor under an Underlying Lease may elect that this Lease shall be senior to and have priority over that Encumbrance or Underlying Lease whether this Lease is dated before or after the date of the Encumbrance or Underlying Lease. Upon the written request to Landlord from Tenant, Landlord will exercise good faith efforts to obtain a commercially reasonable nondisturbance agreement (which may be part of a subordination and attornment agreement) recognizing Tenant’s right to possession and quiet enjoyment of the Premises upon the transfer of Landlord’s interest to such senior party.

20.2.Subordination Agreement; Agency.    The subordination provided for in this Article is self-operative, and no further instrument of subordination is required to make it effective. To confirm this subordination, however, Tenant shall, within five (5) days after Landlord’s request, execute any further instruments or assurances in recordable form that Landlord reasonably considers necessary or desirable to evidence or confirm the subordination or superiority of this Lease to any such Encumbrances or Underlying Leases. Tenant’s failure to execute and deliver such instrument(s) shall constitute a default under this Lease. Any such instrument of subordination shall include a provision indicating that in the event of any foreclosure sale, deed in lieu of foreclosure, or similar event by which the holder of an encumbrance or Underlying Lease succeeds to the Landlord’s interest in the Premises, Tenant’s use, possession, and enjoyment of the Premises shall not be disturbed and this Lease shall continue in full force and effect as long as Tenant is not in default under the terms hereof.

20.3.Attornment.    Tenant covenants and agrees to attorn to the transferee of Landlord’s interest in the Building and/or Project by foreclosure, deed in lieu of foreclosure, exercise of any remedy provided in any Encumbrance or Underlying Lease, or operation of law (without any deductions or setoffs), if requested to do so by the transferee, and to recognize the transferee as the lessor under this Lease. The transferee shall not be liable for: (a) any acts, omissions, or defaults of Landlord that occurred before the sale or conveyance; or (b) the return of any security deposit except for deposits actually paid to the transferee.

20.4.Notice of Default; Right to Cure.    Tenant agrees to give written notice of any default by Landlord to the holder of any prior Encumbrance or Underlying Lease provided Tenant has received a written request giving the name and address of such holder. Tenant agrees that, before it exercises any rights or remedies under the Lease, the lien-holder or lessor shall have the right, but not the obligation, to cure the default within the same time, if any, given to Landlord to cure the default plus an additional ten (10) days.

24

Article 21
DEFAULTS AND REMEDIES

21.1. Tenant’s Default.    The occurrence of any of the following shall constitute a default by Tenant under this Lease: (a) Tenant’s failure to pay when due any monetary obligation required to be paid under this Lease (including, without limitation, Base Rent or Additional Rent) if the failure continues for five (5) days after written notice of the failure from Landlord to Tenant; (b) Tenant’s failure to provide any instrument or assurance as required by this Lease (including, without limitation, estoppel certificates, financial statements, and subordination agreements) if the failure continues for ten (10) days after written notice of the failure from Landlord to Tenant; (c) Tenant’s failure to perform any other obligation under this Lease if the failure continues for fifteen (15) days after written notice of the failure from Landlord to Tenant (provided, however, in the event such failure cannot be cured within such 15-day period, despite Tenant’s best efforts, then such 15-day period shall be extended to the extent necessary to allow such cure to be completed, but in no event longer than 60 days); (d) to the extent permitted by law: (1) a general assignment by Tenant or any guarantor of the Lease for the benefit of creditors; (2) the filing by or against Tenant, or any guarantor, of any proceeding under an insolvency or bankruptcy law, unless (in the case of an involuntary proceeding) the proceeding is dismissed within sixty (60) days; (3) the appointment of a trustee or receiver to take possession of all or substantially all the assets of Tenant or any guarantor, unless possession is unconditionally restored to Tenant or that guarantor within thirty (30) days and the trusteeship or receivership is dissolved; (4) any execution or other judicially authorized seizure of all or substantially all the assets of Tenant located on the Premises, or of Tenant’s interest in this Lease, unless that seizure is discharged within thirty (30) days; (e) the committing of waste on the Premises; or (f) Tenant’s failure to occupy the Premises within thirty (30) business days after the Premises are ready for occupancy. It is agreed that Tenant shall have the right to vacate the Premises without creating a default under this Lease provided Tenant continues to pay the Rent due hereunder and otherwise complies with the terms and conditions of this Lease.

21.2. Replacement of Statutory Notice Requirements.    When this Lease (including, specifically, the preceding paragraph) requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner in which notices are required to be delivered by this Lease shall replace and satisfy the statutory service of notice procedures, including those required by Code of Civil Procedure Section 1162 or any similar or successor statute.

21.3. Landlord’s Remedies on Tenant’s Default.    On the occurrence of a default by Tenant, Landlord shall have the right to pursue any one or more of the following remedies in addition to any other remedies now or later available to Landlord at law or in equity. These remedies are not exclusive but cumulative.

21.3.1. Termination of Lease.    Landlord may, by written notice, terminate this Lease and recover possession of the Premises. Once Landlord has terminated this Lease, Tenant shall immediately surrender the Premises to Landlord. On termination of this Lease, Landlord may recover from Tenant all of the following: (a) the worth at the time of the award of any unpaid Rent that had been earned at the time of the termination, to be computed by allowing interest at the Default Rate (as defined below); (b) the worth at the time of the award of the amount by which the unpaid Rent that would have been earned between the time of the termination and the time of the award exceeds the amount of unpaid Rent that Tenant proves could reasonably have been avoided, to be computed by allowing interest at the Default Rate; (c) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Lease Term after the time of the award exceeds the amount of unpaid Rent that Tenant proves could reasonably have been avoided, to be computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%); (d) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom; and (e)

25

any other amounts, in addition to or in lieu of those listed above, that may be permitted by applicable law.

21.3.2. Continuation of Lease in Effect.    Landlord may exercise the remedy described in California Civil Code Section 1951.4, which provides that, when a tenant has the right to sublet or assign (subject only to reasonable limitations), the landlord may continue the lease in effect after the Tenant’s breach and abandonment and recover Rent as it becomes due. Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may enforce all of Landlord’s rights and remedies under this Lease, including the right to recover all Rent as it becomes due.

21.3.3. Tenant’s Subleases.    Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, Landlord may: (a) terminate any sublease, license, concession, or other consensual arrangement for possession entered into by Tenant and affecting the Premises. (b) choose to succeed to Tenant’s interest in such an arrangement. If Landlord elects to succeed to Tenant’s interest in such an arrangement, Tenant shall, as of the date of notice by Landlord of that election, have no further right to, or interest in, the Rent or other consideration receivable under that arrangement.

21.4. Efforts to Relet.    For purposes of this Article, Tenant’s right to possession shall not be considered to have been terminated by Landlord’s efforts to relet the Premises, by Landlord’s acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord’s interests under this Lease. This list is merely illustrative of acts that may be performed by Landlord without terminating Tenant’s right to possession. No act other than a written notice of termination from Landlord shall constitute an election by Landlord to terminate this Lease.

21.5. Acceptance of Rent Without Waiving Rights.    Landlord may accept Tenant’s payments without waiving any rights under this Lease, including rights under a previously served notice of default, other than the right to pursue Tenant for non-payment of the amount so accepted. If Landlord accepts payments after serving a notice of default, Landlord may nevertheless commence and pursue an action to enforce rights and remedies under the previously served notice of default without giving Tenant any further notice or demand.

21.6. Landlord’s Right to Perform Tenant’s Obligations.    In addition to the foregoing rights, if Tenant’s failure to perform a non-monetary obligation under this Lease continues for five (5) days after notice to Tenant, Landlord may perform the obligation on Tenant’s behalf, without waiving Landlord’s rights for Tenant’s failure to perform such obligation and without releasing Tenant from such obligations. Within five (5) days after receiving a statement from Landlord, Tenant shall pay to Landlord the amount of expense reasonably incurred by Landlord in performing Tenant’s obligation, including a reasonable charge for Landlord’s overhead/supervision.

Article 22
LATE PAYMENTS

22.1. Late Charges.    If any Base Rent or Additional Rent payment is not received by Landlord or Landlord’s designee within five (5) days after that payment is due, Tenant shall pay to Landlord a late charge equal to the greater of One Hundred Dollars ($100), or ten percent (10%) of the overdue amount as liquidated damages, in lieu of actual damages (other than interest under the next paragraph and attorneys’ fees and costs as provided below). The parties agree that this late charge represents a reasonable estimate of the expenses that Landlord will incur because of any late payment of Rent (other than interest and attorney fees and costs) and that such amount is fair and reasonable under the facts and circumstances existing as of the date of this Lease. Landlord’s acceptance of any liquidated damages shall not constitute a waiver of Tenant’s default with respect to the overdue amount or prevent Landlord from exercising any of the rights and remedies available to Landlord under this Lease. Tenant shall pay the late charge as Additional Rent with the next installment of Base Rent.

26

22.2. Interest.    If any monetary obligation of Tenant is not received by Landlord or Landlord’s designee within thirty (30) days after that obligation is due, Tenant shall pay to Landlord interest on the past due amount, from the date due until paid, at the rate of four percent (4%) per annum above the then applicable Wall Street Journal “prime rate”, or an equivalent rate if there is then no published prime rate (the “Default Rate”). Despite any other provision of this Lease, the Default Rate shall not exceed the limits, if any, imposed in such instance by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to Tenant by application of the amount of excess interest paid against any sums outstanding in any order that Landlord requires. If the amount of excess interest paid exceeds the sums outstanding, Landlord shall refund the portion exceeding those sums in cash to Tenant.

Article 23
NON-WAIVER

23.1. Non-Waiver.    No waiver of any provision of this Lease shall be implied by any failure of either party to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by either party of any provision of this Lease must be in writing. Such written waiver shall affect only the provision specified and only for the time and in the manner stated in the writing.

23.2. Acceptance and Application of Payment. Not Accord and Satisfaction.    No receipt by Landlord of a lesser payment than the Rent required under this Lease shall be considered to be other than on account of the earliest amount due, and no endorsement or statement on any check or letter accompanying a payment or check shall be considered an accord and satisfaction. Landlord may accept checks or payments without prejudice to Landlord’s right to recover all amounts due and pursue all other remedies provided for in this Lease. Landlord’s receipt of monies from Tenant after giving notice to Tenant terminating this Lease shall in no way reinstate, continue, or extend the Lease Term or affect the Termination Notice given by Landlord before the receipt of those monies. After serving notice terminating this Lease, filing an action, or obtaining final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of that Rent shall not waive or affect such prior notice, action, or judgment.

Article 24
WAIVER OF RIGHT TO JURY TRIAL

24.1. Waiver of Right to Jury Trial.    Landlord and Tenant waive their respective rights to trial by jury of any contract or tort claim, counterclaim, cross complaint, or cause of action in any action, proceeding, or hearing brought by either party against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant’s use or occupancy of the Premises, including any claim of injury or damage or the enforcement of any remedy under any current or future law, statute, regulation, code, or ordinance.

Landlord’s Initials Tenant’s Initials

Article 25
ATTORNEY FEES AND COSTS

25.1. Legal Costs.    If either party incurs any costs or expenses in connection with any action instituted by either party by reason of any dispute pursuant to this Lease or for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease by either party, or for any other relief pursuant to this Lease, or in the event of any other litigation between the parties with respect to this Lease, then all costs and expenses, including without limitation, its actual professional fees such as appraisers’, accountants, and attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of

27

the commencement of such action or dispute and shall be enforceable whether or not the action is prosecuted to judgment. The provisions contained in this paragraph shall survive the expiration or earlier termination of this Lease, and in the event any action or proceeding is instituted to recover possession of the Premises following the expiration or earlier termination of this Lease, the provisions contained in this paragraph shall be applicable.

Article 26
LANDLORD’S ACCESS TO PREMISES

26.1.Landlord’s Access to Premises.    Landlord and its agents shall have the right at all reasonable times and upon reasonable notice (except where circumstances make giving of prior notice impractical or unreasonable, such as in the case of an emergency, or where risk to personal property exists) to enter the Premises to: (a) inspect the Premises; (b) show the Premises to prospective purchasers, mortgagees, or tenants or to ground lessors or underlying lessors; (c) serve, post, and keep posted notices required by law or that Landlord considers necessary for the protection of Landlord or the Building; or (d) make repairs, replacements, alterations, or improvements to the Premises or Building that Landlord considers necessary or desirable. Despite any other provision of this Article, Landlord may enter the Premises at any time to: (a) perform services required of Landlord; (b) take possession due to any breach of this Lease; or (c) perform any covenants of Tenant that Tenant fails to perform. Landlord shall make reasonable efforts to minimize interference with Tenant’s use of the Premises when Landlord exercises its rights under this Section 26.1.

26.2.Tenant’s Waiver.    Landlord may enter the Premises without the abatement of Rent and may take steps to accomplish the above-stated purposes. Tenant waives any claims for damages caused by Landlord’s entry, including damage claims for: (a) injuries; (b) inconvenience to or interference with Tenant’s business; (c) lost profits; and (d) loss of occupancy or quiet enjoyment of the Premises, other than claims resulting from Landlord’s gross negligence or intentional misconduct.

Article 27
SIGNS

27.1.Building Name; Landlord’s Signage Rights.    Subject to Tenant’s signage rights under this Article, Landlord may at any time change the name of the Building and install, affix, and maintain all signs on the exterior and interior of the Building as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not have or acquire any property right or interest in the name of the Building. Tenant may use the name of the Building or pictures or illustrations of the Building in advertising or other publicity during the Lease Term.

27.2.Tenant’s Signage Rights Within the Building.

27.2.1.Single Tenant Floor.    If the Premises comprise an entire floor of the Building, Tenant may, at Tenant’s sole expense, install identification signs (including its logo) anywhere in the Premises, including the elevator lobby of the Premises, subject to the following requirements: (a) Tenant must obtain Landlord’s prior written approval for such signs, which Landlord may, in Landlord’s sole, reasonable discretion, grant or deny; (b) all signs must be in keeping with the quality, design, and style of the Building; and (c) no sign may be visible from the exterior of the Building.

27.2.2.Multi-Tenant Floor.    If other tenants occupy space on the floor on which the Premises are located, Landlord shall provide Tenant’s identifying signs in the form of a door plaque and elevator lobby signage at Tenant’s expense. The signs shall be comparable to those used by Landlord for other similar floors in the Building and shall comply with Landlord’s Building standard signage program. Tenant shall receive space on the Building directory board in the main lobby proportionate to the ratio of the Rentable Square Feet of space in the Premises to the number of Rentable Square Feet in the Building.

27.2.3.Prohibited Signs and Other Items.    Tenant may not display any signs on the exterior or roof of the Building or in the common areas of the Building or the Project.

28

Tenant may not install or display any signs, window coverings, blinds (even if located behind the Landlord approved window coverings for the Building), or other items visible from the exterior of the Premises without Landlord’s prior written approval, which Landlord may, in Landlord’s sole discretion, grant or withhold. Any signs, notices, logos, pictures, names, or advertisements that are installed by or for Tenant without Landlord’s approval may be removed without notice by Landlord at Tenant’s expense.

Article 28
TENANT PARKING

28.1. Number of Parking Passes. Tenant shall be entitled to receive, at no charge, parking passes from Landlord for the number of parking spaces for Tenant’s use as is set forth in the Summary of Basic Lease Information. Tenant shall pay Landlord the standard charge for any parking passes which must be replaced due to loss or destruction. Tenant shall have no right to use any parking spaces in excess of the number of parking passes provided to Tenant pursuant hereto and neither Tenant nor Tenant’s employees may use any guest parking spaces in the Project.

28.2. Location of Parking. Landlord specifically reserves the right to designate and to change the location, size, configuration, design, layout, and all other aspects of the parking facilities, including the initiation or discontinuance of a valet system. Landlord may close off or restrict access to the parking facilities from time to time to facilitate construction, alteration, or improvements, without incurring any liability to Tenant and without any abatement of Rent under this Lease.

28.3. Parking Rules and Regulations. Tenant’s continued right to use the parking passes is conditioned upon Tenant abiding by all non-discriminatory rules and regulations prescribed from time to time by Landlord for the orderly operation and use of the parking facilities. Tenant shall use all reasonable efforts to ensure that Tenant’s employees and visitors also comply with such rules and regulations.

28.4. Nontransferable Passes. The parking passes issued by Landlord to Tenant under this Article are provided to Tenant solely for use by Tenant’s personnel (not including Tenant’s invitees and guests). These passes may not be transferred, assigned, subleased, or otherwise alienated by Tenant without Landlord’s prior approval, which approval Landlord may withhold in its sole discretion.

Article 29
SECURITY

29.1. Security. Tenant acknowledges (i) that the Base Rent does not include the cost of any security measures for any portion of the Project (ii) that Landlord shall have no obligation to provide any such security measures, (iii) that Landlord has made no representation to Tenant regarding the safety or security of the Project, and (iv) that Tenant will be solely responsible for providing any security it deems necessary to protect itself, its property, and Tenant’s employees, agents, contractors, and invitees in, on, or about the Project. If Landlord provides any security measures at any time, then the cost thereof shall be included as part of the Direct Expenses, but Landlord will not be obligated to continue providing such security measures for any period of time, Landlord may discontinue such service without notice and without liability to Tenant, and Landlord will not be obligated to provide such security measures with any particular standard of care. Tenant assumes all responsibility for the security and safety of Tenant, Tenant’s property, and Tenant’s employees, agents, contractors, and invitees. Tenant releases Landlord from all claims for damage, loss, or injury to Tenant, Tenant’s employees, agents, contractors, and invitees, and/or to the personal property of Tenant and/or of Tenant’s employees, agents, contractors, and invitees, even if such damage, loss, or injury is caused by or results from the criminal or negligent acts of third parties. Landlord shall have no duty to warn Tenant of any criminal acts or dangerous conduct that has occurred in or near the Project, regardless of Landlord’s knowledge of such crimes or conduct, and Tenant is hereby instructed to conduct its own investigation through local police agencies regarding any criminal acts or dangerous conduct that has occurred in or near the

29

Project. Tenant shall have access to the Premises at all times other than in the case of an emergency. Landlord may institute a controlled access device for after hours access.

Article 30
MISCELLANEOUS

30.1. Captions. The captions of articles and sections and the table of contents of this Lease are for convenience only and have no effect on the interpretation of the provisions of this Lease.

30.2. Word Usage. Unless the context clearly requires otherwise, the plural and singular numbers shall each be considered to include the other; the masculine, feminine, and neuter genders shall each be considered to include the others; “Shall”, “will”, “must”, “agrees”, and “covenants” are each mandatory; “May” is permissive; “Or” is not exclusive; and “Includes” and “including” are not limiting.

30.3. Counting Days. Days shall be counted by excluding the first day and including the last day. If the last day is a Saturday, Sunday, or legal holiday as described in Government Code Sections 6700-6701, it shall be excluded. Any act required by this Lease to be performed by a certain day shall be timely performed if completed before 5 p.m. local time on that date. If the day for performance of any obligation under this Lease is a Saturday, Sunday, or legal holiday, the time for performance of that obligation shall be extended to 5 p.m. local time on the first following date that is not a Saturday, Sunday, or legal holiday.

30.4. Entire Agreement; Amendments. This Lease and all exhibits addenda, schedules, and agreements referred to in this Lease constitute the final, complete, and exclusive statement of the terms of the agreement between Landlord and Tenant pertaining to Tenant’s lease of space in the Building and supersede all prior and contemporaneous understandings or agreements of the parties. Neither party has been induced to enter into this Lease by, and neither party is relying on, any representation or warranty outside those expressly set forth in this Lease. This Lease may be amended only by an agreement in writing signed by Landlord and Tenant.

30.5. Exhibits. The Exhibits and Addendum, if applicable, attached to this Lease are a part of this Lease and incorporated into this Lease by reference.

30.6. Reasonableness and Good Faith. Except as otherwise provided elsewhere in this Lease, whenever this Lease requires Landlord or Tenant to give its consent or approval to any action on the part of the other, such consent or approval shall not be unreasonably withheld or delayed.

30.7. Partial Invalidity. If a court or arbitrator of competent jurisdiction holds any Lease clause to be invalid or unenforceable in whole or in part for any reason, the validity and enforceability of the remaining clauses, or portions of them, shall not be affected unless an essential purpose of this Lease would be defeated by loss of the invalid or unenforceable provision.

30.8. Binding Effect. Subject to the limitations on Transfer contained herein, this Lease shall bind and benefit the parties to this Lease and their legal representatives and successors in interest.

30.9. Independent Covenants. This Lease shall be construed as though the covenants between Landlord and Tenant are independent and not dependent. Tenant expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations under this Lease, Tenant shall not be entitled: (a) to make any repairs or perform any acts at Landlord’s expense; or (b) to any setoff of the Rent or other amounts owing under this Lease against Landlord. The foregoing, however, shall in no way impair Tenant’s right to bring a separate action against Landlord for any violation by Landlord of the provisions of this Lease if notice is first given to Landlord and any lender of whose address Tenant has been

30

notified, and an opportunity is granted to Landlord and that lender to correct those violati as provided above.

30.10. Governing Law. This Lease shall be construed and enforced in accordance with the laws of the State of California.

30.11. Notices. All notices (including requests, demands, approvals, or other communications) under this Lease shall be in writing. Notice shall be sufficiently given for all purposes as follows: (a) when personally delivered to the recipient, notice is effective on delivery, (b) when mailed first class to the last address of the recipient known to the party giving notice, notice is effective on delivery, (c) when mailed by certified mail with return receipt requested, notice is effective on receipt if delivery is confirmed by a return receipt, (d) when delivered by overnight delivery (FedEx/Airborne/United Parcel Service/DHL WorldWide Express) with charges prepaid or charged to the sender’s account, notice is effective on delivery if delivery is confirmed by the delivery service, (e) when sent by telex or fax to the last telex or fax number of the recipient known to the party giving notice, notice is effective on receipt as long as (1) a duplicate copy of the notice is promptly given by first class or certified mail or by overnight delivery or (2) the receiving party delivers a written confirmation of receipt. Any notice given by telex or fax shall be considered to have been received on the next business day if it is received after 5 p.m. (recipient’s time) or on a non-business day. Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be considered to be effective as of the first date that the notice was refused, unclaimed, or considered undeliverable by the postal authorities, messenger, or overnight delivery service. Addresses for purposes of giving notice are set forth in the Summary of Basic Lease Information. Either party may change its address or telex or fax number by giving the other party notice of the change in any manner permitted by this paragraph. If Tenant is notified of the identity and address of Landlord’s lender or ground or underlying lessor, Tenant shall give to that lender or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease.

30.12. Force Majeure. If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes; lockouts; labor disputes; acts of God; inability to obtain services, labor, or materials or reasonable substitutes for those items; government actions; civil commotion; fire or other casualty; or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant’s obligation to pay Rent, however, is not excused by this paragraph.

30.13. Time of the Essence. Time is of the essence of this Lease and each of its provisions.

30.14. Modifications Required by Landlord’s Lender. If any lender of Landlord or ground lessor of the Building and/or Project requires a modification of this Lease that will not increase Tenant’s cost or expense or materially or adversely change Tenant’s rights and obligations, this Lease shall be so modified and Tenant shall execute whatever documents are required and deliver them to Landlord within ten (10) days after the request.

30.15. Recording. Neither this Lease nor any memorandum, affidavit, or other writing relating to this Lease may be recorded by Tenant or anyone acting through, under, or on behalf of Tenant. Recordation in violation of this provision constitutes an act of default by Tenant.

30.16. Liability of Landlord. Except as otherwise provided in this Lease or applicable law, for any breach of this Lease the liability of Landlord (including all persons and entities that comprise Landlord, and any successor landlord) and any recourse by Tenant against Landlord shall be limited to the interest of Landlord and Landlord’s successors in interest in and to the Building and Project and the income therefrom. On behalf of itself and all persons claiming by, through, or under Tenant, Tenant expressly waives and releases Landlord (and its officers, directors, and shareholders) from any personal liability for breach of this Lease.

31

30.17. Transfer of Landlord’s Interest. Landlord has the right to transfer all or part of its interest in the Building and Project and in this Lease. On such a transfer, Landlord shall automatically be released from all liability thereafter accruing under this Lease, and Tenant shall look solely to that transferee for the performance of Landlord’s obligations under this Lease after the date of transfer. Landlord may assign its interest in this Lease to a mortgage lender as additional security. This assignment shall not release Landlord from its obligations under this Lease, and Tenant shall continue to look to Landlord for the performance of its obligations under this Lease.

30.18. Joint and Several Obligations of Tenant. If more than one individual or entity comprises Tenant, the obligations imposed on each individual or entity that comprises Tenant under this Lease shall be joint and several.

30.19. Submission of Lease. Submission of this document for examination or signature by the parties does not constitute an option or offer to lease the Premises on the terms in this document or a reservation of the Premises in favor of Tenant. This document is not effective as a lease or otherwise until executed and delivered by both Landlord and Tenant.

30.20. Legal Authority.

30.20.1. Corporate Authority. If Tenant is a corporation, each individual executing this Lease on behalf of that corporation represents and warrants that: (a) the individual is authorized to execute and deliver this Lease on behalf of that corporation in accordance with a duly adopted resolution of the corporation’s board of directors and in accordance with that corporation’s articles of incorporation or charter and bylaws; (b) the corporation is a duly organized and legally existing corporation in good standing in the State of California; and (c) the execution and delivery of this Lease by that corporation shall not result in any breach of or constitute a default under any mortgage, deed of trust, lease loan, credit agreement, partnership agreement, or other contract or instrument to which that corporation is a party or by which that corporation may be bound.

30.20.2. Partnership Authority. If Tenant is a partnership, each individual executing this Lease on behalf of the partnership represents and warrants that: (a) the individual is duly authorized to execute and deliver this Lease on behalf of the partnership in accordance with the partnership agreement, or an amendment to the partnership agreement, now in effect; (b) the partnership is a duly organized and legally existing partnership and has filed all certificates required by law; and (c) the execution and delivery of this Lease shall not result in any breach of or constitute a default under any mortgage, deed of trust, lease, loan, credit agreement, partnership agreement, or other contract or instrument to which the partnership is a party or by which the partnership may be bound.

30.20.3. Limited Liability Company Authority. If Tenant is a limited liability company, each individual executing this Lease on behalf of that company represents and warrants that: (a) the individual(s) executing this Lease on behalf of the company has/have full power and authority under the company’s governing documents to execute and deliver this Lease in the name of and on behalf of the company and to cause the company to perform its obligations under this Lease; (b) the company is a limited liability company duly organized and validly existing under the laws of the State of California; and (c) the company has the power and authority under applicable law and its governing documents to execute and deliver this Lease and to perform its obligations under this Lease.

30.21. Right to Lease. Landlord reserves the absolute right to contract with any other person or entity to be a tenant in the Building as Landlord, in Landlord’s sole business judgment, determines best to promote the interests of the Building. Tenant does not rely on the expectation, and Landlord does not represent, that any specific tenant or type or number of tenants will, during the Lease Term, occupy any space in the Building.

30.22. No Air Rights. No rights to any view from the Premises or to exterior light or air to the Premises are created under this Lease.

32

30.23. Brokers. Landlord and Tenant each represents to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for the real estate brokers or agents specified in the Summary of Basic Lease Information and that they know of no other real estate broker or agent who is entitled to a commission or finder’s fee in connection with this Lease. Each party shall indemnify, protect, defend, and hold harmless the other party against all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including reasonable attorney fees) for any leasing commission, finder’s fee, or equivalent compensation alleged to be owing on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. The terms of this Section shall survive the expiration or earlier termination of the Lease Term.

30.24. Transportation Management. Tenant shall fully comply with all current or future compulsory programs imposed by any public authority, intended to manage parking, transportation, or traffic in and around the Building. In connection with this compliance, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any government transportation management organization, or other transportation related committees or entities. This provision includes programs such as the following: (a) restrictions on the number of peak hour vehicle trips generated by Tenant; (b) encouragement of increased vehicle occupancy through employer sponsored financial or in kind incentives; (c) implementation of an in house or area wide ridesharing program and appointment of an employee transportation coordinator; and (d) flexible work shifts for employees.

30.25. Quiet Enjoyment. So long as Tenant timely and completely performs all of its obligations hereunder, Landlord covenants that Tenant shall have the quiet enjoyment of the Premises subject to all of the terms, provisions, and conditions of this Lease.

30.26. Disclaimer. Nothing in this Lease shall constitute an offer to lease, nor shall the terms of this Lease be binding until signed by both Tenant and Landlord.

DATE:		4/23/98
LANDLORD:				TENANT
Pacific Torrey Reserve Holdings, L.P.,				Avalon Entertainment Group, Inc.,
a California limited partnership				a Tennessee corporation
By:	American Assets, Inc.,
	a California corporation			By:	/s/ Thomas Miserendind
	Agent for Owner			Its:	Secretary
By:			/s/ John W. Chamberlain
John W. Chamberlain
Chief Executive Officer

33

EXHIBIT A
SITE PLAN OF PROJECT

This Exhibit A is intended to show the general configuration of the Project and the Building as of the Commencement Date and is not a representation or warranty by Landlord as to the size, nature or exact configuration of the Project or Building.

EXHIBIT B
DIAGRAM OF PREMISES

This Exhibit B is intended to show the general configuration of the Premises as of the Commencement Date and is not a representation or warranty by Landlord as to the size, nature or exact configuration of the Premises.

EXHIBIT C
TENANT IMPROVEMENT AGREEMENT

Landlord and Tenant are executing simultaneously with this Tenant Improvement Agreement (“Agreement”), a written lease (“Lease”) covering those certain premises more particularly described in Exhibit B to the Lease (“Premises”), in the Building more particularly described in the Lease. Landlord and Tenant agree that Landlord shall improve and prepare the Premises on Tenant’s behalf and for Tenant’s occupancy, on the terms and conditions set forth in this Agreement. To induce Landlord and Tenant to enter into the Lease (which is hereby incorporated by reference to the extent that the provisions of this Agreement may apply thereto) and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant mutually agree as follows:

1. Definitions and Representatives. All terms used herein which are not defined shall have the meanings ascribed to them in the Lease. Landlord appoints Landlord’s Representative to act for Landlord and Tenant appoints Tenant’s Representative to act for Tenant in all matters covered by this Agreement. All inquiries, requests, instructions, authorizations and other communications with respect to the matters covered by this Agreement will be made to Landlord’s Representative or Tenant’s Representative, as the case may be. Tenant will not make any inquiries of or requests to, and will not give any instructions or authorizations to, any other employee or agent of Landlord, including Landlord’s architect, engineers and contractors or any of their agents or employees, with regard to matters covered by this Agreement. Either party may change its Representative under this Agreement at any time with three business (3) days’ prior written notice to the other party.

Tenant’s Representative:
Landlord’s Representative:	Rick McKee, Vice President, c/o American Assets, Inc.,
Landlord’s Space Planner (“Space Planner”):			Facility Solutions
Landlord’s Contractor (“Contractor”):		Ninteman Construction Company

2. Plans and Specifications/Tenant Improvements. The Premises shall be improved by Landlord with certain tenant improvements (“Tenant Improvements”) in accordance with plans and specifications prepared by Landlord’s Space Planner, dated TBD, (“Plans and Specifications”). The Plans and Specifications have been approved by Landlord and Tenant prior to the date of this Agreement. Landlord’s approval of the Plans and Specifications for the Tenant Improvements shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules, and regulations of governmental agencies or authorities. The cost of the Tenant Improvements shall be allocated between Landlord and Tenant as provided in Section 7 of this Agreement. In the event Tenant discovers latent defects in the Tenant Improvements and notifies Landlord of such defects, Landlord will assign to Tenant any warranty it receives from the Contractor or any subcontractor performing the Tenant Improvements which may be applicable to the defect.

3. Change Orders. Tenant may authorize changes in the work during construction, only by written instructions from Tenant’s Representative to Landlord’s Representative on a form approved by Landlord. All such changes shall be subject to Landlord’s prior written approval in accordance with Section 4 of this Agreement. Prior to commencing any change, Landlord shall prepare and deliver to Tenant, for Tenant’s approval, a change order (the “Change Order”) setting forth the additional time required to perform the change and the total cost of such change, which will include associated architectural, engineering and construction contractor’s fees, delay costs, additional coordination costs, and the cost of Landlord’s overhead at the rate of fifteen percent (15%) of the amount of the Change Order. If Tenant fails to approve such Change Order within two (2) business days after delivery by Landlord, Tenant shall be deemed to have withdrawn the proposed Change Order and Landlord shall not proceed to perform the change. Upon Landlord’s receipt of Tenant’s

1

approval, Contractor shall proceed to perform the change and Tenant shall pay for such Change Order at the time Contractor starts work on such Change Order.

4. Landlord’s Approval. Landlord may withhold its approval of any revisions to the Plans and Specifications requested by Tenant, or any Tenant Change Orders which require work which: (i) exceeds or affects the structural integrity of the Building or any part of the Utility Installations or HVAC System; (ii) is not approved by the holder of any Mortgage encumbering the Building at the time the work is proposed; (iii) violates any agreement which affects the Building or which binds Landlord; (iv) Landlord reasonably believes will increase the cost of operation or maintenance of any of the systems of the Building; (v) Landlord reasonably believes will reduce the market value of the Building at the end of the Term; (vi) does not conform to applicable building codes or is not approved by any governmental authority with jurisdiction over the Premises and/or the Building; (vii) does not conform to Landlord’s “Building Standard” tenant improvement specifications unless otherwise approved by Landlord; or (vii) Landlord reasonably believes will result in a delay in the completion of the Tenant Improvements, or result in an increase in the cost of the Tenant Improvements (unless Tenant pays such excess in advance).

5. Substantial Completion and Commencement Date. The Commencement Date under the Lease shall not occur until the earlier to occur of (i) Substantial Completion of the Tenant Improvements and tender of possession of the Premises to Tenant; or (ii) the date Tenant opens for business in the Premises; or (iii) the date that Substantial Completion of the Tenant Improvements would have occurred but for Tenant Delays. If Substantial Completion of the Tenant Improvements shall be delayed as a result of a Tenant Delay, the Commencement Date shall be accelerated by the number of days of such Tenant Delay. Each of the following events shall be deemed a “Tenant Delay”: (a) delays resulting from any direction by Tenant that Landlord suspend work or otherwise hold up construction of any portion of the Tenant Improvements because of a possible Change Order by Tenant or for any other reason directed by Tenant; (b) delays because portions of Tenant Improvements cannot be performed until work to be performed by or on behalf of Tenant is performed; (c) delays due to the failure of Tenant to pay when due any amount payable pursuant to this Agreement; (d) delays which result directly or indirectly from Tenant’s changes in the Plans and Specifications; or (e) any other action or inaction of Tenant that directly or indirectly delays Landlord in completing the Tenant Improvements. Tenant shall pay any actual and documented costs or expenses incurred by Landlord as a result of any Tenant Delays, including without limitation, any increases in costs or expenses for labor or materials.

As used in this Lease and this Agreement, the term “Substantial Completion of the Tenant Improvements” shall mean that (i) all of the Base Building Systems are operational to the extent necessary to service the Premises, (ii) Landlord has procured an Authorization to Occupy/Certificate of Occupancy (or an equivalent from the City for such work), either temporary or final, and (iii) Landlord has completed the Tenant Improvements substantially in accordance with this Agreement except for finishing details of construction, decoration, mechanical, and other adjustments and other items of the type commonly found on an architectural “punch list”, none of which materially interfere with Tenant’s use or occupancy of the Premises for normal business operations.

6. Tenant’s Punch List. Prior to Landlord’s delivery of the Premises to Tenant, Landlord shall give Tenant three (3) business days prior notification of a meeting for Tenant to inspect the Tenant Improvements. Tenant’s Representative shall completely examine the Premises and prepare with Landlord’s Representative and Contractor a list of all visible items to be completed by Contractor to finish the Tenant Improvements. The list shall be signed by both Landlord and Tenant and all items shall be completed as soon as reasonably possible. Any items damaged during Tenant’s move in or occupancy shall be repaired or replaced by Contractor at Tenant’s sole cost and expense and not as part of the Tenant Improvement Allowance.

7. Tenant Improvement Allowance. Landlord agrees to provide Tenant an allowance in an amount not to exceed $28.00 per Usable Square Foot (“Tenant Improvement Allowance”). The Tenant Improvement Allowance shall include without limitation any and

2

all costs of construction, city permits, space planning, engineering and the cost of Landlord’s overhead. The amount by which the costs to construct the Tenant Improvements exceed the Tenant Improvement Allowance shall be defined as the “Tenant Extra Cost” and shall be the sole responsibility of Tenant. Tenant shall pay to Landlord, within five (5) business days of Landlord’s written request therefor, the total amount payable by Tenant for the Tenant Extra Cost.

8. Conflicts. In the event of any conflict between the terms of this Agreement and the Lease, the terms of this Agreement shall control.

DATE:			4/23/98
LANDLORD:					TENANT
Pacific Torrey Reserve Holdings, L.P.,					Avalon Entertainment Group, Inc.,
a California limited partnership					a Tennessee corporation
By:	American Assets, Inc.,
	a California corporation				By:	/s/	Thomas Miserendind
	Agent for Owner				Its:		Secretary
		By:		/s/ John W. Chamberlain
John W. Chamberlain
Chief Executive Officer

3

EXHIBIT D

NOTICE OF BASIC LEASE INFORMATION

To:

RE:      Office Lease, dated

LANDLORD:

TENANT:

PREMISES:

BUILDING: The Building located at

RESPONSE DEADLINE:

Dear Sir or Madam:

In accordance with the office lease referred to above (Lease), we wish to advise you and confirm the following:

1. Construction of the Tenant Improvements is Substantially Complete, and the Lease Term shall commence as of                  , for a term of                          months, ending on                        .

2. The exact Rentable Area of the Premises is                                  Rentable Square Feet.

3. In accordance with the Lease, Base Rent began to accrue on      , in the amount of

4. If the Lease Commencement Date is other than the first day of the month, the first billing shall contain a pro rata adjustment based on the actual number of days in the first calendar month. Each subsequent billing, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.

5. Base Rent and any estimated Operating Expense and Tax payments are due and payable in advance on the first day of each month during the Lease Term. Your rent checks should be made payable to                                    at                                                   
                                                             

6. Tenant’s Share, as of the Commencement Date, and as adjusted based on the exact number of Rentable Square Feet in the Premises, is                               .

LANDLORD			TENANT
Pacific Torrey Reserve Holdings, L.P.,
a California limited partnership			a
By:	American Assets, Inc.,
	a California corporation		By:	/s/ Thomas Miserendind
	Agent for Owner		Its:
	By:
		John W. Chamberlain Chief Executive Officer

EXHIBIT E

RULES AND REGULATIONS

Tenant shall comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of these Rules and Regulations.

1.Locks; Keys. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Landlord for the Premises shall furnish two keys, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord.

2.Doors Opening to Public Corridors. All doors opening to public corridors must be kept closed at all times except for normal ingress to and egress from the Premises.

3.Securing Doors; Admission to Building. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during the hours when Comparable Buildings are customarily closed and locked. When departing after the Building’s normal business hours, Tenant and Tenant’s employees and agents must be sure that the doors to the Building are securely closed and locked. Any person, including Tenant and Tenant’s employees and agents, who enters or leaves the Building at any time when it is locked or at any time considered to be after the Building’s normal business hours, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has previously arranged a pass for access to the Building. Landlord and its agents shall not be liable for damages for any error concerning the admission to, or exclusion from, the Building of any person. Landlord reserves the right, in the event of invasion, mob, riot, public excitement, or other commotion, to prevent access to the Building or Project during the continuance of that event by any means it considers appropriate for the safety and protection of life and property.

4.Furniture, Freight, and Equipment; Service Deliveries. No furniture, freight, or equipment of any kind may be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building must be scheduled with Landlord and done only at the time and in the manner designated by Landlord. No service deliveries (other than messenger services) shall be allowed between the hours of 4 p.m. and 6 p.m., Monday through Friday. Landlord may at any time restrict the elevators and areas of the Building into which messengers may enter and may require that Tenant leave deliveries at the lobby security desk for pickup. Landlord may prescribe the weight, size, and position of all safes and other heavy property brought into the Building and the times and manner of moving those items within and out of the Building. Tenant shall not overload the floor of the Premises. If considered necessary by Landlord, safes and other heavy objects must stand on supports that are adequate to distribute the weight properly. Landlord shall not be responsible for loss of or damage to any safe or property. Any damage to any part of the Building or to its contents, occupants, or visitors caused by moving or maintaining any safe or other property referred to in this clause shall be the sole responsibility and expense of Tenant.

5.Receipt of Deliveries; Use of Elevators. No furniture, packages, supplies, equipment, or merchandise may be received in the Building or carried up or down in the elevators, except between those hours and in that specific elevator that Landlord shall designate.

6.No Disturbance of Other Occupants. Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord and Landlord’s agents to prevent those actions.

7.Use of Restrooms; Responsibility for Damage. The restrooms, urinals, wash bowls, and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind shall be thrown into them. The expense of

1

any breakage, stoppage, or damage resulting from violation of this rule shall be borne by the tenant who caused, or whose employees or agents caused, the breakage, stoppage, or damage.

8.Heating and Air-Conditioning. Tenant shall not use any method of heating or air-conditioning, other than that supplied by Landlord, without Landlord’s prior written consent.

9.Foul or Noxious Gases or Substances: Noninterference With Others. Tenant shall not use or keep, or allow to be used or kept, any foul or noxious gas or substance in or on the Premises. Tenant shall not allow the Premises to be occupied or used in a manner causing noise, odors, or vibrations that are offensive or objectionable to Landlord or other occupants of the Project.

10.Animals, Birds, and Vehicles. Tenant shall not bring into, or keep within, the Premises or the Building any animals, birds, or vehicles (e.g., bicycles).

11.Cooking; No Use of Premises for Improper Purposes. Unless included in Tenant’s Permitted Use, no cooking shall be done or permitted on the Premises, except that Underwriters’ Laboratory (UL)-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate, and similar beverages for employees and visitors. This use must be in accordance with all applicable federal, state, and city laws, codes, ordinances, rules, and regulation

12.Telephone and Other Wires. Tenant may not introduce telephone wires or other wires into the Premises without first obtaining Landlord’s approval of the method and location of such introduction. No boring or cutting for telephone wires or other wires shall be allowed without Landlord’s consent. The location of telephones, call boxes, and other office equipment affixed to the Premises shall be subject to Landlord’s prior approval.

13.Exclusion or Expulsion. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord’s judgment, is under the influence of alcohol or drugs or commits any act in violation of any of these Rules and Regulations.

14.Loitering Prohibited. Tenant and Tenant’s employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or common areas for the purpose of smoking tobacco products or for any other purpose. Tenant and Tenant’s employees and agents shall not obstruct those areas but use them only as a means of ingress to and egress from the Premises.

15.Operation of Electricity, Water, and Air-Conditioning. Tenant shall not waste electricity, water, or air-conditioning and shall cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air-conditioning system. Tenant shall not adjust any controls of that heating and air-conditioning system.

16.Disposal of Trash and Garbage. Tenant shall store all trash and garbage within the interior of the Premises. Tenant shall not place or have placed in the trash boxes or receptacles any material that may not or cannot be disposed of in the ordinary and customary manner of removing and disposing of trash in the vicinity of the Building. In disposing of trash and garbage, Tenant shall comply fully with any law or ordinance governing that disposal. All trash, garbage, and refuse disposal shall be made only through entryways and elevators provided for that purpose and shall be made only at times designated by Landlord.

17.Compliance With Safety Regulations. Tenant shall comply with all safety, fire protection, and evacuation procedures and regulations established by Landlord or by any government agency.

18.Protection of Premises. Tenant shall assume all responsibility, including keeping doors locked and other means of entry to the Premises closed, for protecting the Premises from theft, robbery, and pilferage.

2

19.Awnings, Curtains, and Electrical Ceiling Fixtures. No awnings or other projection shall be attached to the outside walls of the Building without Landlord’s prior written consent. No curtains, blinds, shades, or screens shall be attached to, hung in, or used in connection with any window or door of the Premises without Landlord’s prior written consent. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent or of a quality, type, design, and bulb color approved by Landlord. Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings attached to those windows, if any, in the Premises that have a view of any interior portion of the Building or Building Common Areas.

20.Non-Obstruction of Light. Tenant shall not cover or obstruct the sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways, or other public places in the Building. Tenant shall not place any bottles, parcels, or other articles on the windowsills.

21.Provision of Information to Tenant’s Employees. Tenant shall comply with requests by Landlord that Tenant inform Tenant’s employees of items of importance to Landlord.

22.Hand Trucks and Similar Equipment. Without Landlord’s prior consent, Tenant shall not use, in any space or in the public halls of the Building, any hand trucks unless they are equipped with rubber tires and side guards or similar equipment. Tenant shall not bring any other vehicles of any kind into the Building.

23.Parking Rules and Regulations. Without Landlord’s prior written consent, no automobile detailing or washing shall be permitted in the parking areas of the Building or Project.

24.Rules Changes; Waivers. Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations or to make any additional reasonable Rules and Regulations that, in Landlord’s judgment, may be necessary for: (a) The management, safety, care, and cleanliness of the Premises, Building, and Project; (b) The preservation of good order; and (c) The convenience of other occupants and tenants in the Premises, the Building, and the Project.

Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants. No waiver by Landlord shall be construed as a waiver of those Rules and Regulations in favor of any other tenant, and no waiver shall prevent Landlord from enforcing those Rules or Regulations against any other tenant of the Project. Tenant shall be considered to have read these Rules and Regulations and to have agreed to abide by them as a condition of Tenant’s occupancy of the Premises.

3

EXHIBIT F
ESTOPPEL CERTIFICATE

The undersigned certifies as follows:

1.The undersigned (Tenant) and                                          , a                        (Landlord) entered into a written office lease dated                                       , in which Landlord leased to Tenant and Tenant leased from Landlord premises in the office building located at                                        (Building). The Building is described in Lease Article 1 (Project, Building and Premises). The Lease has been amended, modified, and supplemented as follows:                                                                          . The lease, as amended, modified, and supplemented, is referred to in this Certificate as the “Lease.”

2.Under the Lease, Tenant has leased approximately                   rentable square feet of space (Premises) in the Building and has paid to Landlord a security deposit of                  . The term of the Lease began on                  , and expires on                  , subject to any options to extend identified in Section 4 of this Exhibit. Tenant has paid Base Rent through                  . The next payment of Base Rent in the amount of                   is due on                           . Tenant is required to pay                   percent of the Direct Expenses (as defined in Lease Article 5) for the Building and Project, in excess of Direct Expenses for base year                  .

3.Tenant is entitled to                   unreserved parking spaces free of charge and                   parking spaces at a charge of                   per month per space.

4.The Lease provides for                      option(s) to extend the term of the Lease for                       years each. The rental rate for each extension term is as follows:                                                           .

5.There are no oral or written amendments, modifications, or supplements to the Lease except as stated in Section 1 of this Certificate. A true, correct, and complete copy of the Lease, including all amendments, modifications, and supplements, is attached to this Certificate. The Lease, as amended, modified and supplemented, is in full force and effect and represents the entire agreement between Landlord and Tenant pertaining to the Premises, the Building, and the Project.

6.All space and improvements leased by Tenant have been completed and furnished in accordance with the provisions of the lease, and Tenant has accepted and taken possession of the Premises. All contributions required to be paid by Landlord to date for improvements to the Premises have been paid in full.

7.To the best of Tenant’s knowledge, Landlord is not in default in the performance of any of the terms or provisions of the Lease. Tenant is not in default in the performance of any of the terms or provisions of the Lease and has not assigned, transferred, or hypothecated the Lease or any interest in the Lease or subleased all or part of the Premises.

8.There are no setoffs or credits against Rent payable under the Lease. No free periods or rental abatements, rebates, or concessions have been granted to Tenant, except as follows:                                                 .

9.Tenant has no actual knowledge of any processing, use, storage, disposal, release, or treatment of any hazardous or toxic material or substance on the Premises or the Project except                                                         as                                                  follows:                                                                                                                                                                        &nbs p;                         .

1

10.There are no pending actions, voluntary or involuntary, under any bankruptcy or insolvency laws of the United States or any state against Tenant or any guarantor of Tenant’s obligations under the Lease.

This Certificate is given to                                        as [lender or purchaser] with the understanding that he/she/it or his/her/its assignee shall rely on it in connection with the [acquisition of the Building and/or Project/making a loan secured by the Building, the land upon which the Building is located and the Project]. Following that [acquisition/loan], Tenant agrees that the Lease shall remain in full force and effect and shall bind and inure to the benefit of the [purchaser/lender] and its successor in interest.

TENANT

By:	/s/ Thomas Miserendind
	Name:		Thomas Miserendind
	Title:	Secretary

2

GUARANTY OF LEASE

This Guaranty of Lease (“Guaranty”) is executed effective 4/23/98, 1998, by TBA Entertainment Corporation, Inc., a Delaware corporation (“Guarantor”), whose address for notices is 402 Heritage Plantation Way, Hickory Valley, TN 38042, in favor of Pacific Torrey Reserve Holdings, LP., a California limited partnership (“Landlord”), whose address for notices is 11455 El Camino Real, Suite 200, San Diego, California 92130-2045. Guarantor covenants and agrees as follows:

1.Recitals. This Guaranty is made with reference to the following recitals of facts which constitute a material part of this Guaranty:

1.1. Landlord, as landlord, and Avalon Entertainment Group, Inc., a Tennessee corporation (“Tenant”), as tenant, are concurrently herewith entering into a Lease (the “Lease”) with respect to certain premises located within a building designated by Landlord as Building 1 - North Court, 11682 El Camino Real, which is located in that certain mixed-use project commonly referred to as Torrey Reserve Unit No. 2 (the “Property”).

1.2. Guarantor maintains a financial interest in Tenant but is an individual separate and distinct from Tenant. In addition, Guarantor is receiving consideration from Tenant for executing this Guaranty.

1.3. Landlord would not have entered into the Lease with Tenant without having received this Guaranty executed by Guarantor as an inducement.

1.4. By this Guaranty, Guarantor intends to unconditionally guarantee the full, timely, and complete performance of all of Tenant’s covenants and obligations set forth in or arising out of the Lease (collectively, the “Guaranteed Obligations”).

2.Guaranty. For valuable consideration, Guarantor absolutely and unconditionally guarantees, upon demand, to and for the benefit of Landlord, the full, timely, and complete payment and performance of all of the Guaranteed Obligations. This Guaranty constitutes an absolute, direct, immediate, and unconditional guarantee of timely payment and performance, and not merely of collectibility, and shall include, without limitation, all primary, secondary, direct, indirect, fixed, and contingent obligations of Tenant to pay rent, additional rent, late charges, common area charges, insurance, taxes, indemnifications, and other fees, charges, sums, costs, and expenses which may be owing by Tenant at any time in connection with the Guaranteed Obligations, as such may be modified, amended, extended, or renewed from time to time. If a specific amount outstanding and owing by Tenant under the Lease or the Guaranteed Obligations is determined by a Court of competent jurisdiction, that determination shall be conclusive and binding on Guarantor, regardless of whether or not Guarantor was a party to the proceeding in which such determination was made. If Tenant defaults in the payment of any amount when due under the Lease, Guarantor shall, in lawful money of the United States, pay to Landlord or order, on demand, all sums due and owing under the Lease. Additionally, Guarantor shall assume responsibility for and shall fully perform all of the other Guaranteed Obligations promptly upon receiving written notice from

1

Landlord that Tenant has failed to perform any of such obligations in accordance with the Lease. No delay by Landlord in providing notice of a default by Tenant or making demand hereunder will affect Guarantor’s obligations under this Guaranty. The obligations of Guarantor under this Guaranty are independent of the obligations of Tenant or any other guarantor. The obligations of Guarantor under this Guaranty shall be continuing and irrevocable until all of the Guaranteed Obligations have been fully satisfied (or waived by Landlord in a writing specifically for the benefit of Guarantor, at which time this Guaranty shall terminate and be of no further force or effect, except as otherwise set forth herein). If at any time all or any part of any payment received by Landlord from Tenant, Guarantor, or any other person under or with respect to the Lease or this Guaranty is refunded or rescinded pursuant to any court order (including without limitation any court order arising out of the insolvency, bankruptcy, or reorganization of Tenant, Guarantor or any other guarantor), then the Guarantor’s obligations under this Guaranty shall, to the extent of the payment refunded or rescinded, be deemed to have continued in existence, notwithstanding previous receipt of payment by Landlord, regardless of any contrary action by Landlord, as though such previous payment to Landlord had never occurred (and such contrary action had not been taken). This Guaranty shall not be affected or limited in any manner if recovery against Tenant upon the Guaranteed Obligations (or any portion of the Guaranteed Obligations) may be (or becomes) barred by any statute of limitations or may be (or becomes) otherwise unenforceable (unless the Lease is unenforceable due to the Landlord’s fraud, misrepresentation, or breach of the Lease), or if the Guaranteed Obligations (or any portion of the Guaranteed Obligations) arise(s) from transactions which may be voidable as the result of bankruptcy, insolvency, fraudulent conveyance, receivership, or offsets not arising out of the Lease. This Guaranty shall not be affected or limited in any manner by whether the Guaranteed Obligations are (i) now or hereafter made, incurred, or created, (ii) voluntary or involuntary, (iii) absolute or contingent, (iv) liquidated or unliquidated, and/or (v) determined or undetermined. This Guaranty shall not be affected or limited in any manner by whether Tenant may be liable, with respect to the Guaranteed Obligations individually, jointly with others, primarily, or secondarily.

3.Amendment or Assignment. This Guaranty shall not be affected or limited in any manner by (a) any assignment of, or any modification or amendment (by agreement, course of conduct, or otherwise) to, all or any portion of any lease, agreement, instrument, and/or document with respect to or that evidences the Guaranteed Obligations, or (b) the renewal, extension, and/or modification, at any time, of any of the Guaranteed Obligations. By this Guaranty, Guarantor hereby guarantees Tenant’s performance of the Guaranteed Obligations as so amended, assigned, renewed, extended, or modified whether or not such amendment, assignment, renewal, extension, or modification is with the consent of or notice to Guarantor; provided, however, Guarantor’s obligations under this Guaranty may not be increased as a result of any such amendment, renewal, extension, or modification which increases the obligations of the Tenant beyond those which were in existence prior to such amendment, renewal, extension, or modification, unless such amendment, renewal, extension, or modification is done with Guarantor’s consent.

4.Remedies. If Tenant defaults with respect to any of the Guaranteed Obligations, and if Guarantor does not satisfy Tenant’s obligations immediately upon his receipt of written notice of such default from Landlord, Landlord may, at its election, proceed immediately

2

against the Guarantor (as if such default arose from the direct and primary obligation of Guarantor), any other guarantor, or Tenant, or any combination of Tenant, Guarantor, and/or any other guarantor. Guarantor’s obligations hereunder are joint and several. If any portion of the Guaranteed Obligations terminates and Landlord continues to have any rights it may enforce against Tenant under the Guaranteed Obligations after such termination, then Landlord may, at its election, enforce such rights against the Guarantor. In the event of any default under this Guaranty, an action or actions may be brought and prosecuted against the Guarantor, whether or not Tenant or any other guarantor is joined in such action(s) or a separate action or actions are brought against Tenant or any other guarantor. Landlord may maintain successive actions for separate defaults. Unless and until the Guaranteed Obligations have been fully satisfied or waived in writing by Landlord, the Guarantor shall not be released from his obligations under this Guaranty irrespective of (i) the exercise by Landlord of any of Landlord’s rights or remedies (including, without limitation, compromise or adjustment of the Guaranteed Obligations or any part thereof), (ii) any release by Landlord of Tenant or any other guarantor, (iii) any such action or any number of successive actions, or (iv) the satisfaction by Guarantor of any liability under this Guaranty incident to a particular default. Landlord may, at its sole discretion, perform any or all of Guarantor’s obligations hereunder, in which case, Guarantor shall reimburse Landlord immediately upon demand for all costs and expenses, including all reasonable attorneys’ fees, that Landlord incurs in performing such obligations, together with interest on those sums from and after the date(s) they are incurred at the rate of fifteen percent (15%) per annum; provided, however, such interest factor will supersede any Default Rate interest concurrently accruing under the Lease.

5. Waivers. Guarantor hereby represents and warrants (which representation and warranty is being relied upon by Landlord in entering into the Lease and accepting this Guaranty) that each of the waivers set forth in this Guaranty is made with Guarantor’s full knowledge of its significance and consequences after discussion with Guarantor’s own competent legal counsel, which counsel has made Guarantor aware of the relevant circumstances and likely consequences of each such waiver and has explained to Guarantor the true legal effect of each such waiver including Guarantor’s rights which Guarantor would have if he were not making such waivers. Based on the foregoing, Guarantor acknowledges that, under the circumstances, such waivers are reasonable and not contrary to public policy or law, and Guarantor hereby waives the following:

5.1. Guarantor waives all rights he would otherwise have to require Landlord, as a condition to Landlord’s exercise of any of its rights under this Guaranty, to (i) proceed against Tenant or any other guarantor, (ii) perfect, retain, protect, proceed against, or exhaust any security that Landlord holds or may hold from Tenant, or (iii) pursue any other remedy in Landlord’s power. The foregoing waiver includes, without limitation, a waiver of all of Guarantor’s rights under California Civil Code Sections 2845 and 2849 or similar laws;

5.2. Guarantor waives the benefit of all statutes of limitations affecting Guarantor’s liability under this Guaranty to the extent permitted by law;

5.3. Guarantor waives all defenses which Guarantor might otherwise have to his obligations under this Guaranty by reason of any disability of Tenant or any other person(s), including, without limitation, the incapacity, lack of authority, death, or disability

3

of Tenant or any other person(s) or the failure of Landlord to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of Tenant or any other person(s). The foregoing waiver includes, without limitation, a waiver of all of Guarantor’s rights under California Civil Code Section 2810 and similar laws;

5.4. Guarantor waives all defenses and rights which Guarantor might otherwise have to exoneration under this Guaranty, including, without limitation, all rights under California Civil Code Section 2819 and similar laws, based upon any alteration, modification, compromise, renewal, extension, or assignment of the Lease or any of the Guaranteed Obligations, whether done with or without the knowledge and/or consent of Guarantor and Guarantor hereby grants Landlord the right to take any such action relative to the Guaranteed Obligations without the knowledge or consent of Guarantor without in any manner affecting the liability of Guarantor under this Guaranty.

5.5. Guarantor waives the right to claim or assert any defense of Tenant to the Guaranteed Obligations including, without limitation, any defense based upon failure of consideration, accord and satisfaction, impossibility of performance, or mistake (but excluding any defenses based on Landlord’s fraud, misrepresentation, or breach of the Lease);

5.6. Guarantor waives all other defenses based on the termination of Tenant’s liability from any cause or the impairment of any other collateral or security for the Guaranteed Obligations (other than arising out of Landlord’s fraud, misrepresentation, or breach of the Lease);

5.7. Guarantor waives all defenses he may otherwise have against Landlord based upon an election of remedies by Landlord;

5.8. Regardless of whether or not Guarantor makes payments to Landlord, until the Lease has terminated and Landlord has been paid in full thereunder for a period of one year and one day, Guarantor waives all of his rights of subrogation, contribution, and reimbursement which he would otherwise have against Tenant in the event Guarantor suffers any liability under this Guaranty, including, without limitation, any rights under California Civil Code Sections 2847, 2848, and 2849 or similar laws;

5.9. Guarantor waives all his rights to determine how, when, and what application of payments and credits shall be made on the Guaranteed Obligations; however, Guarantor shall be entitled to notice of how such payments and credits are applied;

5.10. Guarantor subordinates to Landlord all of Guarantor’s rights to participate in any security now or later held by Landlord;

5.11. Guarantor waives all his rights to receive notice of any default by Tenant;

5.12. Guarantor waives all rights of recourse against Landlord by reason of any action Landlord may take or omit to take under the provisions of this Guaranty;

4

5.13.  Guarantor waives all presentments, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor, notices of non-payment, and all other notices of any kind, including without limitation all notices of the existence, creation, or incurring of new or additional obligations (subject to Paragraph 3, above) and any notice of acceptance of this Guaranty, which, upon execution by Guarantor, shall immediately be binding upon Guarantor;

5.14.  Guarantor waives all duties Landlord may have to investigate the authority of any representative, or purported representative, of Tenant to incur any obligation or enter into any agreement on behalf of Tenant;

5.15.  Guarantor waives all rights he may otherwise attain by reason of Landlord’s failure to enforce, or delay in enforcing, any of Landlord’s rights with respect to the Guaranteed Obligations; and

5.16.  Guarantor waives all duties Landlord may have to disclose to the Guarantor any facts Landlord may now or in the future know about Tenant, regardless of whether Landlord has reason to believe that any such facts materially increase the risk beyond that which the Guarantor intends to assume or has reason to believe that such facts are unknown to the Guarantor or has a reasonable opportunity to communicate such facts to the Guarantor.

Without limiting the foregoing, Guarantor hereby expressly waives any and all benefits Guarantor may otherwise maintain under California Civil Code Sections 2809, 2810, 2814, 2819, 2845, 2847, 2848, 2849, and 2950 and similar laws. Guarantor acknowledges that the waiver of the benefits of the above cited statutory provisions has the effect of eliminating certain rights and protections which Guarantor would otherwise have including, without limitation, certain rights to require Landlord to act in a particular manner as a condition to enforcing its rights against Guarantor under this Guaranty, certain rights to exoneration upon a modification of the Guaranteed Obligations, and certain rights to require the Landlord to pursue other remedies available to it prior to pursuing Guarantor.

6.   Rights Cumulative. All rights, powers and remedies of Landlord under this Guaranty shall be cumulative and not alternative and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to Landlord by law. This Guaranty is in addition to and exclusive of the guaranty of any other guarantor of the Guaranteed Obligations.

7.Representations and Warranties. Guarantor hereby represents and warrants that the following are true and accurate as of the date of this Guaranty and shall be true at all times in the future while this Guaranty is outstanding: (i) this Guaranty is executed at Tenant’s request and not at the request of Landlord; (ii) Guarantor has sufficient net worth and sufficient liquidity of assets to enable Guarantor to promptly perform all of the Guaranteed Obligations as and when they are due; (iii) Landlord has made no representation to Guarantor as to the creditworthiness or financial condition of Tenant; and (iv) Guarantor has carefully read and negotiated all provisions of this Guaranty and has consulted with competent legal counsel in connection therewith.

5

8.  Covenant of Diligence. Guarantor covenants that he is intimately aware of Tenant’s business and financial condition and that he has conducted a thorough investigation of all material factors regarding the making of the Lease and this Guaranty. Furthermore, Guarantor represents that he has the resources, access, and opportunity to remain informed at all times of the financial status of Tenant and of all other material information relative to the Lease and Guarantor’s obligations under this Guaranty; and Guarantor covenants to remain informed relative to all such matters as long as this Guaranty remains in effect. On the basis of the foregoing, Guarantor hereby waives any obligation which Landlord might otherwise have as a condition to enforcing Guarantor’s obligations under this Guaranty, to keep Guarantor informed relative to any information regarding the Lease, the Tenant, any security for the Lease, or any other factors affecting the obligations of Tenant or Guarantor.

9.  Subordination. In the event of Tenant’s insolvency or the disposition of the assets of Tenant, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Tenant applicable to the payment of all claims of Landlord and/or the Guarantor shall be paid to Landlord and shall be first applied by Landlord to the Guaranteed Obligations. The Guarantor hereby assigns to Landlord all claims which the Guarantor may have or acquire against Tenant or any assignee or trustee in bankruptcy of Tenant; provided, that such assignment shall be effective only for the purpose of assuring to Landlord full payment and performance of all of the Guaranteed Obligations. All promissory notes now or hereafter evidencing any indebtedness of Tenant to Guarantor shall be marked with a legend that such indebtedness shall be subordinate to the Guaranteed Obligations and, if Landlord so requests, shall be delivered to Landlord. Guarantor hereby authorizes Landlord to, from time to time, execute and file, on Guarantor’s behalf, financing statements and continuation statements and to execute such other documents and to take such other action as Landlord deems necessary or appropriate to perfect, preserve and enforce Landlord’s rights under this Guaranty. Guarantor shall not cause or permit any person with funds invested in Tenant or any affiliate of Tenant or Guarantor with funds loaned to Tenant to withdraw, demand or accept any repayment of such funds from Tenant without the prior written approval of Landlord which approval shall not unreasonably be withheld. Each such payment by Tenant in violation of this Guaranty shall be received by the person to whom paid in trust for Landlord, and the Guarantor shall cause such funds to be paid to Landlord immediately to be applied toward the Guaranteed Obligations. No such payment shall reduce or affect in any manner the liability of the Guarantor under this Guaranty; however, any such payment shall reduce the amount of the Guaranteed Obligations.

10.  Governing Law and Venue. This Guaranty shall be governed by and construed in accordance with the laws of the State of California. For purposes of venue and jurisdiction, this Guaranty shall be deemed made and to be performed in the City of San Diego, California. Each party authorizes and accepts service of process sufficient for personal jurisdiction in any action against it as contemplated by this Guaranty by registered or certified mail, return receipt requested, postage prepaid, to its address for the giving of notices set forth in this Guaranty.

11.  Further Assurances. Each party to this Guaranty shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Guaranty.

6

12.  Mandatory Arbitration. Guarantor and Landlord agree that binding arbitration will constitute the sole and exclusive remedy for the resolution of any dispute or controversy arising from, based upon, or relating to this Guaranty or the rights of the parties hereunder. Before submitting any such dispute or controversy to arbitration, the parties agree to use their reasonable good faith efforts to resolve any such dispute or controversy through good faith negotiations and, if (but only if) deemed appropriate by both parties, by submitting such matter to non-binding mediation. If any such matter is to be resolved by arbitration pursuant to this Paragraph 12, such arbitration proceeding will be accomplished in accordance with the following provisions:

12.1. The arbitration proceeding will be conducted under the Commercial Arbitration Rules of the American Arbitration Association in effect at the time a demand for arbitration is made. To the extent that there is any conflict between the rules of the American Arbitration Association and this arbitration clause, this clause will govern and determine the rights of the parties.

12.2. The arbitration will take place in San Diego, California, before a single arbitrator, who shall apply California law.

12.3. The decision of the arbitrator, including the determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors, and assigns, as applicable, and judgment thereon may be entered in any court of competent jurisdiction.

12.4. The costs of arbitration, including administrative fees and the arbitrator’s fees, as well as reasonable attorney’s fees, will be awarded to the party determined by the arbitrator to be the prevailing party.

12.5. The parties incorporate the provisions of California Code of Civil Procedure Section 1283.05 into this Guaranty and make those provisions part of and applicable to any proceedings arising under the terms of this Guaranty.

13.  Further Assurances. Each party to this Guaranty shall execute and deliver all instruments and documents and take all actions as may be reasonably required or appropriate to carry out the purposes of this Guaranty.

14.  Attorney’s Fees. The prevailing party in any arbitration, mediation, bankruptcy, insolvency or other proceeding (“Proceeding”) relating to the enforcement or interpretation of this Guaranty may recover from the unsuccessful party all costs, expenses, and actual attorney’s fees (including expert witness and other consultants’ fees and costs) relating to or arising out of (a) the Proceeding (whether or not the Proceeding proceeds to judgment), and (b) any post-judgment or post-award proceeding including, without limitation, one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees.

7

15.  Modification. This Guaranty may be modified only by a contract in writing executed by both Landlord and Guarantor.

16.  Headings. The paragraph headings in this Guaranty: (a) are included only for convenience, (b) do not in any manner modify or limit any of the provisions of this Guaranty, and (c) may not be used in the interpretation of this Guaranty.

17.  Prior Understandings. This Guaranty and all documents specifically referred to and executed in connection with this Guaranty: (a) contain the entire and final Guaranty of the parties to this Guaranty with respect to the subject matter of this Guaranty, and (b) supersede all negotiations, stipulations, understandings, agreements, representations and warranties, if any, with respect to such subject matter, which precede or accompany the execution of this Guaranty.

18.  Interpretation. Whenever the context so requires in this Guaranty, all words used in the singular may include the plural (and vice versa) and the word “person” includes a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate or any other entity. The terms “includes” and “including” do not imply any limitation. For purposes of this Guaranty, the term “day” means any calendar day and the term “business day” means any calendar day other than a Saturday, Sunday or any other day designated as a holiday under California Government Code Sections 6700-6701. Any act permitted or required to be performed under this Guaranty upon a particular day which is not a business day may be performed on the next business day with the same effect as if it had been performed upon the day appointed. No remedy or election under this Guaranty is exclusive, but rather, to the extent permitted by applicable law, each such remedy and election is cumulative with all other remedies at law or in equity.

19.  Partial Invalidity. Each provision of this Guaranty is valid and enforceable to the fullest extent permitted by law. If any provision of this Guaranty (or the application of such provision to any person or circumstance) is or becomes invalid or unenforceable, the remainder of this Guaranty, and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, are not affected by such invalidity or unenforceability (unless such provision or the application of such provision is essential to this Guaranty).

19.  Binding Effect. This Guaranty shall inure to the benefit of and be binding on the successors and assigns of Landlord and Guarantor, and their heirs, personal representatives, grantees, tenants, successors, and assigns.

20.  Notices. Each notice and other communication required or permitted to be given under this Guaranty (“Notice”) must be in writing. Notice is duly given to another party upon: (i) hand delivery to the other party, (ii) receipt by the other party when sent by facsimile to the address and number for such party set forth on the first page of this Guaranty (provided, however, that the Notice is not effective unless a duplicate copy of the facsimile Notice is promptly given by one of the other methods permitted under this Paragraph), (iii) three business days after the Notice has been deposited with the United States postal service as first class certified mail, return receipt requested, postage prepaid, and addressed to the party

8

as set forth on the first page of this Guaranty, or (iv) the next business day after the Notice has been deposited with a reputable overnight delivery service, postage prepaid, addressed to the party as set forth above, with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery-service-provider. Each party shall make a reasonable, good faith effort to ensure that it will accept or receive Notices to it that are given in accordance with this Paragraph. A party may change its address for purposes of this Paragraph by giving the other party(ies) written notice of a new address in the manner set forth above.

21.  Waiver. Any waiver of a default or provision under this Guaranty must be in writing. No such waiver constitutes a waiver of any other default or provision concerning the same or any other provision of this Guaranty. No delay or omission by a party in the exercise of any of its rights or remedies constitutes a waiver of (or otherwise impairs) such right or remedy. A consent to or approval of an act does not waive or render unnecessary the consent to or approval of any other or subsequent act.

22.  Time is of the Essence. Time is of the essence with respect to each provision of this Guaranty.

23.   Drafting Ambiguities. Each party to this Guaranty and its legal counsel have reviewed and revised this Guaranty. The rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Guaranty or of any amendments or exhibits to this Guaranty.

GUARANTOR:	TBA Entertainment Corporation, Inc.,
	a Delaware corporation
	By:	/s/ Bryan Cusworth
	Its:	Chief Financial Officer

9

EXHIBIT “B”

Furniture Inventory

Suite 320
Inventory - February 28, 2007
Furniture Purchase: May, 2005

Reception Area
Reception Desk
Couch
Armless Chair
Coffee Table
2 brown chairs
3 tiered wood side table
6 pillows (couch & chairs)
1 reception/workstation chair

Conference Room
Conference Table
12 conference room chairs
Plasma TV
Viewing Screen
Audio Conferencing Componets
Sound System
Video Equipment
Control System
Rack equipment
Laptop Interfaces

Weurding Office
Desk - U shape with hutch
1 wood credenza
2 guest chairs
1 executive chair

Bullock Office
Desk - U shape with shelf
Small conference table
Hutch w/ 2 drawer file cabinet
4 guest chairs
1 executive chair

Reed Office
Desk - L shape
Hutch unit with drawers
1 guest chair
1 executive chair
1 black wire stand
1 black leather couch
1 coffee table
1 glass sofa back table

Kreider Office
Desk - U shape with hutch
2 guest chairs

1 executive chair

Garcia Office
Desk - U shape with hutch

2 guest chairs
1 black steel file cabinet

1 executive chair

Hori Office
Desk - L shape with hutch

2 guest chairs
1 black credenza

1 executive chair

Parrish Office
Desk - L shape with hutch

2 guest chairs
1 executive chair

Workstations
4 workstations
4 workstation chairs

Book Shelf
1 attached book shelf (video wall)

Kitchen
2 brown wooden dining tables
8 wood/chrome kitchen chairs
6 barstools

Storage Room

EXHIBIT “C”

CONSENT TO SUBLEASE AGREEMENT

This CONSENT TO SUBLEASE AGREEMENT (this ‘Consent”) is made by and between Pacific North Court Holdings, L.P. (“Master Landlord”), TBA Entertainment Corporation, a Delaware corporation (“Sublandlord”), and Zogenix, Inc., a Delaware corporation (“Subtenant”), as of March 20, 2007 (“Effective Date”), with reference to the facts set forth in the Recitals below.

RECITALS

A.Master Landlord, as Landlord, and Sublandlord, as Tenant, entered into a Standard Full Service Gross Office Lease dated April 23, 1998 (“Master Lease”), as modified by a First Amendment to Lease dated June 22, 2003 and Second Amendment to Lease dated September 24, 2004 for the leasing of certain premises within a building (“Building) located at 11682 El Camino Real, San Diego, CA 92130 (“Master Premises”) as more particularly described in the master Lease, on all of the terms and conditions contained therein.

B.Pursuant to the Master Lease, Sublandlord has requested Master Landlord’s consent to that certain Sublease, dated as of March 20, 2007 (the “Sublease”), between Sublandlord and Subtenant, by which Sublandlord would sublease 4,193 rentable square feet (“RSF”)/3,646 usable square feet (“USF”) at 11682 El Camino Real, San Diego, CA 92130 (the “Sublease Premises”) as more specifically described in Section 1(n) of the Sublease. A copy of the Sublease, together with copies of all exhibits, attachments and amendments thereto, is attached to this Consent as Exhibit A.

C.Master Landlord is willing to consent to the proposed subletting, but only on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Consent, and for valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the parties agree as follows:

AGREEMENT:

1.Master Landlord’s Consent. Master Landlord consents to the subletting of the Sublease Premises by Sublandlord to Subtenant as set forth in the Sublease, subject to each of the terms, conditions and mutual agreements between Master Landlord, Sublandlord, and Subtenant set forth herein.

2.Non-Release of Sublandlord. Neither the Sublease nor this Consent will: (a) as between Master Landlord and Sublandlord, (i) release or discharge Sublandlord from any liability, whether past, present or future, under the Master Lease, or (ii) alter the primary liability of Sublandlord to pay the rent and perform and comply with all of Sublandlord’s obligations under the Master Lease; or (b) be construed as a waiver of Master Landlord’s right to consent to any future amendment of the Sublease or to any further sublease or assignment either by Sublandlord or by Subtenant under the Master Lease or the Sublease, or (c) be construed as a consent to any portion of the Sublease Premises being used or occupied by any other party. Any breach or violation of any provision of the Master Lease by Sublandlord or Subtenant, or both, shall constitute a default by Sublandlord under the Master Lease.

3.        Scope of Consent. In granting its consent, it is understood and agreed that (a) except as otherwise specifically set forth herein, Master Landlord does not agree to, and will not be bound by, any term or condition of the Sublease; (b) no rights granted to Subtenant under the Sublease will be greater than those granted to Sublandlord under the Master Lease; and (c) the Sublease will under all circumstances be subordinate to the Master Lease and this Consent. As between Master Landlord and Sublandlord or Subtenant, in the event there is any conflict between the terms and conditions of the Master Lease or this Consent and the terms and conditions of the Sublease, the terms and conditions of the Master Lease or this Consent, as applicable, will prevail. Master Landlord will not be liable for any cost or obligation of any kind arising in connection with the Sublease, including, without limitation, brokerage commissions, improvements to the Sublease Premises, or the security deposit required to be made by Subtenant under the Sublease. Master Landlord’s acceptance of any rent from Subtenant will not be deemed a waiver by Master Landlord of any provisions of the Master Lease.

4.        Continuation/Termination of Sublease. If, for any reason, the Master Lease expires or terminates during the term of the Sublease, or if the Sublandlord lawfully surrenders the Master Lease to Master Landlord during the term of the Sublease, then on the effective date of such expiration, termination or surrender, the Sublease and its term will immediately terminate, and Subtenant must vacate the Sublease Premises on or before the effective date of such expiration, termination or surrender. If Subtenant fails to vacate the Sublease Premises, Master Landlord will be entitled to all of the rights and remedies available to a landlord against a tenant wrongfully holding over after expiration of the term of a lease without the landlord’s consent, including, without limitation, the rights and remedies available to Master Landlord under the Master Lease. In the event of such termination: (i) Master Landlord will net be liable to Sublandlord or Subtenant for any claim or damage because of the termination; (ii) Master Landlord shall have no obligation to recognize Subtenant or any rights of Subtenant to the Sublease Premises or to honor any agreement between Sublandlord and Subtenant; (iii) Master Landlord shall not be liable for any prepaid rents or any security deposit paid by Subtenant to Sublandlord (unless the same

Master Landlord JC Sublandlord RG Subtenant RH

have been delivered to Master Landlord), and (iv) Master Landlord shall not be liable to Subtenant for any defaults of Sublandlord under the Sublease or any other agreement between Sublandlord and Subtenant. Notwithstanding the foregoing, if the Master Lease expires or terminates for any reason during the term of the Sublease, or if the Sublandlord surrenders the Master Lease to Master Landlord during the term of the Sublease, Master Landlord has the option, by written notice delivered to Subtenant not more than ten (10) business days after the effective date of the expiration, termination, or surrender, and without any additional or further agreement of any kind by Subtenant, to elect to continue the Sublease with the same effect as if Master Landlord and Subtenant had entered into a lease for that date and for a term equal to the then unexpired term of the Sublease, and on the same terms and conditions in the Sublease. In that event, Subtenant will attorn to Master Landlord, and Master Landlord and Subtenant will have the same rights, obligations, and remedies under the Sublease as were had by Sublandlord and Subtenant. However, in no event will Master Landlord (a) be liable for any act or omission of Sublandlord, (b) be subject to any offsets or defenses that Subtenant had or might have against Sublandlord, (c) be obligated to cure any default of Sublandlord that occurred prior to the time that Master Landlord succeeded to the interest of Sublandlord under the Sublease, (d) be bound by any payment of rent or other payment paid by Subtenant to Sublandlord in advance of any periods reserved for that in the Sublease, (a) be bound by any modification or amendment of the Sublease made without the written consent of Master Landlord, or (f) be liable for the return of any security deposit paid by Subtenant but not actually received by Master Landlord. Neither Master Landlord’s election under this section nor its acceptance of any rent from Subtenant will be deemed a waiver by Master Landlord of any provisions of the Master Lease and this Master Landlord’s Consent.

5.Absolute Assignment of Rents. Sublandlord unconditionally assigns to Master Landlord all rents now due, or which may later become due, under the Sublease (collectively, “Rents”). Sublandlord acknowledges that the assignment is present, absolute, and unconditional. Accordingly, Master Landlord shall collect the Rents and apply them in payment of any sums payable by Sublandlord under the Master Lease, and Subtenant agrees to pay such Rents to Master Landlord directly. Master Landlord’s acceptance of any payment on account of Rent from Subtenant does not release Sublandlord from any liability under the terms, covenants, conditions, provisions, or agreement under the Master Lease. However, Sublandlord will have a license to collect the Rents until the occurrence of an act of default by Sublandlord under the Master Lease. If the act of default occurs, Sublandlord’s right to collect the Rent will be suspended until the default is cured. During the period in which Sublandlord’s right to collect the Rents is suspended, Master Landlord, as assignee and attorney-in-fact for Sublandbrd under the Master Lease, or a receiver for Sublandlord appointed pursuant to Master Landlord’s application, will have the right to collect the Rents and apply them toward Sublandlord’s obligations under the Master Lease. Master Landlord’s acceptance of any payment on account of Rent from Subtenant as a result of any act of default does not release Sublandlord from any liability under the terms, covenants, conditions, provisions, or agreement under the Master Lease.

6.Insurance. Subtenant will carry the insurance policies required to be carried by Sublandlord pursuant to Article 13 of the Master Lease and will deliver evidence of such insurance to Master Landlord prior to occupancy. The insurance will (a) name Master Landlord, Sublandlord and Lender as additional named insureds; and (b) provide that the policy will not be subject to cancellation or change except after thirty (30) days’ prior written notice to Master Landlord and Sublandlord.

7.Excess Rents. Pursuant to Article 16 of the Master Lease, Sublandlord will pay to Master Landlord fifty percent (50%) of the difference, if any, between (a) rents and other consideration, of whatever nature, payable by Subtenant (or receivable by Sublandlord) pursuant to the Sublease; and (b) the Rental (as defined in the Master Lease) payable by Sublandlord to Master Landlord with respect to the Sublease Premises under the Master Lease. Master Landlord and Sublandlord acknowledge that no Excess Rent shall be payable based on the Sublease rental structure outlined in the Sublease Addendum.

8.No Consent to Alterations. Sublandlord and Subtenant acknowledge: (a) that Master Landlord’s Consent is not a consent to any improvement or alteration work being performed in the Sublease Premises; (b) that Master Landlord’s Consent must be separately sought and will not necessarily be given with regard to alteration work being performed in the Sublease Premises; and (c) and that if consent is given it will be subject to Sublandlord’s signing Master Landlord’s standard form of Agreement with respect to work being performed by persons other than Master Landlord, unless otherwise agreed to in writing by Master Landlord.

Subject to providing the items required by Landlord to obtain approval for alterations, Landlord approves the lterations/improvements described in Section 3 (Delivery of Premises) of the Addendum to the Sublease.

9.Notices. All notices, demands and requests shall be in writing and shall be sent either by personal delivery, certified U.S. Mail (return receipt requested) or by reputable overnight courier service (e.g., Federal Express), to the address of the appropriate party. Notices, demands and requests so sent shall be deemed given when the same are received.

Master Landlord JC Sublandlord RG Subtenant RH

2

Notices to Master Landlord shall be sent to the attention of:

Pacific North Court Holdings, L.P.
c/o American Assets, Inc.

11455 El Camino Real, Suite 200
San Diego, CA 92130

Attn: James Durfey

Telecopier: (858) 350-2620

Notices to Sublandlord shall be sent to the attention of:

TBA Entertainment Corporation
Attn: Robert E. Geddes

11682 El Camino Real, Suite 310
San Diego, CA 92130

Notices to Subtenant shall be sent to the attention of:

Zogenix, Inc.

Attn: Chief Financial Officer
11682 El Camino Real, Suite 320
San Diego, CA 92130

10.Master Landlord’s Expenses. Promptly upon written request by Master Landlord, Sublandlord shall reimburse Master Landlord for Master Landlord’s reasonable cost of reviewing, consenting to, and consummating this Consent, in an amount equal to $750.00, including without limitation reasonable attorney’s fees and costs. Master Landlord shall have no obligation to pay any brokers in connection with this Consent, Sublease or any related transaction. In such regard, Subtenant and Sublandlord agrees to indemnify, defend and hold harmless Master Landlord from and against any and all claims by any real estate broker or salesman whom the Subtenant and/or Sublandlord authorized or employed, or acted by implication to authorize or employ, to act for Subtenant and/or Sublandlord in connection with the Sublease, or with any broker or sales person with whom Subtenant and/or Sublandlord dealt in connection with the Sublease.

11.Governing Law. The terms and provision of this Consent shall be construed in accordance with and governed by the laws of the state of California.

12.Entire Agreement. This Consent sets forth the entire agreement between the parties with respect to the subject matter hereof and shall be amended only by a writing signed by the parties.

13.Binding Effect. This Consent shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns.

14.Counterparts. This Consent may be executed in any number of counterparts, each of which when so executed and delivered, shall be deemed an original, but all such counterparts taken together shall constitute only one instrument.

[signature page attached]

Master Landlord JC Sublandlord RG Subtenant RH

3

IN WITNESS WHEREOF, the parties have executed this Consent as of the dates set forth below, to be effective as of the Effective Date.

MASTER LANDLORD:
Pacific North Court Holdings, L.P.
	By: American Assets, Inc.,
	Its authorized agent
	By:	/s/ John W. Chamberlain
	John W. Chamberlain - CEO
	By:	/s/ James Durley
	James Durley, Vice President, Office Leasing
	and Management
	Date:		3/20/07
SUBLANDLORD:
TBA Entertainment Corporation, a Delaware corporation
	By:	/s/ R.E. Geddes
	Print Name:			R.E. Geddes
	Its:	CEO
	Date:		3/20/07
SUBTENANT:
Zogenix, Inc., a Delaware corporation
	By:	/s/ Roger L. Hawley
	Print Name:			Roger L. Hawley
	Its:	Chief Executive Officer

4

EX-10.11

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.11

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;

        (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;

2

        (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");

        (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);

3

        (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.

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

4

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;

        (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;

5

        (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.

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.

6

        (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.

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

7

accepted accounting principles ("GAAP") and, if Debtor is a publicly held company, are to be in compliance with SEC requirements.

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.

8

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;

        (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.

9

        (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.

        (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

10

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.

        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

11

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.

        (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

12

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.

        (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.

13

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:	Diane Earle	By:	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:

Comp any 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

[***]

***

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.

QuickLinks

Exhibit 10.11

MASTER LOAN AND SECURITY AGREEMENT
Exhibit A

EX-10.12

Exhibit 10.12

Execution Copy

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.

ELAN PHARMA INTERNATIONAL LIMITED

AND

ZOGENIX, INC.

LICENSE AGREEMENT

Execution Copy

INDEX

1.	Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
2.	The License. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
3.	Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
4.	Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
5.	Product Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
6.	Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
7.	Registration, Marketing and the Promotion of the Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
8.	Manufacture and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
9.	Manufacturing License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
10.	Financial Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
11.	Payments, Reports and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
12.	Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
13.	Consequences of Expiration or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
14.	Warranties, Indemnification and Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
15.	Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
16.	Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36

Execution Copy

Schedule 1	Technological Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Schedule 2	key terms for commercial manufacture and supply agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Schedule 3	manufacturing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39

Execution Copy

THIS AGREEMENT is dated November      , 2007

PARTIES:

(1)ELAN PHARMA INTERNATIONAL LIMITED, a limited liability company incorporated under the laws of Ireland, having its registered office at Monksland, Athlone, Co Westmeath, Ireland (“Elan”); and

(2)ZOGENIX, INC., a Delaware corporation, having its principal place of business at 11682 El Camino Real, Ste. 320, San Diego, California, USA 92130 (“Zogenix”).

BACKGROUND:

(A)Elan possesses certain proprietary oral controlled release technology as well as proprietary know-how and confidential information used or useful in the manufacture and use of pharmaceutical products.

(B)Elan has also developed a Product (as defined below) containing Compound (as defined below) which utilizes certain Elan oral controlled release technology.

(C)Zogenix wishes to enter into this Agreement to obtain the right to utilize Elan Intellectual Property (as defined below) to (i) import, use, offer for sale, sell the Product in the Field (as defined below) in the Territory (as defined below) and (ii) make and have made the Product in the Field in the Territory, in each case in accordance with the terms and conditions set out below.

TERMS:

The Parties agree as follows:

1.DEFINITIONS AND INTERPRETATION

1.1.Definitions.  In this Agreement:

“Affiliate” means any corporation or entity controlling, controlled or under common control with Elan or Zogenix, as the case may be.  For the purposes of this Agreement, “control” means the direct or indirect ownership of more than 50% of the issued voting shares or other voting rights of the subject entity to elect directors, or if not meeting the preceding criteria, any entity owned or controlled by or owning or controlling at the maximum control or ownership right permitted in the country where such entity exists.

“Agreement” means this license agreement (which expression shall be deemed to include its Recitals and Schedules), as amended or supplemented pursuant to the terms hereof.

“Bottled Product” shall mean Product that is packed in bottles in a packaging configuration approved by the FDA under a Regulatory Application that is ready for commercial distribution in the Field in the Territory or, alternatively, Product that is packed in bulk form in drums.

1

Execution Copy

“Business Days” means Monday to Friday inclusive, excluding any days on which the clearing banks are generally closed in Dublin, Ireland and/or New York, New York.

“cGMP” means then-current Good Manufacturing Practice, as defined in the US Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, as may be amended from time to time.

“Claims” means all and any claims (whether successful or otherwise), loss, liability, damages and expenses, including reasonable attorneys’ fees and expenses and legal costs.

“CMC Section” means the chemistry, manufacturing, and controls section of the Regulatory Application in the Territory as defined in 21 C.F.R. Section 314.50 (1), as may be amended from time to time.

“Commercial Manufacture and Supply Agreement” means the agreement to be negotiated in good faith and entered into between Zogenix and Elan Holdings regarding the commercial supply of Product for Zogenix by Elan Holdings, as set forth in Clause 8.

“Commercially Reasonable Efforts” means those efforts of a Party which are consistent with those utilised by such Party for its own internally developed or in-licensed pharmaceutical products, taking into account all factors that impact the manufacturing, development, regulatory approval, marketing,  and sales of such products, as applicable.

“Competitive Product” means [***].

“Compound” means the active drug substance hydrocodone bitartrate and other pharmaceutically acceptable salts of hydrocodone.

“Controlled Substances” has the same meaning as in the US Controlled Substances Act (21 U.S.C. 801-904), as may be amended from time to time.

“DMF” means the Drug Master File, as defined in the 21 C.F.R., Section 314.420, which DMF contains the CMC Section.

“EDDI” means Elan Drug Delivery, Inc., a Delaware corporation, having a place of business at 1300 Gould Drive, Gainesville, Georgia, USA 30504.  As of the Effective Date, EDDI is an Affiliate of Elan.

“Effective Date” means the date of this Agreement as set forth in the header on page 1 herein.

“Elan Holdings” means Elan Holdings, Inc., a Massachusetts corporation having a place of business at 1300 Gould Drive, Gainesville, Georgia USA 30504.  As of the Effective Date, Elan Holdings is an Affiliate of Elan.

“Elan IND” means the Investigational New Drug Application No. 65,111 that has been filed by Elan or an Affiliate with the FDA.

“Elan Intellectual Property” means the Elan Know-How and Elan Patents.

“Elan Know-How” means any and all rights owned, licensed or controlled by Elan as of the Effective Date or during the Term to any scientific, pharmaceutical or technical information,

*** 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.

2

Execution Copy

data, discovery, invention (whether patentable or not), know-how, show-how, substances, techniques, processes, systems, formulations, designs and expertise which is not generally known to the public and is exclusively related to (a) the Product or (b) the manufacturing processes used in making the Product.  It is expressly acknowledged by the Parties that Elan Know-How shall not include Zogenix Patents or Zogenix Know-How.

“Elan Oral Controlled Release Patents” means any and all rights under any and all Patents relating to oral controlled release dosage forms, filed by, now existing, currently pending or hereafter filed, licensed or controlled by Elan or its Affiliates in the Territory, excluding (a) the Elan Patents and (b) any and all Patents the ownership or control of which are acquired by Elan or its Affiliates after the Effective Date (including by acquisition of the assets and/or shares in an entity which owns, controls or licenses them), or are as at the time of such acquisition owned, controlled or licensed by an entity which acquires control of Elan, together with Patents arising from technology so acquired by Elan or its Affiliates, or owned, licensed or controlled by such an acquiring entity as of the date of such acquisition.

“Elan Patents” means any and all Patents and any and all rights owned, licensed or controlled by Elan under

(a)	U.S. Patent No. 6,902,742,
(b)	U.S. Published Patent Application Number 2006/024015,
(c)	any U.S. Patents that claim priority to the Patents described in clauses (a) or (b) hereof and relate exclusively to the formulation, use, sale or offer for sale of the Product or the manufacturing processes used in making the Product, and
(d)	any U.S. Patents, other than Zogenix Patents, claiming subject matter that
	(i)	are directly related to the formulation, use, sale or offer for sale of the Product, or the manufacturing processes used in making the Product, and
	(ii)	were developed solely by or on behalf of Elan or Zogenix and/or jointly by Zogenix and Elan as a result of that Party (or its Affiliate) fulfilling obligations under this Agreement or Related Agreements.

For the avoidance of doubt, the Elan Patents do not include [***].

“Elan Trademark” means Elan’s trademark “SODAS®” (U.S. Registration No. 2794607) or such other trade marks as Elan may from time to time reasonably specify.

“EXW” (ex works) has the same meaning as in the ICC Incoterms 2000, International Rules for the Interpretation of Trade Terms, ICC Publication No. 560.

“Failure to Supply” means that for reasons other than (i) Force Majeure, (ii) a default by Zogenix (including but not limited to a failure to provide forecasts and orders in accordance with the Commercial Manufacture and Supply Agreement), or (iii) events or Third Party actions that are beyond Elan’s or its Affiliate’s control so long as Elan or its Affiliate has used and is continuing to use Commercially Reasonable Efforts to minimize such action (such as DEA quota changes or issues relating to the manufacture or supply of API), Elan or its Affiliate anticipates that it will fail to supply or fails to supply Zogenix’s properly forecasted and ordered requirements for Bottled Product in accordance with the terms set out in the

***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.

3

Execution Copy

Commercial Manufacture and Supply Agreement, such that Zogenix will become unable or is unable to satisfy all customer orders for the Product (after exhaustion of the agreed level of safety stock) and will remain unable to do so for at least [***] thereafter.

“FDA” means the United States Food and Drug Administration or any other successor agency whose approval is necessary to market the Product in the USA.

“Field” means any oral prescription only medicine in humans for the treatment or relief of pain, pain syndromes or pain associated with medical conditions or procedures.

“Force Majeure” means any cause or condition beyond the reasonable control of the Party (or its Affiliate) obliged to perform, including acts of God, acts of government (in particular with respect to obtain quotas or the refusal to issue necessary import or export licenses so long as the responsible Party (or its Affiliate) has used Commercially Reasonable Efforts to obtain such quotas and licenses), fire, flood, earthquake, war, riots or embargoes or strikes or other labour difficulties affecting a Party or either Party’s ability to obtain supplies howsoever arising.

“Governmental Authority” means all governmental and regulatory bodies, agencies, departments or entities, whether or not located in the Territory, which regulate, direct or control commercial and other related activities in or with the Territory.

“IND” means Investigational New Drug Application as set forth in the 21 C.F.R. Section 312.

“In Market” means the sale of the Product in the Territory by Zogenix, a Zogenix Affiliate or where applicable, by a permitted sub-licensee or subcontractor, to an unaffiliated Third Party, such as a wholesaler, distributor, managed care organisation, hospital or pharmacy which effects the final commercial sale to the end-user consumer of the Product, and shall exclude (a) the transfer of the Product by one Zogenix Affiliate to another Zogenix Affiliate or a permitted sub-licensee or subcontractor, and (b) the transfer of the Product in connection with the R&D Program or other clinical studies conducted by Zogenix, a Zogenix Affiliate or permitted sublicensee.

“Manufacturing Cost” means those costs set out in Schedule 3.

“NDA” means a New Drug Application filed with the FDA in reference to the Product, including any supplements or amendments thereto which may be filed in the Territory.

“NDA Approval” means the final approval of an NDA by the FDA to market the Product in the Territory.

“Net Sales” means, subject to the provisions of Clause 10.4, the aggregate gross In Market sales amounts billed for the Product in accordance with Zogenix’s standard accounting principles that is in accordance with US GAAP, less a maximum deduction of [***]% (subject to any adjustments that may be discussed and mutually agreed to in writing by the Parties pursuant to Clause 10.3) to cover the following:

(i)	trade, cash or quantity discounts, patient discount programs, rebates to wholesalers for inventory management programs or distribution agreements, allowances, adjustments and rejections;
(ii)	rebates, recalls (other than where the Product is replaced without charge) and returns;

***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.

4

Execution Copy

(iii)	price reductions or rebates imposed by Governmental Authorities;
(iv)	transportation, importation, shipping, insurance and other handling expenses directly chargeable to the royalty-bearing sale of the Product, but only to the extent that such expenses are separately delineated in the applicable invoices; and
(v)	chargebacks granted to drug wholesalers or their customers in cases where there are not direct shipments to such customers by Zogenix, a Zogenix Affiliate or its permitted sublicense.

“Net Selling Price” or “NSP” shall mean the total Net Sales for a given strength of the Product divided by the number of units of such Product sold for the given period.

“Notional NSP” shall mean the estimated NSP of a given strength of the Product at the applicable time, which shall be provided by Zogenix to Elan within ninety (90) days prior to commencement of each calendar year (or, for the launch year, within ninety (90) days prior to the estimated date of first commercial sale in the territory).

“Orange Book” means the FDA’s Approved Drug Product List with Therapeutic Equivalence Evaluations, which lists all products, and the patents that cover the products, that have been approved by the FDA for safety and effectiveness, and explains the therapeutic equivalence code for multi-source products.

“Party” or “Parties” means Elan and Zogenix, individually or collectively, as referred to herein.

“Patent(s)” means all U.S. patents and patent applications, including all provisionals, continuations, RCEs, continuations-in-part, divisionals and any patents issuing thereon, and re-issues or re-examinations of such patents and extensions and term adjustments of any patents, including extension of patents under the U.S. Patent Term Restoration Act.

“Phase II Trial” means a human clinical trial of a Product, the principal purpose of which is a determination of safety and efficacy in the target patient population or a similar clinical study prescribed by the Governmental Authorities, from time to time, pursuant to applicable law or otherwise, including the trials referred to in 21 C.F.R. §312.21(b), as amended from time to time.

“Phase IIb Trial” means a well-controlled, closely monitored, human clinical trial conducted to evaluate the dose-dependent effectiveness of a Product for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated with the Product as more fully defined in 21 CFR Section 312.12(b), as amended from time to time.

“Phase III Trial” means a human clinical trial of a Product on a sufficient number of subjects that is designated to establish that such Product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such Product in the dosage range to be prescribed, which trial is intended to support Regulatory Approval, including tests and studies that are required by the FDA, as described in 21 C.F.R. 312.21(c), as amended from time to time.

“Product” means the oral controlled release capsule or tablet formulation(s) incorporating Elan Intellectual Property and/or the technology of the Elan Oral Controlled Release Patents and Compound where Compound is the sole active ingredient in the formulation.

5

Execution Copy

“Product Data” means data relating to the Product generated by Zogenix or Elan in support of a Regulatory Application.

“Product Specifications” means the specifications for the Product as set forth in the NDA and such additional specifications for the Product as may be agreed by the Parties (or their Affiliates) in writing.

“Prosecute” means in relation to Elan Patents and Zogenix Patents:

(i) to secure the grant of any patent application within such Patents;

(ii) to file and prosecute patent applications on patentable inventions and discoveries relating to the subject matter of the Patents;

(iii) to defend all such Patents against Third Party oppositions, re-examinations, re-issues and similar or related actions; and

(iv) to maintain in force any issued letters patent relating to the same

and “Prosecution” has a corresponding meaning.

“R&D Program” means the research and development program related to the Product set out in the Services Agreement.

“Regulatory Application” means any regulatory application or any other application for Regulatory Approval, which Zogenix will file in the Territory, including any supplements or amendments thereto.

“Regulatory Approval” means the final approval to market the Product in the Territory, including any approval which is required to launch the Product in the normal course of business.

“Related Agreements” shall mean the Services Agreement and the Commercial Manufacture and Supply Agreement.

“Services Agreement” shall mean the services agreement that is negotiated and entered into between Elan or an Elan Affiliate and Zogenix, as the same may be amended by agreement of the parties thereto from time to time, setting forth the R&D Program and such other provisions related to Product development and regulatory work and the pre-clinical and clinical supply of Product by Elan or an Elan Affiliate for Zogenix.

“Technological Competitor” means a person or entity listed in Schedule 1, and, except as set forth in Schedule 1, any divisions, subsidiaries and successors thereof, and their respective Affiliates (as noted in Schedule 1) and such other person or corporate entity that, after the Effective Date and other than as a de minimis activity, develops oral drug delivery technology displaying a sustained release profile and/or manufacture products that display a sustained release profile that Elan may request be added to Schedule 1 from time to time, [***].

“Term” means the Initial Term and the Extended Term of this Agreement, as such terms are defined in Clause 12.

***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.

6

Execution Copy

“Territory” means the United States of America and its possessions and territories, including Puerto Rico.

“Third Party” means any individual or entity which is neither a Party or an Affiliate of a Party.

“US GAAP” means the set of generally accepted accounting principles that are used in the Territory.

“Valid Claim” means any claim of an issued or unexpired Patent included within Elan Patents which has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or government agency of competent jurisdiction, that is unappealable or unappealed within the time allowed for appeal, or which has not expressly been admitted by Elan or its Affiliates to be invalid or unenforceable.

“VAT” or “Value Added Tax” means (i) any tax imposed in compliance with the Sixth Directive of the Council of the European Communities (77/388/EEC) and (ii) any other tax of a similar fiscal nature, whether imposed in a member state of the European Union or anywhere else in the Territory.

“Zogenix Intellectual Property” means the Zogenix Know-How and the Zogenix Patents.

“Zogenix Know-How” means any and all rights owned, licensed or controlled by Zogenix  as of the Effective Date or during the Term to any scientific, pharmaceutical or technical information, data, discovery, invention (whether patentable or not), know-how, show-how, substances, techniques, processes, systems, formulations, designs and expertise which is not generally known to the public and is not exclusively related to (a) the Product, (b) the manufacturing processes used in making the Product or (c) Elan Oral Controlled Release Patents.  It is expressly acknowledged by the Parties that the Zogenix Know-How shall not include any Elan Patents, any Elan Know-How or any other license or other rights granted to Zogenix by Elan or its Affiliates under this Agreement or any Related Agreement.

“Zogenix Patents” means any Patents owned, licensed or controlled by Zogenix as of the Effective Date or during the Term claiming subject matter that is related to the sale or offer for sale of the Compound within the Field or methods of use of the Compound within the Field or packaging of the Product.  For the avoidance of doubt, Zogenix Patents do not include the Elan Patents or other patent rights granted to Zogenix by Elan or its Affiliates under this Agreement or any Related Agreement.  As of the Effective Date, there are no Zogenix Patents.

“$” and “US$” mean United States Dollars.

1.2.Further Definitions.  In addition, the following definitions have the meanings in the Clauses corresponding thereto, as set forth below:

Definition	Clause
“Confidential Information”	15.1
“Contained Within a Ring Fence”	16.3.2.1
“Designated Manufacturer”	9.1
“Disclosing Party”	15.13
“Due Date”	11.7
“Elan License”	2.1
“Elan Trademark License”	3.6.2.2
“Extended Term”	12.2
“Infringement Claim”	3.4.1

7

Execution Copy

“Initial Term”	12.1
“License Fee”	10.1.1
“License Milestone Payments”	10.1
“Manufacturing License”	9.1
“Notice”	16.14.1
“Notified Party”	3.5.1
“Notifying Party”	3.5.1
“Statement”	11.1
“Third Party License”	3.5.1

1.3.Interpretation.  In this Agreement:

1.3.1	the singular includes the plural and vice versa, and unless the context or subject otherwise requires, references to words in one gender include references to the other genders and references to natural persons include corporate bodies, partnerships and vice versa;
1.3.2	unless the context otherwise requires, reference to a recital, article, paragraph, provision, clause or schedule is to a recital, article, paragraph, provision, clause or schedule of or to this Agreement;
1.3.3	the headings in this Agreement are inserted for convenience only and do not affect its construction; and
1.3.4	the expressions “include”, “includes”, “including”, “in particular” and similar expressions shall be construed without limitation.

2.THE LICENSE

2.1.Elan License to Zogenix.  Subject to the terms of this Agreement, Elan hereby grants to Zogenix for the Term an exclusive license (the “Elan License”) to the Elan Intellectual Property to import, use, offer for sale and sell the Product in the Field in the Territory.  The Elan License does not include the right to perform any formulation, process development or manufacturing activities in relation to the Product, although the Parties confirm that Zogenix has been granted certain manufacturing license rights in this Agreement as set forth in Clause 9 which are subject to the terms and conditions set out therein.

2.2.Sub-licensing.  Zogenix shall be entitled to grant sub-licenses in respect of its rights to the Elan Intellectual Property granted pursuant to Clause 2.1, subject to the following conditions:

2.2.1	With respect to Technological Competitors, Zogenix must obtain Elan’s prior written consent, which may be withheld at Elan’s sole discretion. If consent is granted by Elan, Zogenix shall, amongst other matters, make Elan whole for any tax consequence associated with such sub-license;
2.2.2	With respect to all other entities, Zogenix must satisfy the following conditions:

2.2.2.1 Zogenix shall promptly provide Elan with written notice of each sub-license hereunder and shall provide Elan with a complete copy of the written agreement  entered into with any such sub-licensee (save for the financial or other confidential business terms which may be redacted);

8

Execution Copy

2.2.2.2	Zogenix shall make Elan whole for any tax consequence associated with each such sub-license;
2.2.2.3	Zogenix shall be liable to Elan for the acts and omissions of the sub-licensee;
2.2.2.4	Zogenix shall enter into a written agreement with each sub-licensee which:
2.2.2.5	is consistent with the terms of this Agreement insofar as they are applicable, mutatis mutandis, but excluding the right to grant a sublicense;
2.2.2.6	contains terms that are no less restrictive than those contained in this Agreement on audit, inspection, and confidentiality; and contains terms to ensure that the sublicense agreement terminates when this Agreement terminates or expires.
2.2.2.7	Zogenix shall also ensure that Elan Confidential Information is only disclosed to permitted sub-licensees to the extent that such sublicensee needs it to fulfil obligations and exercise rights under their sublicense agreement. Under no circumstances shall any permitted sub-licensee or any other Third Party be allowed access to CMC data without the prior written consent of Elan and Elan shall be entitled to require that there be a direct contractual relationship between the sub-licensee and Elan in such circumstances.

2.3.	Elan Covenant. Elan covenants for itself and its Affiliates not to assert any claim of Patent infringement (including direct infringement, contributory infringement and inducing infringement) in the Territory against Zogenix, any Affiliate of Zogenix or any permitted sublicensee under [***] as a result of Zogenix, any Affiliate of Zogenix, or any permitted sublicensee exercising the rights granted under this Agreement or any Related Agreement for so long as (i) Zogenix and its Affiliates, sublicensees and subcontractors are not in material breach of this Agreement or any Related Agreements and/or (ii) this Agreement has not been terminated.
2.4.	In addition, Elan covenants for itself and its Affiliates not to enter into an agreement granting rights to a Third Party that would enable said Third Party to assert [***] against Zogenix, any Affiliate of Zogenix, or any permitted sublicense as a result of Zogenix, any Affiliate of Zogenix or any permitted sublicensee exercising the rights granted under this Agreement or any Related Agreement for so long as (i) Zogenix and its Affiliates, sublicensees and subcontractors are not in material breach of this Agreement or any Related Agreements and/or (ii) this Agreement has not been terminated.
2.5.	Zogenix License to Elan. Subject to the terms of this Agreement, Zogenix hereby grants to Elan and its Affiliates for the Term a non-exclusive license to the Zogenix Intellectual Property solely to the extent necessary to perform Elan or Elan Affiliates’ obligations under this Agreement or the Related Agreements.

*** 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.

9

Execution Copy

3.INTELLECTUAL PROPERTY

3.1.Ownership of Intellectual Property. Elan is and shall remain the owner of the Elan Intellectual Property and Elan Oral Controlled Release Patents.  Zogenix is and shall remain the owner of the Zogenix Intellectual Property.

3.2.Patent Prosecution and Maintenance.

3.2.1	Elan, at its sole discretion and expense, will Prosecute and determine the strategy of Prosecution of the Elan Patents. Elan shall keep Zogenix promptly informed regarding the Prosecution of Elan Patents, including sufficient notice and opportunity to permit Zogenix to exercise its rights under Section 3.2.2, and shall provide Zogenix the opportunity to provide comments to any updated filings for the Elan Patents for Elan’s reasonable consideration . Zogenix shall treat such information as the Confidential Information of Elan in accordance with Clause 15.
3.2.2	In the event that Elan does not wish to Prosecute Elan Patents, Elan shall notify Zogenix prior to ceasing Prosecution to enable Zogenix to take action and avoid withdrawal, cancellation, expiration or abandonment of any such Elan Patent, and Zogenix shall then have the right to assume such further action at its own expense.
3.2.3	Each Party shall provide the other Party with reasonable support in the Prosecution of their respective Patents within the Elan Patents and the Zogenix Patents, as applicable, and shall execute and deliver all documents and instruments that are necessary to support such Prosecution by the other Party, including in accordance with Clause 3.2.2. In addition, Zogenix shall provide to Elan all information and/or data related to the Compound or Product Data in its possession that is necessary to support the Prosecution of the Elan Patents.
3.2.4	Each Party shall promptly notify the other Party of any developments by the first Party, its Affiliates, permitted sub-licensee(s) or any relevant Third Party subcontractors of scientific, pharmaceutical or technical information, data, discovery, invention (whether patentable or not), know-how, show-how, substances, techniques, processes, systems, formulations, designs and expertise which is related to, as to Elan, Elan Intellectual Property and as to Zogenix, Zogenix Intellectual Property.
3.2.5	The Parties acknowledge that Zogenix, as the holder of the NDA, may refer to applicable Elan Patents in the listing for the Product in the Orange Book. At Zogenix’s request, Elan shall support Zogenix in listing the applicable Elan Patents, such support not to be unreasonably withheld, conditioned or delayed. In the event that Elan Patents are listed in the Orange Book, Zogenix shall use Commercially Reasonable Efforts to ensure that Elan shall be listed as the assignee of the Elan Patents and both Zogenix and Elan shall be identified as the point of contact for any Paragraph IV notifications.

3.3.Enforcement.

3.3.1 Elan and Zogenix shall promptly inform each other in writing of any actual, threatened or alleged infringement of the Elan Patents or misappropriation of the Elan Know-How by a Third Party of which it becomes aware and shall provide the other Party with any available evidence of such infringement or misappropriation.  Neither Elan nor Zogenix shall contact a Third Party alleging actual or unauthorized use of Elan Patents or misappropriation of Elan Know-How without the written consent of the other Party.

10

Execution Copy

3.3.2	With respect to infringement of the Elan Patents by a Competitive Product of a Third Party, the Parties agree as follows:
	3.3.2.1	Subject to Clause 3.3.3, Elan shall have the first right to enforce Elan Patents or Elan Know-How against Third Parties. Elan shall keep Zogenix reasonably informed of and shall not settle any administrative proceedings or litigation relating to Elan Patents or Elan Know-How (the “Proceedings”) in a manner which would materially adversely affect the rights licensed to Zogenix under this Agreement without the prior consent of Zogenix, not to be unreasonably withheld, conditioned or delayed.
		Zogenix shall reasonably cooperate with Elan to enforce such rights, including initiation or maintenance as a party to the Proceedings to enforce such rights.
		(i)  If the settlement or damages awarded as a result of the Proceedings exceed each Party’s costs and expenses, including legal fees, associated with the Proceedings, the Parties agree that after payment of each Party’s costs and expenses associated with such Proceedings, Elan shall apportion all amounts determined to be compensation for lost sales or profits of the Product in the amounts of [***]% to Zogenix and [***]% to Elan.  All other amounts associated with enforcing Elan Patents related to a Competitive Product shall be paid [***]% to Elan and [***]% to Zogenix.  The compensation for lost sales or profits paid to Zogenix hereunder shall not be included in any calculation of Net Sales and Elan shall not be due a royalty thereon.
		(ii) If Elan is unsuccessful in the Proceedings or if a settlement or damages awarded as a result of the Proceedings are insufficient to cover each Party’s costs and expenses, including legal fees, associated with the Proceedings, such costs and expenses, including legal fees, shall be allocated between the Parties [***]% to Zogenix and [***]% to Elan.
	3.3.2.2	In circumstances where Elan decides not to enforce or does not wish to continue to enforce Elan Know-How or the Elan Patents against a Competitive Product as set forth in Clauses 3.3.2.1 or 3.3.3, Zogenix shall be granted step in rights to enforce.  In such circumstances:
		(i) Elan shall reasonably cooperate with Zogenix to enforce such rights, including consideration of initiation or maintenance as a party to the Proceedings to enforce such rights,
		(ii) Zogenix shall have sole control of the Proceedings and related strategy,
		(iii) Zogenix shall be responsible for paying [***]% of the costs of any such Proceedings, including Elan’s reasonable expenses and attorney’s fees incurred as a result of Elan’s cooperation as set forth in this Clause 3.3.2.2 (or, if Zogenix exercises step in rights in an active Proceedings,

*** 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.

11

Execution Copy

			Zogenix shall assume [***]% of the costs as of the date that such right is asserted by Zogenix, and any of Elan’s reasonable future expenses and attorney’s fees incurred as a result of Elan’s cooperation as set forth in this Clause 3.3.2.2), and
			(iv) Zogenix may only negotiate or settle the dispute by sublicensing Elan Patents in accordance with Clause 2.2 or otherwise with Elan’s prior written consent.
	3.3.3	Notwithstanding the terms and conditions as set forth in Clause 3.3.2.1, if a Paragraph IV Certification (as defined in CFR Title 21) is filed referencing the Product, Elan shall (provided that Elan believes it has a good faith basis to proceed with such suit) commence action within forty-five (45) days of the notice of Paragraph IV Certification and Zogenix shall reimburse Elan for [***] litigation and related costs, including attorneys fees. In circumstances where Elan decides not to commence such an action, Zogenix shall be granted step in rights according to the terms of Clause 3.3.2.2 herein.  In such circumstances where Elan decides not to commence such an action, it shall provide Zogenix with sufficient notice and time for Zogenix to exercise its step-in rights according to the terms of Clause 3.3.2.2 and commence action within forty-five (45) days of the notice of Paragraph IV Certification.
	3.3.4	For the avoidance of doubt, Zogenix has no step in rights relating to any infringement actions where the subject of the action is not a Competitive Product.  In turn, Zogenix shall have no liability for any costs or expenses associated with such infringement action, nor shall Zogenix receive any amounts recovered from such infringement action or settlement of such infringement action, with the exception that if the damages awarded to Elan by a court or administrative authority presiding over such infringement action exceed Elan’s costs and expenses, including Elan’s attorney fees, and the damages are apportioned in a manner such that a portion of the damages are lost sales or profits of the Product in the Territory, Elan shall distribute that portion of the lost sales damages between Elan and Zogenix in the amounts of [***]% to Zogenix and [***]% to Elan.
3.4.	Defence of and Liability for Infringement Claims.
	3.4.1	Each Party shall promptly notify the other Party in writing of any Claim made, threatened or brought against either of them alleging infringement or other unauthorised use of the intellectual property of a Third Party arising from the development, manufacture, importation, use, offer for sale, sale or other commercialization of the Product in the Territory (“Infringement Claim”).
	3.4.2	Subject to Clause 3.4.3, Zogenix shall indemnify and hold harmless Elan, its Affiliates and their respective officers, directors, employees and agents against all Infringement Claims where the subject matter of the Infringement Claim:
		3.4.2.1	would fall outside the scope of any Valid Claim, or
		3.4.2.2	is a result of a breach by Zogenix of its representations and warranties set forth in Clauses 14.2 or 14.3.

*** 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.

12

Execution Copy

3.4.3	Elan shall indemnify and hold harmless Zogenix, its Affiliates and their respective officers, directors, employees and agents against all Infringement Claims brought against Zogenix by a Third Party where the subject matter of such Infringement Claim is a valid claim of an [***] as a result of Zogenix, its Affiliates and their respective officers, directors, employees and agents exercising the rights granted under this Agreement or any Related Agreement forso long as (i) Zogenix, its Affiliates and their respective officers, directors, employees and agents are not in material breach of this Agreement or any Related Agreements and/or (ii) this Agreement has not been terminated.  For the avoidance of doubt, Elan shall be [***]% liable for such Infringement Claim as described herein in this Clause 3.4.3.
3.4.4	Subject to Clauses 3.4.5 and 3.4.6, Elan shall indemnify and hold harmless Zogenix, its Affiliates and their respective officers, directors, employees and agents against all Infringement Claims where the subject matter of the Infringement Claim:
	3.4.4.1	is directly related to the Product and falls within the scope of a Valid Claim,
	3.4.4.2	is directly related to the manufacture or a process of manufacturing of the Product by or on behalf of Elan or an Elan Affiliate, or
	3.4.4.3	is a result of a breach by Elan of its representations and warranties set forth in Clauses 14.1 or 14.3.
3.4.5	For the avoidance of doubt, the Parties agree that Zogenix shall indemnify and hold harmless Elan against all Claims that arise in connection with any Infringement Claim where the subject matter of such Infringement Claim is not included in Clauses 3.4.4.1 through 3.4.4.3 or Clause 3.4.3 herein.
3.4.6	Subject to Clause 3.4.6, Elan’s aggregate cumulative liability pursuant to Clause 3.4.4 in respect of those Infringement Claims for which Elan is liable under Clauses 3.4.4.1 through 3.4.4.3 shall not exceed certain limitations as follows:
	3.4.6.1	[***]% of any lump sum payment due to a Third Party as a result of a court order or settlement in respect of the Infringement Claim (including a claim for damages);
	3.4.6.2	[***]% of any license fees due to a Third Party under any license entered into as a result of a court order or settlement in respect of the Infringement Claim where the subject matter of the Infringement Claim is included in Clause 3.4.4.1; and
	3.4.6.3	[***]% of any license fees due to a Third Party under any license entered into as a result of a court order or settlement in respect of the Infringement Claim where the subject matter of the Infringement Claim is included in Clause 3.4.4.2.
3.4.7	Zogenix will be entitled to recover amounts due by Elan to Zogenix under Clause 3.4.5 solely as a credit against the royalties payable by Zogenix to Elan under the provisions of Clause 10.3, provided however that the maximum credit which may be claimed by Zogenix in any one such year will be [***]% of the royalty otherwise payable to Elan.

*** 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.

13

Execution Copy

			3.4.7.1	Any deficit remaining in Zogenix’s recovery of amounts due by Elan to Zogenix following recovery by Zogenix within the limitations set forth in this Clause 3.4.6 may be carried over from year to year and any deficit remaining thereafter shall be borne by Zogenix and Elan shall have no liability to Zogenix in relation thereto.
			3.4.7.2	For the avoidance of doubt, Zogenix shall indemnify and hold harmless Elan against all Infringement Claims where such Infringement Claims are included in Clauses 3.4.4.1 and 3.4.4.2 to the extent they are in excess of the limits set forth in this Clause 3.4.6.
	3.4.8		Save as specifically provided otherwise in this Clause 3.4, the provisions of Clause 14.8 shall apply to the conduct of any Infringement Claim. Further, Elan and Zogenix shall consult with respect to any actions Elan or Zogenix proposes to take in order to mitigate any loss or liability with respect to any Infringement Claim, such actions may include Zogenix ceasing to sell the Product, Elan ceasing to manufacture and supply Zogenix with Product, the Parties agreeing to modify the Product, or either or both of the Parties entering into a licensing or settlement negotiation with the Third Party as set forth in Clause 3.5.
			3.4.8.1	In the event that the Parties are unable to agree on a course of action under this Clause 3.4.7, Zogenix shall indemnify and hold Elan harmless against all Infringement Claims to the extent that they relate to the period after the date on which the Parties are unable to agree under this Clause 3.4.7.
3.5.	Third Party Licenses and Settlements.
		3.5.1	Notice. If during the Term either Party reasonably believes that the making, importation, use, offer for sale or sale of the Product in the Field in the Territory would infringe the intellectual property rights of a Third Party, and that such infringement arises from or relates to the subject matter described in Clauses 3.4.4.1 or 3.4.4.2 that Party (“the Notifying Party”) shall so inform the other Party (“Notified Party”), which notification shall include documents supporting the Notifying Party’s position. If the Notifying Party believes a license from such Third Party is necessary or advisable to exercise its rights and obligations under this Agreement, including to sell the Product and/or mitigate any potential liability therefore (a “Third Party License”), the notice shall include reference to such Third Party License.
		3.5.2	Counter-Notice. Notified Party shall have thirty (30) days to review the notice issued pursuant to 3.5.1 from the Notifying Party and to agree or disagree with the Notifying Party’s belief by counter-notice. If the Notified Party disagrees with the Notifying Party’s belief, then the Notified Party shall provide the Notifying Party with documents or other information supporting the Notified Party’s position. The Notifying Party shall have thirty (30) days from the date of receipt to review the documents or other information from the Notified Party. Failure by the Notified Party to respond to the Notifying Party’s notice, or by the Notifying Party to respond to the Notified Party’s counter-notice, shall be taken for the purposes of the decision as to whether to obtain a license under this Clause 3.5.2 (but for the avoidance of doubt, not for any other purpose whatsoever) as acceptance of the position of the other Party. The Parties agree that the time periods as set forth in this Clause 3.5.2 may be reasonably extended by the mutual written agreement of the Parties.

14

Execution Copy

	3.5.3	Use of Documents.  All documents exchanged by the Parties shall be maintained in confidence and shall not be used for any other purpose than the resolution of the scope of a Third Party’s intellectual property rights as it pertains to the sale of a Product as set forth in this Agreement.
	3.5.4	Resolution. If the Notified Party disagrees with the Notifying Party’s position pursuant to the terms as set forth in Clause 3.5.2 herein and if the Notifying Party maintains its original position after such review period, then the matter shall be referred first to the officers of Elan and Zogenix having responsibility for the subject matter of the dispute, or their designees. Such officers, or their designees, as the case may be, shall negotiate in good faith to resolve such dispute in a mutually satisfactory manner. If such efforts do not result in a mutually satisfactory resolution of the dispute within thirty (30) days of such referral, the matter shall be referred to the chief executive officer of each Party, or their respective designees.
	3.5.5	Final Resolution. If the Parties’ chief executive officers or their designees do not resolve the dispute within thirty (30) days of the matter being referred to them (or such longer time periods as may be mutually agreed in writing by the Parties) under Clause 3.5.4, an independent mutually acceptable Third Party law firm with suitable expertise in the field of intellectual property in pharmaceuticals (the “Firm”) shall be appointed to determine whether, in its opinion, the making, importation, use, offer for sale or sale of the Products in the Field and in the Territory would infringe such Third Party intellectual property as included in Clauses 3.4.4.1 or 3.4.4.2 in the Field and in the Territory. Once appointed, the Firm shall not be used by either Party (or their respective Affiliates) for matters pertaining to the Elan Intellectual Property, the Elan Oral Controlled Release Patents or the Zogenix Intellectual Property, other than subsequent disputes under this Clause 3.5. The costs of the Firm shall be borne by the Party with whom the Firm disagrees
	3.5.6	Disputes Not To Be Reopened. The procedure in Clauses 3.5.1 to 3.5.5 shall not be used more than once in relation to any particular Third Party intellectual property identified in a Third Party License of Clause 3.5.1 , absent new and relevant facts.
	3.5.7	Negotiation. If the Parties or the Firm determine that a Third Party License under Clause 3.5.1 should be obtained as a Final Resolution of Clause 3.5.5, Elan shall have the initial right to negotiate such license and shall not negotiate a license or settlement which exceeds an ongoing royalty of [***]% of Net Sales of the Product or a lump sum settlement payment of more than [***] dollars (US$[***]) related to the Product without Zogenix’s prior written consent. In the event that Elan is unsuccessful in obtaining such a license within [***] ([***]) days of its first meeting with such Third Party, then Zogenix shall have the right to negotiate such license, provided that Zogenix may offer or grant to a Third Party in negotiations or as part of any settlement arising from such a negotiation a sublicense to the Elan License granted to Zogenix under this Agreement in accordance with Clause 2.2 but shall not otherwise be entitled to offer or grant any right whatsoever to Elan Patents in such circumstances without Elan’s prior written consent.
	3.5.8	Unrelated Licenses. Nothing in this Clause 3.5 shall be construed as affecting Zogenix’s rights to obtain licenses wholly unrelated to the incorporation of the Elan Intellectual Property in the Product, at its own expense.
3.6.	Trademarks.

*** 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.

15

Execution Copy

3.6.1	Product Trademark.
	3.6.1.1	Zogenix shall market the Product in the Territory under a trademark or trademarks which Zogenix shall determine in its sole discretion (“Zogenix Trademark”).
	3.6.1.2	Zogenix shall, at its sole discretion and expense, file and prosecute applications to register and maintain registrations of such trademarks in the Territory. Zogenix shall not file or prosecute applications to register or maintain registrations where such trademark (A) might materially prejudice the distinctiveness, validity, or the goodwill of the Elan Trademark or (B) cause confusion or deception with a registered mark of Elan.
	3.6.1.3	Zogenix will be entitled to conduct all enforcement proceedings relating to such trademarks and shall at its sole discretion decide what action, if any, to take in respect of any infringement or alleged infringement of such trademarks or passing-off or any other claim or counter-claim brought or threatened in respect of the use or registration of such trademarks. Any such proceedings shall be conducted at Zogenix’s expense and for its own benefit.
	3.6.1.4	Except as set forth in Clause 13.2.4.4, Elan shall have the right to reference any Zogenix Trademark for purposes of promoting Elan’s role in the development and manufacturing of the Product or as promotional material of Elan Intellectual Property. In no event, shall Elan use (a) the Zogenix Trademark in any way that might materially prejudice its distinctiveness or validity or the goodwill of Zogenix therein or (b) cause confusion or deception with the Zogenix Trademark.
3.6.2	Elan Trademark.
	3.6.2.1	Zogenix shall prominently display the Elan Trademark on the packaging and labelling of the Product and on promotional materials in relation to the Product to acknowledge that the Elan Intellectual Property has been applied in developing and manufacturing the Product.
	3.6.2.2	Elan grants to Zogenix for the Term a paid-up, non-exclusive license within the Territory to use the Elan Trademark (“Elan Trademark License”), solely for the purpose of fulfilling Zogenix’s obligations under this Clause 3.6.2.
	3.6.2.3	Zogenix shall ensure that each reference to and use of the Elan Trademark by Zogenix is in a manner from time to time approved by Elan and accompanied by an acknowledgement, in a form approved by Elan, that the same is a trademark (or registered trademark) of Elan.
	3.6.2.4	Zogenix shall not use the Elan Trademark in any way which might materially prejudice its distinctiveness or validity or the goodwill of Elan therein.

16

Execution Copy

3.6.2.5	Zogenix shall not use in the Territory any trademarks or trade names so resembling the Elan Trademark as to be likely to cause confusion or deception.
3.6.2.6	Elan shall, at its sole discretion and expense, file and prosecute applications to register and maintain registrations of the Elan Trademark in the Territory.
3.6.2.7	Elan will be entitled to conduct all enforcement proceedings relating to the Elan Trademark and shall at its sole discretion decide what action, if any, to take in respect of any infringement or alleged infringement of the Elan Trademark or passing-off or any other claim or counter-claim brought or threatened in respect of the use or registration of the Elan Trademark. Any such proceedings shall be conducted at Elan’s expense and for its own benefit.
3.6.2.8	Any action, request or requirement by the FDA or other U.S. governmental agency or body contrary to the provisions of Clause 3.6.2.1 shall relieve Zogenix of any and all obligations under this Clause 3.6.2.

4.NON-COMPETITION

4.1.Zogenix Obligation.  Zogenix shall not, and shall ensure that its Affiliates and permitted sub-licensees do not license (except by way of settlement Proceedings in accordance with Section 3.3.2.2), market or sell any oral prescription only controlled release capsule or tablet formulation (other than the Product) whose sole active ingredient is the Compound in the Territory for use in the Field during the Term.

4.2.Elan Obligation.  Elan shall not, and shall ensure that its Affiliates do not license (except by way of settlement Proceedings in accordance with Section 3.3.2.1), manufacture for commercial sale in the Territory, market or sell any oral prescription only controlled release capsule or tablet formulation (other than the Product) whose sole active ingredient is the Compound in the Territory for use in the Field during the Term.  Provided that for the purpose of this Clause 4.2, “Affiliates” shall not include any entity which acquires or is acquired by Elan or its Affiliates after the Effective Date, or the subsidiaries of such entity.

5.PRODUCT DEVELOPMENT

5.1.Services Agreement.  The Parties agree that they, or their respective Affiliates, will negotiate in good faith a Services Agreement that contains an R&D Program setting out the development and regulatory services and pre-clinical and clinical supplies of Product required by Zogenix from Elan’s Affiliate, EDDI, to commercialize the Product. The Parties shall execute said agreement on or before December 31, 2007, or such later date as mutually agreed.

5.2.The Parties also agree that all services and supplies provided by Elan or its Affiliates to Zogenix for development work under the Services Agreement (or any development work conducted by Elan for Zogenix prior to the signing of the Services Agreement) shall be conducted under work plans which includes a mutually agreed budget and that Elan and its

17

Execution Copy

Affiliates shall be entitled (i) to charge Zogenix for such services and supplies at [***] rate ([***] US$[***]/hour) and (ii) to be fully reimbursed by Zogenix for all out-of-pocket expenses (including the cost of Compound) and for any agreed Third Party costs incurred by Elan or its Affiliate.

6.REGULATORY MATTERS

6.1.Elan.  Elan (or an Elan Affiliate) shall own, and shall be responsible at its own expense, for filing for and maintaining:

6.1.1	the DMF for the Product; and
6.1.2	all necessary manufacturing approvals to enable Elan (or its Affiliate) to manufacture and supply clinical supplies of Product pursuant to the Services Agreement and Bottled Product pursuant to the Commercial Manufacture and Supply Agreement;
6.1.3	all appropriate quotas from the US Drug Enforcement Agency to enable Elan to source and use the Compound to manufacture and supply clinical supplies of Product pursuant to the Services Agreement and Bottled Product pursuant to the Commercial Manufacture and Supply Agreement ; and
6.1.4	any necessary export or import licenses in relation to clinical supplies of Product manufactured and supplied by Elan pursuant to the Services Agreement and Bottled Product pursuant to the Commercial Manufacture and Supply Agreement (if Elan chooses to manufacture the Product outside the Territory).

6.2.Zogenix.  Except as provided in Clause 6.1, Zogenix shall own and shall be responsible for filing for and maintaining all necessary Regulatory Approvals (including the NDA), but not including any necessary export or import licenses in relation to the Product which shall be the sole responsibility of Elan.  For the avoidance of doubt, any data, filings or other information provided by Elan to Zogenix, a Zogenix Affiliate or permitted sub-licensee to support any regulatory filings shall be treated as Confidential Information belonging to Elan and its Affiliates in accordance with Clause 15.

6.3.Co-operation.  Elan and Zogenix will provide all reasonable co-operation with respect to the other’s regulatory filings in the Territory.

6.4.Keep Advised.  Zogenix shall keep Elan promptly and fully advised of Zogenix’s regulatory activities in respect of the Product.  Without prejudice to the generality of the foregoing, Zogenix shall notify Elan in writing upon:

6.4.1	the completion of the first Phase II Trial, Phase IIb Trial or Phase III Trial of the Product by or on behalf of Zogenix;
6.4.2	the date of submission and date of acceptance for filing (if different) of any Regulatory Application in the Territory; and
6.4.3	the date of issue of a Regulatory Approval.

***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.

18

Execution Copy

6.5.Right of Reference to DMF.  Elan (or its Affiliate) shall authorise Governmental Authorities to incorporate Elan’s DMF by reference into any IND for the Product or Regulatory Application as applicable,and shall use Commercially Reasonable Efforts to update and maintain such DMF.

6.6.Access.  Upon Elan’s prior written notice, Zogenix shall permit Elan to have access to and use of all Regulatory Applications, Regulatory Approvals, all supplements and related filings related thereto and all clinical trial data relating to the Product and to take photocopies of same as may be required by Elan (i) to fulfill reporting requirements or as otherwise may reasonably be required by Elan in connection with this Agreement and/or (ii) to support the registration, marketing and/or manufacture of the Product for sale outside the Territory. Zogenix shall also permit Elan to have access to and use of the Elan IND, all other INDs that may be filed in relation to the Product during the Term, and all pre-clinical data (including all carcinogenicity data created by or on behalf of Zogenix during the Term) relating to the Product for use in the development and commercialization of other products both within and outside the Territory.  For the avoidance of doubt, Elan’s exclusive right to use clinical trial data relating to the Product generated by or on behalf of Zogenix is as set forth in the first sentence of this Clause 6.6 and in Clauses 3.2.3 and 15.11 and any data, filings or other information provided by Zogenix to Elan under this Clause 6.6 shall be treated as Confidential Information belonging to Zogenix in accordance with Clause 15.

6.7.Elan IND.  Elan (or an Affiliate) shall transfer the Elan IND to Zogenix on or before 31 January 2008 by providing the FDA with written notification of such Elan IND transfer.  Zogenix hereby acknowledges that (i) it shall not acquire any rights or interest in the Elan IND until 31 January 2008 or, if earlier, the date that Elan provides its written notification of transfer of the Elan IND to the FDA; (ii) Elan (or an Affiliate) is entitled to remove all sections of the existing Elan IND that contain CMC Section data prior to the date Elan (or an Affiliate) submits its written transfer notification to the FDA; and (iii) the DMF containing such CMC Section data shall have been filed with the FDA on or prior to the date of transfer of such Elan IND hereunder.

6.7.1Zogenix further agrees that:

6.7.1.1	Elan shall continue to own all rights in the materials contained in the Elan IND as of the date of transfer (except as provided in Clause 6.7.2) and shall be entitled to use such materials for any other purpose;
6.7.1.2	Zogenix shall not use the Elan IND for any purpose other than to develop or commercialize Product in the Field in the Territory during the Term; and
6.7.1.3	neither Zogenix nor any other non-Elan entity to whom the Elan IND may be transferred during the Term, shall seek any information from the FDA or any other Governmental Authority relating to the CMC Section data removed from the IND by Elan prior to the transfer.

6.7.2Elan further agrees that it shall file any amendment to the Elan IND that may be requested by Zogenix prior to the transfer that facilitates development efforts of Product by Zogenix.  For the avoidance of doubt, any such information submitted by Elan to the FDA on behalf of Zogenix in this context shall continue to be owned by Zogenix, although Elan shall have access to utilize such filings in accordance with Clause 6.6.

19

Execution Copy

7.REGISTRATION, MARKETING AND THE PROMOTION OF THE PRODUCT

7.1.Diligent Efforts.  Zogenix shall use Commercially Reasonable Efforts:

7.1.1	to conduct toxicity, pre-clinical and clinical studies necessary for Regulatory Approval of the Product in the Territory;
7.1.2	submit all relevant regulatory filings relating to the Product in the Territory (other than the DMF);
7.1.3	to market and promote the Product throughout the Territory.

7.2.Promotional Campaign.  Zogenix shall control and be responsible for the content and format of each promotional campaign to be submitted to the relevant Governmental Authority, but shall inform Elan thereof and, upon reasonable request by Elan, provide to Elan a copy of such submissions;

7.3.Packaging, Labels and Promotional Materials.  Zogenix shall submit to Elan (for Elan’s information and to enable Elan to review any Elan Trademarks, references to Elan Intellectual Property, the CMC Section or data or any information and descriptors related to same), copies of all trade packaging and labels and other printed materials which Zogenix proposes at any time to use in relation to the sale of the Product.  For the avoidance of doubt, nothing in this Clause 7.3 affects any other obligation of Zogenix, and Zogenix shall indemnify and hold harmless Elan against all Claims which may arise relating to the activities described in this Clause 7.3.

7.4.Changes.  Zogenix shall be entitled to change such trade packaging and labels and other printed materials in compliance with applicable laws and regulations.  Such changes shall be at Zogenix’s sole expense and for the avoidance of doubt shall not constitute allowable deductions from Net Sales, unless such change is as a result of a change in the Elan Trademark in which case Elan shall reimburse Zogenix for its expenses in effecting such change.

7.5.Required Markings.  The package insert and all trade packaging for the Product in the Field and in the Territory shall:

7.5.1	to the extent permitted by law, include the Elan Trademark and due acknowledgement that the Product is developed and manufactured by Elan (or an Elan Affiliate); and
7.5.2	to the extent permitted by law, have marked all patent number(s), including that of the formulation patent, in respect of the Elan Patents on all Products, or otherwise reasonably communicate to the trade the existence of any Elan Patents within the Territory in such a manner as to ensure compliance with, and enforceability under, applicable laws. Upon the reasonable request of Zogenix, Elan shall provide a list of such Patent numbers for marking on Products in accordance with this Clause 7.5.2.
7.5.3	Zogenix shall use its Commercially Reasonable Efforts to comply with 7.5.1 and 7.5.2 with respect to all other marketing materials for the Product in the Field and in the Territory.

20

Execution Copy

7.6.Launch.  Zogenix shall effect the commercial launch of the Product in the Territory within [***] ([***]) days of the Regulatory Approval, provided sufficient quantities of commercial Product are available pursuant to the Commercial Manufacture and Supply Agreement.

7.7.Reports and Meetings.

7.7.1Reports.  During the Term, Zogenix shall submit to Elan the following reports:

7.7.1.1within 30 days of the end of each calendar quarter prior to the launch of the Product in the Territory, a report summarizing the regulatory status of the Product in the Territory during such calendar quarter;

7.7.1.2within 90 days after the filing of the first Regulatory Application for the Product and within 30 days of the end of each calendar quarter thereafter until Regulatory Approval, a report summarizing the primary promotional activities to be carried out by Zogenix for the period up to the first launch of the Product in the Territory and for a period of 1 year thereafter; and

7.7.1.3within 30 days of the end of each calendar quarter subsequent to the launch of the Product in the Territory, a report summarizing Zogenix’s objectives for and performance of the Product in the Territory.

7.7.2Meetings.  During the Term, the Parties (or their respective Affiliates) shall meet as often as reasonably requested by the other to discuss the status of all development, regulatory and commercialization activities.  Such meetings shall take place no less than once per calendar quarter prior to the filing of the first Regulatory Application and thereafter not more than once per calendar quarter.  Such meetings may be held by telephone or videoconference.  If held in person, each Party shall be responsible for its own costs in respect of travel and accommodation expenses in attending such meetings.

7.7.3For ([***]) days from the Effective Date of this Agreement, Zogenix shall have the exclusive right to negotiate a license to develop and commercialize Product outside the Territory.  After this time period, Elan shall be entitled to develop, obtain regulatory approval and market the Product outside the Territory, with the right to access and utilize Regulatory Applications, Regulatory Approvals and all supplements and related filings related thereto and all data relating to the Product as set forth in Clause 6.6 of this Agreement.

8.MANUFACTURE AND SUPPLY

8.1.Commercial Manufacture and Supply Agreement.  The Parties agree that they, or an Affiliate, will negotiate in good faith a Commercial Manufacture and Supply Agreement for the commercial supply of Product in the Territory.  The Parties (or their Affiliate) shall execute said agreement on or before the submission of the first NDA, provided that they do not otherwise mutually agree to extend this time period in writing.  The Parties further agree that the Commercial Manufacture and Supply Agreement shall incorporate the terms set out in Clause 9 and Schedule 2 of this Agreement, together with other customary terms for commercial supply of pharmaceutical products containing Controlled Substances.

***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.

21

Execution Copy

9.MANUFACTURING LICENSE

9.1.Right to Manufacturing License.  Subject to the terms of this Agreement and the terms of the Commercial Manufacture and Supply Agreement, Elan hereby grants to Zogenix a non-exclusive license under the Elan Intellectual Property to make or have made the Product in the Field in the Territory (the “Manufacturing License”), which Zogenix shall not be entitled to utilize except where there is a Failure to Supply.  Subject to the prior written consent of Elan which shall not be unreasonably withheld, conditioned or delayed, Zogenix shall have the right to grant a sublicense of the Manufacturing License to an Affiliate or Third Party, provided that the proposed sub-licensee is not a Technological Competitor and provided further that Zogenix takes steps in all instances to ensure that Technological Competitors do not gain access, directly or indirectly, to Elan Confidential Information.  Additionally, in the event that Zogenix, or as the case may be, the sub-licensee of the Manufacturing License entrusted with the manufacture of the Product (either, the “Designated Manufacturer”) becomes a Technological Competitor, or becomes an Affiliate of or merges with a Technological Competitor, the Designated Manufacturer shall be entitled to exercise manufacturing rights hereunder (or under the sub-license of the Manufacturing License, as applicable) for so long as such rights are Contained Within a Ring Fence.

9.2.Resumption.  Where Elan (or its Affiliate) remedies the cause of the Failure to Supply and is once again able to fulfil its obligations to supply the Product, Elan (or its Affiliate) shall so notify Zogenix and Zogenix shall cease manufacturing the Product and shall resume purchasing the Product exclusively from Elan pursuant to the terms of the Commercial Manufacture and Supply Agreement; provided that [***].

9.3.Responsibility.  In manufacturing the Product pursuant to any Manufacturing License, Zogenix and its Affiliates shall be responsible for all costs, quotas, licenses, process and equipment validation required by applicable law or regulations and shall take all steps reasonably necessary for any relevant manufacturing facility for the Product to pass inspection by the Governmental Authority.

9.4.Technology Transfer.  In the event of a Failure to Supply commercial Product or where Elan goes into liquidation or receivership and Zogenix does not terminate this Agreement and wishes to effectuate a technology transfer, Elan shall:

9.4.1provide Zogenix with any technical data incorporated in the Elan Know-How, including access to the CMC Section to give effect to the provisions of clause 9.1 and Elan shall promptly provide to Zogenix the documentation constituting the required material support, more particularly practical performance advice, shop practice, specifications as to materials to be used and control methods; and

9.4.2assist Zogenix for a period of no longer than ([***]) months with the working up and use of the technology and with the training of Zogenix personnel which may be reasonably necessary in relation to the exercise of the Manufacturing License, including receiving Zogenix representatives in its or its Affiliates’ premises for limited periods as may be agreed upon by the Parties.

9.4.3Zogenix shall reimburse Elan for any actual and reasonable costs incurred in connection with any transfer of technology pursuant to this Clause 9.4 within [***] ([***]) days of delivery of reasonably detailed invoices.  For the avoidance of doubt, although this Clause 9.4 permits Zogenix to effect a technology transfer if

***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.

22

Execution Copy

Elan goes into liquidation or receivership and Zogenix decides not terminate this Agreement, it does not entitle Zogenix to utilize such technology transfer or the Manufacturing License that has been granted herein under Clause 9.1 except where there has been a Failure to Supply and Elan shall be entitled to resume supplying the Product in such circumstances in accordance with Clause 9.2 of this Agreement.

10.FINANCIAL PROVISIONS

10.1.License Fee and Milestone Payments.  In consideration of the grant of the Elan License, Zogenix shall pay to Elan the following non-refundable amounts (for the purpose of clarity, the amounts as set forth in this Clause 10.1 shall be payable to Elan one time with respect to each specified milestone event):

10.1.1a license fee of [***] (US$[***]) upon execution of this Agreement by both Parties (the “License Fee”);

10.1.2a milestone payment of [***] dollars (US$[***]) upon [***];

10.1.3a milestone payment of [***]dollars (US$[***]) upon [***];

10.1.4a milestone payment of [***] dollars (US$[***]) upon [***];

10.1.5a milestone payment of [***] dollars (US$[***]) upon [***];

(the payments described in this Clause 10.1.2 through 10.1.5 being “License Milestone Payments”).

In all cases, the sum of the milestone payments in Clauses 10.1.1, 10.1.2, and 10.1.4 shall have been paid or shall be paid upon [***].

10.2.Not Subject to Future Performance Obligations.  The License Fee and the License Milestone Payments shall not, once due and payable, be subject to future performance obligations of Elan to Zogenix and shall not be applicable against future services provided by Elan to Zogenix.

The terms of Clause 10.1 relating to the License Fee and License Milestone Payments are independent and distinct from the other terms of this Agreement.

10.3.Royalty on Sales.  In further consideration of the grant of the Elan License, Zogenix shall pay to Elan (i) a royalty of [***] percent ([***]%) of Net Sales for the Initial Term and (ii) a royalty of [***] percent ([***]%) of Net Sales for the Extended Term.  If requested by Zogenix during the Term, the Parties shall discuss in good faith the necessity of increasing the [***]% maximum limitation on deductions set forth in the Net Sales definition to take into account changes in government reimbursement and discounts customary in the Territory from and after the Effective Date.

10.3.1Bundling.  In the event that Zogenix (or Zogenix Affiliate or permitted sub-licensee) shall sell the Product together with other products of Zogenix (or any Zogenix Affiliate) or other products of any such permitted sub-licensee or permitted subcontractor, as the case may be, to Third Parties (by the method commonly known in the pharmaceutical industry as “bundling”) and the price attributable to

***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.

23

Execution Copy

the Product is less than the average price of “arms length” sales to similar customers for the reporting period in which sales occur (such sales to be excluded from the calculation of the average price of “arms length” sales), the sales price for any such sales used in calculating Net Sales shall be the average price of “arms length” sales by Zogenix or a Zogenix Affiliate or a permitted sub-licensee or a permitted subcontractor to similar customers during the reporting period in which such sales occur.

10.3.2Method of Calculation of Fees.  The Parties acknowledge and agree that the methods for calculating the royalties and fees under this Agreement are for the purposes of the convenience of the Parties, are freely chosen and not coerced.

11.PAYMENTS, REPORTS AND AUDITS

11.1.Records.  Zogenix shall keep true and accurate records of gross sales of the Product, the items deducted from the gross amount in calculating the Net Sales, the Net Sales and the royalties payable to Elan under Clause 10.3.  Zogenix shall deliver to Elan a written statement (the “Statement”) thereof within [***] days following the end of each calendar quarter, (or any part thereof in the first or last calendar quarter of this Agreement) for such calendar quarter.  The Statement shall outline the calculation of the Net Sales from gross revenues during that calendar quarter, the applicable percentage rate, and a computation of the sums due to Elan.  In addition to Zogenix providing Elan the Statement, Zogenix shall use its Commercially Reasonable Efforts to deliver to Elan a non-binding written sales estimate within [***] ([***]) days in advance of the start of each calendar year beginning with the calendar year in which Zogenix anticipates the commercial launch of the Product, setting forth its estimate of Product sales for such calendar year, which estimate shall be updated by Zogenix within [***] ([***]) days of [***] of each year thereafter.  The Parties’ financial officers shall agree upon the format of the Statement and the annual sales estimate.

11.2.VAT and Sales Taxes.  All payments to Elan are exclusive of any applicable value added, excise, sales or any other similar or substitute tax (“VAT”), for which Zogenix will be additionally liable if applicable; provided that Elan will issue an appropriate VAT invoice to support any such charge.  No later than thirty (30) days in advance of the anticipated commercial launch of the Product, Zogenix shall furnish Elan with valid blanket state resale exemption certificate.

11.3.Taxes.  If Zogenix is required by law to pay or withhold any income or other taxes on behalf of Elan with respect to any monies payable to Elan under this Agreement:

11.3.1Zogenix shall deduct them from the amount of such monies due;

11.3.2any such tax required to be paid or withheld shall be an expense of and borne solely by Elan;

11.3.3Zogenix shall promptly provide Elan with a certificate or other documentary evidence to enable Elan to support a claim for a refund or a foreign tax credit.

11.4.Double Tax Co-operation.  Elan and Zogenix agree to co-operate in all respects necessary to take advantage of any double taxation agreements or similar agreements as may, from time to time, be available in order to enable Zogenix to make such payments to Elan without any deduction or withholding.

***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.

24

Execution Copy

11.5.Timing.  Payments to Elan shall be made as follows:

11.5.1the License Fee shall be paid within ([***]) Business Days of the [***];

11.5.2each of the License Milestone Payments shall be paid within [***] days of the achievement of the relevant event to which they relate; and

11.5.3payment of royalties [***].

11.6.Manner of Payment.  All payments due hereunder shall be made in US$ to the designated bank account of Elan in accordance with such timely written instructions as Elan shall from time to time provide.

11.7.Interest.  Without prejudice to Elan’s other remedies hereunder, Zogenix shall pay interest to Elan on sums not paid to Elan on the date on which payment should have been made pursuant to the applicable provisions of this Agreement (“Due Date”) over the period from the Due Date until the date of actual payment (both before and after judgement) at [***] [***] on the Due Date (or next to occur Business Day, if such date is not a Business Day) plus [***] percent ([***]%).  Interest shall be payable both before and after judgment.

11.8.Audit.  For the [***] period following the close of each calendar year of the Agreement, Elan and Zogenix will, in the event that the other Party reasonably requests such access, provide each other’s independent certified accountants (reasonably acceptable to the other Party) with access, during regular business hours and subject to the confidentiality provisions as contained in this Agreement, to such Party’s books and records relating to the Product, solely for the purpose of verifying the accuracy and reasonable composition of the calculations under this Agreement for the calendar year then ended.

11.9.Correction of Discrepancies.  In the event of a discovery of a discrepancy, a correcting payment shall be made forthwith by Zogenix to Elan or Elan to Zogenix, as the case may be, together with interest at the rate specified in Clause 11.7.  If the discrepancy exceeds [***]% of the amount due or charged by a Party for any period, then additionally the cost of such accountants shall be borne by the audited Party.

12.DURATION AND TERMINATION

12.1.Initial Term.  This Agreement shall be deemed to have come into force on the Effective Date and, subject to the rights of termination outlined in this Clause 12 and the provisions of applicable laws, will expire:

12.1.1on the 15th anniversary of the date of the first In Market sale of the Product in the Territory; or

12.1.2upon the expiry of the last Valid Claim in the Territory—

whichever date is later to occur (the “Initial Term”).

12.2.Continuation.  At the end of the Initial Term, the Agreement shall continue automatically for rolling three (3) year periods thereafter (collectively referred to as the “Extended Term”), unless the Agreement has been terminated by either of the Parties by serving twelve (12)

***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.

25

Execution Copy

months’ written notice on the other Party immediately prior to the end of the Initial Term or any such additional three (3) year period.

12.3.Breach / Insolvency.  In addition to the rights of termination provided for elsewhere in this Agreement, either Party will be entitled forthwith to terminate this Agreement by written notice to the other Party if:

12.3.1that other Party commits a material breach of any of the provisions of this Agreement, and fails to cure the same within sixty (60) days after receipt of a written notice from a Party hereto giving full particulars of the breach and requiring it to be remedied; provided, that if the breaching Party has proposed a course of action to cure the breach and is acting in good faith to cure same but has not cured the breach by the 60th day, such period shall be extended by such period as is reasonably necessary to permit the breach to be cured, provided that such period shall not be extended by more than 90 days, unless otherwise agreed in writing by the Parties.  Notwithstanding the foregoing, if the alleged breaching Party disputes by written notice to the non-breaching Party such material breach in good faith within sixty (60) days of receipt of the notice described above, the non-breaching Party shall not have the right to terminate unless it has been determined in accordance with Clause 12.6.1 that the Agreement was materially breached and the breaching Party fails to thereafter cure such material breach within sixty (60) days of the decision of the arbitrator. The right to terminate shall be in addition to and not in substitution for any other available remedy at law or in equity;

12.3.2that other Party goes into liquidation under the laws of any applicable jurisdiction (except for the purposes of amalgamation or reconstruction and in such manner that the company resulting therefrom effectively agrees to be bound by or assume the obligations imposed on that other Party under this Agreement);

12.3.3a receiver, administrator, examiner, trustee or similar officer is appointed over all or substantially all of assets of that other Party under the laws of any applicable jurisdiction; or

12.3.4any proceedings are filed or commenced by that other Party under bankruptcy, insolvency or debtor relief laws, or anything analogous to any of the foregoing under the laws of any applicable jurisdiction occurs in relation to that other Party.

12.4.Additional Elan Termination Rights.  In further addition to the rights and termination provided for elsewhere in this Agreement, Elan shall be entitled to terminate this Agreement and all Related Agreements in the event that:

12.4.1Zogenix notifies Elan that it does not wish to commercialise the Product in the Territory in advance of the commercialization of the Product in the Territory; or

12.4.2Zogenix fails to [***]; or

12.4.3Zogenix fails to [***]; or

12.4.4Zogenix fails to [***]; or

12.4.5Zogenix fails to generate Net Sales of the Product of at least [***] dollars (US$[***]) per quarter in [***] consecutive calendar quarters beginning [***]

***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.

26

Execution Copy

([***]) months after the date of first commercial launch until the end of Term, provided sufficient quantities of commercial Product have been made available pursuant to the Commercial Manufacture and Supply Agreement.

12.4.6Zogenix, its Affiliates, permitted sub-licensees or subcontractors knowingly challenges the validity and/or ownership of any of the Elan Patents and/or the scope of any claims therein in a formal proceeding, mediation or binding arbitration.

12.5.Additional Zogenix Termination Rights.  In furtherance of and in addition to the rights and termination provided elsewhere in this Agreement:

12.5.1Zogenix shall be entitled to terminate this Agreement and all Related Agreements where:  the sale of the Product is prohibited by the Regulatory Authorities in the Territory; or

12.5.1.1despite having used Commercially Reasonable Efforts, Zogenix is unable to obtain Regulatory Approval for the Product in the Territory.

12.5.2Zogenix shall also be entitled to terminate this Agreement and all Related Agreements in their entirety at any time without cause upon (i) six (6) months written notice to Elan prior to the date of the NDA Approval and (ii) twelve (12) months written notice to Elan on or after the date of the NDA Approval.

12.6.Dispute Resolution.

12.6.1Arbitration. Except for disputes, controversies or claims relating to intellectual property rights or the scope of the license granted hereunder, any dispute, controversy or claim arising under, out of or in connection with this Agreement, including any subsequent amendments, or the validity, enforceability, construction, performance or breach thereof, shall be finally settled under the Rules for Commercial Dispute Resolution Procedures (“Rules”) of the American Arbitration Association (“AAA”) then in force on the date of commencement of the arbitration by three (3) arbitrators appointed in accordance with those Rules, provided that the arbitrators appointed have at least ten (10) years arbitration experience in the pharmaceutical industry. The award rendered shall be final and binding on the Parties. Judgment upon the award may be entered in any court having jurisdiction.  The Parties agree that they will not request, and the arbitrators shall have no authority to award, punitive or exemplary damages against either Party. The costs of any arbitration, including administrative fees and fees of the arbitrators, shall be shared equally by the Parties, unless otherwise specified by the arbitrators. Each Party shall bear the cost of its own attorneys’ and expert fees; provided that the arbitrators may in their discretion award to the prevailing Party the costs and expenses incurred by the prevailing Party in connection with the arbitration proceeding.

12.6.2Pre-Arbitration Dispute Resolution. No dispute under this Agreement shall be referred to arbitration under Clause 12.6.1 until the following procedures in this Clause 12.6.2 have been satisfied. The chief executive officers of Elan and Zogenix shall meet as soon as practicable, and as reasonably requested by either Party, to review any dispute with respect to the interpretation of any provision of this Agreement or with respect to the performance of either Party under this Agreement. If the dispute is not resolved by the chief executive officers by written mutual agreement within thirty (30) calendar days after meeting to discuss the dispute, either Party may at any time thereafter provide the other Party written notice specifying the terms of such dispute in reasonable detail and notifying the other

27

Execution Copy

Party of its decision to institute arbitration proceedings under Clause 12.6.1. Such arbitration shall be initiated within thirty (30) calendar days of either Party providing written notice to the other Party of its intent to institute arbitration proceedings, unless mutually agreed by the Parties to extend such time.

12.6.3Provisional Remedy. Nothing in this Agreement shall limit the right of either Party to seek to obtain in any court of competent jurisdiction any equitable or interim relief or provisional remedy, including injunctive relief. Seeking or obtaining such equitable or interim relief or provisional remedy in a court shall not be deemed a waiver of this Agreement to arbitrate. For clarity, any such equitable remedies shall be cumulative and not exclusive and are in addition to any other remedies that either Party may have under this Agreement or applicable law.

12.6.4Disputes Related to Intellectual Property Rights and License Grants.  Except as provided in Clause 3.5 in reference to Third Party Licenses, any and all disputes, controversies or claims relating to intellectual property rights or the scope of the licenses granted hereunder shall be subject to the exclusive venue and jurisdiction of the state and federal courts of competent jurisdiction as set forth in Clause 16.16 herein. The Parties hereby consent to the exclusive venue and jurisdiction of such courts for such disputes, controversies or claims.

13.CONSEQUENCES OF EXPIRATION OR TERMINATION

13.1.General Consequence.  Upon expiration of this Agreement or exercise of those rights of termination specified in Clause 12, this Agreement shall, subject to Clauses 13.2 and 13.3, automatically terminate forthwith and be of no further legal force or effect.

13.2.Specific Consequences.  Upon the expiration or the termination of the Agreement by either Party, the following shall be the consequences:

13.2.1any sums that were due from Zogenix to Elan under the provisions of this Agreement prior to its termination or expiry shall be paid in full within [***] ([***]) days of termination of this Agreement and Elan shall not be liable to repay to Zogenix any amount of money paid or payable by Zogenix to Elan up to the date of the termination of this Agreement (other than pursuant to Zogenix’s rights of audit under Clause 11.8);

13.2.2the following Clauses shall survive any expiration or termination of this Agreement: the definitions as set forth in Clause 1 to the extent that such definitions are contained within a surviving clause, Clauses 3.1, 3.2.3, 3.3 (to the extent it relates to infringements that occur during the Term), 3.4 (solely as it relates to Product sold during the Term), 6.6, 12.6, 14.4 through 14.13 and the entirety of Clauses 11, 13, 15 and 16 and any other provision of this Agreement which, by its nature, is intended to continue after termination, shall survive termination;

13.2.3any sub-licenses granted under Clause 2.2 or 9.1 shall automatically terminate except as otherwise provided in Clause 13.2.5.2;

13.2.4if termination is effected by Elan under Clauses 12.3 or 12.4 or by Zogenix under Clause 12.5:

***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.

28

Execution Copy

13.2.4.1Elan shall be entitled to research, develop and commercialise the Product for its own benefit in the Territory;

13.2.4.2Elan shall be entitled to file for Regulatory Approval for the Product in the Territory;

13.2.4.3Zogenix shall transfer or procure the transfer to Elan (or such other entity as Elan may specify) all relevant INDs (including the Elan IND), Regulatory Applications and Regulatory Approvals at no cost to Elan, insofar as such transfer is permitted by applicable laws, and permit Elan to access and/or reference such of its data (including but not limited to Product Data) as is necessary to enable Elan to market the Product in the Territory;

13.2.4.4Elan shall be granted an irrevocable, perpetual, royalty-free, exclusive license to use the Zogenix Intellectual Property (other than pursuant to a Third Party License which is addressed in Clause 13.2.4.5 hereunder) and the trademark Zogenix has used during the Term to commercialize the Product in the Territory in connection with any subsequent commercialization of the Product in the Territory;

13.2.4.5Zogenix shall assign Elan (to the extent contractually permitted by such Third Party Licenses) any Third Party Licenses granted to Zogenix in relation to the Product and Elan will be responsible for any payments thereunder in respect of activities related to the Product by Elan following termination or expiration; and

13.2.4.6Elan shall either:

13.2.4.7give notice to Zogenix that it wishes Zogenix to cease to commercialise the Product in the Territory, in which event Zogenix shall do so except for meeting any uncancellable orders which cannot be transferred to Elan and Elan shall purchase Zogenix’s saleable inventory of the Product at cost; or

13.2.4.8permit Zogenix for a period not exceeding [***] ([***]) months to exhaust its stocks of the
Product –

subject always to the relevant provisions of this Agreement including as to the use of trademarks and financial provisions.

13.2.5if termination is effected by Zogenix under Clause 12.3.1, at Zogenix’s option:

13.2.5.1all rights and licenses under this Agreement, including the Elan License and the Manufacturing License, shall terminate in their entirety and be of no further effect; or

13.2.5.2if the notice of termination so specifies, this Agreement shall continue in full force and effect, save that (a) the royalty payable under Clause 10.3 by Zogenix to Elan during the Initial Term shall be [***]% of Net Sales for any Product sold by Zogenix after termination is effected by Zogenix under Clause 12.3.1 and (b) the royalty payable under Clause 10.3 by Zogenix to Elan during the Extended Term for any Product

***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.

29

Execution Copy

sold by Zogenix after termination is effected by Zogenix under Clause 12.3.1 shall be [***]% of Net Sales, and, for the avoidance of doubt and without limiting the foregoing, the Elan License, the Manufacturing License, Zogenix’s obligations under Clause 7, and any sub-license duly granted under Clauses 2.2 or 9.1 shall continue in full force and effect.

13.3.Ancillary Rights.  If Elan should require a license from Zogenix in order to research, develop and/or commercialize the Product under Clause 13.2.4.1, Zogenix shall grant a non-exclusive license to Elan (subject to any Third Party royalties due or rights and/or obligations contained in any applicable Third Party agreement related to any Product that may be subsequently sold by Elan utilizing this license which shall be Elan’s responsibility) for any other rights or data owned or controlled by Zogenix or its Affiliates which may be necessary for Elan to research, develop and commercialize the Product in the Territory.

14.WARRANTIES, INDEMNIFICATION AND LIABILITY

14.1.Elan Warranties.  Elan represents and warrants to Zogenix as of the Effective Date:

14.1.1Elan has the right to enter into this Agreement and grant the Elan License and the Manufacturing License;

14.1.2There are no agreements between Elan and any Third Party that conflict with this Agreement, the Elan License or the Manufacturing License;

14.1.3No consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery by Elan of this Agreement or grant of the Elan License or the Manufacturing License;

14.1.4Elan is the sole owner of Elan Intellectual Property, free and clear of any liens, claims or encumbrances and is not in breach of any agreement with Third Parties relating to Elan Intellectual Property;

14.1.5U.S. Patent No. 6,902,742 is in full force and effect, contains Valid Claims having a scope that covers the Product, is not the subject of any litigation, ex parte, or inter partes administrative proceedings, including any reexamination, re-issue or opposition proceeding, all maintenance fees that were due before the Effective Date of this Agreement have been paid, and there are no outstanding actions before the US Patent and Trademark Office;

14.1.6The application of U.S. Published Patent Application Number 2006/024015 has not been abandoned and is pending;

14.1.7Neither Elan nor, to Elan’s knowledge, any of its Affiliates, has received written notice from a Third Party indicating that the use of Elan Intellectual Property infringes any Third Party patent rights, or offering a licence thereto, which would adversely effect the rights licensed to Zogenix hereunder and/or the commercializing of the Product in the Field in the Territory;

14.1.8Neither Elan nor any of its Affiliates has provided notice to Third Parties alleging interference, infringement, misappropriation or other conflict with or of the Elan Intellectual Property;

30

Execution Copy

	14.1.9	To Elan’s knowledge with no special search, no Third Party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any of the Elan Intellectual Property;
	14.1.10	In Elan’s opinion with no special search, no license from a Third Party is required to practice the rights granted to Zogenix by Elan under this Agreement;
	14.1.11	Other than the Elan Patents, there are no additional Patents issued to or filed by Elan or its Affiliates that are required to allow Zogenix to practice the rights granted to it by Elan under this Agreement;
	14.1.12	The Elan IND (i) has not been abandoned, (ii) is in good standing and (iii) all required notices, supplemental applications and annual or other reports with respect to the Elan IND have been filed with the FDA.
14.2.	Zogenix Warranties. Zogenix represents and warrants to Elan as of the Effective Date, as follows:
	14.2.1	Zogenix has the right to enter into this Agreement.
	14.2.2	There are no agreements between Zogenix and any of its Affiliates or any Third Party that conflict with this Agreement.
	14.2.3	No consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery by Zogenix of this Agreement or Zogenix’s acceptance of the Elan License or the Manufacturing License.
	14.2.4	Zogenix has performed the valuation required of Zogenix under the rules promulgated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder (16 C.F.R. 801.1 et seq.) and concluded that the fair market value of the licenses Zogenix is acquiring hereunder is less than $59.8 million.
	14.2.5	Neither Zogenix nor any of its Affiliates own, control or have licensed any Patents having claims that cover the Product.
14.3.	Mutual Warranties. Each Party represents and warrants that:
	14.3.1	It is aware of and has received disclosure by the other Party regarding the content of this Agreement, its Appendix and Schedules;
	14.3.2	It requires no further disclosures from the other Party in order to execute this Agreement voluntarily, knowingly and intelligently;
	14.3.3	It has been advised by a counsel of its choice or has been provided sufficient time to obtain advice from counsel regarding the content of this Agreement;
	14.3.4	It acknowledges that in entering in to this Agreement, it has not relied upon the other Party’s representations without the advice of its counsel prior to the execution of this Agreement.
14.4.	Mutual Indemnification. Each of the Parties shall defend, indemnify and hold harmless the other Party against all Claims by a Third Party to the extent that they arise out of any material breach by the first Party of any of its representations, warranties or obligations under this

31

Execution Copy

	Agreement or from the first Party’s fraud or wilful misconduct (including such Party’s officers, directors, employees or agents).
14.5.	Infringement Claims. The Parties acknowledge that they have adequate knowledge or expertise, or has hired such experts, or has had adequate time to hire such experts, to conduct due diligence with respect to intellectual property by a Third Party. Clause 3.4 contains the Parties’ full agreement as regards liability for Infringement Claims, save to the extent that Clause 3.4 incorporates other provisions of this Agreement by specific cross-reference.
14.6.	Indemnification (Medical Claims). Zogenix shall indemnify Elan against all Claims made or brought against Elan by a Third Party seeking damages for personal injury (including death) and/or for the cost of medical treatment, caused by or attributed to the use of Product administered or sold by Zogenix, its Affiliates, a permitted sub-licensee or a permitted subcontractor in the Territory, but without prejudice to any right of indemnification Zogenix may have against Elan or an Elan Affiliate under the Services Agreement or Commercial Manufacture and Supply Agreement; provided however, Zogenix shall not so indemnify Elan or its Affiliates to the extent that Zogenix is entitled to be indemnified by Elan or an Elan Affiliate.
14.7.	Sub-licensees. With reference to Clause 2.2, Zogenix shall indemnify and hold harmless Elan to the extent that any Claims arise out of any acts or omissions of any permitted sub-licensee of Zogenix.
14.8.	Conduct of Claims. The Party seeking an indemnity shall:
	14.8.1	fully and promptly notify the other Party of any claim or proceedings, or threatened claim or proceedings;
	14.8.2	permit the indemnifying Party to take full control of such claim or proceedings, with counsel of the indemnifying Party’s choice, provided that the indemnifying Party shall reasonably and regularly consult with the indemnified Party in relation to the progress and status of such claim or proceedings;
	14.8.3	fully co-operate in the investigation and defense of such claim or proceedings at the indemnifying Party’s expense; and
	14.8.4	take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceedings.
	The indemnifying Party may settle a Claim on terms which provide only for monetary relief and do not include any admission of liability. Save as aforesaid, neither the indemnifying Party nor the Party to be indemnified shall acknowledge the validity of, compromise or otherwise settle any Claim without the prior written consent of the other, which shall not be unreasonably withheld, conditioned or delayed.
14.9.	Exclusion of Implied Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ZOGENIX ACKNOWLEDGES THAT THE ELAN LICENSE AND THE MANUFACTURING LICENSE ARE GRANTED AND THAT THE ELAN IND SHALL BE TRANSFERRED ON AN “AS IS” BASIS, WITHOUT REPRESENTATION OR WARRANTY WHETHER EXPRESS OR IMPLIED INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS.

32

Execution Copy

14.10.	Exclusion of Consequential Loss. Without prejudice to the obligation of either party to indemnify the other in respect of Claims by a third party, notwithstanding anything to the contrary in this Agreement, Elan and Zogenix shall not be liable to the other by reason of any representation or warranty, condition or other term or any duty of common law, or under the express terms of this agreement, for any indirect, consequential, special, incidental or punitive loss or damage (whether for loss of current or future profits, loss of enterprise value or otherwise) and whether occasioned by the negligence of the respective parties, their employees or agents or otherwise.
14.11.	Extension of Indemnification. Where this Agreement provides for the indemnification of a Party or for the limitation of a Party’s liability, such indemnification and/or limitation (as the case may be) shall also apply for the benefit of such Party’s Affiliates and the employees, officers, directors and agents of any of them, acting in such capacity.
14.12.	Inherent Risk. It is hereby acknowledged that there are inherent uncertainties involved in the development and registration of pharmaceutical products and such uncertainties form part of the business risk involved in undertaking the form of commercial collaboration outlined in this Agreement. Accordingly, Elan and Zogenix shall have no liability to each other as a result of the failure of the Product to obtain Regulatory Approval, and, except as set forth in the Related Agreements, Elan will have no liability to Zogenix as a result of any failure or delay of the Product to achieve the Product Specifications or one or more of the milestones set out in the R&D Program and/or to obtain the Regulatory Approval in the Territory.
14.13.	Insurance. Zogenix shall maintain comprehensive general liability insurance in respect of all activities conducted by it with respect to the Product appropriate for a company of its size engaged in similar commercial activities, including product liability insurance on the Product. From the Effective Date of this Agreement but prior to commencement of any clinical trial programs for the Product, Zogenix shall maintain such general liability insurance in an amount of not less than US$[***]. Upon commencement of any clinical trial programs for the Product, Zogenix shall maintain such general liability insurance in an amount of not less than US$[***] per occurrence and in the aggregate. Prior to or upon commencing marketing Product, Zogenix shall maintain such general liability insurance in an amount of not less than US$[***] for the duration of this Agreement and for such period thereafter as necessary to cover the insured risks.
	Zogenix shall provide Elan with a certificate from the insurance company verifying the above and shall notify Elan in writing at least thirty (30) days prior to the expiration or termination of such coverage.
15.	CONFIDENTIALITY
15.1.	Confidential Information: The Parties agree that it will be necessary, from time to time, to disclose to each other confidential and proprietary information, including inventions, trade secrets, specifications, designs, data, know-how and other proprietary information relating to the Product, processes, services and business of the disclosing Party or its Affiliates.
	The foregoing shall be referred to collectively as “Confidential Information”.
15.2.	Exclusion. Confidential Information shall not include:

*** 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.

33

Execution Copy

	15.2.1	information which is properly in the public domain provided that information shall not be deemed to be in the public domain merely because it is embraced by more general information which is publicly known;
	15.2.2	information which is disclosed to the receiving Party or its Affiliates by a Third Party who may lawfully do so and is not under an obligation of confidentiality to the disclosing Party;
	15.2.3	information which is known prior to such disclosure or independently developed by a Party without the aid, application, reference to or use of the Confidential Information of the disclosing Party, as evidenced by such Party’s records;
	15.2.4	information which the disclosing Party has specifically agreed in writing that the receiving Party may disclose; or
	15.2.5	information that becomes available to a receiving Party on a non-confidential basis, whether directly or indirectly, from a source other than the other Party hereto, which source did not acquire this information on a confidential basis.
15.3.	Use of Confidential Information. Any Confidential Information disclosed by the disclosing Party shall be used by the receiving Party exclusively for the purposes of fulfilling the receiving Party’s obligations under this Agreement or a Related Agreement and for no other purpose save for those set out in Clause 6.6, and any consent that Elan may require from Zogenix to effectuate any purpose set out in Clause 6.6 shall not be unreasonably withheld, conditioned or delayed.
15.4.	Non-Disclosure. Except as otherwise specifically provided in this Agreement and subject to Clauses 15.12 and 15.13, each Party shall disclose Confidential Information of the other Party only to those employees, representatives and agents requiring knowledge thereof in connection with fulfilling the Party’s obligations under this Agreement or a Related Agreement, and not to any other Third Party.
15.5.	Obligation to Inform. Each Party further agrees to inform all such employees, representatives and agents of the terms and provisions of this Agreement relating to Confidential Information and their duties hereunder and to obtain or have obtained their agreement to keep the Confidential Information in confidence under terms and conditions at least as restrictive as those contained herein as a condition of receiving Confidential Information.
15.6.	Care. Each Party shall exercise the same standard of care as it would itself exercise in relation to its own confidential information (but in no event less than a reasonable standard of care) to protect and preserve the proprietary and confidential nature of the Confidential Information disclosed to it by the other Party.
15.7.	Return of Information. Upon termination or expiration of this Agreement, each Party shall promptly, upon request of the other Party, return or destroy (as requested by the disclosing Party) all documents and any copies thereof containing Confidential Information belonging to, or disclosed by, such other Party, save that it may retain one copy of the same solely for the purposes of ensuring compliance with this Clause 15.
15.8.	Attribution; Extension of Confidentiality. Any breach of this Clause 15 by any person informed by one of the Parties is considered a breach by the Party itself.

34

Execution Copy

15.9.	Term. The provisions relating to confidentiality in this Clause 15 shall remain in effect during the Term and for a period of [***] ([***]) years following the expiration or earlier termination of this Agreement.
15.10.	Acknowledgment. The Parties agree that the obligations of this Clause 15 are necessary and reasonable in order to protect the Parties’ respective businesses. The Parties further agree that monetary damages may be inadequate to compensate a Party for any breach by the other Party of its covenants and agreements with respect to confidentiality, and that each Party shall be entitled to seek injunctive or other equitable relief against the threatened or continued breach of those provisions, in addition to with any other remedy which may be available.
15.11.	Product Data. For the purpose of demonstrating to Third Parties the benefits of the Elan Patents, Elan shall be entitled, without the prior written consent of Zogenix, to disclose to Third Parties the numerical values underlying the Product Data provided that Elan does not disclose Zogenix’s name or the name of the Compound.
15.12.	Announcements. No announcement or public statement concerning the existence, subject matter or any term of this Agreement, or its performance, shall be made by or on behalf of any Party without the prior written approval of the other, such approval not to be unreasonably withheld, conditioned or delayed. The Parties agree to discuss the issue of a joint press release announcing the execution of this Agreement. If the Parties decide not to issue a joint press release regarding this event, then each Party shall be entitled to issue its own press release, but the wording of each such release shall be agreed to by the other Party in good faith in writing before publication. Following the publication of said initial press release(s), each Party shall be free to disclose, without the other Parties’ prior written consent, the existence of this Agreement, the identity of the other Party and the terms of the Agreement that have already been publicly disclosed in the initial press release(s) but in no circumstance may either Party disclose any other information regarding the existence, subject matter, or any term of this Agreement (such as confidential information or commercially sensitive information on financial terms) or its performance, without the prior written approval of the other, such approval not to be unreasonably withheld, conditioned or delayed.
15.13.	Required Disclosures. A Party (the “Disclosing Party”) will be entitled to make an announcement or public statement concerning the existence, subject matter or any term of this Agreement, or its performance, or to disclose Confidential Information that the Disclosing Party is required to make or disclose pursuant to:
	15.13.1	the filing of a Regulatory Application for the Product by Zogenix or the filing of a DMF by Elan; or
	15.13.2	a valid order of a court or Governmental Authority; or
	15.13.3	any other requirement of law or any securities or stock exchange;
	provided that if the Disclosing Party becomes legally required to make such announcement, public statement or disclosure hereunder, the Disclosing Party shall give the other Party prompt notice of such fact to enable the other Party to seek a protective order or other appropriate remedy concerning any such announcement, public statement or disclosure, including confidential treatment and/or appropriate redactions.
	The Disclosing Party shall fully co-operate with the other Party in connection with that other Party’s efforts to obtain any such order or other remedy. If any such order or other remedy

***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.

35

Execution Copy

	does not fully preclude announcement, public statement or disclosure, the Disclosing Party shall make such announcement, public statement or disclosure only to the extent that the same is legally required.
16.	MISCELLANEOUS PROVISIONS
16.1.	Force Majeure. Neither Party shall be liable for failure or delay in the performance of any of its obligations under this Agreement if such failure or delay results from Force Majeure, but any such failure or delay shall be remedied by such Party as soon as practicable.
16.2.	Subcontracting.
	16.2.1	Each Party shall be entitled without the consent of the other:
		16.2.1.1	to subcontract or delegate the whole or any part of its duties hereunder to its Affiliate(s) and Zogenix acknowledges that it is currently intended that certain development and commercial manufacturing activities under this Agreement and under Related Agreements will be conducted on behalf of Elan by Elan’s Affiliates, EDDI and Elan Holdings.
		16.2.1.2	To subcontract or delegate the whole or part of its duties hereunder to a Third Party, provided that in subcontracting or delegating any of its duties its duties and responsibilities under this Agreement Zogenix:
		16.2.1.3	shall not use or employ a Technological Competitor without the prior written consent of Elan;
		16.2.1.4	shall enter into written agreements with all such Third Parties which are consistent with and do not conflict with the terms of this Agreement and which prohibit the right to further subcontract;
		16.2.1.5	shall ensure that Elan Confidential Information is only used by such Third Parties in accordance with this Agreement and shall further ensure that under no circumstances shall such Third Parties be allowed access to the CMC data without the prior written consent of Elan and Elan shall be entitled to require that there be a direct contractual relationship between the Third Party and Elan in such circumstances;
		16.2.1.6	shall make Elan whole for any tax consequence associated with such subcontract or delegation; and
		16.2.1.7	shall remain liable to Elan for the acts and omissions of any such Third Party.
		16.2.1.8	Elan hereby acknowledges that it is currently intended that Zogenix will delegate to contract research organizations, contract sales organizations and other Third Parties in the performance of its duties hereunder and under the Services Agreement and Zogenix hereby acknowledges that in doing so it will comply with the requirements set out in Clause 16.2.1.2.

16.3. Assignment.

36

Execution Copy

16.3.1	Each Party shall be entitled without the consent of the other to assign this Agreement to its Affiliate, provided that such assignment has no material adverse tax implications for the other Party.
16.3.2	Zogenix may assign this Agreement to a Technological Competitor with Elan’s prior written consent, which may not be unreasonably withheld, conditioned or delayed. In circumstances where such consent is obtained:
	16.3.2.1	Zogenix and the assignee shall ensure that this Agreement, all Related Agreements and any existing and future work conducted thereunder is Contained Within a Ring Fence. “Contained Within a Ring Fence” means that (i) the assignee’s employees who perform activities and obligations under this Agreement or the Related Agreements must be identified by name and location by the assignee and must sign a confidentiality agreement, to be provided by Elan [***], prohibiting the disclosure of any Elan Intellectual Property and/or related Elan Confidential Information to the assignee’s employees who do not work on activities directly related to this Agreement or the Related Agreements (except and to the extent required of internal auditors, the legal department and other non-operational centralized services), (ii) to the extent permitted by applicable laws and regulations, any of the assignee’s employees who may be transferred to work on the activities and have access to and knowledge of Elan Intellectual Property and/or related Confidential Information may not subsequently be transferred to work on the assignee’s other technologies which compete with the subject matter of the Elan Patents for a period of [***] as from the date on which they cease to work on such activities under this Agreement or the Related Agreements without the prior consent of Elan, and (iii) Elan shall be entitled to reasonable site inspections and audits by Elan or its designee on terms to be agreed in advance between Elan and the assignee to ensure strict compliance with these terms and conditions; and
	16.3.2.2	Zogenix and the Technological Competitor shall also comply with the conditions and obligations set out in Clause 16.2.1.2.2 through 16.2.1.2.5.
16.3.3	Zogenix may assign this Agreement to a Third Party who is not a Technological Competitor without Elan’s prior written consent, subject to the conditions set out below:
	16.3.3.1	Zogenix must make Elan whole for any tax consequence associated with any such assignment;
	16.3.3.2	On or before the date of assignment, Elan shall receive all monies due and owing from Zogenix as of the assignment date;

***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.

***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.

37

Execution Copy

		16.3.3.3	Zogenix must identify all Elan Confidential Information in its possession, and either return to Elan or forward to its assignee, as directed by Elan; and
		16.3.3.4	Each Party must cooperate as required with the other Party and Zogenix’s assignee both before and after the assignment to ensure the smooth transition between Zogenix and assignee on all regulatory and operational matters relating to this Agreement and, if applicable, all Related Agreements.
	16.3.4	Elan may assign this Agreement along with each of the Related Agreements without Zogenix’s consent to any Third Party which (a) succeeds to the ownership of the Elan Patents in their entirety and (b) agrees to fulfil all of Elan’s responsibilities under this Agreement and each of the Related Agreements.
16.4.	Change of Control. Zogenix shall give prior written notice to Elan if Zogenix becomes a Technological Competitor or becomes an Affiliate of a Technological Competitor during the Term of this Agreement. Following such an event, Zogenix shall at all times be required to keep this Agreement, all Related Agreements and all associated activities Contained Within a Ring Fence.
16.5.	No Third Party Beneficiaries. Each Party is entering into this Agreement on its own behalf and not on behalf of any other person or entity.
16.6.	Parties Bound. This Agreement shall be binding upon the successors (including entities with which the Parties may merge) and permitted assigns of the Parties as of the effective date of such succession or assignment, and the name of a Party appearing herein shall be deemed to include the names of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Nothing in this Agreement, express or implied, is intended to, or shall confer upon, any Third Party, any legal or equitable right, benefit or remedy of any nature whatsoever.
16.7.	Relationship of the Parties. Nothing contained in this Agreement is intended or is to be construed to constitute either of the Parties hereto as partners or members of a joint venture or either Party as an employee of the other Party. No Party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party.
16.8.	Entire Agreement. This Agreement, including the agreements between the Parties (or their Affiliates) referenced herein, constitutes the entire agreement and understanding between the Parties with respect to its subject matter, and except as expressly provided, supersedes all prior representations, writings, negotiations or understandings with respect to that subject matter.
	Nothing in this Clause 16.8 shall exclude any liability which any Party would otherwise have to the other Party or any right which either of them may have to rescind this Agreement in respect of any statements made fraudulently by the other prior to the execution of this Agreement or any rights which either of them may have in respect of fraudulent concealment by the other.
16.9.	Severability. If any provision in this Agreement is deemed to be, or becomes invalid, illegal, void or unenforceable under applicable laws, such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable, or if it cannot be so amended without materially altering the intention of the Parties, it will be deleted, but the validity,

38

Execution Copy

	legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way.
16.10.	Further Assurance. Each Party shall do and execute, or arrange for the doing and executing of, each necessary act, document and thing reasonably within its power to implement this Agreement.
16.11.	Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement.
16.12.	Waivers. A failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy. No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver.
16.13.	Amendment. No amendment, modification or addition to this Agreement shall be effective unless it is made in writing and signed by each of the Parties.
16.14.	Notices.
	16.14.1	A notice under or in connection with this Agreement (a “Notice”):

	16.14.1.1		shall be in writing; and
	16.14.1.2		may be delivered personally or sent by internationally recognized overnight courier or by fax to the Party due to receive the Notice at its address set out below:
16.14.2	The address referred to in Clause 16.14.1.2 is:
	(a)	in the case of Elan:
			Address:	Elan Pharma International Limited
				c/o 102 St. James Court
				Flatts
				Smith FL04
				Bermuda
			Fax:	+(441) 292 2224
			Marked for the attention of:       Kevin Insley
	(b)	in the case of Zogenix:
			Address:	11682 El Camino Real, Ste. 320
				San Diego, California, 92130
				USA
			Fax:	+1 (858) 259-1166

39

Execution Copy

			Marked for the attention of:  Chief Financial Officer
			or to such other address(es) and fax numbers as may from time to time be notified by either Party to the other hereunder.
	16.14.3	Notice is deemed given:
		16.14.3.1	if delivered personally, when the person delivering the notice obtains the signature of a person at the address referred to in Clause 16.14.1.2;
		16.14.3.2	if sent by overnight courier, except air mail, two Business Days after posting it;
		16.14.3.3	if sent by fax, when confirmation of its transmission has been recorded by the sender’s fax machine.
16.15.	Set-off. Each of the Parties will be entitled but not obliged to set-off against any amount of money payable to it by the other Party under this Agreement, any amount of money payable by it to the other Party under this Agreement.
16.16.	Governing Law and Jurisdiction: This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws rules, and shall be subject to the exclusive jurisdiction of the State and Federal Courts located in New York, New York.

***

40

Execution Copy

SCHEDULE 1TECHNOLOGICAL COMPETITORS

[***]

***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.

Execution Copy

SCHEDULE 2 KEY TERMS FOR COMMERCIAL MANUFACTURE AND SUPPLY AGREEMENT

1.	Subject to Clause 9 of the Agreement, Elan (or an Elan Affiliate) to have the sole and exclusive right to manufacture, have manufactured, supply or have supplied commercial Product to Zogenix, its Affiliates and permitted sub-licensees in the Territory. Elan (or Affiliate) to use Commercially Reasonable Efforts to meet such supply requirements.
2.	Elan (or Affiliate) shall own and be responsible for (i) filing DMFs that Elan or Affiliate may wish to file in respect of Elan Intellectual Property and the application of Elan Intellectual Property as regards the Product and/or the manufacture of Product, and (ii) all necessary manufacturing approvals for the commercial manufacture of the Product. Zogenix to be responsible for filing for and maintaining all other necessary Regulatory Approvals (e.g., NDA) and other approvals needed to import, offer for sell or sell commercial Product in the Territory.
3.	Elan (or Affiliate) to supply Zogenix with Bottled Product that is manufactured in accordance with and conforms to Product Specifications and other mutually agreed specifications and to all applicable laws and regulations for supply and manufacturing commercial pharmaceutical products containing Controlled Substances, including cGMP. Bottled Product to be provided EXW. Product packaging to conform to written standards that are to be agreed by the Parties.
4.	Detailed forecasting, ordering and delivery provisions to be negotiated in good faith between the Parties, having regard inter alia to reasonable adjustments in respect of delivery problems arising from external causes, and to be fully set out in Commercial Manufacture and Supply Agreement.
5.	The Parties to establish a supply committee to deal with matters arising between the Parties over supply issues. The committee to discuss developments relating to forecasting, commercial and regulatory issues, scheduling and supply and other topics.
6.	The price per unit of Bottled Product shall be [***]% of NSP. Such price shall be paid in advance through applying a Notional NSP, together with a true up mechanism and in no circumstances shall Elan (or its Affiliate) be required to supply commercial Product for less than [***].
7.	Zogenix to have right to review and approve proposed changes in advance of their implementation specific to the Product manufacturing, testing, or controls documentation which require prior Regulatory Authority approval as well as any other changes that may be specified as requiring Zogenix approval in a quality agreement that shall be agreed between the Parties at the same time that the Commercial Manufacture and Supply Agreement is negotiated.
8.	Zogenix to be responsible for the costs associated with the process transfer of Product from Elan’s development facility to its primary manufacturing facility in anticipation of the commercial scale-up of the Product, including the costs associated with process transfer, validation and maintenance.
9.	If after receipt of the first NDA Approval and if requested by Zogenix, Elan (or Affiliate) shall [***].
10.	Zogenix shall maintain agreed upon levels of safety stock through agreed order and forecast procedures. If requested by Zogenix, Elan and Zogenix shall discuss the ability of Elan (or its Affiliate) to hold safety stock, at Zogenix’s cost and expense.
11.	Release and rejection provisions (e.g., defects and latent defects) reasonably acceptable to the Parties, with Elan (or Affiliate) to have a specified time (e.g., [***]) to rectify issues attributable to the negligent acts or omissions of Elan (or Affiliate). Zogenix to be refunded where such Product cannot be reworked or replaced within specified time.
12.	All remedies for failures, delays or defects in supply including defects in the Product to be negotiated in good faith by between the Parties and specifically set out in the Manufacturing and Supply Agreement, to the exclusion of any other remedy.

***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.

Execution Copy

13.	Zogenix to be responsible for coordinating any Product recall in the Field and in the Territory and for ensuring that recalls are conducted in a commercially reasonable manner. Costs of recall shall be borne by [***] unless [***].
14.	Elan (or Affiliate) to be responsible for manufacturing Product to meet Product Specifications and in compliance with cGMP and other applicable law. Zogenix to be responsible for marketing and promotion, and for recalls and indemnification otherwise arising.
15.	Representations, warranties and indemnification provisions shall correspond to the Parties’ responsibilities under the Commercial Manufacture and Supply Agreement.
16.	Term of the Commercial Manufacture and Supply Agreement will be the Term of the License Agreement.

***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.

Execution Copy

SCHEDULE 3MANUFACTURING COST

“Manufacturing Cost” is [***].

Such allocations shall be in a manner consistent with US GAAP and consistent with expenses and overhead allocated to other products manufactured by Elan or its Affiliates.

Where some part(s) of the manufacture or packaging are conducted by unaffiliated Third Party(ies), Manufacturing Cost shall be [***].

***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.

[Signature Page to License Agreement]

SIGNED
/s/ Kevin Insley
Duly authorised for and on behalf of:
ELAN PHARMA INTERNATIONAL LIMITED
Name:	Kevin Insley
Title:	Authorised Signatory
Date:	November 27, 2007
SIGNED
/s/ Roger L. Hawley
Duly authorised for and on behalf of:
ZOGENIX, INC.
Name:	Roger L. Hawley
Title:	CEO
Date:	Nov. 27, 2007

EX-10.13

Exhibit 10.13

Execution copy 92904

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.

SUPPLY AGREEMENT

THIS SUPPLY AGREEMENT (the “Agreement”), is made and entered into effective as of this 29^th day of September, 2004, by and among Dr. Reddy’s Laboratories, Inc., a New Jersey corporation having its principal place of business at 200 Somerset Corporate Boulevard, 7^th Floor., Bridgewater, New Jersey 08807 and Dr. Reddy’s Laboratories Limited, a corporation organized under the laws of India, having its principal place of business at 7-1-27 Ameerpet, Hyderabad - 500 016, India (collectively “Reddy”, and Aradigm Corporation, a California corporation having its principal place of business at 3929 Point Eden Way, Hayward, CA 94545 (“Aradigm”).

W I T N E S S E T H:

WHEREAS, Reddy is engaged in the business of manufacturing and supplying various bulk drug substances to pharmaceutical companies; and

WHEREAS, Aradigm is engaged in, among other things, the preparation, manufacture, distribution and sale of drug products; and

WHEREAS, Aradigm desires to purchase the drug substance identified in Schedule 1 annexed hereto, as such Schedule may be amended or supplemented from time to time, from Reddy, and Reddy is willing to manufacture and sell the drug substance to Aradigm, upon the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

1.             Definitions.  As used in this Agreement, the following definitions shall apply:

“Affiliate” means any entity controlling, controlled by or under the common control of Aradigm or Reddy, as the case may be.  For the purpose of this Agreement, “control” shall mean the direct or indirect ownership of at least fifty (50%) percent of the outstanding voting shares or other voting rights of the subject entity, or the ability, directly or indirectly, to direct or cause the direction of management and policies of such entity.

“ANDA” means any abbreviated new drug application required to manufacture, market and sell finished dosage forms of the Drag Product (as defined below) in the United States and its territories and possessions filed by or on behalf of Aradigm’s Designated Manufacturer with the FDA pursuant to 21 U.S.C. 355(j), and any amendments thereto which may be filed by Aradigm’s or its Designated Manufacturer from time to time, and any foreign equivalent of such application.

“cGMP” means current Good Manufacturing Practices, as established by the FDA or its foreign equivalent.

“Commercial Sale Date” means the date of the first commercial sale by Aradigm or its Affiliate of a Drug Product.

1

Execution copy 92904

“Designated Manufacturer” means a manufacturer of the Drug Product who is an Affiliate of Aradigm or with whom Aradigm has entered into a manufacturing agreement, as set forth on Exhibit A, as the same shall be supplemented by Aradigm from time to time.

“DMF” means the open and closed portions of the Drug Master File required to manufacture, market and sell Drug Substance in bulk form in the United States, filed with the FDA and to be maintained by Reddy with the FDA.

“Drug Produce” means any pharmaceutical product suitable for human use that contains Drug Substance.

“Drug Substance” means the drug substance identified in Schedule 1 annexed hereto, supplied in bulk form meeting the Specifications.  It is understood that such drug substance shall only be used by Aradigm in connection with research and development or commercialization of the Drug Product(s) identified in Schedule 1 in the Territory.

“FDA” means the United States Food and Drug Administration.

“Regulatory Approval” means the procurement of the registrations, permits and approvals required by applicable government authorities for the manufacture, importation into, marketing, sale and distribution of the Drug Substance or the Drug Product in the Territory, including, without limitation, the DMF and the ANDA.

“Specifications” means the specifications set forth in the applicable United States Pharmacopoeia monograph (should such a monograph be published), the applicable European Pharmacopoeia monograph (should such monograph be published), the DMF, the specifications set forth in this Agreement, including without limitation, those set forth on Exhibit B hereto which Exhibit B shall be supplemented from time to time as additional Drug Substances are added to this Agreement and as mutually agreed upon by the parties hereto.

“Term” shall have the meaning set forth in Section 3 below.

“Territory” means the United States, its commonwealths and possessions, Canada, EU and any other countries that the parties mutually agree shall be included in this Agreement.

2.Purchase and Side of Drug Substance.

(a)           Reddy agrees to sell to Aradigm not less than fifty percent (50%) of Aradigm’s quarterly requirements for the Drug Substance in the Territory, and Aradigm agrees to purchase, on a non-exclusive basis from Reddy, not less than fifty percent (50%) of Aradigm’s quarterly requirements for the Drug Substance in the Territory during the Term and upon the terms and conditions set forth herein.

(b)           Notwithstanding any other provision of this Agreement, if Reddy is unable (or anticipates an inability) to manufacture or deliver any Drug Substance to Aradigm in a particular Territory, Reddy shall promptly notify Aradigm in writing of the period for which such inability (or anticipated inability) to so manufacture or deliver is expected.  If Reddy is unable to meet, or does not meet, on a timely basis (according to Aradigm’s scheduled delivery

2

Execution copy 92904

dates for ordered Drug Substance) Aradigm’s forecasted requirements for, or ordered (subject to the terms of Section 5 below) amounts of the Drug Substance, anywhere in the Territory, then Aradigm’s obligation to purchase the Drug Substance from Reddy in accordance with Section 2(a) above shall automatically be suspended and Aradigm may purchase such additional needed Drug Substance from a third party for sale in such Territory; provided, that if Reddy has an inventory of such Drug Substance that it is ready, willing and able to deliver to Aradigm, Reddy shall use commercially reasonable efforts to supply the backlog of Drug Substance from such remaining inventory as soon as possible.  If at any time thereafter Reddy demonstrates to Aradigm’s reasonable satisfaction that Reddy is able to manufacture and deliver the Drug Substance to Aradigm in amounts sufficient to meet all of Aradigm’s requirements on a timely basis, then, subject to Aradigm’s contractual commitments with third parties (which Aradigm shall use commercially reasonable efforts to limit such contractual commitments to the quantity of the Drug Substance that Aradigm reasonably determines that Reddy will be unable to supply to Aradigm), Aradigm’s obligation to purchase the Drug Substance from Reddy as stated in Section 2(a) above shall resume.  If Reddy’s inability to manufacture or deliver on a timely basis sufficient amounts of the Drug Substance to cover all of Aradigm’s orders under this Section 2 continues for a period of [***] or more, or is repeated more that [***] ([***]) times in any [***] ([***]) month period, Aradigm may terminate this Agreement by notice in writing to Reddy.

3.Term.

(a)           Subject to Section 3(b) and Section 15 hereof, the term of this Agreement (the “Term”) shall commence on the signing date hereof, and shall for a period of ten (10) years following the Commercial Sale Date of a Drug Product in any country in the Territory.

(b)           The Term may be extended by Aradigm for successive one (1) year periods by written notice from Aradigm to Reddy provided at least six (6) months before the expiration of the then current term, unless Reddy gives written notice to Aradigm within thirty (30) days after receipt of such Aradigm extension notice that Reddy does not wish to extend the term of the Agreement.

4.Prices and Payments.

(a)           The price for the Drug Substance supplied by Reddy to Aradigm pursuant to this Agreement for commercial purposes shall be as set forth in Schedule 2 annexed hereto, which Schedule may be amended or supplemented by written agreement of the parties from time to time.  In addition, Aradigm shall pay for all costs related to shipping, insurance, bacterial endotoxin, microbial, and particulate matter tests and any additional tests Reddy may have to conduct to provide injectable grade Drug Substance to Aradigm.

(b)           Aradigm shall pay Reddy for the Drug Substance delivered hereunder within [***] ([***]) days of the date of Reddy’s invoice for the Drug Substance.  All payments shall be made by Aradigm to Reddy in United States dollars for the Drug Substance delivered to Aradigm.

***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.

3

Execution copy 92904

5.Quantity.  During the Term, Reddy shall make available to Aradigm for purchase hereunder such quantities of the Drug Substance as Aradigm may from time to time order; provided, however, that in the event that Aradigm places orders at any time for more than [***]percent ([***]%) of the requirements stated in the forecast to be delivered by Aradigm to Reddy pursuant to Section 6 below, Reddy shall only be obligated to use commercially reasonable efforts to fill the amounts of such orders in excess of such one hundred fifty percent (150%) amount.

6.Forecasts.

(a)           During the Term of this Agreement, Aradigm shall provide Reddy with a [***] ([***]) month written forecast, which shall be updated no less frequently than every [***] on a rolling [***] basis, of Aradigm’s monthly anticipated requirements of the Drug Substance over the next [***] ([***]) months from the date of the forecast.  The first [***] ([***]) months of each such forecast shall represent a binding commitment to submit during such [***] ([***]) month period firm orders for the Drug Substance in the amounts set forth in such forecast, and the quantities indicated for the remaining [***] ([***]) months of such forecast shall be made to assist Reddy in planning its production and Aradigm in planning its sales, and shall be non-binding.  The minimum order quantity in a single purchase order for any quarterly forecast period shall be [***] ([***]) kilograms.

(b)           Reddy shall deliver the Drug Substance to Aradigm within [***] ([***]) days after receipt of Aradigm’s firm purchase order unless Aradigm specifies a later date in such order.  Reddy shall use commercially reasonable efforts to deliver Drug Substance in a shorter time if reasonably requested by Aradigm.  The failure to deliver the Drug Substance in a shorter time period shall not constitute a default under this Agreement.

7.Shipments.  The Drug Substance shall be shipped FOB, Hyderabad, India (INCOTERMS 2000) and the supply price shall not be inclusive of the costs of shipment and insurance.

8.Representations and Warranties.  Each of Reddy and Aradigm represents and warrants to the other as follows:

(a)           It has full corporate power and authority to enter into this Agreement and consummate the transactions contemplated hereby.

(b)           It has or will have such permits, licenses and authorizations of governmental or regulatory authorities as are necessary to own its respective properties, conduct its business and consummate the transactions contemplated hereby.

9.Quality; Manufacturing Practices.

(a)           Reddy hereby represents and warrants that all Drag Substance supplied by Reddy to Aradigm shall meet the Specifications and shall be free from adulteration or defects.  Any disputes between the parties regarding the failure of the Drug Substance supplied by Reddy

***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.

4

Execution copy 92904

to Aradigm pursuant to this Agreement to meet the Specifications shall be submitted to a mutually agreed upon independent laboratory.  Aradigm shall initially bear the costs of such independent laboratory.  The findings of the independent laboratory shall be binding upon both parties.  The party against whose favor the independent laboratory resolves the dispute shall be responsible for the costs of the independent laboratory, and if such party is Reddy, Reddy shall promptly reimburse Aradigm for any costs advanced to the independent laboratory.

(b)           Reddy shall manufacture the Drug Substance in compliance with cGMP standards as the same are or from time to time shall be established by applicable statute and regulations of the FDA or its foreign equivalent (as applicable), and in accordance with this Agreement and a mutually agreed upon Quality Agreement.

(c)           Reddy shall retain such samples of the Drug Substance as are required and specified by Reddy’s standard operating procedures to comply with the general retention requirements as set forth in cGMP regulations, and shall perform stability testing as described and required to conform with the Drug Substance’s stability protocol.

(d)           In the event of a product recall that is determined to be caused by the deficiency or non-compliance of the Drug Substance as API (e.g., failure to comply with the Specifications or cGMP or existence of a latent defect), Reddy shall promptly replace the same amount of the Drug Substance as being recalled free of any charge, including without limitation the cost of transport.

10.Regulatory Approvals.

(a)           Reddy shall maintain compliance with the FDA or its foreign equivalents, as applicable, with respect to the Drug Substance that it provides to Aradigm.

(b)           Reddy shall provide Aradigm with the open sections of the DMF and basic technical files, working standards, impurity standards, if available, and other information pertaining to the Drug Substance that are necessary or useful for Aradigm to file an ANDA for any Thug Product in the United States or its foreign equivalents.

(c)           Reddy shall obtain and maintain all necessary or relevant licenses, approvals and certifications and other authorizations necessary to maintain and operate its Drug Substance production site.

(d)           Reddy shall successfully pass an FDA Pre-approval Inspection (PM) if such PAI is required for approval of Aradigm’s ANDA for delivery of the Drug Substance via Aradigm’s drug delivery system.

(e)           Reddy shall provide Aradigm with prompt notice of its receipt of any FDA notices (including 483 notices) of violation or deficiency letters relating solely to Aradigm’s application and file with respect to the Drug Substance, or equivalent foreign notices or letters.  Reddy shall deliver to Aradigm, as soon as commercially reasonable following receipt, copies of all reports, data, information and correspondence from the FDA, any state or local authorities, or their foreign equivalents with respect to Aradigm’s application and file as it relates to the Drug Substance.  Reddy shall deliver to Aradigm copies of any written response, information, data or

5

Execution copy 92904

correspondence delivered by Reddy to the FDA, any state or local authorities, or their foreign equivalents with respect to the Drug Substance and Aradigm’s application and file associated therewith.  Reddy shall use commercially reasonable efforts to cooperate with Aradigm in connection with any response required by Aradigm to any inquiry from the FDA, any state or local authorities, or their foreign equivalents with respect to the Drug Substance and Aradigm’s application and file associated therewith.

11.Audit Right.

(a)           Reddy shall have the right at any time and from time to time to nominate a firm of independent certified public accountants to have access to the applicable records of Aradigm during reasonable business hours solely for the purpose of verifying, at the auditing party’s expense, that Aradigm has purchased, during the applicable period subject of the audit, not less than fifty percent (50%) of Aradigm’s requirements for the Drug Substance as set forth in Section 2 above.  Such audit shall not cover any time periods more than [***] ([***]) years prior to the date of the audit, and may not be conducted more than [***] per year.  In the event that the auditing accountant finds that Aradigm has been purchasing less than fifty percent (50%) of Aradigm’s requirements for the Drug Substance as set forth in Section 2 above, Aradigm shall (a) pay the cost of that audit (within [***] ([***]) days of its receipt of notice of the results of the audit), (b) be subject (if so elected by Reddy) to [***] audits for the following [***] ([***]) years, and (c) [***] pay to Reddy the difference between the amount of its actual purchases and the aggregate purchase price for the amount of the Drug Substance representing such fifty percent (50%) of its requirements, together with interest at [***] percent ([***]%) per annum on such difference for the period of time that Aradigm did not purchase fifty percent (50%) of its requirements.

(b)           Reddy shall keep complete records for its manufacture of Drug Substance that is provided to Aradigm for at least [***] ([***]) years from the date such records are generated.  Aradigm shall have the right to audit such records at least [***] a year by giving Reddy [***] ([***]) days prior written notice.  Reddy shall permit any regulatory authority to inspect the Production site as permitted or required by applicable laws and regulation.

12.Review of Process.  Aradigm shall have the right, upon written notice to Reddy and following execution and delivery of a Common Interest, Non-Waiver of Privilege and Confidentiality Agreement, to review, from time to time, through independent United States patent counsel for each party, Reddy’s process for the manufacture of the bulk form of the Drug Substance to ensure that such process does not infringe the valid rights of any third parties.

13.Confidentiality.

(a)           Any information pertaining to the Drug Substance that has been or will be communicated by Reddy to Aradigm and/or the Designated Manufacturer under this Agreement and identified as “confidential,” and any information communicated by Aradigm and/or the Designated Manufacturer to Reddy under this Agreement and identified as “confidential,” which may include without limitation, trade secrets, business methods and plans, pricing, cost,

***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.

6

Execution copy 92904

manufacturing and customer information, shall be referred to herein as the “Confidential Information” of the disclosing party.  All such Confidential Information received by Aradigm, the Designated Manufacturer or Reddy, respectively, shall be treated by the receiving party, and its respective affiliates, officers, directors, employees, agents and representatives, as Confidential Information and shall not be disclosed to any third parties or used for any purpose other than as contemplated under this Agreement; provided, however, that particular Confidential Information shall not be subject to the restrictions and prohibitions set forth in this section to the extent that the receiving party can demonstrate that such information:

(i)            is available to the public in public literature or otherwise, or after disclosure by one party to the other becomes public knowledge through no default of the party receiving such confidential information;

(ii)           was known to the receiving party prior to the receipt of such Confidential Information by such party, whether received before or after the date of this Agreement;

(iii)          is obtained by the receiving party from a source other than the party supplying such Confidential Information; or

(iv)          is developed independently by the receiving party without reference to any Confidential Information disclosed to it.

Notwithstanding the foregoing, a party may disclose the other party’s Confidential Information to the extent such disclosure is required pursuant to any order of a court having jurisdiction or any lawful action of a governmental or regulatory agency; provided that such party will promptly give notice to the disclosing party and make a reasonable effort to obtain, or cooperate in the disclosing party’s efforts to obtain, a protective order or confidential treatment covering such Confidential Information and limiting its disclosure and use solely for the purposes for which the order, law or regulation require disclosure.

(b)           Each party shall take all precautions as it normally takes with its own confidential information to prevent any improper disclosure of such confidential information to any independent third party; provided, however, that such confidential information may be disclosed within the limits required to obtain any authorization from the FDA or any other United States or other applicable governmental or regulatory agency or, with the prior written consent of the other party, which shall not be unreasonably withheld, as may otherwise be required in connection with the purpose of this Agreement.

(c)           Each party acknowledges that in the event of a breach of the provisions of this Section by such party, remedies that exist at law may be inadequate for the non-breaching, party and agrees that, in addition to any remedy available at law, the non-breaching party shall be entitled to seek injunctive relief to prevent the breach or threatened breach of any of the provisions of this Agreement.

(d)           Aradigm shall require any Designated Manufacturer who shall receive Confidential Information from Reddy to agree to be bound by the provisions of this Section.

7

Execution copy 92904

(e)           This Section 13 and the obligations contained herein shall survive expiration or termination of this Agreement for any reason whatsoever for a period of three (3) years.

14.Indemnification.

(a)           Reddy shall defend, indemnify and hold Aradigm, the Designated Manufacturer and their respective Affiliates, officers, directors, employees, agents, successors and assigns harmless from and against any and all loss, liability, damage, cost or expense (including, without limitation, reasonable attorneys’ fees) (collectively, “Losses”) arising out of any third party claim, allegation, action, suit, or proceeding directly or indirectly arising from or related to any breach of Reddy’s representations, warranties or covenants under the Agreement; provided, however, that Reddy shall not be required to indemnify Aradigm with respect to any such Losses directly or indirectly arising from or related to (i) any claim by any third party that the manufacture and sale of the Drug Substance or Drug Product infringes any patent held by such third party, (ii) Aradigm’s breach of its obligations, representations, warranties or covenants hereunder, (iii) from information supplied by Aradigm or contained in regulatory filings by Aradigm, or (iv) Aradigm’s negligence.

(b)           Aradigm shall defend, indemnify and hold Reddy harmless from and against any Losses arising out of any third party claim, allegation, action, suit, or proceeding directly or indirectly arising from or related to Aradigm’s manufacture, storage, use or sale of any Drug Product incorporating the Drug Substance manufactured by Reddy; provided that the foregoing obligation shall not apply with respect to Losses relating to or any such claim, action, suit, proceeding, loss, liability, damage or expense that is arising from or related to any breach of Reddy’s obligations, representations, warranties or covenants under the Agreement or Reddy’s negligence.

(c)           This Section 14 and the obligations contained herein shall survive expiration or termination of this Agreement for any reason whatsoever, to the extent such obligations arise during the Term of this Agreement.

15.Termination.

(a)           The Term of this Agreement may be terminated as to the Drug Substance in a particular country in the Territory immediately upon written notice of termination given by;

(i)            The non-defaulting party in the event that the other party shall; (A) commit a material breach or default under this Agreement, which breach or default shall not be remedied within sixty (60) days after the receipt of written notice thereof by the party in breach or default;

(ii)           Either Reddy or Aradigm if the other party becomes insolvent, makes or has made an assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy instituted on behalf of or against such party (except for involuntary bankruptcies which are dismissed within ninety (90) days), or has a receiver or trustee appointed for substantially all of its property; or

8

Execution copy 92904

(iii)The performing party in the event described in Section 16.

(b)In the event that Aradigm is negotiating an agreement with a third party to commercialize such third party’s formulation of Drug Substance, and such agreement would preclude sourcing of Drug Substance from a party other than such third party, Aradigm may terminate this Agreement by providing Reddy with sixty (60) days’ advance written notice of such termination and by fulfilling Aradigm’s payment obligations related to all open purchase orders of Drug Substance that were placed with Reddy prior to the date that Reddy received such notice of termination.

(c)Termination of this Agreement (whether under this Section 15, on expiration of the Term or otherwise) shall be without prejudice to any rights of either party against the other that may have accrued up to the effective date of such termination.

16.Force Majeure.  If any of Reddy, Aradigm and the Designated Manufacturer shall be prevented by fire, strike, lockouts, war, civil disturbances, acts of God or other similar events beyond such party’s reasonable control from performing its respective obligations hereunder, such party shall not be liable to the other for damages pursuant to this Agreement for so long as the condition constituting Force Majeure continues and the nonperforming Party uses reasonable efforts to remove the condition.  The party being able to perform may, at its sole option, extend the duration of this Agreement by a term equal in length to the period during which the other party was unable to perform its obligations hereunder, or waive such obligations.  Notwithstanding the foregoing, if any Force Majeure continues for more than three (3) consecutive months, the performing party shall have the option to terminate this Agreement pursuant to Section 15(a)(iii).

17.Retention of Records.  Whenever applicable under cGMP, all documentation, records, raw data, and specimens pertaining to this Agreement will be held by each party for the length of time specified in such party’s standard operating procedure which meets cGMP guidelines.

18.          Insurance.  Aradigm and Reddy each agree to maintain in force, commencing on the Commercial Sale Date and continuing for a period of [***] ([***]) months following expiration or termination of this Agreement for any reason, product liability insurance coverage of not less than $[***] per occurrence and in the aggregate, naming the other party and its Affiliates as additional insureds.

19.          Independent Contractors.  Reddy and Aradigm are independent of each other and nothing contained herein shall be construed to create a joint venture, partnership or similar relationship.  Neither party is authorized to, nor shall it, incur any liability whatsoever for which the other may become directly, indirectly or contingently liable.

20.          Dispute Resolution; Consent to Jurisdiction.  In an effort to resolve informally and amicably any claim, controversy or dispute (whether such claim, sounds in contract, tort, or otherwise) arising out of or relating to this Agreement or the breach thereof (a “Dispute”), each

***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.

9

Execution copy 92904

party shall notify the other in writing of a Dispute hereunder that requires resolution.  Such notice shall set forth the nature of the Dispute, the amount, if any, involved and the remedy sought.  Each party shall designate a representative who shall be empowered to investigate, discuss and seek to settle the Dispute.  If the two representatives are unable to settle the Dispute within thirty (30) days after proper notification, the Dispute shall be submitted to the President of each party for consideration for an additional thirty (30) days.  If the Dispute remains unresolved after said sixty (60) day period, either party shall have a right to commence any action, suit or proceeding with respect to such Dispute in the state or federal courts located in the State of New York.  Aradigm and Reddy each irrevocably consent that any legal action or proceeding against it may be brought in the state or federal courts located in the State of New York, and Aradigm and Reddy each submit to the personal jurisdiction of any such courts.  Aradigm and Reddy each further irrevocably consent to the service of any complaint, summons, notice or other process by delivery thereof to it by any manner in which notices may be given pursuant to this Agreement and .Aradigm and Reddy each submit to the personal jurisdiction of such court.  Aradigm and Reddy each further irrevocably consent to the service of any complaint, summons, notice or other process by delivery thereof to it by any manner in which notices may be given pursuant to this Agreement.

21.          Assignment.  This Agreement shall inure to the benefit of, and shall be binding upon each of, the parties hereto and their respective successors and assigns.  This Agreement cannot be assigned in whole or in part by either party without the prior written consent of the other party, except that a party may, without the prior written consent of the other party, assign this Agreement, in whole, to an Affiliate, provided that, Aradigm may not assign, without Reddy’s written consent, the Agreement to any third party successor in interest acquiring all or substantially all of the assets of Aradigm, through merger, acquisition or other transactions.

22.          Notices.  Any and all notices given pursuant to this Agreement shall be in writing, and shall be deemed to have been properly given when delivered personally or sent by facsimile or air courier with respect, confirmed by registered air mail, to the appropriate party at the address shown below, or such other address as shall be specified by the parties hereto by written notice given in accordance with this section and shall be effective upon receipt thereof.  Any notice shall be effective upon receipt, which shall be deemed to occur one (1) business day after the sending of the facsimile, four (4) business days after the sending by air courier, and seven (7) calendar days after the delivery of a confirmation letter to the postal authorities in the country of the party by which it is sent.

If to Aradigm to:	Aradigm Corporation
	3929 Point Eden Way
	Hayward, CA 94545
	Attn:
	Fax:
If to Reddy to:	Dr. Reddy’s Laboratories, Inc.
	200 Somerset Corporate Blvd.
	Bridgewater, New Jersey 08807
	Attn: Arun Sawhney, President, Global API
	Fax: 91-40-23558927

10

Execution copy 92904

And with a copy to:	Dr. Reddy’s Laboratories, Inc.
	200 Somerset Corporate Blvd.
	Bridgewater, New Jersey 08807
	Attn: General Counsel
	Fax: 908-203-4970

23.          Amendment and Waiver.  This Agreement (including the Exhibits and Schedules hereto) may be amended, modified, superseded or canceled, and any other of the terms or conditions hereof may be modified, only by a written instrument executed by all of the parties hereto or, in the case of a waiver, by the party waiving compliance.  Failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same, and no waiver of any nature, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or considered as a further or continuing waiver of any other provision of this Agreement.

24.          Severability.  In the event that any one or more of the agreements, Provisions or terms contained herein shall be declared invalid, illegal or unenforceable in any respect, the validity of the remaining agreements, provisions of terms contained herein shall in no way be affected, prejudiced or invalidated thereby.

25.          Public Announcements.  Reddy and Aradigm agree that neitherwill publicize or disclose the existence of this Agreement or the subject matter hereof in any way without the prior written consent of the other party, except as may be required to comply with the disclosure requirements of applicable laws and regulations.  The parties agree that in the event disclosure of the existence of this Agreement and/or any of the terms hereof or the subject matter hereof is required by either party by law or regulation, such party will seek the consent of the other party to make such disclosure, which consent shall not be unreasonably withheld or delayed; provided, however, that any such disclosure shall be limited to the minimum disclosure required.

26.          Entire Agreement.  This Agreement, together with the Exhibits and Schedules hereto, contains the entire agreement between the parties hereto and supersedes any agreements between Reddy and Aradigm with respect to the subject matter hereof.

27.          Section Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

28.          Counterparts.  This Agreement may be executed in any number of separate counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument.  Facsimile signatures shall be considered original signatures.

29.          Representations, Warranties, and Limitation of Liability.  Neither Reddy nor Aradigm makes any indemnity, representation, or warranty, either express or implied, with respect to the Drug Substance, except for indemnities, representations, and warranties expressly set forth in this Agreement.  In no event shall either party be liable to the other party under this Agreement for punitive, exemplary, consequential, or special damages including, without

11

Execution copy 92904

limitation, damages related to lost good will, lost customers, or lost profits, beyond those damages expressly provided herein, including without limitation as provided in Section 13(c).

[SIGNATURE PAGE FOLLOWS]

12

Execution copy 92904

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

DR. REDDY’S LABORATORIES, INC.
By:	/s/
	Name: Viswanatha R. Bonthu
	Title: Senior Vice President, Finance and
	Information Technology Services
DR. REDDY’S LABORATORIES LIMITED
By:	/s/
	Name: Arun Sawhney
	Title: President, Global API
ARADIGM CORPORATION
By:	/s/
	Name: Borba Venkatadri
	Title: Sr. V.P. Operations

13

Execution copy 92904

Exhibit A

Designated Manufacturer

Kingfisher Drive, Covingham, Swindon, Wiltshire, SN3 5BZ

14

Execution copy 92904

Exhibit B

Specifications

[***]

***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.

15

Execution copy 92904

Schedule 1

Drug Substance

Drug Substances:	To be used to manufacture the following Drug Products:
Sumatriptan Succinate	[***], Injectable, [***] mg

***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.

16

Execution copy 92904

Schedule 2

Price For Drug Substance

Drug Substance	Price
Sumatriptan Succinate	$[***] per kilogram plus the costs of [***]

***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.

17

EX-10.14

Exhibit 10.14

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.

Execution Copy

LICENSING and DISTRIBUTION AGREEMENT

by and between

ZOGENIX, Inc.

and

DESITIN ARZNEIMITTEL GmbH

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 2

TABLE OF CONTENTS

1.	DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	GRANT OF LICENSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .	8
3.	TRADEMARK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
4.	PRODUCT STEERING COMMITTEE (“SC”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
5.	DEVELOPMENT AND COMMERCIALISATION OF THE PRODUCT . . . . . . . . . . . . . . . . . . . . . . .	11
6.	MANUFACTURE AND SUPPLY OF THE PRODUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
7.	MARKETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
8.	PRICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
9.	ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
10.	PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
11.	RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
12.	INFRINGEMENT OF RIGHTS BY THIRD PARTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . .	17
13.	INFRINGEMENT OF THIRD PARTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . .	18
14.	INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
15.	IMPROVEMENTS AND PATENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
16.	RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .	22
17.	REGULATORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
18.	PHARMACOVIGILANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
19.	EXCHANGE OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .	23
21.	TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .	24
22.	CONSEQUENCES OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .	26
23.	CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .	26
24.	REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . .	28
25.	FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
26.	NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . .	29
27.	ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
28.	GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30

LIST OF APPENDICES

Appendix 1	Product Specification
Appendix 2	Licensed Patents
Appendix 3	Clinical Supply Terms

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 3

LICENSING & DISTRIBUTION AGREEMENT

THIS LICENSING & DISTRIBUTION AGREEMENT is entered into on this 14 day of March, 2008,
by and between

1.	ZOGENIX, Inc. a company incorporated and existing under the laws of Delaware whose registered office is at 11682 El Camino Real, Suite 320, San Diego, CA 92130, U.S.A. (“ZOGENIX”);
	and
2.	DESITIN Arzneimittel GmbH, a company incorporated and existing under the laws of Germany whose registered office is at Weg beim Jaeger 214, 22335 Hamburg, Germany (“DESITIN”);
	Each also referred to as “Party” or together as “Parties”.
RECITALS
A.	ZOGENIX is, amongst others, active in the research and development of pharmaceuticals and medical devices and has developed Sumatriptan DoseProTM for migraine patients for which ZOGENIX intends to register the product in the U.S.A.
B.	DESITIN specialises in the manufacture, marketing and sale of branded pharmaceuticals, in particular CNS related products, in the Territory and desires to enter into a contractual relationship with ZOGENIX to develop, obtain regulatory approval and commercialise the Product in the Territory.
C.	The Parties hereby enter into the Agreement on the terms and conditions as stipulated herein below.
NOW THEREFORE, the Parties hereby agree as follows:

1.                         DEFINITIONS

As used in this Agreement, unless expressly otherwise stated or evident in the context, the following terms shall have the meanings defined below. The singular (where appropriate) shall include the plural and vice versa and references to Appendices and Clauses shall mean appendices and clauses of this Agreement.

1.1	Affiliate	shall mean any firm, person or company which controls, is controlled by or is under common control with a Party to this Agreement and, for the purpose of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such firm, person or company, whether through the ownership of voting securities, by contract or otherwise, or the ownership either directly or indirectly of 50% or more of the voting securities of such firm, person or company;
1.2	Agreement	shall mean this licensing and distribution agreement and the appendices hereto;
1.3	BfArM	shall mean Bundesinstitut für Arzneimittel und Medizinprodukte (Federal Institute for Drugs and Medical Devices) in Germany, and any successor agency thereto;
1.4	Business Day	shall mean any day other than Saturday or Sunday on which the banks in London are open for business;
1.5	Clinical Trial Materials	shall mean the Product to be used by DESITIN in connection with the development and registration process in the Territory; for the avoidance of doubt Clinical Trial Materials shall exclude all packaging and blinding thereof;
1.6	Confidential Information	shall mean any scientific, technical, formulation, process, manufacturing, clinical, non-clinical, regulatory, marketing, financial or commercial information or data relating to the business, projects or products of either Party and provided by one Party to the other by written, oral, electronic or other means in connection with this Agreement;
1.7	cGMP	shall mean current good manufacturing practices as set out under the European Directive 2003/94/EC and promulgated by the International Conference on Harmonisation, as the same may be modified or amended from time to time;
1.8	“Cost of Goods Manufactured”	shall mean costs to produce Clinical Trial Materials and/or commercial supplies of Product to the extent that such costs would ordinarily be included as a Cost of Goods sold in accordance with U.S. generally accepted accounting principles, including: [***];
1.9	Change of Control	shall have the meaning as given to it in Clause 2.3;
1.10	Committee Members	shall have the meaning as given to it in Clause 4.1;
1.11	Data	shall mean (a) written materials and information concerning the Product, including copies, or summaries, of materials prepared for submission to the Regulatory Authorities concerning the Product or its labeling; (b) such clinical data and documentation in respect of the Product generated by

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 5

		research and trials funded by a Party or to which a Pary may have access with the right to disclose; and (c) safety information in respect of the Product generated by a Party.
1.12	DESITIN	shall have the meaning as given to it in Clause 2 of the recitals of this Agreement;
1.13	DESITIN`s Net Sales	shall mean the gross price billed by DESITIN or its Affiliates to independent parties for sales of the Product less [***];
1.14	DESITIN Parties	shall have the meaning as given to it in Clause 14.1;
1.15	Dossier	shall mean the dossier of information and data filed, or to be filed with BfArM in relation with the application for Marketing Authorisation in Germany and other countries in the European Union or with a comparable Regulatory Authority, including any amendments thereto;
1.16	Effective Date	shall mean the date of this Agreement;
1.17	Field	shall mean all therapeutic uses of the Product in humans;
1.18	First Commercial Sale	shall mean the date of first invoice of Desitin for deliveries to wholesalers, hospital pharmacies, pharmacies or other independent parties;
1.19	Force Majeure	shall mean in relation to either Party any circumstances beyond the reasonable control of that Party;
1.20	Improvement	shall mean any discovery, development, invention, enhancement or modification, patentable or otherwise, relating to the Product in the Territory owned or controlled by ZOGENIX or its Affiliates during the Term, including any modification or enhancement in the method of formulation, dosage strains, analytical methodology ingredients, preparation, presentation, means of delivery or administration, indication, use or packaging of the Product. For the avoidance of doubt, “Improvement” shall not include Intellectual Property Rights which relate to line extensions of the Product or indications which are in addition to those for which ZOGENIX has requested Marketing Authorisation in the United States on or before the Effective Date;
1.21	Initial Term	shall have the meaning as given to it in Clause 21.1;
1.22	Intellectual Property Rights	shall mean patents, trademarks, service marks, logos, trade names, rights and designs, copyright, utility models, rights and know how and other intellectual property rights, in each case whether registered or unregistered and including applications for registration and all rights or forms of protection having equivalent or similar effect anywhere in the world;
1.23	Key Facts	shall mean basic information used by DESITIN and its Affiliates in marketing or promoting the Product including but not limited to information on indications, dosage, side effects and selling points used for the positioning within current and future market environment;
1.24	Launch	means the commencement of commercial sale of the Product in the respective country of the Territory after receipt of Marketing Authorisation in that country of the Territory;

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 6

1.25	Licensed Know-how	shall mean all information, procedures, instructions, techniques, data, technical information, knowledge and experience (including toxicological, pharmaceutical, clinical, non-clinical and medical data, health registration data and marketing data), designs, sales and marketing materials and technology, including without limitation Data, owned or controlled by Zogenix during the Term and necessary to use, distribute, sell, or offer for sale the Product in the Territory whether in written electronic or other form, including the Dossier. Notwithstanding the foregoing, Licensed Know-How shall exclude any and all Manufacturing Know-How;
1.26	Licensed Patents	shall mean all Patent Rights owned or controlled by Zogenix during the Term and reasonably necessary to use, distribute, sell or offer for sale the Product in the Territory. As of the Effective Date, the Licensed Patents consist of those Patents set forth on Appendix 2 to this Agreement;
1.27	Licensed Technology	shall mean the Licensed Know How and the Licensed Patents and any Improvements thereto;
1.28	Manufacturing Agreement	Shall mean the agreement to be entered into by the Parties as set out in Clause 6.2 and pursuant to which ZOGENIX shall be the exclusive supplier of all of DESITIN’s, its Affiliates’ and its permitted sub-licensees’ requirements of Product for commercial use and/or sale in the Territory;
1.29	Manufacturing Know-How	shall mean any and all of the following, to the extent both (a) owned or controlled by Zogenix or any respective Affiliate of Zogenix (other than an Acquiror of Zogenix), as the case may be, and (b) related to Products: methods of manufacturing, production and test methods, procedures and batch records, manufacturing and testing summary data, process and assay validation information, and any other information, procedures, instructions, techniques, data, technical information, knowledge and experience (including regulatory) related to manufacturing, manufacturing process development and scale-up, manufacturing capacity, manufacturing facilities, product testing, product release, quality assurance activities, or stability tests;
1.30	Marketing Authorisation	shall mean the grant of all necessary permits, authorisations, licences and approvals (or waivers) from any Regulatory Authority required for the research, development, manufacture, promotion, storage, import, export, transport or use of the Product in the Territory;
1.31	MOH	shall mean the Ministry of Health or equivalent governmental body responsible for granting Marketing Authorisation in each respective country within the Territory;
1.32	Other Territories	shall mean the world except for the Territory;
1.33	Party	shall have the meaning as given to it in the Preamble;
1.34	Patent Rights	shall mean patents or patent applications; and any divisionals, continuations, substitutions, continuations-in-part, extensions, renewals, re-examinations or reissues of such patents or applications, as applicable, in each case in the Territory;
1.35	Pharmaco-vigilance Agreement	shall mean the agreement to be entered into by the Parties as set out in Clause 18.1 and pursuant to which the Parties shall fulfil the applicable pharmaceutical rules and regulations in the Territory and the Other Territories;

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 7

1.36	Product	shall mean the medical device DosePro with Sumatriptan as the sole active ingredient as specified in the Product Specification;
1.37	Product Specification	shall mean the specifications as defined for the Product in Appendix 1 to this Agreement;
1.38	Reasonable Commercial Efforts	shall mean commercial efforts consistent with normal business practices and effort used by a Party in connection with other products of similar market size or importance which such Party intends to launch or has launched and sold in the relevant Territory, or in the absence of any such similar products then such efforts shall be assessed by reference to good business practice in the light of all the circumstances;
1.39	Regulatory Authority	shall mean any and all governmental and regulatory bodies, agencies, departments or entities, whether or not located in the Territory, which regulate, direct or control commerce in or with the Territory, including any competent agency, body or entity from time to time responsible for granting Marketing Authorisations;
1.40	Remedies	shall have the meaning as given to it in Clause 12.1;
1.41	ROFR	shall have the meaning given to it in Clause 16;
1.42	Royalty	shall have the meaning as given to it in Clause 9.1;
1.43	Samples	shall mean certain quantities of the Product to be used in the Territory for advertising and marketing purposes only, any sale being strictly prohibited;
1.44	Term	shall mean the Initial Term as the same may be extended pursuant to Clause 21.2.
1.45	Territory	shall mean the countries of the European Union (defined below and thereafter as constituted from time to time) plus Norway, Switzerland and Turkey, to the extent not otherwise included in the European Union: The countries of the European Union as of the Effective Date are as follows: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom;
1.46	Third Party	shall mean any person or entity who or which are neither a Party nor an Affiliate of a Party;
1.47	Trademark	shall mean the trademark “DosePro” or any trademark containing “DosePro” or such other substitute trademark as Zogenix following consultation with DESITIN determines to use instead of “DosePro”. For the avoidance of doubt, “Trademark” does not include the trademark Zogenix™ and any other related trademark or service mark (whether registered or unregistered) containing the word “Zogenix”;
1.48	Transfer Price	shall have the meaning as given to it in Clause 8.3;
1.49	ZOGENIX	shall have the meaning as given to it in Clause 1 of the recitals to this Agreement;
1.50	ZOGENIX Parties	shall have the meaning as given to it in Clause 14.2.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 8

2.	GRANT OF LICENSE
2.1	Subject to the terms of this Agreement, ZOGENIX hereby grants to DESITIN an exclusive license under the Licensed Technology to develop, use, distribute, sell, offer for sale, and import the Product in the Field and in the Territory.
2.2	The term “exclusive” for the purposes of clause 2.1 means to the exclusion of all others, including ZOGENIX and its Affiliates, except to the extent necessary to enable ZOGENIX to perform its obligations under this Agreement.
2.3	DESITIN shall have the right to sub-license all or any of the rights licensed under this Agreement to its Affiliates and any Third Party, provided that DESITIN shall:
	(a)	provide ZOGENIX with a copy of such sub-license agreement promptly after the execution of any sub-license covering the Territory, which sub-license agreement is consistent with the terms of this Agreement insofar as they are applicable, but excluding the right to grant a sublicense, and contains terms that are no less restrictive than those contained in this Agreement on audit, inspection, and confidentiality;
	(b)	if the sub-licensee is not an Affiliate of DESITIN seek ZOGENIX’s prior written consent, which consent shall not be unreasonably withheld; provided that ZOGENIX may request adequate background and other information on the proposed sub-licensee and if DESITIN is unable to reasonably satisfy ZOGENIX as to such background and other information or that ZOGENIX will continue to receive the economic benefit of its bargain as if DESITIN were continuing to market and promote the Product under this Agreement, ZOGENIX may withhold its consent;
	(c)	if the sub-licensee is an Affiliate of DESITIN at the time of the sub-license hereunder and thereafter the sub-licensee ceases to be an Affiliate of DESITIN (a “Change of Control”), unless ZOGENIX grants its prior written consent (pursuant to the procedure set forth in Clause 2.3(b)) it is agreed that the sub-license granted to former Affiliates of DESITIN shall automatically terminate when the Change of Control becomes effective; and
	(d)	DESITIN shall be liable to ZOGENIX for acts or omissions of any Affiliate or permitted sub-licensee and shall solely be responsible for any claim made by any Affiliate or permitted sub-licensee against ZOGENIX; provided that in each case, such claims do not arise from any act or omission of the ZOGENIX Parties.
2.4	The license granted under Clause 2.1 includes sub-licenses under any Intellectual Property Rights included within the Licensed Technology which have, prior to the Effective Date, been licensed by ZOGENIX from any Third Party. Any royalties or other payments due to any Third Party pursuant to such a Third Party license shall be paid by ZOGENIX.
2.5	Each Party shall have access to the other Party’s Data and shall have a right to use such Data in their respective territories. For the avoidance of doubt, DESITIN’s right

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 9

	to use the Data shall be limited to its use in satisfying its obligations or pursuing its rights under this Agreement during the Term and ZOGENIX shall have a perpetual right to use the Data of DESITIN during the Term and following any expiration or termination of this Agreement.
2.6	Notwithstanding anything in this Agreement to the contrary, ZOGENIX shall, as between the Parties, retain: (a) the exclusive right to manufacture and supply Product for all fields of use; and (b) develop, register, import, export, use, and sell the Product outside the Territory.
2.7	ZOGENIX reserves the right to modify and/or to discontinue developing or producing the Product at its discretion at any time either (1) due to legal or regulatory requirements, administrative or court orders, or safety risks, or (2) so long as the Product in question is withdrawn from the market throughout the European Union for a justified and reasonable motive; provided, however, that ZOGENIX shall notify DESITIN as soon as practicable after any such modification or discontinuance and DESITIN shall be entitled to market any modified versions of Product pursuant to the terms of this Agreement. Nothing in this Agreement shall be deemed to restrict ZOGENIX from selling the Product or other products to Persons outside the Territory. ZOGENIX shall not authorize purchasers or distributors in Other Territories to sell the Product in the Territory. However, if by operation of law, the purchasers or distributors in Other Territories are permitted to sell the Product in the Territory, DESITIN shall receive no compensation.
3.	TRADEMARK
3.1	Subject to the terms of this Agreement, ZOGENIX hereby grants to DESITIN, its Affiliates and permitted sub-licensees a license to the Trademark for no additional consideration.
3.2	DESITIN will use the Trademark to identify the Product and in its development and commercialisation of the Product in the Territory. Therefore, DESITIN shall use the Trademark as part of the Product name along with such other words as ZOGENIX and DESITIN shall mutually agree are appropriate for the commercialisation of the Product in the Territory. The Trademark shall be owned and registered by ZOGENIX or its nominee and ZOGENIX or its nominee shall ensure that the registration of such Trademark is kept valid within the Territory, unless otherwise agreed upon between the Parties in writing.
3.3	The Trademark shall only be used in connection with sale and marketing of the Product within the Field and other activities pursuant to this Agreement in the Territory.
3.4	DESITIN shall ensure that each use by it, its Affiliates and permitted sub-licensees of the Trademark is accompanied by an acknowledgement that the Trademark is owned by ZOGENIX. DESITIN, its Affiliates and permitted sub-licensees shall not (A) use the Trademark in a way that might materially prejudice its distinctiveness or validity or

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 10

	the goodwill of ZOGENIX therein, or (B) use any trademarks or trade names so resembling the Trademark as to be likely to cause confusion or deception.
3.5	DESITIN shall not have, assert or acquire any right, title or interest in or to the Trademark or the goodwill pertaining thereto, except as explicitly provided in Clause 3.1 of this Agreement.
3.6	DESITIN shall give ZOGENIX prompt notice of any infringement or threatened infringement of the Trademark. ZOGENIX shall determine in its sole discretion what action, if any, to take in response to the infringement or threatened infringement of the Trademark.
4.	PRODUCT STEERING COMMITTEE (“SC”)
4.1	The Parties shall establish a SC consisting of four (4) individuals (“Committee Members”); two of whom shall be nominated by ZOGENIX; and two of whom shall be nominated by DESITIN. The Committee Members may be replaced by written notice to the other Party and shall be appropriately qualified and experienced in order to make a meaningful contribution to SC meetings.
4.2	The purpose of the SC is to provide a forum for the Parties to share information on the ongoing research, development and commercialisation of the Product including monitoring progress of clinical studies, reviewing clinical trial programmes, considering proposed marketing and promotional plans, reviewing competitor activity and discussing any regulatory, technical, quality assurance or safety issues in relation to the Product.
4.3	The SC shall ensure the mutual exchange of Data, whether derived by Zogenix or DESITIN or their respective Affiliates or permitted sub-licensees. Each Party shall provide to the other Party such assistance as is reasonably necessary in respect of Regulatory Approvals in their respective territories, and in particular shall provide access to such Party’s Data, to the extent the Party providing such access is is legally and contractually permitted to do so, and, with respect to ZOGENIX providing DESITIN access, limited to DESITIN’s use in obtaining Regulatory Approvals in respect of the Product.
4.4	The SC shall meet as often as the Committee Members may determine, but in any event not less than twice per calendar year until approval of the first Marketing Authorisation and at least annually in the subsequent commercialisation period. Either Party may request additional SC meetings insofar it deems necessary for the development or commercialisation of the Product in the Territory. The Committee Members may invite individuals with special skills to attend meetings where it is considered to be relevant and appropriate. The quorum for SC meetings shall be two Committee Members, comprising one Committee Member from each Party. Each SC meeting shall be chaired by ZOGENIX. The Parties shall act in good faith and cooperate with one another in the development, marketing and commercialisation of the Product in the Territory.
4.5	The SC shall take its decisions unanimously. In the event the SC is unable to take a decision unanimously, ZOGENIX shall have the final say on development and

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 11

	manufacturing matters related to the Product in the Territory and DESITIN shall have final say on commercialisation matters related to the Product in the Territory (provided that DESITIN shall consult with ZOGENIX and consider any input received from ZOGENIX with respect to any pricing discussions with Regulatory Authorities related to the Product in the Territory).
5.	DEVELOPMENT AND COMMERCIALISATION OF THE PRODUCT
5.1	ZOGENIX shall, within [***] days from the Effective Date, deliver to DESITIN (to the extent available) the Licensed Know-How as of the Effective Date, to the extent that ZOGENIX is legally and contractually permitted to do so, and as required for the development, regulatory approval, commercialisation or use of the Product in the Territory.
5.2	DESITIN shall, at its sole cost, use Reasonable Commercial and scientific Efforts (without being required to use all available resources) to develop, obtain Marketing Authorisation(s) and commercialise the Product in the Territory, including obtaining all required approvals to market the Product in the Territory. DESTIN shall conduct its activities hereunder in a lawful manner and in accordance with the well-established pharmaceutical product development and commercialisation practices and the competition law applicable in each respective country in the Territory, and shall cause its employees, Affiliates and permitted sub-licensees to do the same. In particular DESITIN shall take all necessary steps to obtain Marketing Authorisation and prepare the Launch of the Product in Germany. In exploring in which other countries of the Territory the obtaining of Marketing Authorisation and the subsequent marketing of the Product, whether by DESITIN or DESITIN’s Affiliates or by local distribution partners, is likely to be profitable and commercially feasible, DESITIN will focus on France, Italy, Spain, the United Kingdom, Denmark, Sweden and Finland. Launch of the Product in the remaining countries of the Territory will be considered at a later stage and shall be mutually agreed.
5.3	DESITIN shall not be required to conduct any clinical or non-clinical trials, except only for one (1) study regarding bioequivalence of the Product provided that such study is required by a competent Regulatory Authority.
5.4	The Parties shall consult on an ongoing basis as to the preparation, filing, pursuit and maintenance of regulatory submissions under this Clause 5 and no such submission shall be made by DESITIN without ZOGENIX’s prior written approval, not to be unreasonably withheld. DESITIN shall keep ZOGENIX informed, in writing, of the status of its applications for Marketing Authorisations on a regular basis, and in any event no less frequently than once every three months, and shall immediately notify ZOGENIX in writing of any substantial change in the status of any Marketing Authorisation or any substantive questions received from any Regulatory Authority in respect of such Marketing Authorisations. DESITIN shall provide copies of all Marketing Authorisations to ZOGENIX at its request.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 12

5.5	Once Marketing Authorisation is granted in Germany without any qualifications, DESITIN hereby undertakes to ZOGENIX that it will Launch the Product in Germany no later than [***] ([***]) months after the date of the relevant Marketing Authorisation; provided that such time period shall be extended by the time period during which ZOGENIX fails to timely supply DESITIN with Product which has been properly ordered pursuant to the terms of the applicable supply agreement. Should DESITIN fail to Launch the Product in accordance with this Clause 5.5, DESITIN further undertakes to ZOGENIX that it will promptly notify ZOGENIX of such failure which shall be deemed a material breach of this Agreement
5.6	Once Marketing Authorisation is granted in any country of the Territory other than Germany without any qualifications, DESITIN shall (i) verify the profitability of a possible Launch of the Product in the respective country and (ii) subject to the verification of the profitability for such country in the Territory, Launch the Product as soon as reasonably practicable and commercially viable.
5.7	ZOGENIX shall use Reasonable Commercial Efforts to assist DESITIN to solve material issues which may arise after discussions with Regulatory Authorities on the Product.
5.8	ZOGENIX, to the extent it is legally and contractually permitted to so do, shall take all steps which may be required by law and shall sign all necessary documents and perform all commercially reasonable obligations which may be required in order to assure that DESITIN may market, sell and distribute the Product in the Territory under its own company name and in the manner it regards as appropriate subject to the terms of this Agreement and any possible restrictions caused by Marketing Authorisations.
5.9	The licences granted under Clauses 2.1 and 3.1 of this Agreement will become non-exclusive in the event that DESITIN (i) will not start the study regarding bioequivalence of the Product as referred to in Clause 5.3 within [***] ([***]) months following the receipt of the Licensed Know-How as of the Effective Date according to Clause 5.1 or (ii) has not filed a Marketing Authorisation for the Product in Germany within [***] ([***]) months after the completion of such bioequivalence study or (iii) otherwise adhere to a mutually agreed timeline for the execution of clinical trials and submissions of Marketing Authorisations throughout the Territory.
5.10	To the extent permissible by law, DESITIN is prohibited from advertising, circulating price lists or otherwise soliciting orders for the Product, and from establishing or maintaining branches, sales offices or distribution depots, outside the Territory for the distribution of the Product.
6.	MANUFACTURE AND SUPPLY OF THE PRODUCT
6.1	Clinical Supply. ZOGENIX shall be the exclusive supplier of all of DESITIN’s requirements for Clinical Trial Materials in the Territory at ZOGENIX’s Cost of Goods Manufactured. DESITIN shall purchase all of its requirements of Clinical Trial

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 13

	Materials in the Territory from ZOGENIX. Additional terms under which ZOGENIX shall supply Clinical Trial Materials in the Territory are set forth on Appendix 3.
6.2	Commercial Supply. The Parties shall use Reasonable Commercial Efforts to sign the Manufacturing Agreement no later than [***] ([***]) months prior to the anticipated first Launch of the Product in the Territory. The Manufacturing Agreement shall contain the terms set forth in this Clause 6.2 through Clause 6.6 and such other commercially reasonable and customary terms and conditions to be mutually agreed by the Parties (including the right of DESITIN to audit ZOGENIX’s (or its Third Party contract manufacturer’s) manufacturing facilities and a forecasting mechanism which will permit ZOGENIX to properly manage its supply chain for the Product on a worldwide basis) and such other terms as are reasonable and customary in the commercial supply of pharmaceutical compounds; provided that the Manufacturing Agreement shall be subject to the terms of any manufacturing agreement which ZOGENIX puts into place with respect to the commercial supply of Product in the Other Territories
6.3	DESITIN acknowledges and agrees that ZOGENIX will manufacture the Product or will enter into a contractual relationship with one or several manufacturers of the Product. Such Third Party manufacturers shall be listed in the registration documentation and manufacture the Product on ZOGENIX’s behalf in accordance with applicable law in the Territory.
6.4	Any Products supplied by ZOGENIX hereunder shall be manufactured:
	(a)	in accordance with cGMP;
	(b)	in compliance with the Product Specification; and
	(c)	in compliance with all applicable and relevant national and local laws, rules and regulations, including those promulgated by any relevant Regulatory Authority.
6.5	The Product shall be supplied by ZOGENIX to DESITIN as finished products ready for final packing and labelling as required in each country of the Territory (DESITIN will be responsible for such items as set forth in Clause 7.3 as well as quality control, in each case at its own expense). Each shipment of the Product shall be accompanied by the corresponding analytical certificate attesting to the Product’s compliance with the specification approved by the Regulatory Authority in the Territory. The Product shallbe placed at DESITIN’s disposal EXW (Incoterms 2000) ZOGENIX’s manufacturing facility at such address as is notified to DESITIN from time to time in writing.
6.6	ZOGENIX shall deliver commercial supply of the Product to DESITIN in complete batch quantities whereby each batch shall have a minimum remaining shelf life of [***] percent ([***]%) of the shelf life approved by the United States Food and Drug

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 14

	Administration in the Marketing Authorisation submitted by ZOGENIX on its own behalf.
7.	MARKETING
7.1	DESITIN shall inform ZOGENIX [***] ([***]) months before the anticipated date of the first Launch of the Product in the Territory of the Key Facts of its proposed promotion strategy regarding the Product. DESITIN shall provide ZOGENIX with copies of all promotional materials to be used in connection with the marketing and/or promotion of the Product in the Territory prior to their use. The materials shall be submitted in the language(s) of the country or countries where they are to be used. ZOGENIX shall use Reasonable Commercial Efforts to provide a written response, either approving or suggesting reasonable changes, within [***] ([***]) weeks of receipt of such Key Facts or promotional materials. If DESITIN does not receive a written response from ZOGENIX within this [***]-week period ZOGENIX shall be deemed to have given its approval. In case ZOGENIX does not agree with the provided Key Facts or other statements contained in any promotional materials, ZOGENIX and DESITIN agree to discuss the Key Facts or such other statements, as applicable, in good faith. After written approval by ZOGENIX which shall not be unduly withheld or delayed, DESITIN shall carry out marketing and promotional activities in relation to the Product in the Territory in compliance with the approved Key Facts, promotional materials and all applicable laws, rules and regulations.
7.2	During the Term, DESITIN shall not, and shall ensure that its Affiliates and permitted sub-licensees shall not, market, sell, promote or distribute the Product in the Other Territories.
7.3	DESITIN shall be responsible, at its cost, for final packaging and labelling of Product in accordance with the requirements for each country of the Territory.
7.4	DESITIN shall be free to set any price for the Product in the Territory subject to discussion by the SC as provided in Clause 4.4 and applicable pharmaceutical regulations.
7.5	Except to the extent permitted by law and as may be agreed in writing between the Parties, DESITIN shall not market, sell, promote or distribute the Product in the respective country in the Territory unless and until DESITIN obtains the appropriate Marketing Authorisations in respect of such Product in the respective country in the Territory.
8.	PRICING
8.1	DESITIN shall purchase the Product for commercial sale from ZOGENIX at the greater of (a) the agreed Transfer Price as defined in Clause 8.3 or (b) Cost of Goods Manufactured (collectively, the “Purchase Price”). In the event that Purchase Price is greater than the higher of [***]€ or US$[***], DESITIN shall have the right to terminate this Agreement as set forth in Section 21.7.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 15

8.2

Transfer Price shall be subject to adjustment on an annual basis beginning in 2009 based on data for the prior year (e.g., increases for information reported for 2008 shall apply to 2009 Transfer Prices) as of May 31 beginning with May 31, 2009, in accordance with the annual percentage change in the European pricing index of industrial products (“Erzeugerpreise industrieller Produkte auf dem Inlandsmarkt - Gesamte Industrie ohne Baugewerbe - Eurozone”; Source: EUROSTAT), except as otherwise mutually agreed by the Parties.

8.3

The Transfer Price (EXW (Incoterms 2000)) shall be calculated according to the following table and subject to adjustment as set forth in Clause 8.2:

Annual Units	Transfer Price (EUR)
[***]	[***]
[***]	[***]
[***]	[***]

	By way of example, if DESITIN or its Affiliates were to purchase an aggregate of [***] units in a calendar year 2008, the total Transfer Price for such calendar year would be calculated as follows: ([***] x [***]€) + ([***] x [***]€) + ([***] x [***]€) = [***]€.
9.	ROYALTIES
9.1	DESITIN shall pay ZOGENIX a royalty equal to [***]% of the DESITIN’s Net Sales (“Royalty”).
9.2	Royalties will not be payable on sales realised by regional distributors or Third Parties so long as such sales have been included in DESITIN’s Net Sales upon first sale or distribution to such regional distributors or Third Parties or are otherwise invoiced directly by DESITIN and as a result included in DESITIN’s Net Sales.
9.3	No Royalties shall accrue on the disposition of the Product as Samples (promotional or otherwise), donations or for clinical trials, provided that such level of sampling or donations are generally consistent with industry standards and in any event after expiry of [***] ([***]) months upon Launch does not exceed [***]% of the gross revenues of the Product in the Territory.
9.4	The obligation to pay a Royalty under Clause 9.1 for a Product shall continue throughout the Term.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 16

10.	PAYMENT TERMS
10.1	DESITIN shall make any other payments than Royalties due under this Agreement in United States Dollars within [***] ([***]) days of receipt of the invoice for Product (which date shall be no earlier than the date of delivery of the Product).Invoices shall be sent via fax and by internationally recognized overnight courier to DESITIN’s address for notices hereunder.
10.2	All right, title and risk in the Product passes to DESITIN upon delivery of Product to DESITIN in accordance with this Agreement.
10.3	DESITIN agrees to make payments and written reports to ZOGENIX within [***] ([***]) days after the end of each calendar quarter covering all sales of the Product in the Field in the Territory by DESITIN, its Affiliates or permitted sub-licensees for which invoices were sent during such calendar quarter, each such written report stating for the period in question: (i)  for Product disposed of in the Territory by sale, the quantity and description of Product, (ii)  for Product disposed of in the Territory other than by sale, the quantity, description, and nature of the disposition, (iii)  the calculation of DESITIN’s Net Sales for such quarter and year-to-date DESITIN’s Net Sales; and (iv)  the calculation of the amount due to ZOGENIX for such quarter pursuant to Clause 9 on account of such DESITIN’s Net Sales. The information contained in each report under this Clause 10.3 shall be considered Confidential Information of DESITIN. Concurrent with the delivery of each quarterly report, DESITIN shall make the payment due ZOGENIX hereunder in United States Dollars for the calendar quarter covered by such report.
10.4	All amounts not paid to the other Party when due shall accrue interest daily at the lesser of an annual rate of (a) [***] or (b) [***].
10.5	All sums payable hereunder are expressed to be exclusive of VAT or other similar tax. Notwithstanding the foregoing, any income or other taxes on any monies payable to ZOGENIX which DESITIN is required by law to pay or withhold on behalf of ZOGENIX, shall be deducted by ZOGENIX from such monies due. DESITIN shall furnish ZOGENIX with proof of such payments. Any such tax required to be paid or withheld shall be an expense borne solely by DESITIN, and ZOGENIX may request reimbursement from DESITIN for any such amounts. DESITIN shall promptly provide ZOGENIX with a certificate or other documentary evidence to enable ZOGENIX to support a claim for a refund or a foreign tax credit with respect to any such tax so withheld or deducted by DESITIN. At ZOGENIX’s request, DESITIN shall reasonably cooperate to support any claim by ZOGENIX for such a refund or credit. The Parties will reasonably cooperate in completing and filing documents under the provisions of any applicable tax treaty or under any other applicable law, in order to enable DESITIN to make such payments to ZOGENIX without any deduction for withholding.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 17

11.	RECORDS AND REPORTS
11.1	During the Term, DESITIN shall, and shall procure that its Affiliates shall, keep at its normal place of business full, complete, accurate and up to date records and books of account recording DESITIN’s Net Sales sufficient to ascertain the Royalties payable under this Agreement.
11.2	Upon no less than [***] ([***]) Business Days notice from ZOGENIX, DESITIN shall make such records and books of account available for audit during business hours to ZOGENIX or its nominee (but not more than [***] in any calendar year).
11.3	ZOGENIX shall be solely responsible for its costs and expenses in making any such audit and inspection unless ZOGENIX properly identifies a discrepancy in the Royalties paid in any calendar year from those properly payable under this Agreement for that calendar year of greater than [***]%, in which event DESITIN shall pay ZOGENIX’s reasonable cost incurred in connection with the audit and inspection, and promptly make good the deficit in the Royalty payments. Upon the expiration of [***] months from the end of any calendar year the calculation of Royalties payable with respect to such year shall be binding and conclusive, and DESITIN shall be released from any liability or accountability with respect to Royalties for such year.
11.4	All information disclosed by DESITIN, its Affiliates or its permitted sub-licensees pursuant to Clauses 11.1 through 11.3 shall be deemed Confidential Information of DESITIN, its Affiliates or its permitted sub-licenses, as the case may be.
11.5	DESITIN shall advise ZOGENIX of any legislation, rule, regulation or other law (including but not limited to any customs, tax, foreign exchange or foreign trade, antimonopoly, pharmaceutical products or intellectual property law) which is in effect or which may come into effect in the Territory after the date of this Agreement and which may affect the importation of the Products into the Territory or the use of the Products or the protection of the Licensed Technology as soon as DESITIN received notice thereof or would otherwise reasonably be expected to have notice thereof.
12.	INFRINGEMENT OF RIGHTS BY THIRD PARTY
12.1	ZOGENIX shall have the first right, but not the obligation, to take action in respect of any infringement of the Licensed Technology in the Territory, including but not limited to, commencing any claim or proceedings for injunctive, compensatory or other remedies or relief (collectively “Remedies”) as may be necessary or desirable to prevent such infringement and preserve the Licensed Technology. DESITIN shall permit any such Remedies to be brought in its name if permitted or required by law. ZOGENIX may compromise or settle any of the Remedies in its sole discretion, provided that, ZOGENIX shall not make any settlement or compromise that adversely affects the interests of DESITIN in respect of the Product in the Territory without the prior consent of DESITIN, such consent not to be unreasonably withheld or delayed.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 18

12.2	In the event that ZOGENIX elects not to pursue any Remedies with respect to the Licensed Technology in the Territory within [***] ([***]) days after notice in writing from DESITIN requesting ZOGENIX to do so, DESITIN shall have the right, but not the obligation, to pursue Remedies against such Third Party infringer, provided that:
	(a)	DESITIN does not make any settlement or compromise that affects the interests of ZOGENIX in the Product without the prior written consent of ZOGENIX, such consent not to be unreasonably withheld or delayed; and
	(b)	if ZOGENIX has commenced negotiations with such Third Party for discontinuance of the infringement within such [***] ([***]) day period, ZOGENIX shall have an additional [***] ([***]) day period to conclude its negotiations before DESITIN may pursue any Remedies under this Clause 12.2.
12.3	In the event that either Party pursues the Remedies under clauses 12.1 or 12.2:
	(a)	the other Party shall use all reasonable efforts to assist and cooperate with the Party pursuing such Remedies, including providing access to relevant materials, personnel, documents and other evidence; and
	(b)	each Party shall bear its own costs and expenses relating to its pursuit of Remedies or in providing assistance and cooperation; and
	(c)	any damages or other amounts awarded to either Party shall be distributed as follows:
		(i)	to the Party that pursued the Remedies, to cover its legal costs and expenses incurred; and then
		(ii)	to the other Party, to cover its legal costs and expenses, if any, relating to the pursuit of such Remedies; and then
		(iii)	any remaining amount, after the deductions set out above shall be retained by DESITIN, except that ZOGENIX shall receive a portion equivalent to the Royalties it would have received under this Agreement if such remaining amount were deemed DESITIN’s Net Sales.
13.	INFRINGEMENT OF THIRD PARTY RIGHTS
13.1	In the event that a Third Party institutes or threatens to institute a patent, trade secret or other infringement proceeding against either Party or its Affiliates during the Term, alleging that its or their manufacture, use or sale of the Product in the Territory infringes the Third Party’s Intellectual Property Rights (a “Third Party Action”), each Party shall promptly notify the other of the Third Party Action with such details as it

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 19

	has in its possession and the Parties shall promptly convene a meeting of the SC to discuss the best way to respond.
13.2	Upon receipt of any such notice the SC shall discuss the potential infringement and to the extent necessary attempt to agree on a course of action. Such course of action may include:
	(a)	obtaining an appropriate license from the Third Party;
	(b)	contesting any claim or proceedings brought by the Third Party; or
	(c)	bringing a declaratory judgment action against such Third Party.
13.3	ZOGENIX shall have the first right but not the obligation, to take any action agreed upon by the Parties in respect of the Third Party Action.  If within [***] days the Parties fail to agree upon an appropriate course of action through discussions of the SC, ZOGENIX may decide upon the course of action with respect to any Third Party Action and may commence such action or negotiate a license with such infringed Third Party.
13.4	Neither Party shall settle any Third Party Action relating to the Product if such settlement admits the invalidity or unenforceability of any of the Licensed Technology, except as agreed in writing between the Parties.
13.5	In the event that the SC determines that DESITIN is best positioned to commence any action in relation to or defence of the Third Party Action, DESITIN shall be entitled to credit up to [***]% of its reasonable costs and expenses (including legal and expert fees) or any Third Party royalties incurred against any royalty payment otherwise payable to ZOGENIX under this Agreement. In the event that no such royalty payments are payable by DESITIN under this Agreement at the time of the Third Party Action, up to [***]% of any reasonable costs and expenses or Third Party royalties incurred by DESITIN in connection with the Third Party Action shall be reimbursed by ZOGENIX on a Quarterly basis. In addition, in any such action which DESITIN commences as permitted by this Clause 13, DESITIN shall seek ZOGENIX’s consent prior to concluding any settlement agreement, which consent can be withheld in its sole discretion.
13.6	In any such Third Party Action, the Parties shall cooperate with each other in connection with any such claim, suit or proceeding and shall keep each other reasonably informed of any material developments in connection with any such claim, suit or proceeding, including providing access to relevant documents, material, personnel or other evidence.
14.	INDEMNIFICATION AND INSURANCE
14.1	ZOGENIX shall defend, indemnify and hold harmless DESITIN, its Affiliates and its and their officers, directors, employees, agents and contractors (“DESITIN Parties”) from and against any and all claims, actions, demands, losses, damages, costs and

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 20

	reasonable expenses (including reasonable legal and expert fees) made or brought by Third Parties (“Claims”) arising from or in connection with:
	(a)	the personal injury or death caused by the defective design and/or manufacture of the Product when supplied to DESITIN by ZOGENIX or its designee; or
	(b)	the breach of the warranties given by ZOGENIX under this Agreement, or
	(c)	the negligence of ZOGENIX Parties (as defined below) in the research, development, marketing, distribution, sale or use of the Product before the Effective Date both in or outside the Territory, or
	(d)	the negligence of ZOGENIX Parties in the research, development, marketing, distribution, sale or use of the Product following the Effective Date outside the Territory,
	provided that, in each case, such Claims do not arise from the negligence or wilful default of the DESITIN Parties.
14.2	DESITIN shall defend, indemnify and hold harmless ZOGENIX, its Affiliates and its and their officers, directors, employees, agents and contractors (the “ZOGENIX Parties”) from and against any and all Claims arising from or in connection with:
	(a)	the development, marketing, distribution, sale or use of the Product in the Territory after the Effective Date;
	(b)	the negligence by DESITIN Parties in relation to the development, marketing, distribution, sale or use of the Product in the Territory after the Effective Date; or
	(c)	the breach of the warranties given by DESITIN under this Agreement,
	provided that, in each case, such Claims do not arise from the negligence or wilful default of the ZOGENIX Parties. For the avoidance of doubt DESITIN shall in no event be liable for any claims arising from or in connection with the infringement of Third Party Rights, particularly patents and trademarks, caused by the manufacture or composition of the Product or the use of the Trademark.
14.3	Each Party shall promptly provide the other Party with copies of all papers and official documents received in respect of any Claims and shall cooperate as reasonably requested by the other Party in the defence of any Claims.  The Party which is indemnifying the other Party hereunder shall have control of, and discretion in, the handling of the defense and/or settlement of any such Claim, including, without limitation, the selection of defense counsel; provided, however, that the indemnified Party may take any appropriate action necessary to preserve or avoid prejudice to its interests, or the interests of the indemnifying Party, in the event that (1) notice to the indemnifying Party cannot be given in  sufficient time for such Party to take action, or (2) the indemnifying Party, after prompt notice and inquiry from the indemnified

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 21

	Party, fails to acknowledge its  obligation to indemnify the indemnified Party under this Clause 14.
14.4	Each Party shall maintain, at its own cost, comprehensive product liability insurance and general commercial liability insurance adequate to cover their respective obligations under this Agreement in such amount as the Parties customarily maintain with respect to its other products and which is reasonable and customary in the pharmaceutical industry in their respective territories for companies of comparable size and activities. Each Party shall maintain such insurance policy for not less than [***] ([***]) years following the expiry or termination of this Agreement. A certificate of insurance and any other documentation necessary to prove compliance with this provision will be provided to the other Party upon request.
14.5	TO THE FULL EXTENT PERMITTED BY LAW, APART FROM THE FOREGOING WARRANTIES AND INDEMNITY OR SUCH WARRANTIES OR INDEMNITY AS MAY BE CONTAINED WITHIN THE MANUFACTURING AGREEMENT, NEITHER PARTY MAKES ANY ADDITIONAL REPRESENTATIONS OR WARRANTIES AND HEREBY DISCLAIMS ALL WARRANTIES, REPRESENTATIONS, AND LIABILITIES, WHETHER EXPRESS OR IMPLIED, ARISING FROM CONTRACT OR TORT (EXCEPT FRAUD), IMPOSED BY STATUTE OR OTHERWISE, RELATING TO THE PRODUCTS AND/OR ANY LICENSED TECHNOLOGY, INCLUDING ANY WARRANTIES AS TO MERCHANTABILITY, FITNESS FOR PURPOSE, CORRESPONDENCE WITH DESCRIPTION, OR NON-INFRINGEMENT.
14.6	IN NO EVENT WILL EITHER PARTY BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING ANY LOSS OF PROFITS, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
15.	IMPROVEMENTS AND PATENTS
15.1	All right, title and interest in any Intellectual Property Right created, generated or arising in connection with the Product and any Improvement thereof, whether invented solely by ZOGENIX, DESITIN or jointly by the Parties, shall be solely owned by ZOGENIX.
15.2	Each Party shall promptly disclose to the other any Improvements developed during the Term, and all such Improvements shall be deemed to the fullest extent possible to be works made for hire exclusively for ZOGENIX, with ZOGENIX having sole ownership of such Improvements and the sole right to obtain and to hold in its own name patents, copyrights, or such other protection as ZOGENIX may deem appropriate to the subject matter, and any extensions or renewals thereof (though ZOGENIX is under no obligation to file any patent application, secure or maintain any patent or register any copyright). To the extent DESITIN or its Affiliates nonetheless maintain any rights in and to any Improvements, DESITIN and its Affiliates hereby assign, cede and grant to ZOGENIX all rights to possession of, and

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 22

	all right, title, and interest, including all patents and copyrights and the right to prepare and exploit derivative works, in such Improvements. DESITIN agrees to give ZOGENIX or any person designated by ZOGENIX at ZOGENIX’s expense, all assistance reasonably required to perfect the rights hereinabove defined, including the execution of documents and assistance or cooperation in legal proceedings.
15.3	In the event that either Party identifies any Third Party Intellectual Property Rights that in such Parties’ reasonably opinion would provide a commercial benefit to the Product, it shall promptly inform the Other Party of such Intellectual Property Rights through the SC and the Parties shall in good faith discuss whether they intend to license or acquire such Third Party rights. In the event a license in such Third Party Intellectual Property Right shall be taken, ZOGENIX shall negotiate and enter into such license including the right to sub-license its rights to DESITIN. Any sublicense of rights shall be set forth in a separate sub-license agreement to be entered into between DESITIN and ZOGENIX and shall include terms substantially similar to those contained in this Agreement; provided that DESITIN and ZOGENIX shall equally share all Third Party license fees incurred.
15.4	ZOGENIX shall, at its sole cost and expense, using patent attorneys of its choice, use Reasonable Commercial Efforts to file, prosecute and maintain the patents, patent obligations and other Intellectual Property Rights related to the Licensed Technology in the Territory. Any costs relating to the filing of these Intellectual Property Rights in the Territory shall be borne by ZOGENIX.
15.5	ZOGENIX shall, at its sole cost and expense, using trademark attorneys of its choice, use Reasonable Commercial Efforts to file, prosecute, maintain and enforce the Trademark in the Territory.
16.	RIGHT OF FIRST REFUSAL
16.1	ZOGENIX hereby grants to DESITIN for the Term the right of first refusal to in-license any Product line extensions (including new or additional therapeutic uses) which DESITIN desires to market in the Territory as set forth in this Clause 16 (the “ROFR”).
16.2	Following ZOGENIX’s decision to offer for license any Product line extension in the Territory, ZOGENIX shall promptly inform DESITIN in all relevant detail of any such Product line extensions, thus giving DESITIN a meaningful basis for taking a decision on whether or not to exercise the ROFR.
16.3	For a period of no more than [***] ([***]) months after ZOGENIX has supplied DESITIN with the information referred to in Clause 16.2 (the “Review Period”) DESITIN may exercise the ROFR by providing written notice to ZOGENIX within the Review Period of DESITIN’s desire to exercise the ROFR. The Parties shall thereafter negotiate in good faith for a period of no longer than [***] ([***]) additional months, the terms and conditions on which such Product line extension would be included within this Agreement, if at all. If the Parties are unable to reach agreement following the expiration of such additional [***] ([***])-month period, ZOGENIX

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 23

	shall thereafter be permitted to license any such Product line extension to a Third Party on terms no more favourable to such Third Party than those most recently offered by DESITIN.
17.	REGULATORY
17.1	DESITIN shall, at its sole cost, use Reasonable Commercial Efforts (without being required to use all available resources) to prepare, file, prosecute and maintain the Marketing Authorisations and other permits required for the commercialisation of the Product in the Territory.
17.2	Each Marketing Authorisation will be registered in DESITIN’s name.
17.3	DESITIN shall act as ZOGENIX’s consultant and representative towards the MOH and the other relevant authorities or third parties in connection with obtaining and maintaining the Marketing Authorisation for the Product in the Territory.
17.4	ZOGENIX undertakes and covenants to DESITIN that it will not during the Term apply for an additional Marketing Authorisation relating to the Product in the Territory nor will ZOGENIX during the Term apply for or otherwise seek the benefit of any substitute of the Marketing Authorisation.
17.5	ZOGENIX shall keep DESITIN fully informed of any changes to the Product which it reasonably believes might be relevant in relation to the Marketing Authorisation. ZOGENIX shall not discontinue the supply of the Product containing the previous specifications unless all requirements set by a Regulatory Authority in the Territory for the maintenance or the renewal of the Marketing Authorisation issued by it have been complied with.
17.6	DESITIN shall be responsible, as the case may be, for obtaining reimbursement for the Product on behalf of ZOGENIX in the Territory. ZOGENIX shall assist DESITIN in obtaining reimbursement by providing all reasonable support and all Data as may be required by the relevant Regulatory Authority.
18.	PHARMACOVIGILANCE
18.1	The Parties shall use Reasonable Commercial Efforts to sign the Pharmacovigilance Agreement no later than [***] ([***]) months prior to the anticipated first Launch of the Product in the Territory.
18.2	If there is any inconsistency between this Agreement and the Pharmacovigilance Agreement the terms of this Agreement will prevail between the Parties to the extent of such inconsistency.
19.	EXCHANGE OF INFORMATION
19.1	DESITIN shall use the Dossier only during the Term and in furtherance of its rights and obligations under this Agreement.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 24

19.2	DESITIN undertakes to neither sell nor otherwise make available to any Third Party the Dossier or any part thereof without a previous written approval from ZOGENIX.
19.3	ZOGENIX will inform DESITIN promptly if the competent Regulatory Authority or any other competent authority gives notice to ZOGENIX or its Affiliates of any difficulties or delays regarding the grant of the Marketing Authorisation in the U.S.A. or of any further studies to be conducted by ZOGENIX to obtain Marketing Authorisation in the U.S.A.
20.	[Intentionally Omitted]
21.	TERM AND TERMINATION
21.1	The term of this Agreement will continue on a country-by-country basis until the greater of [***] ([***]) years after the Launch or the expiration in such country of the last to expire Patent Right included in the Licensed Technology or Improvements licensed hereunder (the “Initial Term”).
21.2	After the Initial Term and only with respect to countries of the Territory where the Product has been successfully Launched, this Agreement shall be automatically renewed on a country-by-country basis by additional successive periods of [***] ([***]) years unless it is terminated by either Party giving [***] ([***]) month’s prior written notice.
21.3	Either Party shall be entitled to terminate the Agreement if:
	(a)	the other Party commits a material breach under this Agreement and in the case of a breach which is capable of remedy fails to remedy it within [***] ([***]) days of receipt of notice from the first Party of such breach and of its intention to exercise its rights under this Clause;
	(b)	the other Party enters into insolvency or bankruptcy or is unable to pay its debts as they fall due, or a trustee or receiver or the equivalent is appointed to the other Party, or proceedings are instituted against the other Party relating to dissolution, liquidation, winding up, bankruptcy, insolvency or the relief of creditors, if such proceedings are not terminated or discharged within [***] ([***]) days;
	(c)	any law, decree, or regulation is enacted within the Territory which would substantially impair or restrict (1) the terminating Party’s right to terminate or elect not to renew this Agreement as herein provided; (2) ZOGENIX’s right, title or interest in the Products or the Intellectual Property Rights therein; (3) as to DESITIN, DESITIN’s right to market and distribute the Products in accordance with this Agreement; or (4) as to ZOGENIX, ZOGENIX’s right to collect the Purchase Price or Royalties as set forth in this Agreement; or

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 25

	(d)	an adverse event occurs which has substantially impaired the other Party’s ability to continue to perform its obligations hereunder and the other Party is unable to provide the terminating Party with adequate assurance of future performance.
21.4	Either Party shall be entitled to terminate this Agreement with [***] ([***]) days written notice without any damage, legal redress or compensation due it if the continued development or marketing of the Product is no longer possible due to advice from a relevant Regulatory Authority or clinical review board in the Territory or due to serious adverse events caused by the Product anywhere in the world.
21.5	DESITIN shall be entitled to immediately terminate this Agreement with written notice and without any damage, legal redress or compensation due to ZOGENIX in case:
	(a)                   a competent Regulatory Authority imposes therapeutic indications in the Territory not acceptable to DESITIN or require the Product to be marketed as generic drug in the Territory; or
	(b)                   the Regulatory Authorities in the Territory require more than one study regarding bioequivalence of the Product to obtain Marketing Authorisation.
21.6	ZOGENIX shall be entitled to terminate this Agreement with thirty (30) days written notice without any damage, legal redress or compensation due to DESITIN in case:
	(a)                   DESITIN in each of [***] consecutive calendar years (other than any partial calendar year in which the Product is first Launched) fails to meet at least [***]% of the mutually agreed sales forecasts provided that such shortfall is caused by circumstances within DESITIN’s reasonable control;
	(b)                   DESITIN takes any act or step impairing the Intellectual Property Rights of ZOGENIX or does anything that might otherwise adversely affect the Intellectual Property rights of ZOGENIX (whether DESITIN’s act or challenge of ZOGENIX’s rights is in good faith) and, if the act or step is capable of remedy, fails to remedy it within thirty (30) days of receipt of notice from ZOGENIX of such act or step and of its intention to exercise its rights under this Clause 21.6; or
	(c)                   DESITIN ceases to carry on business in the marketing of pharmaceutical products in the Territory.
21.7	DESITIN shall be entitled to terminate this Agreement with [***] ([***]) days’ prior written notice under the conditions set forth in Section 8.1. Following the effective date of such termination, ZOGENIX shall reimburse DESITIN for [***] percent ([***]%) of the Third Party costs incurred by DESITIN in connection with clinical development and regulatory approval of the Product in the Territory under this Agreement, upon receipt of reasonably detailed documentation supporting such costs and such other supporting documentation as ZOGENIX may reasonably request. In no event shall the amounts reimbursed DESITIN pursuant to this Section 21.7 exceed US$[***].

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 26

22.	CONSEQUENCES OF TERMINATION
22.1	On expiration or termination of the Agreement for any reason whatsoever, the License granted under this Agreement shall cease and DESITIN shall, and shall procure that its Affiliates and permitted sub-licensees shall:
	(a)	Cease to carry out any of the activities permitted by this Agreement (or any relevant sub-license agreement) and cease to use or exploit in any way the Licensed Technology;
	(b)	Refrain from using the Trademark; and
	(c)	Continue to treat the Licensed Know-how and any other information provided by ZOGENIX as secret and confidential according to Clause 23 hereof.
	In addition, on expiration of the Agreement or termination of the Agreement by ZOGENIX pursuant to Clauses 21.3 or 21.6, DESITIN shall grant to ZOGENIX a perpetual, royalty free license to use any trademark which DESITIN used in the commercialization of the Product in the Territory in connection with subsequent commercialization of the Product in the Territory by or on behalf of ZOGENIX; provided, however, that such license shall not include a right for ZOGENIX to use the word DESITIN in any subsequent commercialization of the Product in the Territory.
22.2	DESITIN, its Affiliates and its permitted sub-licensees shall be entitled to continue to sell existing stocks of the Product in the Territory for a period of no longer than [***]([***]) months following the date of termination, provided that DESITIN pays ZOGENIX any Royalty payments due in respect of such sales in accordance with the provisions of this Agreement.
22.3	The termination or expiry of this Agreement shall not release either of the Parties from any liability which at the time of termination or expiry has already accrued to the other Party, nor affect in any way the survival of any other right, duty or obligation of the Parties which is expressly stated elsewhere in this Agreement to survive such termination or expiry.
23.	CONFIDENTIALITY
23.1	The Parties, their Affiliates and their respective employees, directors, officers, consultants and contractors shall keep and maintain as confidential any Confidential Information supplied by the other Party prior to the Effective Date or during the Term. The confidentiality and non-disclosure obligations contained in this Agreement shall not apply to the extent that such Confidential Information is:

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 27

	(a)	at the time of disclosure by one Party to the other, in the public domain or otherwise publicly known;
	(b)	after disclosure by one Party to the other becomes part of the public domain, other than by breach of any obligation of confidentiality;
	(c)	information which the receiving Party can establish by documentary evidence was already in its possession at the time of receipt or was independently developed by the receiving Party; or
	(d)	received from a Third Party who was lawfully entitled to disclose such information.
23.2	Notwithstanding clause 23.1, the Party receiving Confidential Information may disclose such Confidential Information:
	(a)	to governmental or other regulatory agencies in order to file patent applications or prosecute such applications to grant, provided that, the disclosure is limited to the extent reasonably required; provided that this sub-clause (a) shall only be applicable to Confidential Information of DESITIN received by ZOGENIX as it relates to Licensed Technology; or
	(b)	to government or other Regulatory Authorities in order to file or prosecute any applications for Marketing Authorisations or other permits reasonably required to research, develop, manufacture, use, distribution, sale or supply the Licensed Product, provided that the disclosure is limited to the extent reasonably required and is consistent with the rights of the Party under this Agreement; or
	(c)	to the extent that such disclosure has been ordered by a court of law or directed by a governmental body or authority in an enforceable decision, provided that, the Confidential Information may be disclosed only to the extent so ordered or directed and wherever practicable, the Party that owns the Confidential Information has been given sufficient written notice in advance to enable it to seek protection or confidential treatment of such Confidential Information.
23.3	Neither Party shall disclose any information about this Agreement without the prior written consent of the other. However, the Parties intend to announce the execution and delivery of this Agreement promptly following such execution and delivery pursuant to the form of press release attached to this Agreement as Exhibit 23.3. Consent shall not be required, however, for (a) disclosures to tax authorities or to bona fide potential sub-licensees, to the extent required or contemplated by this Agreement, provided, that in connection with such disclosure, each Party agrees to use its commercially reasonable efforts to secure confidential treatment of such information; (b) disclosures of information for which written consent has previously been obtained, or (c) information which had previously been publicly disclosed, including pursuant to the press release described above. Each Party shall have the further right to disclose the terms of this Agreement as required by applicable law, including the rules and

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 28

	regulations promulgated by the Securities and Exchange Commission and/or the regulatory bodies/authorities governing securities issues in foreign jurisdictions and to disclose such information to stockholders or potential investors as is customary, provided the disclosing Party provides to the other Party, to the extent practicable, a copy of the information to be disclosed and an opportunity to comment thereon prior to such disclosure, and, to the extent practicable, consults within a reasonable time in advance of the proposed disclosure with the other on the necessity for the disclosure and the text of the proposed release. Any copy of this Agreement to be filed with the Securities and Exchange Commission shall be redacted to the reasonable satisfaction of both Parties; provided, however, in the event that the Securities and Exchange Commission objects to the redaction of any portion of the Agreement after the initial submission, the filing Party shall inform the other Party of the objections and shall in good faith respond to the objections in an effort to limit the disclosure required by the Securities and Exchange Agreement, but in any event the filing Party shall be free to include any portions of the Agreement it deems necessary to respond to the objections in any future filings.
24.	REPRESENTATIONS AND WARRANTIES
24.1	ZOGENIX and DESITIN each warrant that, as of the Effective Date:
	(a)	it is a company duly organised and existing and has the power and authority to enter into this Agreement;
	(b)	it has obtained all corporate authorisations required to enter into and perform its obligations under this Agreement;
	(c)	there are no agreements between it and any Third Party that conflict with this Agreement;
	(d)	no consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery by it of this Agreement;
	(e)	it has all rights necessary to perform its obligations under this Agreement, including the grant of rights by ZOGENIX hereunder; and
	(f)	this Agreement is valid and binding obligation enforceable against it in accordance with its terms and conditions.
24.2	ZOGENIX warrants that, as of the Effective Date:
	(a)	to the best of ZOGENIX’s knowledge, the sale and use of the Product does not infringe the Intellectual Property Rights of any Third Parties in the Territory and no court proceedings or other proceeding for infringement of Intellectual Property rights have been brought against ZOGENIX with respect to the Product in the Territory;
	(b)	to the best of ZOGENIX’s knowledge, no Third Party is infringing or has infringed any of ZOGENIX’s Intellectual Property Rights in the Licensed Technology in the Territory or has misappropriated any of the Licensed Know How in the Territory.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 29

25.	FORCE MAJEURE
25.1	Neither Party shall be entitled to terminate this Agreement or shall be liable to the other under this Agreement for loss or damages attributable to any Force Majeure, provided the Party affected shall give prompt notice thereof to the other Party. The Party giving such notice shall be excused from such of its obligations hereunder for so long as it continues to be affected by Force Majeure.
25.2	If such Force Majeure continues unabated for a period of at least [***] ([***]) days, the Parties will meet to discuss in good faith what actions to take or what modifications should be made to this Agreement as a consequence of such Force Majeure in order to alleviate its consequences on the affected Party.
26.	NOTICES
26.1	Any notice or other document given under this Agreement shall be in writing in the English language and shall be given by hand or sent by internationally recognized overnight courier, by fax transmission to the address of the receiving Party as set out in Clause 26.3 below unless a different address or fax number has been notified to the other in writing for this purpose.
26.2	Each such notice or document shall:
	(a)	if given by hand, be deemed to have been given when delivered at the relevant address;
	(b)	if sent by internationally recognized overnight courier, be deemed to have been given two (2) Business Days following delivery to such overnight courier; and
	(b)	if sent by fax transmission, be deemed to have been given when transmitted provided that a confirmatory copy of such facsimile transmission shall have been given by hand or sent by internationally recognized overnight courier as set forth herein.
26.3	The address for services of notices and other documents on the Parties shall be:

To DESITIN		To ZOGENIX
Name:	Desitin Arzneimittel GmbH	Name:	Zogenix, Inc.
Attn.:	[***]	Attn.:	Chief Financial Officer
Address:	Weg beim Jänger 21422335 Hamburg, Germany	Address:	11682 El Camino Real Suite 320 San Diego, CA 92130, USA
Fax:	[***]	Fax:	[***]
E-Mail:	[***]	E-Mail:	[***]

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 30

27.	ASSIGNMENT
27.1	Neither Party shall assign any of its rights or obligations under this Agreement to a Third Party without the prior written consent of the other, such consent not to be unreasonably withheld, conditioned or delayed. ZOGENIX may assign its rights and obligations under this Agreement, without the prior written consent of DESITIN, to any Third Party purchaser of all or substantially all of the assets or business to which this Agreement relates.
27.2	Either Party may at any time assign any of its rights under this Agreement to an Affiliate, provided however, that such Party remains fully liable for the performance of such Party’s obligations hereunder by such Affiliate; provided further that any rights assigned by DESITIN to an Affiliate shall be immediately reassigned to DESITIN or assigned to an Affiliate of DESITIN if the assignee ceases to be an Affiliate.
27.3	Either Party may at any time engage a contract research organisation to manage any non-clinical or clinical studies required under or in connection with the Marketing Authorisation process.
27.4	Any assignment in violation of this Clause 27 shall be null and void. This Agreement shall be binding on and shall inure to the benefit of the permitted successors and assigns of the Parties hereto.
28.	GENERAL PROVISIONS
28.1	The relationship of ZOGENIX and DESITIN established by this Agreement is of independent contractors, and nothing in this Agreement shall be construed: (1) to give either Party the power to direct or control the daily activities of the other Party, or (2) to constitute the Parties as principal and agent, partners, or otherwise as participants in a joint undertaking. ZOGENIX shall have no obligation or authority, express or implied, to exercise any control whatsoever over the employees or the business affairs of DESITIN. Except as specifically provided in this Agreement, DESITIN shall have no power or authority to make or give any representation or warranty or to incur any liability or obligation, or to waive any right, on ZOGENIX’s behalf.
28.2	Each of the Parties shall do execute and perform all such further acts, deeds documents and things as the other Party may reasonably require from time to time to give full effect to the terms of this Agreement.
28.3	Each Party shall pay its own costs, charges and expenses incurred in connection with the negotiation, preparation and completion of this Agreement.
28.4	This Agreement, its schedules and the agreements contemplated herein (particularly the Pharmacovigilance Agreement and the Manufacturing Agreement) set out the entire agreement and understanding between the Parties in respect of the subject matter of this Agreement and supersede any heads of agreement which shall cease to have any further force or effect.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 31

28.5	No variation of this Agreement, including this Clause 28.5, shall be valid unless it is in writing and signed by or on behalf of both Parties.
28.6	If and to the extent that any provision of this Agreement is held to be illegal, void or unenforceable, such provision shall be given no effect and shall be deemed not to be included in this Agreement but without invalidating any of the remaining provisions of this Agreement.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 32

28.7 This Agreement and the obligations of the Parties shall be governed by and construed in accordance with the substantive laws of England to the exclusion of the United Nations Convention on the International Sale of Goods.

SIGNED for and by behalf of
DESITIN Arzneimittel GmbH	_/s/	[***]	March 14, 2008
	[***]		Date
	[***]
	_/s/	[***]	March 14, 2008
	[***]		Date
	[***]
SIGNED for and by behalf of
ZOGENIX, INC.	/s/ Roger L. Hawley		March 14, 2008
	Roger L. Hawley		Date
	CEO

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 33

Appendix 1

PRODUCT SPECIFICATION

[***]

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 34

Appendix 2

LICENSED PATENTS

[***]

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 35

Appendix 3

Clinical Supply Terms

Pursuant to the terms of this Appendix 3, ZOGENIX shall supply DESITIN with its requirements for Clinical Trial Materials solely for use in clinical trial activities in the Territory in support of Marketing Authorisation for the Product in the Territory (“Development”).  Clinical Trial Materials supplied by ZOGENIX shall be provided at the prices set forth in Clause 8 of the Agreement or at such other transfer prices as the parties may mutually agree.

DESITIN shall place its first order for Clinical Trial Materials no later than [***] ([***]) months following the Effective Date, to be delivered no later than additional [***] ([***]) months thereafter.  DESITIN shall place subsequent orders for Clinical Trial Materials at least [***] ([***]) months prior to the desired delivery date.   ZOGENIX will use Reasonable Commercial Efforts to meet DESITIN’s requested quantities and delivery dates.  ZOGENIX shall notify DESITIN of the specific delivery date and quantity for each subsequent order no later than [***] ([***]) months following receipt of DESITIN’s order by ZOGENIX.

DESITIN acknowledges and agrees that ZOGENIX will manufacture Clinical Trial Materials or will enter into a contractual relationship with one or several manufacturers for the Clinical Trial Materials. Such Third Party manufacturers shall manufacture Clinical Trial Materials on ZOGENIX’s behalf in accordance with applicable law in the Territory.

Any Clinical Trial Materials supplied by ZOGENIX hereunder shall be manufactured:  (a) in accordance with cGMP; (b) in compliance with the Product Specification; and (c) in compliance with all applicable and relevant national and local laws, rules and regulations, including those promulgated by any relevant Regulatory Authority.

Clinical Trial Materials shall be supplied by ZOGENIX to DESITIN as finished products ready for final packing and labelling as required in each country of the Territory (DESITIN will be responsible for such items as set forth in Clause 7.3 of the Agreement as well as quality control, in each case at its own expense). Each shipment of Clinical Trial Materials shall be accompanied by the corresponding analytical certificate attesting to compliance with the Product Specification. Clinical Trial Materials shall be placed at DESITIN’s disposal EXW (Incoterms 2000) ZOGENIX’s manufacturing facility.

*** 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.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 36

Exhibit 23.3

Form of Press Release

Zogenix Licenses European Development and Commercial Rights for

sumatriptan DosePro™ to Desitin Pharmaceuticals, GmbH

SAN DIEGO, CA (March XX, 2008):  Zogenix, Inc. (“Zogenix”), a private, specialty pharmaceutical company, today announced that it has entered into a license agreement to grant exclusive rights in the European Union to Desitin Pharmaceuticals, GmbH (“Desitin”) to develop and commercialize Zogenix’s late stage, single use, needle-free product candidate for migraine headache, sumatriptan DosePro. The product candidate, that incorporates the Zogenix DosePro needle-free drug delivery technology, has previously demonstrated bioequivalence to the Imitrex STATdose System® (sumatriptan injection, GlaxoSmithKline) in a U.S. pivotal clinical trial and compelling ease-of-use in a usability trial with migraine sufferers. 

Under the terms of the agreement, Desitin will oversee, and be responsible for the expenses related to, all clinical development, regulatory approvals and commercialization efforts required to market and sell sumatriptan DosePro across Europe.  Zogenix will be responsible for the manufacture and supply of commercial product, and will receive a transfer price payment on manufactured product and royalty payments based on sales of the product upon commercialization.  Zogenix retains full commercial rights to sumatriptan DosePro in the U.S., Canada, Asia and certain other countries.

Sales of triptans, the class of drugs in which sumatriptan DosePro is expected to compete, total approximately $550 million annually in the five major countries of Europe: Germany, France, Italy, Spain, and the UK, according to IMS Health MIDAS.  "Triptans remain the standard of care in migraine treatment,” commented Dr. Stephen Farr, President and Chief Operating Officer of Zogenix.  “However, there remains a significant unmet medical need for more effective, easy-to-use triptans that can deliver on the promise of providing faster onset and more complete pain relief without the use of a needle.  Sumatriptan DosePro is designed to meet these needs.”

“This license agreement expands the potential reach for sumatriptan DosePro beyond the U.S., where, subject to regulatory approval, Zogenix is preparing to commercialize sumatriptan DosePro ourselves,” said Roger Hawley, Chief Executive Officer of Zogenix.  “In Desitin, we have chosen a European partner that has a proven track record of successfully developing, registering and commercializing central nervous system (CNS) products.  We look forward to seeing sumatriptan DosePro advance through these steps and launch in the European marketplace.”

“This agreement reflects the unique and well respected position Desitin holds in the European CNS market.  We have the ability to both move this product candidate through the European regulatory process and to launch it with our CNS-focused sales representatives in more than nine countries,” commented Dr. Martin Zentgraf, Desitin’s General Manager.  “This product candidate fits with our ongoing commitment to develop improved products that address unmet medical needs in the CNS market.  We are delighted to be working with Zogenix and, subject to regulatory approval, look forward to bringing this important product candidate to the market for the benefit of patients.”

About Zogenix

Zogenix, Inc., with offices in Emeryville and San Diego, CA, is a private, specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. The company's lead product candidate, sumatriptan DosePro (previously Intraject®), enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. In December 2007, Zogenix submitted a New Drug Application with the U.S. Food and Drug Administration for sumatriptan DosePro. Zogenix’s second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and the company anticipates initiating the Phase 3 clinical program in the second half of 2008.  The company also plans to license the patented DosePro drug delivery system to other companies.  For additional information, visit www.zogenix.com.

About Desitin

Desitin Arzneimittel GmbH, based in Hamburg, Germany is an independent, private, fully integrated, German pharmaceutical company focused on the development, manufacturing and distribution of products for the treatment of central nervous system disorders.  Desitin, with turnover in 2005/2006 of over $100 million, is one of the leading European companies in the field of epilepsy with additional expertise in Parkinson’s disease and psychiatric disorders. With their pharmaceutical and clinical development capabilities, the company develops innovative products such as controlled-release and high-dose antiepileptics.  Desitin’s sales infrastructure offers comprehensive coverage in Germany, Northern and Eastern Europe. The company also has strategic partnerships with other companies covering nearly all of the remaining countries in Europe.  For additional information, visit  www.desitinpharma.com   

Bourne Partners, Charlotte N.C., acted as financial advisors to Desitin on this transaction.

Zogenix™, DosePro™ and INTRAJECT® are trademarks of Zogenix, Inc.

Imitrex STATdose System® is a registered trademark of GlaxoSmithKline. 

###

CONTACTS:

Zogenix, Inc.

J.D. Haldeman,

VP, Commercial Strategy &

Corporate Communications

858.436.8595

jdhaldeman@zogenix.com 

Desitin Pharmaceuticals GmbH

Dr. Harald Jainta,

Director Business Development

Jainta@desitin.de

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

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 March 3, 2008, in the Registration Statement (Form S-1) and related Prospectus of Zogenix, Inc. to be filed with the Securities and Exchange Commission on or about March 20, 2008 for the registration of its shares of common stock.

/s/ Ernst & Young LLP

San Diego, California
March 18, 2008

QuickLinks

Exhibit 23.1