-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BLnORyVFzVsT/nTwIw0EBnbZoU9+E4lE0T0STn9+86X8knBv8d3IkLoT48BFZolm frb0PYR/zfx8wPqsd0qYZA== 0000950124-01-503832.txt : 20020410 0000950124-01-503832.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950124-01-503832 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESPERION THERAPEUTICS INC/MI CENTRAL INDEX KEY: 0001066745 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 383419139 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16033 FILM NUMBER: 1780616 BUSINESS ADDRESS: STREET 1: 3621 S STATE STREET 695KMS PLACE STREET 2: 734-332-0506 CITY: ANN ARBOR STATE: MI ZIP: 48108 MAIL ADDRESS: STREET 1: 3621 STATE STREET STREET 2: 695 KMS PLACE CITY: ANN ARBOR STATE: MI ZIP: 48108 10-Q 1 k65890e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 001-16033 ESPERION THERAPEUTICS, INC. (Exact name of registrant as specified in its charter) DELAWARE 38-3419139 (State of incorporation) (IRS Employer Identification No.) 3621 S. STATE STREET, 695 KMS PLACE ANN ARBOR, MI 48108 (734) 332-0506 (Address of principal executive offices, including zip code, and telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of outstanding shares of the Registrant's common stock, as of November 2, 2001, was 29,169,835. ESPERION THERAPEUTICS, INC. FORM 10-Q TABLE OF CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000................................................................... 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000, and the period from inception to September 30, 2001................................................ 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000, and the period from inception to September 30, 2001.................. 5 Notes to Condensed Consolidated Financial Statements................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk................................. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings.......................................................................... 15 Item 2. Changes in Securities and Use of Proceeds.................................................. 15 Item 3. Defaults Upon Senior Securities............................................................ 15 Item 4. Submission of Matters to a Vote of Security Holders........................................ 15 Item 5. Other Information.......................................................................... 15 Item 6. Exhibits and Reports on Form 8-K........................................................... 16 SIGNATURES............................................................................................ 17 INDEX TO EXHIBITS..................................................................................... 18
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES (A Company in the Development Stage) CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, in thousands 2001 2000 - -------------------------------------------------------------------------------------- (Unaudited) ASSETS: Current assets: Cash and cash equivalents $ 76,985 $ 70,228 Prepaid expenses and other 840 1,112 - ------------------------------------------------------------------------------------ Total current assets 77,825 71,340 - ------------------------------------------------------------------------------------ Furniture and equipment, net 3,400 2,503 Goodwill, net 3,317 3,500 Deposits and other assets 421 534 - ------------------------------------------------------------------------------------ Total assets $ 84,963 $ 77,877 ==================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current portion of long-term debt $ 952 $ 697 Accounts payable 2,621 3,936 Accrued liabilities 3,247 2,526 - ------------------------------------------------------------------------------------ Total current liabilities 6,820 7,159 - ------------------------------------------------------------------------------------ Long-term debt, less current portion 5,386 3,027 Stockholders' equity: Common stock 29 26 Additional paid-in capital 133,575 110,650 Notes receivable (18) (67) Accumulated deficit during the development stage (58,976) (40,389) Deferred stock compensation (2,012) (2,774) Accumulated other comprehensive income 159 245 - ------------------------------------------------------------------------------------ Total stockholders' equity 72,757 67,691 - ------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 84,963 $ 77,877 ====================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES (A Company in the Development Stage) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, Inception to ------------------------------------------------------------ September 30, in thousands except share and per share data 2001 2000 2001 2000 2001 - ---------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Research and development $ 4,902 $ 6,701 $ 16,303 $ 16,867 $ 49,534 General and administrative 1,395 611 3,732 2,337 9,642 Goodwill amortization 210 63 630 63 880 Purchased in-process research and development 0 4,000 0 4,000 4,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 6,507 11,375 20,665 23,267 64,056 - ---------------------------------------------------------------------------------------------------------------------------------- Operating loss (6,507) (11,375) (20,665) (23,267) (64,056) - ---------------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest income 679 782 2,351 1,446 5,654 Interest expense (228) (157) (540) (333) (1,040) Other, net (225) (54) 267 143 466 - ---------------------------------------------------------------------------------------------------------------------------------- Total other income 226 571 2,078 1,256 5,080 - ---------------------------------------------------------------------------------------------------------------------------------- Loss before income taxes (6,281) (10,804) (18,587) (22,011) (58,976) Provision for income taxes 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Net loss (6,281) (10,804) (18,587) (22,011) (58,976) Beneficial conversion feature on preferred stock 0 0 0 (22,870) (22,870) - ---------------------------------------------------------------------------------------------------------------------------------- Net loss attributable to common stockholders ($6,281) ($10,804) ($18,587) ($44,881) ($81,846) ================================================================================================================================== Basic and diluted net loss per common share ($0.22) ($0.74) ($0.70) ($3.50) ============================================================ Weighted average common shares 28,177,102 14,670,614 26,675,598 6,285,788 ============================================================ Basic and diluted net loss per share attributable to common stockholders ($0.22) ($0.74) ($0.70) ($7.14) ============================================================ Weighted average common shares 28,177,102 14,670,614 26,675,598 6,285,788 ============================================================ Pro forma basic and diluted net loss per common share ($0.50) ($1.17) ============ ============ Pro forma weighted average common shares 21,699,485 18,821,878 ============ ============ Pro forma basic and diluted net loss per share attributable to common stockholders ($0.50) ($2.38) ============ ============ Pro forma weighted average common shares 21,699,485 18,821,878 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES (A Company in the Development Stage) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, Inception to ---------------------- September 30, in thousands 2001 2000 2001 - ----------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss ($18,587) ($22,011) ($58,976) Adjustments to reconcile net loss to net cash used in operating activities: Purchased in-process research and development 0 4,000 4,000 Depreciation and amortization 2,209 1,342 5,010 Stock-based compensation expense 0 413 688 Decrease in notes receivable 49 32 108 Loss on sale of furniture and equipment 22 0 22 Non-cash interest included in long-term debt 171 108 331 Changes in assets and liabilities: Prepaid expenses and other (320) (642) (1,714) Other assets (7) (110) (92) Accounts payable (1,130) 1,280 2,884 Accrued liabilities 860 3,484 3,275 - ----------------------------------------------------------------------------------------------- Net cash used in operating activities (16,733) (12,104) (44,464) - ----------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of furniture and equipment (1,259) (785) (5,027) Deposit on furniture and equipment (382) (450) (832) Acquisition of Talaria Therapeutics, Inc. 0 (233) (233) Proceeds from sale of furniture and equipment 2 0 2 - ----------------------------------------------------------------------------------------------- Net cash used in investing activities (1,639) (1,468) (6,090) - ----------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from issuance of convertible preferred stock 0 26,871 42,200 Proceeds from the issuance of common stock 22,481 56,337 78,759 Proceeds from long-term debt 3,409 781 7,925 Repayments of long-term debt (689) (450) (1,455) - ----------------------------------------------------------------------------------------------- Net cash provided by financing activities 25,201 83,539 127,429 - ----------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (72) (233) 110 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 6,757 69,734 76,985 Cash and cash equivalents at beginning of period 70,228 5,904 0 - ----------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 76,985 $ 75,638 $ 76,985 =============================================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 362 $ 256 Income taxes $ 0 $ 0 ==================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Esperion Therapeutics, Inc. ("Esperion" or the "Company") and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The Company believes that all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2000. Operating results for the three- and nine-month periods ended September 30, 2001 and 2000 are not necessarily indicative of the results that may be expected for the full year. (2) - PRIVATE PLACEMENT OF COMMON STOCK In July 2001, the Company completed a private placement of its stock, which resulted in the issuance of 3,183,335 shares of common stock at $7.50 per share. The net proceeds from the private placement approximated $22.3 million. In August 2001, the Company filed a Registration Statement to register these shares under the Securities Act of 1933, as amended. The Registration Statement was declared effective by the Securities and Exchange Commission on September 4, 2001. (3) - COMPREHENSIVE LOSS Comprehensive loss is the total of net loss and all other non-owner changes in equity. Total comprehensive loss was $6,285,000 and $10,555,000 for the three-month periods ended September 30, 2001 and 2000, respectively, and $18,501,000 and $21,768,000, for the nine-month periods ended September 30, 2001 and 2000, respectively. The difference between net loss, as reported in the accompanying condensed consolidated statements of operations, and comprehensive loss is the foreign currency translation adjustment for the respective periods. (4) - BASIC, DILUTED AND PRO FORMA LOSS PER SHARE Basic and diluted net loss per share amounts have been calculated using the weighted average number of shares of common stock outstanding during the respective periods. Options for the purchase of 764,938 and 1,092,727 shares of common stock, for the three-month periods ended September 30, 2001 and 2000, respectively, and 760,994 and 1,023,928 for the nine-month periods ended September 30, 2001 and 2000, respectively, were not included in the calculation of diluted net loss per share as doing so would have been anti-dilutive. Pro forma basic and diluted net loss per share includes the shares used in computing basic and diluted net loss per share and the assumed conversion of all outstanding shares of preferred stock from the original date of issuance. 6 ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following table presents the calculation of pro forma basic and diluted net loss per share:
Three Months Nine Months Ended Ended September 30, September 30, 2000 2000 ------------ ------------ Net loss attributable to common stockholders ........ $(10,804,000) $(44,881,000) ============ ============ Shares used in computing basic and diluted net loss per share ...................................... 14,670,614 6,285,788 Pro forma adjustment to reflect assumed conversion of Series A and Series B preferred stock .......... 3,371,664 6,181,384 Pro forma adjustment to reflect assumed conversion of Series C and Series D preferred stock .......... 3,657,207 6,354,706 ------------ ------------ Shares used in computing pro forma basic and diluted net loss per share ............................. 21,699,485 18,821,878 ============ ============ Pro forma basic and diluted net loss per share ...... $ (0.50) $ (2.38) ============ ============
(5) - COMMITMENTS AND CONTINGENCIES Contingent repurchase of stock The Company may be required to repurchase approximately 47,000 shares of common stock that were sold to certain employees and others under the Company's directed share program as part of the initial public offering. The Company believes that the maximum liability arising from this repurchase would be approximately $423,000 plus interest. A liability has not been recorded in the financial statements, as management believes that the potential repurchase of these shares is not likely. (6) - NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 141 supersedes Accounting Principles Board Opinion No. 16, "Business Combinations". The most significant changes made by SFAS 141 are (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill, and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain (rather than being deferred and amortized). SFAS 142 supersedes Accounting Principles Board Opinion No. 17, "Intangible Assets", and primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The most significant changes made by SFAS 142 are that: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization of intangible assets with finite lives will no longer be limited to forty years. SFAS 142 also specifies that certain intangible assets that were 7 previously identified as separate from goodwill (i.e., assembled workforce) are not considered separately identifiable for purposes of this standard and should be included as part of goodwill and subject to the non-amortization provisions for SFAS 142. The provisions for SFAS 142 will be effective for the Company's fiscal year beginning January 1, 2002. At effectiveness, an evaluation of goodwill will be required, and any impairment of goodwill at that time will be recognized as a cumulative effect of adoption. Total goodwill included in the Company's Consolidated Financial Statements was $3.3 million at September 30, 2001 and $3.5 million at December 31, 2000. Goodwill amortization expense was $210,000 and $63,000 for the three-month periods ended September 30, 2001 and 2000, respectively. Goodwill amortization expense was $630,000 and $63,000 for the nine-month periods ended September 30, 2001 and 2000, respectively. As a result of the non-amortization provisions of SFAS 142, the Company expects reported net loss to decrease subsequent to the effectiveness of SFAS 142. In addition, based on management's current financial projections, management does not believe that goodwill and other intangibles are currently impaired. The Company will perform a more detailed assessment to determine the effect of this new standard. SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of a business (as previously defined in that Opinion). SFAS 144 is effective for the Company's fiscal year beginning January 1, 2002 and is not expected to have a material impact upon effectiveness. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides an analysis of the Company's condensed financial condition and results of operations, and should be read in conjunction with the Company's consolidated financial statements and the notes included in Item 1 of this Form 10-Q. FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY The following Management's Discussion and Analysis of Financial Condition and Results of Operations as well as information contained elsewhere in this report contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are often identified by words such as "may," "believe," "anticipate," "planned," "expect," "require," "intend," "assume," and similar expressions. Our forward-looking statements involve uncertainties and other factors that may cause our actual results, performance or achievements to be far different from those suggested by our forward-looking statements. These factors include, but are not limited to, risks associated with the development of our product candidates, including regulatory approval; dependence on contract research organizations, license arrangements and other strategic relationships with third parties for the research, development, manufacturing and commercialization of our products; dependence on patents and proprietary rights; procurement, maintenance, enforcement and defense of the Company's patents and proprietary rights; risks related to manufacturing; risks associated with the timing and acceptance of new products by the Company or its competitors; competitive conditions in the industry; business cycles affecting the markets in which the Company's products are sold; extraordinary events, such as litigation; risks inherent in seeking and consummating acquisitions, including the diversion of management attention to the assimilation of the operations and personnel of the acquired business; risks relating to the timing of the Company's financing needs; fluctuations in foreign exchange rates; and economic conditions generally or in various geographic areas. All of the foregoing factors are difficult to forecast. More detailed information about these and other factors is set forth in our other filings with the Securities and Exchange Commission. We do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or circumstances. OVERVIEW Background We have devoted substantially all of our resources since we began our operations in May 1998 to the research and development of pharmaceutical product candidates for cardiovascular and metabolic diseases. We are a development stage pharmaceutical company and have not generated any revenues from product sales. We have not been profitable and have incurred a cumulative net loss of approximately $59.0 million from inception through September 30, 2001. These losses have resulted principally from costs incurred in research and development activities, and general and administrative expenses. We expect to incur significant additional operating losses for at least the next several years and until such time as we generate sufficient revenue to offset expenses. Also, we anticipate that research and development costs relating to product candidates will increase. Finally, we expect to have increasing development, manufacturing, sales and marketing costs as we prepare for the commercialization of our product candidates. 9 RESULTS OF OPERATIONS Operating Expenses
Three Months Ended September 30, Nine Months Ended September 30, --------------------------------- --------------------------------- dollars in thousands 2001 2000 % Change 2001 2000 % Change - --------------------------------------------------------------------------------------------------------------------- Research and development $4,902 $6,701 -26.8% $16,303 $16,867 -3.3% % of total 75.4% 58.9% 78.9% 72.5% General and administrative $1,395 $611 128.3% $3,732 $2,337 59.7% % of total 21.4% 5.4% 18.1% 10.0% Goodwill amortization $210 $63 233.3% $630 $63 900.0% % of total 3.2% 0.6% 3.0% 0.3% Purchased in-process R&D $0 $4,000 -100.0% $0 $4,000 -100.0% % of total 0.0% 35.1% 0.0% 17.2%
Three Months Ended September 30, 2001 and 2000 Research and Development Expenses. Research and development expenses include both external and internal costs related to the research and development activities of our existing product candidates as well as discovery efforts on potential new product candidates. External costs include costs related to manufacturing, clinical trials, toxicology or pharmacology studies performed by third parties, milestone payments under certain license agreements and other related expenses. Internal costs include all payroll and related costs attributable to research and development activities, as well as an allocation of overhead expenses incurred by the Company. Research and development expenses decreased to approximately $4.9 million for the three months ended September 30, 2001 compared to approximately $6.7 million for the three months ended September 30, 2000. This 26.8% decrease is primarily due to lower manufacturing and other costs related to clinical trials, as well as lower costs related to pre-clinical development of our biopharmaceutical product candidates in the third quarter of 2001. During the third quarter of 2000, the Company had certain costs associated with one clinical trial and contract manufacturing costs related to three of its product candidates. Many of these costs were not recurring in the third quarter of 2001. The magnitude of the Company's operating expenses, particularly research and development expense, is largely dependant upon the timing and size of the clinical trials. As additional clinical trials begin in the fourth quarter of this year and into next year, the Company anticipates research and development expenses will increase over current quarter levels. General and Administrative Expenses. General and administrative expenses include the cost of salaries, employee benefits, and other costs associated with the Company's finance, accounting, human resources, legal, administrative and executive management functions. General and administrative expenses also include an allocation of overhead expenses incurred by the Company. General and administrative expenses increased to approximately $1.4 million for the three months ended September 30, 2001 compared to approximately $611,000 for the three months ended September 30, 2000. This 128.3% increase resulted from higher payroll, overhead and related costs in support of the Company's anticipated growing research and development activities as compared to the prior year. Included in this increase are costs related to a market research study performed by a third party to provide the Company with some preliminary assessment about product positioning and market potential of certain product candidates. Goodwill Amortization. Goodwill amortization reflects the amortization of the amount of the excess of the purchase price over net assets in the Company's September 2000 acquisition of Talaria Therapeutics, Inc. ("Talaria") and the milestone payments made to date. Total goodwill included in the Company's Consolidated Financial 10 Statements was $3.3 million at September 30, 2001 and $3.5 million at December 31, 2000. Goodwill amortization expense was $210,000 and $63,000 for the three months ended September 30, 2001 and 2000, respectively. Goodwill amortization expense was $630,000 and $63,000 for the nine months ended September 30, 2001 and 2000, respectively. The increase in goodwill amortization is a result of higher goodwill upon the achievement of certain LUV clinical development milestones as well as the timing of the acquisition of Talaria. The Company is amortizing this goodwill over five years, which represents the period estimated to be benefited from the acquisition, after considering such factors as product development timelines, revenue potential, competition and patent life. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets" ("SFAS 142"), which primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The provisions for SFAS 142 will be effective for the Company's fiscal year beginning January 1, 2002. This statement is summarized in Note 6 of Notes to Consolidated Financial Statements. Purchased in-process research and development. Purchased in-process research and development in 2000 represents a $4.0 million one-time charge to operations in connection with the acquisition of Talaria in September 2000. This represents the write-off of acquired in-process research and development that had not reached technological feasibility. The allocation of the purchase price was based on an independent appraisal of the fair values on the closing date. Other Income, Net. Other income, net consists of interest income (expense), foreign currency transaction loss, and gain (loss) on the disposal of property and equipment. Interest income decreased to approximately $679,000 for the three months ended September 30, 2001 compared to approximately $782,000 for the three months ended September 30, 2000. The decrease is primarily attributable to lower interest rates in 2001 compared to the same period last year. Interest expense for the three months ended September 30, 2001 and 2000 was approximately $228,000 and $157,000, respectively, and represents interest incurred on equipment financing facilities and a special project loan. The increase in interest expense resulted from higher outstanding borrowings in 2001 as compared to the comparable period in 2000. During the three months ended September 30, 2001 and 2000, we recorded approximately $179,000 and $54,000, respectively, of foreign currency transaction losses on transactions denominated in various currencies of European countries. Net Loss. The net loss was approximately $6.3 million for the three months ended September 30, 2001 compared to approximately $10.8 million for the three months ended September 30, 2000. The decrease in net loss resulted from lower research and development expenses, offset in part by the increases in general and administrative expenses. In addition, the net loss for the three months ended September 30, 2000 includes the $4.0 million one-time charge related to purchased in-process research and development. Nine Months Ended September 30, 2001 and 2000 Research and Development Expenses. Research and development expenses include both external and internal costs related to the research and development activities of our existing product candidates as well as discovery efforts on potential new product candidates. External costs include costs related to manufacturing, clinical trials, toxicology or pharmacology studies performed by third parties, milestone payments under certain license agreements and other related expenses. Internal costs include all payroll and related costs attributable to research and development activities, as well as an allocation of overhead expenses incurred by the Company. Research and development expenses decreased to approximately $16.3 million for the nine months ended September 30, 2001 compared to approximately $16.9 million for the nine months ended September 30, 2000. This 3.3% decrease is primarily due to lower manufacturing and other costs related to clinical trials, as well as lower costs related to pre-clinical development of our biopharmaceutical product candidates during 2001. During the third quarter of 2000, the Company had certain costs associated with one clinical trial and contract manufacturing costs related to three of its product candidates. Many of these costs were not recurring in the third quarter of 2001. The magnitude of the Company's operating expenses, particularly research and development expense, is largely dependant upon the timing and size of the clinical trials. As additional clinical trials begin in the fourth quarter of this year and into next year, the Company anticipates research and development expenses will increase over current quarter levels. 11 General and Administrative Expenses. General and administrative expenses include the cost of salaries, employee benefits, and other costs associated with the Company's finance, accounting, human resources, legal, administrative and executive management functions. General and administrative expenses also include an allocation of overhead expenses incurred by the Company. General and administrative expenses increased to approximately $3.7 million for the nine months ended September 30, 2001 compared to approximately $2.3 million for the nine months ended September 30, 2000. This 59.7% increase resulted from higher payroll, overhead and related costs in support of the Company's growing research and development activities as compared to the prior year. Included in this increase are costs related to a market research study performed by a third party to provide the Company with some preliminary assessment about product positioning and market potential of certain product candidates. Other Income, Net. Other income, net consists of interest income (expense), foreign currency transaction gain, and the loss on the disposal of property and equipment. Interest income increased to approximately $2.4 million for the nine months ended September 30, 2001 compared to approximately $1.4 million for the nine months ended September 30, 2000. The increase is attributable to higher levels of cash and cash equivalents available for investment in 2001 as a result of the cash raised in the Company's initial public offering in August 2000, as well as the private placement in July 2001. This increase was partially offset by lower interest rates on these investments. Interest expense for the same periods was approximately $540,000 and $333,000, respectively, and represents interest incurred on the higher amount of borrowings under the equipment financing facilities and a special project loan. The increase in interest expense resulted from higher outstanding borrowings in 2001 as compared to the comparable period in 2000. During the nine months ended September 30, 2001 and 2000, we recorded approximately $340,000 and $143,000, respectively, of foreign currency transaction gains on transactions denominated in various currencies of European countries. Net Loss. The net loss was approximately $18.6 million for the nine months ended September 30, 2001 compared to approximately $22.0 million for the nine months ended September 30, 2000. The decrease in net loss resulted from lower research and development offset in part by general and administrative expenses. In addition, the net loss for the three months ended September 30, 2000 includes the $4.0 million one-time charge related to purchased in-process research and development. Net Loss Attributable to Common Stockholders. The net loss attributable to common stockholders for the nine months ended September 30, 2000 includes a one-time $22.9 million charge related to the beneficial conversion feature on the series C and series D convertible preferred stock. The total of the non-cash beneficial conversion feature was reflected through equal and offsetting adjustments to additional paid-in-capital with no net impact on stockholders' equity. The beneficial conversion feature was considered in the determination of our loss per common share amounts. LIQUIDITY AND CAPITAL RESOURCES In July 2001, the Company issued 3,183,335 shares of common stock at $7.50 per share in a private placement. Net proceeds to the Company from the private placement were approximately $22.3 million, after deducting expenses related to the issuance. In August 2000, the Company completed an initial public offering of its stock, which resulted in the issuance of 6,000,000 shares of common stock at $9.00 per share. In September 2000, an additional 900,000 shares were sold by the Company at $9.00 per share to cover the underwriters' over-allotment. Net proceeds to the Company from the offering were approximately $56.2 million, after deducting the underwriting discount and offering expenses. As of September 30, 2001, the Company had cash and cash equivalents of approximately $77.0 million. Our investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible by investing cash in short-term, investment-grade, interest-bearing securities. We believe that our current cash position, along with available borrowings under our 12 credit facilities will be sufficient to fund our operations and capital expenditures for at least the next twelve months. We anticipate that our capital expenditures for the next twelve months will be approximately $2.5 million. During the nine months ended September 30, 2001 and 2000, net cash used in operating activities was approximately $16.7 million and $12.1 million, respectively. This cash was used to fund our net losses for the periods, adjusted for non-cash expenses and changes in operating assets and liabilities. Net cash used in investing activities for the nine months ended September 30, 2001 and 2000 was approximately $1.6 million and $1.5 million, respectively. The net cash used in investing activities for the nine months ended September 30, 2001 and 2000 resulted primarily from the acquisition of laboratory equipment, furniture and fixtures and office equipment. The Company also used approximately $233,000 in cash related to the acquisition of Talaria in September 2000. Net cash proceeds from financing activities were $25.2 million and $83.5 million for the nine months ended September 30, 2001 and 2000, respectively. The net cash proceeds from financing activities for the nine months ended September 30, 2001 resulted primarily from $22.3 million raised in the private placement, $3.4 million of additional borrowings on the special project loan and equipment term loans, and $139,000 raised from the issuance of common stock to employees as part of the Company's equity compensation plans. The proceeds were partially offset by $689,000 of cash used to repay borrowings under equipment loans. Also, the Company issued 58,626 shares of common stock to Talaria stockholders for the payment of a milestone achieved in January 2001. The net cash proceeds from financing activities for the nine months ended September 30, 2000 resulted primarily from $56.2 million raised in the initial public offering, $26.9 million raised in preferred stock financings, $781,000 of additional borrowings on a special project loan, and $84,000 raised from the issuance of common stock to employees as part of the Company's equity compensation plans. The proceeds were partially offset by $450,000 of cash used to repay borrowings under an equipment loan. As of September 30, 2001, we had approximately $372,000 outstanding under an equipment term loan with a U.S. bank. Borrowings under the term loan bear interest at the bank's prime rate plus 1.0%. Also, we have a second equipment term loan with another U.S. bank. Outstanding borrowings under this equipment term loan have a weighted average interest rate of approximately 12% per annum and amounted to approximately $2.0 million as of September 30, 2001. We also have a memorandum of understanding with respect to entering into an equipment loan with an economic development group whereby we may borrow up to $500,000 for equipment purchases. Outstanding borrowings under the term loan bear interest at 4% per annum and total approximately $268,000 as of September 30, 2001. In addition, we have a special project loan with a Swedish entity with outstanding borrowings totaling 37 million Swedish kronor (approximately $3.7 million of which was outstanding as of September 30, 2001) that may only be used to finance the development of our AIM product candidate. If a related product is not developed or does not succeed in the market, our obligation to repay the loan may be forgiven. Borrowings under the Swedish credit facility bear interest at 17.0% per annum, of which 9.5% is payable quarterly. The remaining 7.5% of interest together with principal are payable in five equal annual installments starting December 2004. The Company has 13 million Swedish kronor (approximately $1.3 million as of September 30, 2001) available under this special project loan that is available upon the achievement of certain product development milestones. We lease our corporate and research and development facilities under operating leases expiring at various times through December 2003. Minimum annual payments under these leases for the next twelve months are approximately $701,000 as of September 30, 2001. We expect that our operating expenses and capital expenditures will increase in future periods in part because of our intent to hire additional research and development, clinical testing and administrative staff. Our capital expenditure requirements will depend on numerous factors, including the progress of our research and development programs, the time required to file and process regulatory approval applications, the development of commercial manufacturing capability, the ability to obtain additional licensing arrangements, and the demand for our product candidates, if and when approved by the FDA or other regulatory authorities. 13 INCOME TAXES As of September 30, 2001, we had operating loss carryforwards of approximately $40.6 million. These net operating loss carryforwards begin to expire in 2013. Additionally, utilization of net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code. These and other deferred income tax assets are fully reserved by a valuation allowance. EMPLOYEES As of September 30, 2001, we had 71 full-time employees. Of these employees, 55 were engaged in research, preclinical and clinical development, regulatory affairs, intellectual property activities, and/or manufacturing activities and 16 were engaged in general and administrative activities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio and on the increase or decrease in the amount of interest expense we must pay with respect to our various outstanding debt instruments. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate changes. We ensure the safety and preservation of our invested principal funds by limiting default risks, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments at September 30, 2001. Declines in interest rates over time will, however, reduce our interest income while increases in interest rates over time will increase our interest expense. Although currency fluctuations are currently not a material risk to our operating results, we have and will continue to monitor our exposure to currency fluctuations and when appropriate, we may use financial hedging techniques to minimize the effect of these fluctuations in the future. We cannot ensure that exchange rate fluctuations will not harm our business in the future. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 25, 2001, the Company completed a private placement of 3,183,335 shares of common stock for $7.50 per share, raising net proceeds of approximately $22.3 million. The Company relied on an exemption from registration under the Securities Act of 1933, as amended, based upon the offer and sale of the securities only to accredited investors. In August 2001, the Company filed a Registration Statement to register these shares under the Securities Act of 1933, as amended. The Registration Statement was declared effective by the Securities and Exchange Commission on September 4, 2001. In August 2000, the Company completed an initial public offering of its common stock, raising net proceeds of approximately $56.2 million. The Company invested the net proceeds from the private placement and the initial public offering in short-term, investment-grade, interest-bearing securities. These proceeds, as well as proceeds from earlier private placements, are being used to fund research and development, payments under current licensing agreements, and for other working capital and general corporate purposes, including employee compensation. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
NUMBER EXHIBIT - --------------- ----------------------------------------------------------------------------------------------------- 10.33 Commercial Sublease between SWMF Holdings Corporation and Esperion Therapeutics, Inc. dated as of June 22, 2001. 10.34 Lease Extension - Second Renewal Term between Maxey LLC and Esperion Therapeutics, Inc. dated September 21, 2001. 10.35@ License Agreement Michigan File 1855 Technology between the Regents of the University of Michigan and Esperion Therapeutics, Inc. dated effective September 18, 2001.
@ Confidential treatment has been requested with respect to the portions of the Agreement indicated with brackets and asterisks [***]. A complete copy of this Agreement, including the redacted portions, has been separately filed with the Securities and Exchange Commission. (B) REPORTS ON FORM 8-K Not applicable. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 9, 2001 ESPERION THERAPEUTICS, INC. (Registrant) By: /s/ Roger S. Newton -------------------------------------- Roger S. Newton President and Chief Executive Officer (Principal Executive Officer) By: /s/ Timothy M. Mayleben -------------------------------------- Timothy M. Mayleben Vice President and Chief Financial Officer (Principal Financial Officer) 17 INDEX TO EXHIBITS
NUMBER EXHIBIT - --------------- ----------------------------------------------------------------------------------------------------- 10.33 Commercial Sublease between SWMF Holdings Corporation and Esperion Therapeutics, Inc. dated as of June 22, 2001. 10.34 Lease Extension - Second Renewal Term between Maxey LLC and Esperion Therapeutics, Inc. dated September 21, 2001. 10.35@ License Agreement Michigan File 1855 Technology between the Regents of the University of Michigan and Esperion Therapeutics, Inc. dated effective September 18, 2001.
@ Confidential treatment has been requested with respect to the portions of the Agreement indicated with brackets and asterisks [***]. A complete copy of this Agreement, including the redacted portions, has been separately filed with the Securities and Exchange Commission. 18 EX-10.33 3 k65890ex10-33.txt COMMERCIAL SUBLEASE EXHIBIT 10.33 COMMERCIAL SUBLEASE This Sublease is made as of the _22__ day of June 2001 between SWMF Holdings Corporation, hereinafter called "Landlord", and Esperion Therapeutics, Inc., hereinafter called "Tenant". It is agreed as follows: 1. ORIGINAL LANDLORD: Landlord, as the tenant, has entered into a lease with Western Michigan University (WMU), as the original landlord, for the property commonly described as McCracken Hall Rooms numbered 5111, 5110, 5090, 5040, 5041, 5042, 5010, 5280, 5030, and 5070. That Lease Agreement will be referenced in this sublease as the "Original Lease". 2. SUBLEASED PREMISES: Landlord now subleases to Tenant two or more of the following rooms numbered 5111, 5110, 5090, 5040, 5041, 5042, 5010, 5280, 5030 and 5070 (those which are subleased becoming the "Subleased Premises") Tenant will be allowed to inspect the Subleased Premises at least forty-five (45) days prior to occupying the Subleased Premises. On or before October 15, 2001, Tenant shall advise Landlord in writing as to which of these rooms it desires to lease. The parties shall complete Exhibit A at that time. Until January 1, 2002, Tenant has the exclusive option to rent more of these rooms by providing written notice of same to Landlord. If that occurs, the parties shall execute a revised Exhibit A. If Tenant does not lease all of the rooms specified above by January 1, 2002, then Landlord may offer those unleased rooms ("Unleased Rooms") to other prospective tenants, so long as Tenant is given a right of first refusal in the manner described below. As to the Unleased Rooms, if after January 1, 2002, and during the term of this Sublease, Landlord should receive a bona fide offer to lease one of the Unleased Rooms that is acceptable to it, Landlord shall deliver to Tenant a written notice that such an offer has been received. The notice shall include a copy of the offer. Tenant shall have the right and option for a period of ten (10) business days after receipt of such notice to elect to rent those Unleased Rooms upon the same terms and conditions as stated in the bona fide offer which was attached to the notice. Exercise of this option shall be by written notice from Tenant to Landlord. If Tenant does not elect to exercise this option, then Landlord may proceed to rent those Unleased Rooms in accordance with the provisions of the bona fide offer and this first right of refusal shall terminate as to those Unleased Rooms. However, if Landlord does not proceed to rent those Unleased Rooms under such bona fide offer, then this first right of refusal will continue as to any subsequent bona fide offers. 3. TERM: The term of this Sublease is one (1) year, commencing on the earlier of the date that Tenant takes occupancy of the Subleased Premises or October 15, 2001. If Tenant's new space at the Business Technology & Research Park (the "New Space") is available for occupancy prior to the end of the term of this Sublease, then Tenant may terminate this Sublease early, by submitting a written notice of its intent to do so to Landlord, not less than thirty (30) days prior to its anticipated termination date. In addition, Tenant has the option to renew this Sublease for four (4) additional six (6) month terms, the first of which shall commence immediately after the end of the original term of this Sublease, (the "Additional Terms"). Tenant will be granted extra Additional Terms if the New Space is not available sixty (60) days prior to the end of the fourth Additional Term. Notice of intent to exercise the option to renew shall be given by Tenant to Landlord at least sixty (60) days prior to the end 1 of the original term, as to the first renewal option and at least thirty (30) days prior to the end of the first renewal term as to the second renewal option. The rent during the Additional Terms will be the same as the rent specified in Section 4 of this Sublease. 4. RENT: Tenant shall pay to Landlord monthly rent of Twelve and 50/100 Dollars ($12.50) per square foot, which is broken down into base rent of Ten and 00/100 Dollars ($10.00) per square ft. of subleased space, and Two and 50/100 Dollars ($2.50) per square ft. of subleased space for services including, but not limited to, Tenant's portion of operating and maintenance expenses. The total rent will be calculated with respect to the Subleased Premises' floor space on Exhibit A, attached to this Sublease. The first installment of rent shall be due the earlier of thirty (30) days from the date that the Tenant took occupancy of the Subleased Premises or October 15, 2001, and shall continue on the same day of each month thereafter throughout the original lease term and any Additional Terms. 5. COMPANY EMPLOYEE LEVEL: Tenant has agreed to make a good-faith effort to hire at least five research/research management and maintenance employees by January 1, 2002. 6. FURNISHINGS AND SUPPLIES: Tenant agrees to provide its own furniture, supplies, and equipment for its offices and labs. 7. INTERNSHIPS AND RESEARCH OPPORTUNITIES: Tenant will make a good faith effort to, make internship and research opportunities available to WMU faculty, staff, and students. 8. WMU PRIVILEGES: Tenant's employees will have regular WMU staff/faculty privileges, including, but not limited to, WMU computer database access, library access, phone service, keys to McCracken Hall and to Subleased Premises, parking, and health center access. 9. SIGNAGE: WMU has allowed outside signs, in accordance with paragraph 12 of the original lease agreement, at the cost of the Tenant, subject to WMU and Landlord approval. 10. EMPLOYEE PARKING: In accordance with Paragraph 3 of the Original Lease Agreement, WMU shall make available for purchase by Landlord, at the same cost that applies to Faculty/Staff employees of WMU, three (3) parking spaces for Landlord non-student employees, guest, and invitees in Parking Lot Number 28, located adjacent to McCracken Hall and Waldo Library. Landlord shall make available 15 (fifteen) additional Faculty/Staff permits for use by Tenant for use in accordance with WMU's regular parking rules and regulations. The 15 additional spaces shall not be for any dedicated lot or spaces. Landlord hereby grants to Tenant, its employees, agents, contractors, and invitees, the right of vehicular ingress and egress on the campus of WMU subject to all rules and regulations established by WMU for parking and traffic control; application of such rules and regulations shall be non-discriminatory. WMU student employees will be required to purchase a student parking sticker like all other on-campus student employees. 11. RESTRICTION ON USE: The Subleased Premises shall be used solely for the purpose of scientific research and other related activities. The Subleased Premises shall not be used for any other purpose without the prior written consent of Landlord. Tenant shall not use the Subleased Premises in any manner that is in violation of any federal, state, or local law, ordinance or regulation. 12. PHONE AND MAIL SERVICE: Tenant shall pay for all costs of long distance telephone, which shall be itemized and presented to Tenant on a regular basis. Tenant shall pay for cost of 2 any independent data lines installed. WMU shall provide mail delivery service to Tenant in accordance with its standard practice. 13. BIOHAZARD MATERIALS DISPOSAL POLICY: Tenant shall consult with WMU's Manager of Environmental Health and Safety with regard to the proper disposal of all biohazardous, toxic, radioactive or other material not of a common nature. Tenant further agrees that it will comply with all of WMU's policies, rules and procedures, including, but not limited to, policies relating to the storage, use and handling of hazardous materials, including but not limited to radioactive materials, pathogens, toxins, recombinant DNA, or blood borne pathogens. Tenant agrees to conduct its operations in compliance with all federal and state regulations relating to the use of such materials, including but not limited to those rules, regulations and procedures promulgated by the Occupational Safety and Health Administration, the Michigan Occupational Safety and Health Administration, Michigan Department of Environmental Quality, the Nuclear Regulatory Commission, the Environmental Protection Agency the Center for Disease Control, Drug Enforcement Agency and the National Institutes of Health and the National Science Foundation. Tenant further agrees that any person, firm or entity to which Tenant subleases any of the Subleased Premises shall execute an agreement in substantial compliance with this paragraph. Before any biohazardous, radioactive, recombinant DNA, toxic, blood borne pathogen, infectious, or other non-common material is brought onto the Subleased Premises, Tenant, and any entity occupying the Subleased Premises pursuant to a sublease, shall notify the Manager of Environmental Health and Safety for WMU (said office being currently occupied by Dr. Pat Holton) regarding the quantity, nature, and use of the material and complete the WMU form and said use of the material on the Subleased Premises shall be subject to the approval of the Manager of Environment Health and Safety for WMU, which approval shall not be unreasonably withheld. In addition, with regard to any radioactive material, Tenant, and any entity occupying the Subleased Premises pursuant to a sublease, shall notify and consult with WMU's Radiation Safety Officer (said office being currently occupied by James F. Center) regarding the use, handling and disposal of all such waste and the use of such material shall be subject to the approval of both the Manager of Environment Health and Safety for WMU and the Radiation Safety Office, said approval shall not be unreasonably withheld. 14. COMMON AREAS: Tenant shall be entitled to use, in common with others, the common areas associated with the Subleased Premises, including sidewalks, entryways, elevators, parking areas and restrooms. The use of such common areas shall be subject to the exclusive control and management of WMU and to such rules and such regulations as WMU may, from time to time, issue. 15. MAINTENANCE AND REPAIR: WMU shall keep the foundation, outer walls, windows, roof and structural components of the building of which the Subleased Premises are a part in good repair. WMU shall also be responsible for all necessary maintenance and repair to the mechanical systems of the building, including heating and air conditioning equipment. Both parties to this Sublease understand that McCracken is an older facility. Therefore, Landlord makes no warranties regarding the structural or mechanical systems of the Subleased Premises, and the two parties agree to use good faith in allocating financial responsibilities in the event that the structural or mechanical systems require replacement or break-down completely. WMU has put Landlord on notice that, in particular, the air conditioning compressor may fail. Landlord agrees that if they fail, Landlord will be 3 responsible for the purchase and installation of window air conditioners in the Subleased Premises, at its expense, subject to WMU's Director or Physical Plants approval. Tenant is responsible for the day-to-day maintenance of the fume hoods and cold rooms. If Tenant believes that any fume hoods or cold rooms require major repair or replacement, it shall provide Landlord with written notice of same, which notice shall include a copy of a repair or replacement quote. Landlord shall have three (3) days to object to the repair or replacement. If Landlord fails to deliver a written objection to Tenant within these three (3) days, then Tenant may accomplish the repair or replacement in accordance with the quote, at its own expense. If Tenant so repairs or replaces any fume hoods or cold rooms at its own expense, then Tenant shall be entitled to deduct the cost of same (but not more than the amount set forth in said quote) from the next rent installment(s). Tenant shall regularly inspect the fume hoods, cold rooms and other features, including but not limited to other safety features of the Subleased Premises, and notify either Landlord or WMU of any repairs which are the responsibility of Landlord or WMU; provided, Landlord shall not be called upon to make any repairs of any kind upon the Subleased Premises except as required under the terms of the Original Lease agreement Notwithstanding the foregoing, Tenant shall be responsible for any such repairs caused by the acts or negligence of Tenant, its agents, employees, invitees, guests or licensees, and in this instance shall not receive a rent credit. Tenant shall be responsible for maintenance, repair and replacement of all interior walls, doors, glass, carpet and flooring, and window treatments. Except for the obligations of Landlord set forth herein, Tenant shall keep and maintain (including all necessary repairs and replacements) the Subleased Premises and every part thereof and any alterations and additions to the Subleased Premises in good order, condition and repair, and clean and free from trash, rubbish and noxious odors. If Landlord reasonably determines any unperformed cleaning, maintenance, repairs or replacements of Tenant necessary, it may demand that Tenant make the same. If Tenant refuses or neglects to do so with reasonable dispatch, Landlord may, at Tenant's expense, make or cause such reasonable cleaning, maintenance, repairs or replacements to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant's property or business by reason thereof. At the expiration of the term of this Sublease, and any extensions, Tenant shall return the Subleased Premises to Landlord in as clean and good condition as when taken by Tenant, subject to reasonable wear and tear. 16. IMPROVEMENTS, ADDITIONS AND ALTERATIONS: Tenant shall not make any additions, improvements and alterations to the Subleased Premises without the prior written consent of Landlord, which may not be unreasonably withheld. All alterations, additions, improvements and fixtures which may be made or installed by Tenant upon the Subleased Premises shall be removed by Tenant at the termination of this Sublease and Tenant shall repair any damage to the Subleased Premises caused by such removal at Tenant's expense. Costs incurred for future improvements of Subleased Premises will be the responsibility of Tenant. 17. TAXES: WMU shall be responsible for payment of the real estate taxes on the Subleased Premises. WMU shall also pay any installments or special assessments levied against the Subleased Premises and coming due during the term of this Sublease, or any extensions. Tenant shall pay all personal property taxes levied against any equipment or personal property in the possession of Tenant and contained in or on the Subleased Premises. 18. INSURANCE AND INDEMNITY: A. COVENANT TO HOLD HARMLESS: Landlord shall be defended and held harmless by Tenant from any liability for damages or injury to the Subleased Premises and to any person or any 4 property in or upon the Subleased Premises or the common areas, including the person and property of Tenant, and its employees and all persons in the building at its or their invitation, including anyone holding as a Tenant or sublessee of Tenant or with their consent except damages or injury caused by the gross negligence or willful misconduct of Landlord. Tenant specifically agrees to hold harmless the Landlord from any and all claims, causes of actions and demands whether in law or in equity which arise in any fashion whatsoever from Tenant's (or any person or entity holding as a sublessee or by agreement with Tenant) use, storage, possession or control of any hazardous non-common material such as but not limited to radioactive or bio-hazardous materials. All property kept, stored or maintained in the Subleased Premises shall be so kept, stored or maintained at the risk of Tenant only. Tenant shall not suffer or give cause for the filing of any lien against the Subleased Premises. Landlord and Tenant shall hold each other harmless from any liability or damages to any person or property in any common areas of the Subleased Premises on account of the gross negligence or willful misconduct of the other party or its employees, agents or invitees. B. FIRE AND CASUALTY: WMU shall be responsible for obtaining and maintaining a policy of fire and casualty insurance with extended coverage provisions applicable to the Subleased Premises in the amount reasonably determined by Landlord. Tenant shall be responsible for obtaining a policy of fire and casualty insurance protecting Tenant against loss or damage to Tenant's furnishings, fixtures, equipment and personal property in or on the Subleased Premises. Upon request, Landlord shall provide evidence of its insurance coverage to Tenant. C. TENANT'S OBLIGATION TO CARRY PUBLIC LIABILITY INSURANCE: Tenant shall keep, during the entire term hereof, in full force and effect a policy of public liability insurance with respect to the Subleased Premises and the business operated by Tenant in the Subleased Premises, and in which the limits of liability shall not be less than $1,000,000 single limit coverage, or such greater amount as reasonably determined by Landlord from time to time, naming Landlord and WMU as additional insureds. Tenant may obtain such insurance coverage under any blanket or umbrella policy secured by Tenant or under a separate policy therefore. Tenant shall furnish Landlord with a certificate or certificates of insurance or other acceptable evidence that such insurance is in force at all times during the tenancy of this Sublease. All policies relating to the Subleased Premises shall contain a provision that the policy shall not be modified or canceled unless the insurer first gives Landlord at least thirty (30) days prior written notice. D. WAIVER OF SUBROGATION RIGHTS UNDER INSURANCE POLICIES: Landlord and Tenant hereby waive all rights of recovery which either might otherwise have against the other, and its officers, partners, agents, employees, invitees, guests, or licensees, for any damage to their property which is covered by a policy of insurance, notwithstanding that such damage may result from the negligence or fault of one of them, or its officers, partners, agents, employees, invitees, guests, or licensees; provided, however, that this waiver shall be effective only with respect to losses or damages occurring where this waiver will not affect the right of the insured to recover under the applicable policy of insurance. The parties agree to acquire policies of insurance containing standard waiver of subrogation clauses or endorsements so long as such clauses or endorsements are generally available in the insurance industry. 19. CONDUCT: Tenant shall not cause or permit any unreasonable conduct to take place within the Subleased Premises which in any way may disturb or annoy other occupants of the building in which the Subleased Premises are located, or adjacent buildings. 5 20. ACCESS TO SUBLEASED PREMISES: Landlord and WMU shall have the right to enter upon the Subleased Premises at all reasonable hours and upon reasonable notice for the purpose of inspecting the Subleased Premises. 21. CONDEMNATION: In the event a part of the Subleased Premises shall be taken under the power of eminent domain by any legally constituted authority, and there remains a sufficient amount of space to permit Tenant to carry on its business in a manner comparable to that which it has become accustomed, then this Sublease shall continue, but the obligation to pay rent on the part of Tenant shall be reduced in an amount proportionate to the square footage of the entire Subleased Premises relative to the square footage taken by such condemnation. In the event all of the Subleased Premises shall be taken, or so much of the Subleased Premises taken that it is not feasible to continue a reasonably satisfactory operation of the business of Tenant, then Tenant shall have the option of terminating this Sublease. Such termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation from the condemning authority for any loss or damage caused by such condemnation. Neither Landlord nor Tenant shall have any right in or to any award made to the other by the condemning authority. 22. DESTRUCTION: In the event the Subleased Premises are damaged by fire or other casualty (i) WMU may elect to make repairs or rebuild in its sole discretion and this Sublease shall continue in full force and effect, or (ii) WMU may, in its sole discretion, elect to terminate the original lease, and thus this Sublease, and give written notice thereof to Tenant. Until such repairs are completed, the rent and other amounts payable hereunder shall be abated in proportion to the area of the Subleased Premises that is rendered unusable by Tenant in the conduct of its business. In the event the repair of the facility shall take longer than 20 calendar days, Tenant shall have the right to terminate this Sublease. 23. BANKRUPTCY OR INSOLVENCY: Neither this Sublease nor any interest therein, nor any estate thereby created, shall pass to any trustee or receiver or assignee for the benefit of creditors or otherwise by operation of law. In the event the estate created hereby shall be taken in execution or by other process of law, or if Tenant shall be adjudicated insolvent or bankrupt pursuant to the provisions of any state or federal insolvency or bankruptcy act, or if a receiver or trustee of the property of Tenant shall be appointed by reason of Tenant's insolvency or inability to pay its debts, or if any assignment shall be made of Tenant's property for the benefit of creditors, then and in any such event, Landlord may terminate, at its option, this Sublease and all rights of Tenant hereunder, by giving to Tenant notice in writing of the election of Landlord to so terminate. 24. ASSIGNMENT AND SUBLETTING: Tenant may not assign this Sublease without Landlord's prior written consent, except to a successor to its business or substantially all of its assets. In that event, Landlord must first review and approve the potential successor's financial standing. The Landlord's consent or approval shall not be unreasonably withheld. 25. DEFAULT OF TENANT: Tenant shall be deemed to be in default under this Sublease upon occurrence of any of the following events: (a) any failure of Tenant to pay any rental installment due hereunder within thirty (30) days after the same shall be due, or (b) any failure of Tenant to perform any other of the terms, conditions or covenants of this Sublease for more than thirty (30) days after written notice of such default shall have been received by Tenant (unless such default requires work to be performed, acts to be done or conditions to be remedied which by their nature cannot be performed, done or remedied, as the case may be, within such thirty (30) day period and Tenant shall commence the same within such thirty 6 (30) day period and thereafter shall continuously process the same to completion, in good faith), or (c) if Tenant shall abandon the Subleased Premises, or suffer this Sublease to be taken under any writ of execution. 26. REMEDIES UPON DEFAULT: Upon the occurrence of any of the events of default described in Paragraph 25 of this sublease, Tenant shall be deemed to be in default of this Sublease and Landlord may, at its option, without notice or demand of any kind to Tenant or any other person, have any one or more of the following described remedies in addition to all other rights and remedies provided at law or in equity: (a) Terminate this Sublease, repossess the Subleased Premises and be entitled to recover immediately, as liquidated agreed final damages, in lieu of any further deficiencies, the total Rent to be paid by Tenant during the balance of the Term of this Sublease, less the fair rental value of the Subleased Premises for said period, together with any other sum of money owed by Tenant to Landlord. (b) Terminate Tenant's right of possession and repossess the Subleased Premises without demand or notice of any kind to Tenant and without terminating this Sublease, in which case Landlord shall attempt to relet the Subleased Premises for such rent and upon such terms as shall be satisfactory to Landlord. For the purposes of such reletting, Landlord may make such repairs, alterations, additions, or physical changes in or to the Subleased Premises as may be necessary or convenient. If Landlord shall be unable to relet the Subleased Premises, then Tenant shall pay to Landlord as damages the total Rent to be paid by Tenant during the balance of the Term of this Sublease that shall be immediately due and payable from Tenant to Landlord upon demand. If the Subleased Premises are relet and a sufficient sum shall not be realized from the reletting, after payment of all costs and expenses of such repairs, alterations, additions, or physical changes and the expense of such reletting and the collection of rent occurring therefrom, to satisfy the Rent herein provided to be paid during the remainder of the Term, Tenant shall satisfy and pay any such deficiency upon demand. Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this paragraph from time to time and that any suit or recovery of any portion due Landlord hereunder shall be no defense to any subsequent action brought for any amount not theretofore reduced to judgment in favor of Landlord. (c) Landlord's rights, remedies and benefits provided by this Sublease shall be cumulative and shall not be exclusive of any other rights, remedies and benefits allowed by law. Upon reentry, Landlord may remove all persons and property from the Subleased Premises and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Tenant. 27. QUIET ENJOYMENT: Upon payment by Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Subleased Premises for the term hereof without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to the terms and conditions of this Sublease. 28. WAIVER: One or more waivers of any covenant or condition by Landlord shall not be construed as a waiver of a subsequent breach of the same covenant or conditions, and the 7 consent or approval by Landlord to or of any act of Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar act by Tenant. 29. NOTICES: All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed given: (a) when personally delivered to the party to be given such notice or other communication; (b) on the business day that such notice or other communication is sent by facsimile or similar electronic device, fully prepaid, which facsimile or similar electronic communication shall promptly be confirmed by written notice; (c) on the third business day following the date of deposit in the United States mail if such notice or other communication is sent by certified or registered mail with return receipt requested and postage thereon fully prepaid; or (d) on the business day following the day such notice or other communication is sent by reputable overnight courier, to the address set forth below or to such other address as the parties may designate in writing: Landlord: Barry Broome, President & CEO SOUTHWEST MICHIGAN INNOVATION CENTER 346 W. Michigan Ave. Kalamazoo, MI 49007 Tenant: Roger Newton, President & CEO ESPERION THERAPEUTICS 3621 S. State St. 695 KMS Place Ann Arbor, MI 48108 With copy to General Counsel at fax 734-995-1691 30. CONSTRUCTION: Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or partnership or of joint venture between the parties hereto, it being understood and agreed that neither the method of computation of rent, nor any other provision contained herein, nor any acts of the parties herein, shall be deemed to create any relationship other than Landlord and Tenant. Whenever herein the singular number is used, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders. 31. PARTIAL INVALIDITY: If any term, covenant or condition of this Sublease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Sublease, 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. 32. HOLDING OVER: Any holding over after the expiration of the term hereof, with or without the consent of Landlord, shall be construed to be a tenancy for month-to-month at the rents herein specified (prorated on a monthly basis) and shall otherwise be on the terms and conditions herein specified so far as applicable. 33. SUCCESSORS: This Sublease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective successors, assigns, guardians, heirs and legal representatives. If there is more than one Tenant, they shall each be bound jointly and severally by the terms, covenants and agreements herein. 34. ACCORD AND SATISFACTION: No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord shall accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or to pursue any other remedy provided in this Sublease. 35. ENTIRE AGREEMENT AND AMENDMENT: This Sublease contains the entire agreement with respect to the matters described herein and is a complete and exclusive statement of the terms thereof and supersedes all previous agreements with respect to such matters. This Sublease may not be altered or modified except by a writing signed by Landlord and Tenant. IN WITNESS WHEREOF, the parties have executed this Agreement and caused it to be effective as of the day and year first set forth above. Signed on 7-13, 2001 Signed on June 22, 2001 ---- ------- Tenant: ESPERION THERAPEUTICS, INC. Landlord: SWMF HOLDINGS CORPORATION Name: /s/ Timothy M. Mayleben Name: /s/ Barry Broome --------------------------- ------------------------------- Title: Vice President, Finance Title: CEO ------------------------------ ------------------------------ EX-10.34 4 k65890ex10-34.txt LEASE EXTENSION - SECOND RENEWAL TERM [CAYMAN CHEMICAL LOGO] LEASE EXTENSION - SECOND RENEWAL TERM THIS LEASE EXTENSION is entered into this 21st day of September, 2001, between MAXEY, LLC, a Michigan limited liability company, whose address is 1180 East Ellsworth, Ann Arbor, Michigan 48108 ("Landlord"), and ESPERION THERAPEUTICS, INC., a Delaware corporation, whose address is 3621 South State Street, 695 KMS Place, Ann Arbor, Michigan 48108 ("Tenant"). W I T N E S S E T H: WHEREAS, the parties hereto have entered into a certain lease dated January 4, 1999 for the vivarium annex to the building owned by Landlord at 1180 East Ellsworth Road, Pittsfield Township, Washtenaw County, Michigan, containing approximately 5,150 square feet of space (the "Lease"). NOW, THEREFORE, in consideration of the terms, conditions and covenants hereinafter set forth to be paid, kept and performed by Landlord and Tenant, the parties hereto agree as follows: Pursuant to Section 2, it is mutually agreed that the lease is hereby extended for an additional one (1) year period (the second "Renewal Term"). Tenant will pay to the Landlord rent at the rate of Sixteen thousand ($16,000.00) dollars commencing on January 1, 2002 and continuing on the first day of each and every month thereafter for the next succeeding twelve (12) months. All other terms and conditions of the Lease remain in full force and effect. LANDLORD * * * TENANT * * * MAXEY, LLC ESPERION THERAPEUTICS, INC. By: Kirk M. Maxey, M.D. By: Roger S. Newton, Ph.D. ------------------------------------ ----------------------------------- Kirk M. Maxey, M.D. Roger S. Newton, Ph.D. Its President Its President Date: 9-21-01 Date: 9-22-01 ---------------------------------- --------------------------------- EX-10.35 5 k65890ex10-35.txt LICENSE AGREEMENT EXHIBIT 10.35 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE PORTIONS OF THE AGREEMENT INDICATED WITH BRACKETS AND ASTERISKS [***]. A COMPLETE COPY OF THIS AGREEMENT, INCLUDING THE REDACTED PORTIONS, HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. LICENSE AGREEMENT MICHIGAN FILE 1855 TECHNOLOGY This Agreement is effective as of the 18th day of September, 2001 (the "Effective Date"), between Esperion Therapeutics, Inc., a corporation incorporated in the State of Delaware, with offices located at 3621 South State Street, 695 KMS Place, Ann Arbor, Michigan 48108 ("LICENSEE"), and the Regents of the University of Michigan, a constitutional corporation of the State of Michigan ("MICHIGAN"). LICENSEE and MICHIGAN agree as follows: 1. BACKGROUND. 1.1 MICHIGAN has represented that it has developed rights, including potential patent rights, in the "TECHNOLOGY" as defined in Article 30. 1.2 LICENSEE desires to obtain, and MICHIGAN, consistent with its missions of research, education and service, desires to grant a license of the Licensed Patents and TECHNOLOGY on the terms and conditions listed below. 2. CAPITALIZED TERMS. The capitalized terms used in this Agreement are specifically defined in Article 30 of this Agreement. 3. GRANT OF LICENSE. 3.1 MICHIGAN hereby grants to LICENSEE the exclusive license under the Licensed Patents, and non-exclusive license under the TECHNOLOGY, to make, have made, import, use, market, offer for sale and sell, in the Territory, Products designed, manufactured, used and/or marketed solely for use in the Field of Use subject to any rights of third parties; with the right to grant sublicenses to Affiliates and Sublicensees subject to the terms and provisions of Article 8 below. 3.2 MICHIGAN reserves the right to practice the Licensed Patents solely for research and education purposes within the Field of Use and the Territory. 4. CONSIDERATION. 4.1 LICENSEE shall pay to MICHIGAN a one-time license issue fee of US$[***] dollars upon execution by the parties of this Agreement. LICENSEE may credit this issue fee in full against all royalties otherwise due MICHIGAN, subject to Paragraph 4.8. 1 4.2 LICENSEE shall also pay MICHIGAN, with respect to each Royalty Period, a royalty on Net Sales by LICENSEE and Affiliates as follows: to the extent the sum total Net Sales for Products (A) is less than US$[***] million, royalty equal to [***] percent ([***]%) of Net Sales in such Royalty Period; (B) is at least US$[***] million but less than US$[***] million, [***] percent ([***]%) of Net Sales in such Royalty Period; and (C) is US$[***] million or more, [***] percent ([***]%) of Net Sales in such Royalty Period. 4.3 LICENSEE shall also pay to MICHIGAN, with respect to each Royalty Period, a royalty equal to [***] percent ([***]%) of Gross Sublicensing Revenues. For the avoidance of doubt, Gross Sublicensing Revenues does not include amounts received by LICENSEE from Affiliates. 4.4 LICENSEE must pay MICHIGAN a royalty under this Article 4 only once with respect to the same unit of Product regardless of the number of Valid Claims or Licensed Patents covering the same; however, for purposes of determining payments due hereunder, whenever the term "Product" may apply to a property during various stages of manufacture, use or sale, then Net Sales equals the amount derived from the sale, distribution or use of such Product by LICENSEE or Affiliates at the stage of its highest invoiced value to unrelated third parties. If a Product sold by LICENSEE includes at least one active ingredient other than a Product (a "Combination Product"), LICENSEE shall only pay royalties or sublicensing royalties on a portion of Net Sales for the Combination Product based on the relative contribution of the product to the scientific and commercial performance of the Combination Product, as negotiated by the Parties in good faith, but in no event on less than [***]% of the amount of Net Sales for the Combination Product. 4.5 LICENSEE shall pay to MICHIGAN an annual license maintenance fee. This annual fee accrues in the Royalty Period ending in June of the years specified below, and is due and payable concurrently with the report for that Period. LICENSEE may credit each annual fee in full against all royalties otherwise due MICHIGAN. In determining annual license maintenance fees due, LICENSEE may credit patent expenses paid to MICHIGAN under Paragraph 10.6 against the annual license maintenance fee amounts listed below, as provided in Paragraph 10.6. The annual license maintenance fees are: (1) In 2001: US $[***] (payable within 30 days of the Effective Date); (2) In 2002 and 2003: US$[***] each year; (3) In 2004: US$[***]; (4) In 2005: US$[***]; and 2 (5) In 2006 and in each year thereafter during the term of this Agreement: US$[***]. 4.6 If LICENSEE is legally obligated or reasonably deems it necessary to pay consideration to any third party that holds a patent that would, in the reasonable judgment of LICENSEE, be infringed by the manufacture, use, or sale of a Product, then LICENSEE shall be entitled to deduct [***] percent ([***]%) of such consideration paid to such third party from the royalties otherwise payable to MICHIGAN under Paragraph 4.2 hereof or from the milestone payment obligation provided in Paragraph 7.3(6), subject to Paragraph 4.8 herein. 4.7 LICENSEE may credit all amounts actually paid to MICHIGAN under Paragraphs 4.1, 4.5, and 7.3 hereof in full against royalties otherwise payable to MICHIGAN under Paragraph 4.2 hereof, subject to the limitations of Paragraph 4.8 herein. 4.8 In no event shall the royalty payable to MICHIGAN under Paragraph 4.2 for any Royalty Period or the amount payable to MICHIGAN under Paragraph 7.3(6) be reduced pursuant to Paragraph 4.6 or 4.7 below an amount that is less than [***] percent ([***]%) of the amount otherwise payable under Paragraph 4.2 hereof for such Royalty Period or under Paragraph 7.3(6) for such milestone obligation. Any portion of payment made pursuant to Paragraphs 4.1, 4.5, 4.6, or 7.3 that is not creditable against royalties payable to MICHIGAN under Paragraph 4.2 hereof due to this [***] percent reduction cap shall be carried forward and creditable against royalties payable to MICHIGAN under Paragraph 4.2 hereof with respect to subsequent Royalty Periods until credited in full. 5. REPORTS. 5.1 Within forty-five (45) days after each Royalty Period closes (including the close of any Royalty Period immediately following any termination of this Agreement), LICENSEE shall report to MICHIGAN for that Royalty Period: (1) all royalties accruing to MICHIGAN; (2) the Net Sales of Products by LICENSEE and Affiliates; (3) the source (name of sublicensee) and amount of all Gross Sublicensing Revenues, and (4) any other revenues for which payments are due. LICENSEE shall include the amount of all payments due pursuant to (1-4) herein, and the quantity, identification and country of sale of Products. If no payment is due for a Royalty Period, LICENSEE shall so report. 3 5.2 LICENSEE shall establish and consistently employ a system of nomenclature and/or type designations for Products to permit identification and segregation of various types where necessary; LICENSEE, Affiliates and Sublicensees shall consistently employ the system when rendering invoices thereon and shall inform MICHIGAN, or its auditors, upon reasonable request, as to the details concerning the description of Products and of any changes thereto. 5.3 LICENSEE shall keep, and shall require its Affiliates and Sublicensees to keep, true and accurate records and books of account containing data reasonably required for the computation and verification of payments due as provided by this Agreement. LICENSEE shall: (1) open such books and records for inspection [***] per year upon reasonable notice during business hours by either MICHIGAN auditor(s) or an independent certified accountant selected by MICHIGAN, for the purpose of verifying the amount of payments previously due and payable; (2) retain such books and records for ([***]) years from date of origination. These rights of inspection survive any termination of this Agreement. MICHIGAN is responsible for all expenses of such inspection, except that if any inspection reveals an underpayment greater than ten percent (10%) of royalties due MICHIGAN, then, if not refuted, LICENSEE shall pay all expenses of that inspection and the amount of the underpayment immediately to MICHIGAN. 5.4 LICENSEE shall direct its authorized representative to certify that reports required hereunder are correct to his or her knowledge and information. 6. TIMES AND CURRENCIES OF PAYMENTS. 6.1 All payments hereunder shall be made in United States dollars. Payments accrued during each Royalty Period are due and payable in Ann Arbor, Michigan on the date each report is due (as provided in Paragraph 5.1). LICENSEE agrees to make all payments due hereunder to MICHIGAN (i) by check made payable to "The Regents of The University of Michigan," and sent to MICHIGAN according to the provisions for notices set forth in Article 21 herein, or (ii) by wire transfer to the following account: [***]. 6.2 On all amounts overdue and payable to MICHIGAN, interest accrues from the date the amount is due at a rate per annum equal to [***] percentage points above the prime lending rate as established by the Chase Manhattan Bank, N.A., in New York City, New York, or at a lower rate if required by law. 6.3 For each Royalty Period, LICENSEE and Affiliates shall convert any Net Sales or Gross Sublicensing Revenues they receive in foreign currency into its equivalent in 4 United States dollars at the exchange rate LICENSEE ordinarily employs in making reports to relevant regulatory and taxing authorities, consistent with fair business practices and generally accepted accounting principles. 7. COMMERCIALIZATION. 7.1 LICENSEE agrees to use commercially reasonable efforts to commercialize one Product. 7.2 Within thirty (30) days of the First Commercial Sale, LICENSEE shall report by written letter to MICHIGAN the date and general terms of that sale. 7.3 Milestones: LICENSEE will substantially meet, or shall cause its Affiliates or Sublicensees to meet, the requirements of the following milestones, with date requirements for each milestone after the first milestone to be determined in writing in good faith by the Parties using reasonable business judgment, upon satisfaction of the immediately previous milestone or maturation of the payment obligation therefor: (1) either (a) selection of recombinant PON (recPON) for development by September 1, 2003 or (b) pay MICHIGAN a milestone payment of US$ [***] by October 1, 2003. (2) IND submission in the U.S. or Europe or payment to MICHIGAN of a milestone payment of US$ [***] within 30 days of the date mutually determined by the parties. (3) Enrollment of first patient in a Phase II clinical trial and payment to MICHIGAN of a milestone payment of US$ [***]. (4) Enrollment of first patient in a Phase III clinical trial and payment to MICHIGAN of a milestone payment of US$ [***]. (5) Submission of first NDA in U.S. or Europe and payment to MICHIGAN of a milestone payment of US$ [***]. (6) Approval of first NDA in U.S. or Europe and payment to MICHIGAN of a milestone payment of US$ [***]. Each of the aforementioned milestone payments shall be creditable against royalties due under Paragraph 4.2 hereof, subject to Paragraphs 4.7 and 4.8. 8. SUBLICENSING. 8.1 LICENSEE has the exclusive right to grant sublicenses of its rights under Article 3 above to Affiliates and Sublicensees, to make, have made, import, use, market, offer for sale and sell, in the Territory, Products designed and marketed solely for use in the Field of Use. 8.2 LICENSEE shall, provide MICHIGAN with a copy of each sublicense agreement and each amendment thereto within ninety (90) days after execution thereof. 5 8.3 LICENSEE shall include in any sublicense granted under this Article 8 a provision that the sublicense terminates upon any termination of this Agreement subject to the protections of this Article 8. Upon termination of this Agreement, MICHIGAN may, in its sole discretion, ratify and maintain in full force and effect any sublicense(s) of the rights granted to Affiliates or Sublicensees under this Agreement. 8.4 LICENSEE shall require that all sublicenses: (1) be consistent with the terms and conditions of this Agreement; (2) contain the Sublicensee's or Affiliate's acknowledgments of MICHIGAN's rights in the TECHNOLOGY and Licensed Patents, and the disclaimer of warranty and limitation on MICHIGAN's liability, as provided by Article 12 below. (3) contain provisions under which the Sublicensee or Affiliate accepts duties at least equivalent to those accepted by the LICENSEE or expressly required of Sublicensees/Affiliates in the following paragraphs and articles: 5.3 duty to keep records 12.4 duty to avoid improper representations or responsibilities 13.1 duty to defend, hold harmless, and indemnify MICHIGAN 13.3 duty to maintain insurance 17 duty to control exports 19 duty to restrict the use of MICHIGAN's name 20 duty to properly mark product with Patent notices 8.5 LICENSEE shall cause every sublicense agreement to provide LICENSEE the right to assign its rights under the sublicense to MICHIGAN. Any such assignment is subject to the limitations of Article 15 herein and, to be effective, MICHIGAN must first accept such assignment in writing. 8.6 Treatment of Sublicenses in the Event of Termination of License Agreement 8.6.1 Upon termination of this Agreement or any relevant license granted in Paragraph 3.1, any sublicense agreement between LICENSEE and a Sublicensee or an Affiliate shall continue in force in accordance with its terms if all of the following conditions are met: (1) every sublicense agreement with a Sublicensee or Affiliate is consistent with the terms of this Agreement; (2) each sublicense agreement incorporates with full force and effect therein the 6 document attached hereto as Exhibit A (or the substance of the provisions thereof; any changes must be approved in writing by MICHIGAN); (3) said Sublicensee or said Affiliate is not then in default of its material obligations under its sublicense agreement; and (4) said termination of this Agreement occurs more than one year after the Effective Date. Any sublicense agreement that does not meet each of these conditions shall terminate concurrently with the termination of this Agreement or any relevant license granted under Paragraph 3.1 herein. 8.6.2 Alternatively to the procedure of Paragraph 8.6.1, any sublicense agreement between LICENSEE and a Sublicensee or Affiliate shall continue in force in accordance with its terms if said sublicense agreement has been approved by MICHIGAN before its execution, which approval shall not be unreasonably withheld. MICHIGAN shall provide, within thirty (30) business days, a written response to LICENSEE's request for such approval, which response may include requested changes to the sublicense agreement. LICENSEE shall make any such request in writing, which writing shall also state that MICHIGAN's response is required under this Agreement within thirty days of receipt by MICHIGAN. If MICHIGAN fails to respond to LICENSEE within said thirty (30) day period, then the sublicense agreement shall be deemed to have been approved by MICHIGAN. Any subsequent request for approval after changes have been made to address MICHIGAN's response shall be provided within ten (10) business days, and if none is given within said ten-day period, then the sublicense agreement shall be deemed to have been approved by MICHIGAN. 9. CONFIDENTIALITY; OWNERSHIP OF INTELLECTUAL PROPERTY. 9.1 The parties each recognize that the confidential and/or proprietary information of the other party and its affiliates, subsidiaries and third party contractees constitutes valuable information. Accordingly, each party agrees that it shall, during the term of this Agreement and for a period of five (5) years after the termination hereof for any reason, hold in confidence all confidential information of the other party (including this Agreement and the terms hereof and information included in Reports) and not disclose the same to any other person or entity except to the extent that it is necessary for such party to enforce its rights under this Agreement or if required by law or any governmental authority (including without limitation the FDA or SEC); provided, however, if any party shall be required by law to disclose any such confidential information to any other person, such party shall give reasonable written notice thereof to the other party and shall minimize such disclosure to the amount required. Notwithstanding the foregoing, either party may disclose confidential information of the other (a) to such party's attorneys, accountants and other professional advisors under obligation of confidentiality, (b) to such party's banks or other financial institutions for the purpose of raising capital or borrowing money or maintaining compliance with agreements, arrangements and understandings relating thereto, (c) to Affiliates and Sublicensees, (d) to prospective Sublicensees, prospective strategic 7 partners or prospective collaborators, if such person or entity agrees in writing to maintain the confidentiality of such confidential information, (e) to any person who proposes to purchase or otherwise succeed, by merger, operation of law, or otherwise, to all of such party's right, title and interest in, to and under the Agreement, if such person agrees in writing to maintain the confidentiality of such confidential information, (f) to the extent it is or becomes publicly available through no fault of the receiving party, (g) to the extent it can be demonstrated that it was independently developed by the receiving party without use of or reliance upon the confidential information of the disclosing party, or (h) to the extent it was provided to the receiving party by a third party who receiving party reasonably believes is not subject to confidentiality obligations with respect to such information. The standard of care required to be observed hereunder shall be not less than the degree of care that each party uses to protect its own information of a confidential nature. All confidential information that is disclosed in writing shall be identified as confidential. MICHIGAN shall be entitled to aggregate financial data from this Agreement, including revenue information, with financial data from other MICHIGAN licenses for public reporting purposes as long as MICHIGAN does not explicitly or implicitly identify LICENSEE, the Licensed Patents or Products in connection with such reporting, unless required to be disclosed by law; if required to be disclosed by law, MICHIGAN shall give reasonable written notice thereof to LICENSEE and shall minimize such disclosure to the amount required. 9.2 LICENSEE acknowledges MICHIGAN's representation of ownership interest in all Licensed Patents. 9.3 LICENSEE or Affiliates might engage MICHIGAN staff as employees or consultants to LICENSEE or Affiliates during the time of their employment with MICHIGAN. Where any material invention (whether or not patentable), discovery or computer software is conceived or reduced to practice in whole or in part by inventors acting as employees of or consultants to LICENSEE or Affiliates, who are or were employees at MICHIGAN at the time of such creation, then provided that MICHIGAN or such employee of MICHIGAN had informed LICENSEE in writing of such employment status with MICHIGAN, LICENSEE shall disclose to MICHIGAN the nature of the invention, discovery or computer software, the circumstances of its conception and reduction to practice, and the persons constituting the group of inventors, so that each Party may make a good faith determination of ownership of the invention. The current obligations of such MICHIGAN employees to MICHIGAN relating to intellectual property may be found at the following web page: www.techtransfer.umich.edu/invent/invent.html. This Agreement does not supercede obligations of such MICHIGAN employees to MICHIGAN relating to intellectual property. 10. PATENT APPLICATIONS AND MAINTENANCE. 8 10.1 During the term of this Agreement, LICENSEE shall be responsible for all aspects of filing, prosecuting, and maintaining Licensed Patents, including foreign filings and Patent Cooperation Treaty filings, except to the extent discussed below. The Parties agree to jointly select patent counsel in good faith within sixty (60) days of the Effective Date, and any change in patent counsel is subject to prior approval by both Parties in good faith. Patent counsel shall be instructed to treat MICHIGAN and Esperion as clients, and shall be instructed to notify both Parties immediately if it receives any conflicting instructions from the Parties. In the event of any conflict between LICENSEE and MICHIGAN as to the subject matter of this agreement, any patent counsel that has at any time been retained by the Parties under this Article shall not represent or counsel either Party with respect to such conflict only. Counsel selected under this Article shall provide the same scope of representation to each Party with respect to the subject matter of this Agreement. 10.2 Each Party shall promptly notify the other Party of all material information sent by or received by it relating to the filing, prosecution and maintenance of Licensed Patents, including any lapse, revocation, surrender, invalidation or abandonment of any of the Licensed Patents. Patent counsel shall be instructed to promptly provide the same information and documents (including attorney billing information) to each Party relating to the prosecution of the Licensed Patents. If a Party is designated by selected counsel or any other party on correspondence as an addressee or as being carbon copied, the other Party can rely on that as satisfying the notice provisions in this Article. MICHIGAN and LICENSEE shall perform all actions and execute or cause to be executed all documents necessary to support such filing, prosecution, or maintenance under this Article, including without limitation providing copies of all documents necessary to establish or corroborate inventorship, conception, or reduction to practice of inventions. 10.3 LICENSEE shall inform MICHIGAN in advance of all significant actions that it intends to undertake concerning the prosecution and maintenance of the Licensed Patents. In addition, LICENSEE shall not alter the scope of patent coverage, or take any action reasonably construed as affecting the validity or enforceability, of such patents without notice to, and express approval by, MICHIGAN of each action (such approval being either written or oral with written confirmation). MICHIGAN shall respond to such notices from LICENSEE as soon as reasonably possible, but in any event if MICHIGAN does not disapprove of any proposed action within thirty (30) days after notice from LICENSEE, such proposed action shall be considered to be approved by MICHIGAN. If exigent circumstances exist so as to reasonably require a more immediate response from MICHIGAN, LICENSEE shall notify the designee of Paragraph 10.4 below by both telephone and in writing (which writing may be a short summary of the issue), and the Parties shall work in good faith to resolve the issue. Each Party shall use reasonable efforts to allow a reasonable time for the other Party to review and comment upon the information noted in this Article, and each Party shall promptly respond to requests for input. Both Parties shall have access to the selected patent counsel to discuss patent prosecution strategy for the Licensed Patents, but MICHIGAN shall not unreasonably contact the selected patent counsel so as to 9 create excessive patent costs. In this regard, the Parties shall make all reasonable efforts to coordinate their discussions with selected patent counsel so that each Party participates in the discussions that are requested by MICHIGAN. Any patent fees or costs resulting from or arising out of MICHIGAN's delay beyond the time periods specified herein in responding to LICENSEE's notices or requests shall be paid by MICHIGAN. 10.4 Documentary materials will be provided to the Parties at the addresses noted in Article 21 unless designated otherwise in writing. For purposes of Article 10, email communications to a designated contact person will satisfy the written or documentary notice/copying/request requirements, except to the extent hard copies of attachments are necessary. Each Party hereby initially designates for itself the following contact person for patent matters: (1) for LICENSEE: General Counsel, telephone 734-222-1830, [***]; (2) for MICHIGAN: [***] with a copy to [***]. Any change in the contact person information for patent matters may be effected by written notice to the other party in accordance with Article 21. 10.5 LICENSEE may in its sole discretion decide to refrain from or to cease prosecuting or maintaining any of the Licensed Patents, including any foreign filing or any Patent Cooperation Treaty filing. If LICENSEE makes any such decision, LICENSEE shall notify MICHIGAN in a writing that also notes any applicable deadline, in reasonably sufficient time to permit MICHIGAN at its sole discretion to continue such prosecution or maintenance at MICHIGAN's expense. If MICHIGAN elects to continue such prosecution or maintenance, LICENSEE shall execute such documents and perform such acts at MICHIGAN's expense as may be reasonably necessary for MICHIGAN to so continue such prosecution or maintenance. Any such patents, patent applications, or patents issuing from such applications shall be excluded from the definition of Licensed Patents herein. 10.6 Beginning on the Effective Date, LICENSEE shall be responsible for and timely pay all reasonable costs of prosecuting and maintaining the Licensed Patents during the term of and in accordance with this Agreement, except to the extent disputed in good faith (in which case LICENSEE shall resolve the dispute with patent counsel) or as otherwise expressly provided in this Agreement. Without LICENSEE's approval and except as caused to be incurred by LICENSEE, LICENSEE shall not be required to pay for any other patent expenses for work performed by counsel other than the patent counsel (or its designee, including foreign patent counsel) selected in accordance with Paragraph 10.1. Upon execution of this Agreement, LICENSEE shall reimburse MICHIGAN $[***] for patent prosecution costs MICHIGAN has incurred prior to Effective Date. LICENSEE will not reimburse MICHIGAN for any further patent costs incurred prior to the Effective Date. Any failure by LICENSEE to timely pay for reasonable costs of patent prosecution, except to the extent such costs are disputed in good faith or as otherwise expressly 10 provided in this Agreement, shall be subject to the notice and cure provisions of Paragraph 14.3. LICENSEE may credit patent expenses paid directly to patent counsel or reimbursed to MICHIGAN against annual license maintenance fees. 10.7 The Parties agree to negotiate in good faith as to any further terms necessary for carrying out patent prosecution and maintenance. If there is any dispute as to patent prosecution issues, the Parties agree to use their best efforts to resolve such disputes on an expedited basis through good faith business negotiations. The parties shall meet in person as soon as possible in an attempt to resolve the dispute. Efforts at resolution shall be in good faith but neither party shall be obligated to resolve the dispute. The parties shall ensure that its representatives at the meetings are knowledgeable about this Agreement and the facts underlying the dispute, and have corporate authority to resolve the dispute at the meeting (s). 11. INFRINGEMENT. 11.1 During the term of this Agreement, LICENSEE has the first option to police the Licensed Patents and Products against infringement by other parties within the Territory and the Field of Use. This right to police includes defending any action for declaratory judgment of noninfringement or invalidity; and prosecuting, defending or settling all infringement and declaratory judgment actions at its expense and through counsel of its selection, except that LICENSEE shall make any such settlement only with the advice and consent of MICHIGAN. MICHIGAN shall provide reasonable assistance to LICENSEE with respect to such actions, but only if LICENSEE reimburses MICHIGAN for reasonable out-of-pocket expenses incurred in connection with any such assistance rendered at LICENSEE's request. If LICENSEE elects to institute any such action or suit, MICHIGAN agrees to be named as a nominal party therein. MICHIGAN retains the right to participate, with counsel of its own choosing and at its own expense, in any action under this Paragraph 11.1. LICENSEE has full authority to settle on such terms as LICENSEE determines. 11.2 If LICENSEE institutes an action for infringement of a Licensed Patent or defends a declaratory judgment or other action with respect to a Licensed Patent and receives settlement payments or damages awarded, LICENSEE may first recover actual outside attorney fees and other direct, out-of-pocket litigation expenses (not to include any compensation paid to employees of LICENSEE or Affiliates) paid and unrecovered by LICENSEE and shall pay to MICHIGAN [***]% of any remaining such receipts. If LICENSEE has paid or pays an annual fee to MICHIGAN under Paragraph 4.5 in the same year LICENSEE receives a payment or award as set out above, then LICENSEE may credit that annual fee against the share of the payment or award otherwise due to MICHIGAN, exactly as if that share represented additional royalties due from LICENSEE. 11 11.3 If LICENSEE fails to take action to abate any alleged infringement of a Licensed Patent within sixty (60) days of a request by MICHIGAN to do so (or within a shorter period if required to preserve the legal rights of MICHIGAN under the laws of any relevant government or political subdivision thereof), then MICHIGAN has the right to take such action (including prosecution of a suit) at its expense and LICENSEE shall use reasonable efforts to cooperate in such action, at MICHIGAN's expense. If MICHIGAN elects to institute any such action or suit, LICENSEE agrees to be named as a nominal party therein. LICENSEE retains the right to participate, with counsel of its own choosing and at its own expense, in any action under this Paragraph 11.3. MICHIGAN has full authority to settle on such terms as MICHIGAN determines, except that MICHIGAN shall not reach any settlement whereby it licenses a third party under any Licensed Patents in the Territory and the Field of Use without the consent of LICENSEE, which consent LICENSEE can withhold for any reason. If MICHIGAN institutes an action for infringement of a Licensed Patent or defends a declaratory judgment or other action with respect to a Licensed Patent and receives settlement payments or damages awarded, MICHIGAN may first recover actual outside attorneys fees and other direct, out-of-pocket litigation expenses (not to include any compensation paid to students, faculty or employees of MICHIGAN) paid and unrecovered by MICHIGAN and shall pay to LICENSEE [***]% of any remaining such receipts. 11.4 LICENSEE and MICHIGAN shall promptly notify the other party in writing in detail of the discovery of any allegation by a third party of infringement resulting from the practice of Licensed Patents in the Field of Use, and of the initiation of any legal action by LICENSEE or by any third party with regard to any alleged infringement or noninfringement. LICENSEE and MICHIGAN shall in a timely manner keep the other party informed and provide copies to the other party of all documents regarding all such proceedings or actions instituted by LICENSEE or MICHIGAN. 12. REPRESENTATIONS AND WARRANTIES; LIMITATION ON MICHIGAN'S LIABILITY. 12.1 MICHIGAN, including its Regents, fellows, officers, employees and agents, makes no representations or warranties that any Licensed Patent is or will be held valid, or that the manufacture, importation, use, offer for sale, sale or other distribution of any Products will not infringe upon any patent or other rights not included in the Licensed Patents. If substantial coverage of one or more issued Licensed Patent(s) is subsequently determined to be invalid, MICHIGAN shall refund to LICENSEE at least a portion of any annual maintenance fees actually paid by LICENSEE, such amounts to be determined in good faith jointly by the Parties taking into consideration at least the territory of such Licensed Patent and the scope of coverage lost. 12.2 MICHIGAN, INCLUDING ITS REGENTS, FELLOWS, OFFICERS, EMPLOYEES AND AGENTS, MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF 12 MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO DESIGN, DEVELOPMENT, MANUFACTURE, USE, SALE OR OTHER DISPOSITION BY LICENSEE, AFFILIATES OR SUBLICENSEES OF PRODUCTS. LICENSEE, INCLUDING ITS AFFILIATES AND SUBLICENSEES, MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND TO MICHIGAN, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO DESIGN, DEVELOPMENT, MANUFACTURE, USE, SALE OR OTHER DISPOSITION OF PRODUCTS. 12.3 MICHIGAN DOES NOT ASSUME ANY RISK AS TO PERFORMANCE OF PRODUCTS. Except in the event of fraud, recklessness or willful misconduct, in no event shall MICHIGAN, including its Regents, fellows, officers, directors, subsidiaries, employees and agents, be responsible or liable for any direct, indirect, special, incidental, or consequential damages or lost profits or other economic loss or damage with respect to Products only, to LICENSEE, Affiliates, or Sublicensees regardless of legal theory. The above limitations on liability apply even though MICHIGAN, its Regents, fellows, officers, directors, subsidiaries, employees or agents may have been advised of the possibility of such damage. Except as provided in Paragraph 13.1, or in the event of fraud, recklessness or willful misconduct, in no event shall LICENSEE, including its officers, directors, subsidiaries, employees and agents, be responsible for any direct, indirect, special, incidental, or consequential damages or lost profits or other economic loss or damages with respect to Products only, to MICHIGAN, regardless of legal theory. The above limitations on liability apply even though LICENSEE, its officers, directors, subsidiaries, employees or agents may have been advised of the possibility of such damage. The Parties understand and agree that the preceding two subparagraphs do not apply to causes of action arising from any alleged breach of this Agreement. 12.4 LICENSEE shall not, and shall require that its Affiliates and Sublicensees do not, make any statements, representations or warranties whatsoever to any person or entity, or accept any liabilities or responsibilities whatsoever from any person or entity that are inconsistent with any disclaimer or limitation included in this Article 12. 12.5 MICHIGAN represents that (1) it has all right, power, and authority to grant the rights herein; (2) it has not granted, and will not during the term of this Agreement grant, an option, license or other right to any other party to the Licensed Patents or TECHNOLOGY or otherwise in conflict with this Agreement; (3) it has obtained all consents and approvals necessary to enter into this Agreement, and no other action by or with respect to, or filing with, any governmental authority or any other entity is required in connection with the execution, delivery, and performance by MICHIGAN of 13 this Agreement; (4) this Agreement constitutes a valid and binding agreement of MICHIGAN, enforceable against MICHIGAN, in accordance with its terms; (5) to its knowledge, its staff and employees have assigned their entire right, title, and interest in the Licensed Patents that exist as of the Effective Date to MICHIGAN and MICHIGAN will obtain or assist LICENSEE in obtaining any remaining assignments of Licensed Patents that exist as of the Effective Date and all assignments of Licensed Patents that arise after the Effective Date; and (6) MICHIGAN has caused to be made available to LICENSEE copies of its files as of the Effective Date relating to the prosecution of the Licensed Patents. 13. INDEMNITY; INSURANCE. 13.1 LICENSEE shall defend, indemnify and hold harmless and shall require its Affiliates and Sublicensees to defend, indemnify and hold harmless MICHIGAN, its Regents, fellows, officers, employees and agents (collectively, the "MICHIGAN Parties"), for and against any and all claims, demands, damages, losses, and expenses of any nature (including reasonable attorneys' fees and other litigation expenses), resulting from death, personal injury, illness, property damage, economic loss or products liability to the extent resulting from arising from, or in connection with, any of the following, except to the extent of negligence or willful misconduct proved on the part of any of the MICHIGAN Parties: (1) Any manufacture, use, sale or other disposition by LICENSEE, Affiliates, Sublicensees of Products; and (2) The use by any person of Products made, used, sold or otherwise distributed by LICENSEE, Affiliates or Sublicensees. 13.2 MICHIGAN is entitled to participate at its option and expense through counsel of its own selection and at its own expense, and may join in any legal actions related to any such claims, demands, damages, losses and expenses under Paragraph 13.1 above. 13.3 Prior to the First Commercial Sale of any Product by LICENSEE or an Affiliate, LICENSEE shall purchase and maintain in effect a policy of product liability insurance. Prior to the commercial sale of any Product by a Sublicensee, LICENSEE shall require that the Sublicensee purchase and maintain in effect a policy of product liability insurance. Each such insurance policy must provide reasonable coverage for all claims with respect to any Products manufactured, used, sold, licensed or otherwise distributed by LICENSEE and Affiliates -- or, in the case of a Sublicensee's policy, by said Sublicensee -- and must specify the MICHIGAN Parties as an additional insured. LICENSEE shall furnish certificate(s) of such insurance to MICHIGAN, upon request. 14. TERM AND TERMINATION. 14 14.1 This Agreement will become effective on its Effective Date and, unless terminated under another, specific provision of this Agreement, will remain in effect until and terminate upon the last to expire of Licensed Patents. 14.2 Upon any termination of this Agreement, and except as provided herein to the contrary, all rights and obligations of the Parties hereunder shall cease, except as follows: (1) Obligations to pay royalties and other sums accruing hereunder up to the day of such termination; (2) MICHIGAN's rights to inspect books and records as described in Article 5, and LICENSEE's obligations to keep such records for the required time; (3) Obligations to hold harmless, defend and indemnify MICHIGAN and its Regents, fellows, officers, employees and agents under Article 13; (4) Any cause of action or claim of LICENSEE or MICHIGAN accrued or to accrue because of any breach or default by the other Party hereunder; (5) The general rights, obligations, and understandings of Articles 12, 17, 19, 28, 29 and 30; and (6) All other terms, provisions, representations, rights and obligations contained in this Agreement that by their sense and context are intended to survive until performance thereof by either or both Parties. 14.3 If LICENSEE at any time defaults in the payment of any royalty or the making of any report hereunder, or intentionally makes any materially false report, or if either Party commits any material breach of any covenant or promise herein contained, and fails to remedy any such default, breach or report within sixty (60) days after written notice thereof by the other Party specifying such default, then that other Party may, at its option, terminate this Agreement and the license rights granted herein by notice in writing to such effect. The cure period shall be extended for a reasonable period to be agreed upon by the Parties if the breaching Party has made good faith efforts to remedy the breach, but has not completed the remediation. Any such termination is without prejudice to either Party's other legal rights for breach of this Agreement. 14.4 LICENSEE may terminate this Agreement without cause by giving MICHIGAN a notice of termination, which shall include a statement of the reasons, whatever they may be, for such termination and the termination date established by LICENSEE, which date must not be sooner than sixty (60) days after the date of the notice. The Parties acknowledge that such notice is final and, immediately upon receipt of such notice of termination, MICHIGAN no longer has any restrictions that would have existed pursuant to this agreement on its rights to enter into agreements with others for the manufacture, import, sale, offer for sale, and/or use of Products. 15 14.5 MICHIGAN may immediately terminate this Agreement upon (a) the adjudication by a court of competent jurisdiction of the bankruptcy or insolvency of LICENSEE or the entry of an order or decree for the liquidation or dissolution of LICENSEE; (b) the filing of any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of LICENSEE; or (c) the filing of any involuntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of LICENSEE which is not dismissed within one hundred twenty (120) days of the date on which it is filed or commenced. 15. ASSIGNMENT. Except as permitted in this paragraph, any attempt to assign this Agreement without the consent of the other party, which consent shall not be unreasonably withheld, is void from the beginning. LICENSEE may assign this Agreement pursuant to a merger, to a purchaser of all or substantially all of LICENSEE's business/assets or a purchaser of all the assets relating to the Licensed Patents. No assignment is effective until the intended assignee agrees in writing to accept all of the terms and conditions of this Agreement. LICENSEE shall notify MICHIGAN in writing within ninety (90) days of pledging any of the license rights granted in this Agreement as security for any creditor. 16. REGISTRATION AND RECORDATION. 16.1 If the terms of this Agreement, or any assignment or license under this Agreement are or become such as to require that the Agreement or license or any part thereof be registered with or reported to a national or supranational agency of any area in which LICENSEE, Affiliates or Sublicensees would do business, LICENSEE will, at its expense, undertake such registration or report. Prompt notice and appropriate verification of the act of registration or report or any agency ruling resulting from it will be supplied by LICENSEE to MICHIGAN. 16.2 LICENSEE shall also carry out, at its expense, any formal recordation of this Agreement or any license herein granted that the law of any country requires as a prerequisite to enforceability of the Agreement or license in the courts of any such country or for other reasons, and shall promptly furnish to MICHIGAN appropriately verified proof of recordation. 17. LAWS AND REGULATIONS OF THE UNITED STATES; EXPORT. 17.1 This Agreement is subject to all United States laws and regulations now or hereafter applicable to the subject matter of this Agreement. 17.2 LICENSEE shall comply, and shall require its Affiliates and Sublicensees to comply, with all provisions of any applicable laws, regulations, rules and orders relating to the license herein granted and to the testing, production, importation, transportation, export, packaging, labeling, sale or use of Products, or otherwise applicable to LICENSEE's or its Affiliates' or Sublicensees' activities hereunder. LICENSEE shall 16 obtain, and shall require its Affiliates and Sublicensees to obtain, such written assurances regarding export and re-export of technical data (including Products made by use of technical data) as the Office of Export Administration Regulations may require, and LICENSEE hereby gives such written assurances as those Regulations may require to MICHIGAN. 18. BANKRUPTCY. If during the term of this Agreement, LICENSEE makes an assignment for the benefit of creditors, or if proceedings in voluntary or involuntary bankruptcy are instituted on behalf of or against LICENSEE, or if a receiver or trustee is appointed for the property of LICENSEE, MICHIGAN may, at its option, terminate this Agreement and revoke the license herein granted by written notice to LICENSEE. 19. USE OF MICHIGAN'S NAME. LICENSEE agrees to refrain from using and to require Affiliates and Sublicensees to refrain from using the name of MICHIGAN (or any adaptation thereof, including, but not limited to, the "University of Michigan," "UM," "U of M," and "Michigan") in publicity or advertising without the prior written approval of MICHIGAN, which shall be rendered as soon as reasonably possible, and shall not be unreasonably withheld. Reports in scientific literature, presentations of joint research and development work and disclosures required by applicable law or regulation are not publicity. Requests for approval shall be sent by facsimile to MICHIGAN at the fax number indicated below. 20. PRODUCT MARKING. LICENSEE agrees to mark, and to require Affiliates and Sublicensees to mark Products with legally sufficient patent notices to the extent feasible for the Product. 21. NOTICES. Any notice, request, report or payment required or permitted to be given or made under this Agreement by either Party must be given by sending such notice by hand delivery, recognized courier, fax (if confirmed by regular mail) or certified or registered mail, return receipt requested, to the address set forth below or such other address as such Party specifies by written notice given in conformity herewith. Any notice not so given is not valid until actually received, and any notice given in accordance with the provisions of this Paragraph is effective when mailed. 17 To MICHIGAN: The University of Michigan Technology Management Office Wolverine Tower, Room 2071 3003 S. State Street Ann Arbor, MI 48109-1280 Fax: [***] Attn: File No. 1855 To LICENSEE: Esperion Therapeutics, Inc. 3621 South State Street 695 KMS Place Ann Arbor, MI 48108 Attention: Roger S. Newton, Ph.D. Fax: [***] With copy to the LICENSEE's General Counsel, at the same address, fax no. [***]. 22. INVALIDITY. If a court of competent jurisdiction finds any term, provision, or covenant of this Agreement invalid, illegal or unenforceable, that term will be curtailed, limited or deleted, but only to the extent necessary to remove the invalidity, illegality or unenforceability, and without in any way affecting or impairing the remaining terms, provisions and covenants. 23. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire understanding of the Parties with respect to the matter contained herein and supersedes in full all prior written and oral agreements, understandings, proposals, promises and representations of the parties concerning the Agreement and the terms applicable hereto. The Parties may, from time to time during the continuance of this Agreement, modify, vary or alter any of the provisions of this Agreement, but only by an instrument duly executed by authorized officials of both Parties hereto. 24. WAIVER. No waiver by either Party of any breach of this Agreement, no matter how long continuing or how often repeated, is a waiver of any subsequent breach thereof, nor is any delay or omission on the part of either Party to exercise any right, power, or privilege hereunder a waiver of such right, power or privilege. 18 25. ARTICLE HEADINGS. The Article headings herein are for purposes of convenient reference only and do not define or modify the terms written in the text of this Agreement. 26. NO AGENCY RELATIONSHIP. The relationship between the Parties is that of independent contractor and contractee. Neither Party is an agent of the other in connection with the exercise of any rights hereunder, and neither has any right or authority to assume or create any obligation or responsibility on behalf of the other. 27. FORCE MAJEURE. Neither Party hereto is in default of any provision of this Agreement for any failure in performance resulting from acts or events beyond the reasonable control of such Party, such as Acts of God, acts of civil or military authority, civil disturbance, war, strikes, fires, power failures, natural catastrophes or other "force majeure" events. 28. GOVERNING LAW. The law of the State of Michigan governs this Agreement and the relationships between the Parties in all respects (notwithstanding any provisions governing conflict of laws under such Michigan law to the contrary), except that, for patents, the law of the country that grants the patent determines questions affecting the construction and effect of such patent. 29. JURISDICTION AND FORUM. The Parties hereby consent to the jurisdiction of the courts of the State of Michigan over any dispute concerning this Agreement or the relationship between the Parties. Should LICENSEE bring any claim, demand or other action against MICHIGAN, its Regents, fellows, officers, employees or agents, arising out of this Agreement or the relationship between the Parties, LICENSEE agrees to bring said action only in the Michigan Court of Claims. 30. DEFINITIONS. 30.1 "Affiliate(s)" means any individual, corporation, partnership, proprietorship or other entity controlled by, controlling, or under common control with LICENSEE through equity ownership, ability to elect directors, or by virtue of a majority of overlapping directors, and includes any individual, corporation, partnership, proprietorship or other entity directly or indirectly owning, owned by or under common ownership with LICENSEE to the extent of fifty percent (50%) or more of the voting shares, including shares owned beneficially by such party. 30.2 "Field of Use" means all uses of Products and the TECHNOLOGY. 19 30.3 "First Commercial Sale" means the first sale of any Product by LICENSEE or an Affiliate or Sublicensee, other than sale of a Product for use in trials, such as field trials or clinical trials, being conducted to obtain FDA or other governmental approvals to market Products. 30.4 "Gross Sublicensing Revenues" means all consideration received by LICENSEE and its Affiliates pursuant to any sublicense to a Sublicensee. Gross Sublicensing Revenues shall not include amounts received by LICENSEE and its Affiliates for the fair market value of research support or product development performed for a sublicensee, or for the fair market value of equity investments. 30.5 "Licensed Patent(s)" means (a) all U.S. and foreign patents and patent applications, including those patents listed in Exhibit B attached hereto, in which MICHIGAN has or acquires a property interest, which cover an invention disclosed in the TECHNOLOGY; and/or (b) all foreign equivalent patent applications and Patent Cooperation Treaty filings based upon and supported by any application filed pursuant to (a); and/or (c) all patents/patent claims issuing from the applications in (a) or (b). 30.6 "Net Sales" shall mean the United States dollar equivalent of the proceeds received by LICENSEE from the sale of Products, less (A) amounts repaid or credited by reason of defects, returns, rejections or allowances; (B) sales taxes, excise taxes, value added taxes and customs duties paid, absorbed or allowed; (C) customary commissions and other amounts paid or allowed to independent sales representatives, distributors, brokers or agents; (D) shipping charges; (E) trade and quantity discounts actually allowed (and taken) as customary in the trade; and (F) other deductions made in accordance with GAAP. Net Annual Sales shall not include (A) any transfer between LICENSEE and any of its Affiliates or Sublicensees, or (B) any transfer of any Products used in testing, preclinical or clinical trials or as marketing samples to develop or promote the Products. Net Sales does not include amounts received by Sublicensees. 30.7 "Parties", in singular or plural usage as required by the context, means LICENSEE and/or MICHIGAN. 30.8 "Product(s)" means any product(s), including compositions and methods, whose manufacture, use, importation, offer for sale or sale in any country would, but for this Agreement, comprise an infringement, including contributory infringement, of one or more Valid Claims in the country in which it is manufactured, used, imported, offered for sale, or sold. 30.9 "Royalty Period(s)" means the six-month periods ending on the last day of June and December of each year. 20 30.10 "Sublicensee(s)" means any person or entity, except an Affiliate, sublicensed by LICENSEE under this Agreement to make, have made, use, import, offer for sale or sell, in the Territory, Products designed and marketed for use in the Field of Use. 30.11 "TECHNOLOGY" means all invention disclosure forms and supporting documentation (including information, manufacturing techniques, data, designs or concepts) incorporated into MICHIGAN's Technology Management Office File No. 1855 [***]. 30.12 "Territory" means worldwide. 30.13 "Valid Claim(s)" means any claim(s) in an unexpired patent included within the Licensed Patents excepting only claims that: (1) a court or other governmental agency of competent jurisdiction has decided are unenforceable, unpatentable, or invalid, unappealable or unappealed within the time allowed for appeal; or (2) a reissue or disclaimer has rendered invalid or unenforceable. If in any country two or more such decisions conflict with respect to the validity of the same claim, the decision of the higher or highest tribunal controls; however, if the tribunals are of equal rank, then the decision or decisions upholding the claim prevails when the conflicting decisions are equal in number, and the majority of decisions prevails when the conflicting decisions are unequal in number. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate originals by their duly authorized officers or representatives. FOR ESPERION THERAPEUTICS, INC. FOR THE REGENTS OF THE UNIVERSITY OF MICHIGAN By /s/ Roger S. Newton By /s/ Kenneth J. Nisbet -------------------------------- ----------------------------------- (authorized representative) Kenneth J. Nisbet Director, UM Technology Transfer Typed Name Roger S. Newton ------------------------ Title President and CEO Date 9/20/01 ----------------------------- ---------------------------- Date 9/20/01 ------------------------------ 21 EXHIBIT A [Note: "Licensee" in this Exhibit A refers to Sublicensee of Esperion Therapeutics, Inc. Other capitalized terms have the same definition as provided in the License Agreement between Esperion Therapeutics, Inc. and the Regents of the University of Michigan (the "License Agreement".] (a) MICHIGAN, INCLUDING ITS REGENTS, FELLOWS, OFFICERS, EMPLOYEES AND AGENTS, MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO DESIGN, DEVELOPMENT, MANUFACTURE, USE, PERFORMANCE, SALE OR OTHER DISPOSITION BY LICENSEE, AFFILIATES OR SUBLICENSEES OF PRODUCTS. (b) MICHIGAN DOES NOT ASSUME ANY RISK AS TO PERFORMANCE OF PRODUCTS. Except in the event of fraud, recklessness or willful misconduct, in no event shall MICHIGAN, including its Regents, fellows, officers, directors, subsidiaries, employees and agents, be responsible or liable for any direct, indirect, special, incidental, or consequential damages or lost profits or other economic loss or damage with respect to Products, to Licensee, Affiliates, or Sublicensees regardless of legal theory. The above limitations on liability apply even though MICHIGAN, its Regents, fellows, its officers, directors, subsidiaries, employees or agents may have been advised of the possibility of such damage. This paragraph does not apply to causes of action arising from any alleged breach of this license agreement. (c) MICHIGAN, including its Regents, fellows, officers, employees and agents, make no representations or warranties that any Licensed Patent is or will be held valid or enforceable, or that the manufacture, importation, use, offer for sale, sale or other distribution of any Products will not infringe upon any patent or other rights not included in the Licensed Patents. (d) Licensee shall not, and shall require that its Affiliates and Sublicensees do not, make any statements, representations or warranties whatsoever to any person or entity, or accept any liabilities or responsibilities whatsoever from any person or entity that are inconsistent with any disclaimer or limitation included in this license. (e) Licensee shall defend, indemnify and hold harmless and shall require its Affiliates and Sublicensees to defend, indemnify and hold harmless MICHIGAN, its Regents, fellows, officers, employees and agents (collectively, the "MICHIGAN Parties"), for and against any and all claims, demands, damages, losses, and expenses of any nature (including attorneys' fees and other litigation expenses), resulting from death, personal injury, illness, property damage, economic loss or products liability arising from or in connection with, any of the following, except to the extent of negligence or willful misconduct proved on the part of any of the MICHIGAN Parties: (1) any manufacture, use, sale or other disposition by Licensee, Affiliates, Sublicensees of Products; and (2) the use by any person of Products made, used, sold, practiced, or otherwise distributed by Licensee, its Affiliates or its Sublicensees. 22 (f) As provided in Paragraph 8.6.1 of the License Agreement, in the event of termination of the License Agreement: Licensee shall pay MICHIGAN a royalty based upon Net Sales of Licensee and Affiliates of Licensee, according to Licensee's sublicense agreement with Esperion Therapeutics, Inc., but in any event no less than a royalty based upon the percent of Net Sales as specified in Paragraph 4.2 of the License Agreement, subject to the same terms as provided in Paragraphs 4.4, 4.6, 4.7, and 4.8 thereof. (g) As provided in Paragraph 8.6.1 of the License Agreement between MICHIGAN and Esperion Therapeutics, Inc., in the event of termination of said License Agreement: if Licensee, pursuant to its sublicense agreement with Esperion Therapeutics, Inc. has been granted the right to grant sublicenses under the Licensed Patents, then Licensee shall pay MICHIGAN a royalty based on sublicenses according to its sublicense agreement with Esperion Therapeutics, Inc., but in any event no less than a royalty of [***] percent ([***]%) of Gross Sublicensing Revenues of Licensee. (h) As provided in Paragraph 8.6.1 of the License Agreement between MICHIGAN and Esperion Therapeutics, Inc., in the event of termination of said License Agreement: Licensee shall pay MICHIGAN an annual license maintenance fee according to Licensee's sublicense agreement with Esperion Therapeutics, Inc., but in any event no less than the annual maintenance fees required by Paragraph 4.5 of the agreement between Esperion Therapeutics, Inc. and MICHIGAN, creditable as provided in said Paragraph 4.5. Licensee shall be further obligated to pay patent costs for the Licensed Patents in amounts equal to any payments that Esperion Therapeutics, Inc. would have made in accordance with Paragraph 10.6 of its agreement with MICHIGAN. With regard to the amounts due to MICHIGAN under this Paragraph (h), Licensee shall only be responsible for a pro rata share of such patent costs based on the total amounts payable by all licensees (former Sublicensees to Esperion Therapeutics, Inc.) under this same or similar provision. (i) As provided in Paragraph 8.6.1 of the License Agreement, in the event of termination of the License Agreement: To the extent that Licensee has been granted relevant rights from Esperion Therapeutics, Inc., Licensee will use commercially reasonable efforts to develop and commercialize at least one Product, and will substantially meet the requirements of the following milestones (to the extent the same have not already been met, or caused to have been met, by Esperion Therapeutics, Inc. or other licensees), with date requirements for each milestone after the first milestone to be determined in writing in good faith by the MICHIGAN and Licensee, using reasonable business judgment, upon satisfaction of the immediately previous milestone or maturation of the payment obligation therefor: (1) either (a) selection of recombinant PON (recPON) for development by September 1, 2003 or (b) pay MICHIGAN a milestone payment of US$ [***] by October 1, 2003. (2) IND submission in the U.S. or Europe or payment to MICHIGAN of a milestone payment of US$ [***] within 30 days of the date mutually determined by the parties. (3) Enrollment of first patient in a Phase II clinical trial and payment to MICHIGAN of a milestone payment of US$ [***]. 23 (4) Enrollment of first patient in a Phase III clinical trial and payment to MICHIGAN of a milestone payment of US$ [***]. (5) Submission of first NDA in U.S. or Europe and payment to MICHIGAN of a milestone payment of US$140,000. (6) Approval of first NDA in U.S. or Europe and payment to MICHIGAN of a milestone payment of US$ [***]. (j) With respect to payments under Paragraphs (f) through (i) herein, MICHIGAN shall provide the same credits to Licensee as it would have been required to provide to Esperion Therapeutics, Inc. under the License Agreement. (k) Licensee and any sublicensees shall obtain and maintain product liability insurance for the Technology, and shall name MICHIGAN as an additional insured. (l) MICHIGAN shall assume the obligations of Esperion Therapeutics, Inc. to Licensee under the Sublicense agreement, but MICHIGAN's obligations to Licensee shall not be interpreted by Licensee or Esperion Therapeutics, Inc. to extend beyond any obligation MICHIGAN had to Esperion Therapeutics, Inc. under the License Agreement. 24 EXHIBIT B [* * *] EXHIBIT C [* * *] -----END PRIVACY-ENHANCED MESSAGE-----